V CANAL OPERATION UNDER 1977 TREATY— PART 2 HEARINGS BEFORE THE SUBCOMMITTEE ON THE PANAMA CANAL OF THE COMMITTEE ON MERCHANT MARINE AND FISHERIES HOUSE OF REPRESENTATIVES NINETY-SIXTH CONGRESS FIRST SESSION ON H.R. 111, H.R. 454, H.R. 1511, H.R. 1716, H.R. 1958, H.R. 2522 PROVIDING A BASIS FOR THE EFFICIENT OPERATION OF THE PANAMA CANAL AND PROVIDING FOR THE RIGHTS AND RE- SPONSIBILITIES OF THE UNITED STATES UNDER THE 1977 TREATIES BETWEEN THE UNITED STATES AND PANAMA FEBRUARY 14, 15, 26, 28 ; MARCH 7, 13, 14, 1979— WASHINGTON, D.C. FEBRUARY 23, 24, 1979— BALBOA, CANAL ZONE Serial No. 96-2 Printed for the use of the Committee on Merchant Marine and Fisheries CANAL OPERATION UNDER 1977 TREATY— PART 2 HEARINGS BEFORE THE SUBCOMMITTEE ON THE PANAMA CANAL OF THE COMMITTEE ON MERCHANT MARINE AND FISHERIES HOUSE OF REPRESENTATIVES NINETY-SIXTH CONGRESS FIRST SESSION ON H.R. 111, H.R. 454, H.R. 1511, H.R. 1716, H.R. 1958, H.R. 2522 PROVIDING A BASIS FOR THE EFFICIENT OPERATION OF THE PANAMA CANAL AND PROVIDING FOR THE RIGHTS AND RE- SPONSIBILITIES OF THE UNITED STATES UNDER THE 1977 TREATIES BETWEEN THE UNITED STATES AND PANAMA FEBRUARY 14, 15, 26, 28 ; MARCH 7, 13, 14, 1979— WASHINGTON, D.C. FEBRUARY 23, 24, 1979— BALBOA, CANAL ZONE Serial No. 96-2 Printed for the use of the Committee on Merchant Marine and Fisheries U.S. GOVERNMENT PRINTING OFFICE 44-394 O WASHINGTON : 1979 COMMITTEE ON MERCHANT MARINE AND FISHERIES JOHN M. MURPHY, New York, Chairman THOMAS L. ASHLEY, Ohio JOHN D. DINGELL, Michigan WALTER B. JONES, North Carolina MARIO BIAGGI, New York GLENN M. ANDERSON, California E (KIKA) de la GARZA, Texas JOHN B. BREAUX, Louisiana GERRY E. STUDDS, Massachusetts DAVID R. BOWEN, Mississippi CARROLL HUBBARD, Jr., Kentucky DON BONKER, Washington LES AuCOIN, Oregon NORMAN E. DAMOURS, New Hampshire JAMES L. OBERSTAR, Minnesota WILLIAM J. HUGHES, New Jersey BARBARA A. MIKULSKI, Maryland DAVID E. BONIOR, Michigan DANIEL K. AKAKA, Hawaii MICHAEL OZZIE MYERS, Pennsylvania JOE WYATT, Texas MIKE LOWRY, Washington EARL HUTTO, Florida EDWARD J. STACK, Florida BRIAN DONNELLY, Massachusetts PAUL N. McCLOSKEY, Jr., California GENE SNYDER, Kentucky EDWIN B. FORSYTHE, New Jersey DAVID C. TREEN, Louisiana JOEL PRITCHARD, Washington DON YOUNG, Alaska ROBERT E. BAUMAN, Maryland NORMAN F. LENT, New York DAVID F. EMERY, Maine ROBERT K. DORNAN, California THOMAS B. EVANS, Jr., Delaware PAUL S. TRIBLE, Jr., Virginia ROBERT W. DAVIS, Michigan WILLIAM CARNEY, New York MELVIN H. EVANS, Virgin Islands Carl L. Perian, Chief of Staff Ernest J. Corrado, Chief Counsel Frances Still, Chief Clerk Jack E. Sands, Minority Counsel Subcommittee on Panama Canal CARROLL HUBBARD, Jr., Kentucky, Chairman DAVID R. BOWEN, Mississippi DAVID E. BONIOR, Michigan JOHN D. DINGELL, Michigan WALTER B. JONES, North Carolina MARIO BIAGGI, New York GLENN M. ANDERSON, California MIKE LOWRY, Washington ROBERT E. BAUMAN, Maryland DAVID C. TREEN, Louisiana ROBERT K. DORNAN, California WILLIAM CARNEY, New York PAUL N. McCLOSKEY, Jr., California (Ex Officio) JOHN M. MURPHY, New York (Ex Officio) Terrence W. Modglin, Staff Director Bernard Tannenbaum, Special Counsel W. Merrill Whitman, Consultant Kenneth C. Fendley, Professional Staff (II) CONTENTS Page Hearings held — February 14, 1979, Washington, D.C 1 February 15, 1979, Washington, D.C 377 February 23, 1979, Balboa, C.Z 563 February 24, 1979, Balboa, C.Z 667 February 26, 1979, Washington, D.C 847 February 28, 1979, Washington, D.C 973 March 7, 1979, Washington, D.C 1329 March 13, 1979, Washington, D.C 1375 March 14, 1979, Washington, D.C 1607 Text of— H.R. Ill 12 H.R. 454 109 H.R. 1511 165 H.R. 1716 176 H.R. 1958 239 H.R. 2522 247 Reports from — H.R. Ill: Army Department 103 American Battle Monuments Commission 250 Canal Zone Government 252 Postal Service 276 Smithsonian Institution 277 State Department 107 Transportation Department 282 H.R. 454: Army Department 160 American Battle Monuments Commission 250 Postal Service 276 Smithsonian Institution 277 State Department 163 H.R. 1511: Army Department 168 Canal Zone Government 170 Smithsonian Institution 277 State Department 174 H.R. 1716: Army Department 160, 237 American Battle Monuments Commission 250 Canal Zone Government 252 Postal Service 276 Smithsonian Institution 277 State Department 238 Transportation Department 282 H.R. 1958: State Department 244 H.R. 2522: State Department 279 An analysis of H.R. Ill, by W. Merrill Whitman 285 Statement of — Alexander, Hon. Clifford L., Jr., Secretary of the Army 885 Aim, Al, Assistant Secretary of Department of Energy 1322 Anderson, Luis, secretary general, AFSCME Local 907 800 Baglien, David, first vice president, AFGE Local 14 733 Benkert, W. M., president of the American Institute of Merchant Shipping . 1555 HID IV Statement of — Continued p age Blake, Robert O., International Institute for Environment and Develop- ment, and Chairman, Panama Canal Environmental Task Force 1366 Prepared statement 1373 Blaylock, Kenneth T., national president, American Federation of Govern- ment Employees 753 Blenman, Samuel, president, Pariaiso Civic Council 635 Blocklin, Hans, vice president, Lykes Bros. Steamship Co., Inc 1559 Boggs, Hon. Lindy, a Representative in Congress from the State of Louisi- ana 1447 Bouche, R. Georges, first vice president, Pacific Civic Council 614 Brandes, Ely M., president, International Research Associates 1450 Breecher, Charles H., jurist 1330 Prepared statement 1357 Burke, Barbara, legislative assistant, American Institute of Merchant Shipping 1555 Campanella, Dr. Paul, JRB Associates 1635 Campbell, Dr. Alan K., Director, Office of Personnel Management 1176 Carswell, Hon. Robert, Deputy Secretary of the Treasury 942 Challinor, David, Assistant Secretary for Science, Smithsonian Institution . 1168 Cheville, Dr. Richard, president, Pacific Civic Council 614 Chinn, Maj. David, Treaty Coordinator, USA TSA 838 Christopher, Warren, Deputy Secretary of State 377, 1657 Clark, Capt. J. W., president of Delta Steamship Lines, Inc 1559 Prepared statement 1561 Cochran, Joseph E., civilian personnel officer, 193D Infantry Brigade 827 Craig, Del. commissary officer, USA Troop Support Agency 838 Davis, Hon. Mendel J., a Representative in Congress from the State of South Carolina 1449 De Castro, Woodrow, De Castro and Robles 655 Dolvin, Welborn G., Department of Defense Representative for Panama Canal Treaty Affairs 479 Dornan, Hon. Robert K., a Representative in Congress from the State of California 407 Douglass, Daniel D., Canal Zone Bar Association 655 Drummond, William R., president, Canal Zone Police Union, AFGE Lodge, Local 1896 812 Duncan, Charles W., Jr., Deputy Secretary of Defense 479 Dunworth, James, General Counsel's Office 655 Edwards, Hon. Jack, a Representative in Congress from the State of AloVjorrio 1449 Faulkner, Capt. S. V., branch agent (I.6.M.M. & P.), Atlantic and Gulf Membership Group, Panama Canal and Caribbean Branch 667, 673 Filos-Diaz, Dr. Jose A., assistant chief, Pulmonary Service and Allergy, Gorgas Hospital 831 Prepared statement 832 Flood, Hon. Daniel J., a Representative in Congress from the State of Pennsylvania 358 Foy, H. Miles, Attorney-Advisor, Office of Legal Counsel, Department of Justice 1290 Gaskins, Darius, Deputy Assistant Secretary for Policy and Evaluation, Department of Energy 1322 Ginder, Don B., civilian personnel advisor to Commander Southcom and assistant civilian personnel officer, 193D Infantry Brigade (CZ) 827 Gleason, Thomas W., president, International Longshoremen's Association, AFL-CIO 1581 Appendix 1590 Gordon, Clarence, president, Santa Cruz Civic Council 635 Graham, Alfred J., president, Central Labor Union-Metal Trades Council 667,673 Gravel, Hon. Mike, a U.S. Senator from the State of Alaska 1670 Prepared statement 1674 Haar, Herbert R., Jr., associate port director, Port of New Orleans 1450 Prepared statement 1456 Hall, Hon. Sam B., Jr., a Representative in Congress from the State of Texas 366 Hamilton, Frank, area counsel, I. O. M. M. & P 667, 705 Hannah, Kenneth, president, Cristobal-Margarita-Brazos Heights Civic Council 645 Prepared statement 652 Statement of— Continued Pa e e Hansell, Herbert J., Legal Adviser, Department of State 464 Hansen, Hon. George, a Representative in Congress from the State of Idaho 328 Haynes, Seabert, president, Pedro Miguel Civic Council 635 Hendrickson, John, Environmental Adviser and Senior Staff Officer of the U.S. Section of the International Joint Commission 1628, 1635 Henry, Phillip, president, Rainbow City Civic Council and President, Congress of Latin American Civic Councils 645 Hudson, Gary, president, Coco Solo-France Field Civic Council 647 Prepared statement 647 Hughes, Robert, geodesist, NM-12, Inter-American Geodetic Survey 842 International Committee of Passenger Lines 1594 Joseph, Victor E., secretary-treasurer, Canal Zone Police Union, Local 1896 812 Koczak, Stephen, special projects assistant, American Federation of Gov- ernment Employees 1716 Kujawa, Leonard, partner, Arthur Andersen & Co 1377 Lidinsky, Richard, Jr., assistant director of transportation, Maryland Port Administration 1450 Lindley, Patricia, president, Canal Zone Bar Association 655 Maechling, Charles, Jr., attorney, Kirlin, Campbell, & Keating, Washing- ton, D.C 1607 Prepared statement 1623 Mauge, Saturnin, president, AFSCME, Local 900 800 McAuliffe, Lt. Gen. Dennis P., Commander in Chief, U.S. Southern Com- mand, Panama Canal Zone 519 McCauley, Mrs. Victoria, president, Gatum Civic Council 645 McDonald, Hon. Lawrence P., a Representative in Congress from the State of Georgia 349 Mikulski, Hon. Barbara, a Representative in Congress from the State of Maryland 1446 Moss, Hon. Ambler H., Jr., U.S. Ambassador to the Republic of Panama, Department of State 849 Munchbach, Mrs. Patricia, president, Gamboa Civic Council 614 Nemirow, Samuel B., Deputy Assistant Secretary for Maritime Affairs, Department of Commerce 523 Nolin, John, Department of Transportation 555 O'Donnell, James, president, AFGE, Local 14 733 Additional statement 778 Oiler, Jose, NM-7, purchasing agent, USAFSCO 835 Ortman, David E., research associate, Friends of the Earth 1631 Ostrander, Allen 655 Ostrander, Marcos, vice president, Canal Zone Bar Association 655 Parfitt, Harold R., Governor of the Canal Zone 567 Paul, Hon. Ron., a Representative in Congress from the State of Texas 370 Popper, David H., Special Representative of the Secretary for Panama Treaty Affairs, Department of State 452, 1011 Prior, J. Gregory, executive assistant, Port of Charleston 1450 Rinaldo, Hon. Matthew J., a Representative in Congress from the State of New Jersey 374 Robinson, Nicholas A., member, board of directors, Sierra Club 1635 Prepared statement 1649 Rogers, Terry, legislative liaison, American Federation of Government Employees 1716 Royo, Richardo R., second vice president, Canal Zone Police Union, Local 1896 812 Shefler, Stephen A., Deputy Assistant Secretary for Policy and Internation- al Affairs, Department of Transportation 555 Sheppard, Ralph, president, American Federation of Teachers, Local 29 667,685 Prepared statement 690 Sinclair, William, area director, American Federation of State, County. & Municipal Employees 800 Staats, Hon. Elmer B., Comptroller General of the United States 901 Steers, Philip L., Jr., former Financial Vice President, Panama Canal Company 1417 Symms, Hon. Steven D., a Representative in Congress from the State of Idaho 355 VI Statement of — Continued Page Tartar, Mark, vice president, CLU-MTC 667, 684 Tinsley, Thomas A., Deputy Associate Director 1176 Wall, Shannon, president, National Maritime Union 667 Wampler, Hon. William, a Representative in Congress from the State of Virginia 373 Washburn, John N., attorney 1720 Statement of February 7, 1978, for Senate Armed Services Committee .. 1722 Welch, W. Don, South Carolina Ports Authority 1470 Werner, Capt. Norman, president, International Organization of Masters, Mates, and Pilots, Pilot membership group, Panama Canal Branch 667 Wheeler, James, representative, Pacific Civic Council 614 Williams, Cmdr. Hugh, U.S. Coast Guard 555 Wright, Michael, Director of International Programs, Nature Conservancy 1635 Prepared statement 1642 Zappacosta, Frank M., Assistant Director, GAO 901 Additional material supplied — Army Department: Questions of subcommittee and answers 888 Blaylock, Kenneth: Draft bill 775 Federal Personnel Manual System 769 Public Law 95-454 768 Clark, J. W.: Response to questions of Subcommittee 1565 Commerce Department: Questions of committee and answers 526 Congressional Budget Office: Report on a Study of Panama Canal Tolls and Traffic Levels 1500 Defense Department: Additional questions and answers 507 Questions of committee and answers 483 Dorman, Hon. Robert K.: Summary of the OAS report 409 Dozer, Dr. Donald M.: Article of February 19, 1979, in Spotlight: You Can Help Save the Canal But Time's Running Out 365 Drummond, William R.: Placement Assistance for Panama Canal Zone Employees 820 Energy Department: Amount of Alaska Oil Going Through The Panama Canal 1325 Loss between crude and gasoline in refining 1328 Loss if Alaska oil not transiting canal 1326 Questions of subcommittee and answers 1323 SOHIO PACTEX pipeline proposal 1327 Transit, east to west, of refined gasoline 1327 Views on transit of Alaskan oil if transiting a sea-level canal 1325 GAO: Cost of living allowance— COLA 922 Department of Defense additional costs 923 Department of Defense educational cost for 2,600 dependents 922 Questions of W. Merrill Whitman and answers 937 Removable Navy property 936 Suggested language for frequency of payments 920 Graham, Alfred: Excerpt from Conference Report 2149 of 85th Congress ... 679 Haar, Herbert: Article: Lykes To Offer four sailings monthly from West Coast to Far East; call most ports between Japan and Singapore 1468 Article: Nedlloyd Expands U.S. Gulf/Mideast Ro/Ro Services 1469 Economic impact of water-borne shipments via Panama Canal 1525 Economic impact of waterborne shipment via Panama Canal for Atlantic and gulf coast ports grouped by State 1526 Highlights of legislation to implement the Panama Canal Treaty of 1977 1467 Hamilton, Frank: Revised joint P.C. Commission/Department of Defense labor relations policy 707 Hansen, Hon. George— Report: Possible Effects of Increased Canal Toll Fees and Restricted Access to the Panama Canal on U.S. Agricultural Trade, by Janice E. Baker 335 Henry, Phillips A.: Position paper of Congress of Latin American Civic Councils 631 Hubbard, Hon. Carroll, Jr.: CRS Study: Effect of the Panama Canal Treaties upon provisions of the United States Code 1197 Treaty between the United States of America and the Republic of Panama on the Execution of Penal Sentences 1300 VII Additional material supplied— Continued Page Kujawa, Leonard J.: Panama Canal Commission: Financial and Accounting policies for viability and control 1386 Library of Congress: Response to questions posed by Mr. Murphy 1261 Lidinsky, Richard: Article: Liner cargo changing patterns, by John R. Immer 1479 Excerpts from Sea-Level Canal Studies hearings 1482 Import Far East Mini Bridge and All Water General Cargo Tonnage 1478 Murphy, Hon. John M.: Environmental Issues Affecting the Panama Canal 974 Introduction to statement of Hon. Daniel J. Flood 356 Office of Personnel Management: Benefits under Panamanian Social Security 1195 Information on cost estimates 1193 Placement assistance for P.C. Zone employees 820 Questions of the committee and answers 1193 Parfitt, Gov. Harold R.: Questions of committee and answers 599 Robinson, Nicholas A.: Article of October 25, 1977: "Panama Canal Treaty: Environmental Issues 1660 Article of March 28, 1978: "Environmental Safeguards in Canal Treaty Clarified" 1663 Article of September 26, 1978: "Panama Canal Treaties: Safeguards Stalled" 1665 Sheppard, Ralph: Laws relating to civil service retirement 687 Questions concerning H.R. 7761 691 State Department: Basic legal difference between a corporate and a noncorporate form agency 479 Could Congress require U.S. members on the Board to vote en bloc 477 Memorandum on cost to the United States in connection with imple- menting the Panama Canal Treaty 395 Precedents for a Binational Board or Commission 473 President's ultimate authority over toll rates and article III of Treaty 478 Questions of committee and answers 415, 856, 864 Rate figures and the toll figures derivation 390 Treasury Department: Instance in which money retained by a U.S. agency is subsequently paid to foreign governments 949 Interest payments 954 Panama Canal toll rates, from Federal Register, August 28, 1937 971 Panama Canal Tolls, Senate Document No. 23, 75th Congress 960 Panama Canal traffic and tolls 956 Questions of the committee and answers 945 Communications submitted — Anderson, George; Arleigh A. Burke; Robert B. Carney; Thomas H. Moorer: Letter to the President dated June 8, 1977 363 Bennet, Douglas J., Jr.: Letter of April 5, 1979, to Hon. Carroll Hubbard 864 Letter of May 12, 1978, to Senator William V. Roth, Jr 1346 Briggs, Richard E.: Letter of August 17, 1977, to Hon. Ralph H. Metcalfe .. 1551 Comptroller General of the United States: Letter of January 3, 1979, to Hon. George Hansen 499 Hansell, Herbert J.: Letter of July 24, 1978, to Frank M. Zappacosta 933 Hawkins, Edward F.: Letter of May 8, 1978, to Richard A. Lidinsky Jr 1476 Henry, Phillip A.: Letter of February 23, 1979, to Hon. John M. Murphy .. 630 Joint Letter from Eleven Groups of January 30, 1979, to President Carter 1634 Jones, Herbert M.: Memorandum of January 24, 1958, to Commander in Chief, Canal Zone 809 Kite, Landon, White House staff assistant, dated May 3, 1978 1728 Latin American Civic Councils: Letter of June 17, 1978, to the President .. 634 Lindley, Patricia J.: Letter of March 26, 1979, to Hon. John M. Murphy with attachment 659 May, Albert E.: Letter of March 15, 1979, to Hon. Carroll Hubbard 1579 Merin, Kenneth D.: Memorandum of February 12, 1979, to Panama Canal Subcommittee 1321 VIII Communications submitted — Continued Page Miura, Takashi: Letter of March 9, 1979, to Hon. Carroll Hubbard, Jr 1573 Moss, Ambler H., Jr.: Letter of March 21, 1979, to Hon. John M. Murphy . 856 Murphy, Hon. John M.: Letter of December 7, 1978, to Rubens Medina 1259 O'Donnell, James J.: Letter of March 6, 1979, to Hon. John M. Murphy .... 792 Reurs, John H.: Letter of January 27, 1978, to Governor Parfitt with enclosure 1599 Rivlin, Alice M.: Letter of December 19, 1978, to Hon. Robert L. Leggett ... 1500 Scanlan, Francis A.: Letter of March 9, 1979, to Hon. Carroll Hubbard Jr . 1578 Seeley, Ronald L.: Memorandum of January 30, 1979, to Heads of Bureaus .. 818 Senators Byrd, Helms, McClellan, and Thurmond: Letter to the President dated June 15, 1977 362 Shore, Melvin: Letter of February 20, 1979, to Hon. John M. Murphy with attached resolution 1549 Stathis, Stephen W.: Memorandum of February 14, 1979, to Merchant Marine and Fisheries Committee 1321 Telegram from 11 environmental organizations on September 6, 1977, to the President 1634 Tierney, Paul J.: Letter of March 30, 1979, to Hon. John M. Murphy 1604 Washburn, John Nelson: Letter of March 6, 1978, to Senator John Sparkman 1725 Letter of March 23, 1978, to Senator John Sparkman 1726 Letter of April 2, 1978, to Senator Robert C. Byrd 1727 Letter of April 28, 1978, to President Carter 1727 White, H. Loring: Letter of January 4, 1979, to Ralph Sheppard with attachment 693 Wyrough, Richard W.: Letter of August 2, 1978, to Mr. Blenman 639 Zappacosta, Frank M.: Letter of April 4, 1978, to Herbert J. Hansell 934 CANAL OPERATION UNDER 1977 TREATY MONDAY, FEBRUARY 26, 1979 House of Representatives, Subcommittee on the Panama Canal, Committee on Merchant Marine and Fisheries, Washington, D.C. The subcommittee met, pursuant to notice, at 9:30 a.m., in room 2261, Rayburn House Office Building, Hon. Carroll Hubbard, (chairman of the subcommittee) presiding. Present: Representatives Hubbard, Lowry, Bonior, Bauman, Carney, Wyatt, Murphy (ex officio), and Hansen. Staff present: Ernest J. Corrado, chief counsel; Carl L. Perian, chief of staff; Kenneth Merin, minority counsel; Kai Midboe, mi- nority counsel; W. Merrill Whitman, consultant; Bernard Tannen- baum, special counsel; Terrence W. Modglin, staff director; Ken- neth Fendley, professional staff member; and Anita C. Brown, clerk. The Chairman. The committee will come to order. If Ambassa- dor Moss and the subcommittee members will indulge me just a moment, I think it is crucial that some important points which have arisen in the last few days be included in the record. There are new developments which have come to light at the field hearings held in the Canal Zone this past Friday and Satur- day and in the meetings and briefings our delegation had with Panamanian Government officials. Let me make a few general comments on the findings of our field hearings and inspection visit, which I think was a very successful one from the point of view of ascertaining the opinions of elements in the Canal Zone and Panama with respect to the legislation before us. Our visit to Panama, which I was privileged to lead, could not have been so productive had it not been for the courtesies extended by Governor Parfitt, General McAuliffe, President Royo, the Panama Canal Authority, and Ambassador Gabriel Lewis, and we certainly extend our thanks to them for the arrangements that they made. The three sets of hearings Friday and Saturday were the chief reason for our visit to Panama. The hearings allowed us to go into some issues, such as canal finances and levels of tolls, in much greater depth. Other issues, such as the precise level of benefits that should be enjoyed by canal workers, the future status of present employees, and the problems of the transition period, were introduced in detail in the subcommittee's hearings for the first time. (847) 848 I believe there were some common understandings in the minds of many members of the visiting delegation at the conclusion of our visit yesterday. First, we now more clearly understand the need to deal with the implementing legislation as soon as possible, so that the employees of the canal will have adequate time to determine their futures and so that all of the physical and organizational changes caused by the new treaty can be achieved. And this committee will act expedi- tiously. We also recognize in a clearer way the critical nature of the 30- month transition period specified by article XI of the treaty. This is the period which will require the closest kind of cooperation be- tween the United States and Panama. The good faith and trust of both governments are at stake in the transition period, which will span about one-eighth, the first eighth, of the duration of the treaty. Third, while we see that the financial benefits for canal employ- ees are important in the substance of the implementing legislation, we also know that those now living in the zone, both United States and Panamanian, have a real fear about the deterioration of the quality of life in the canal area. Residents there have serious doubts about the physical security of their families, a good educational system, decent housing, and career mobility in their work. They fear all of these will be lost. The prospective Canal Commission, and the Congress through im- plementing legislation, must do all that can be done to maintain the quality of services and life now found there. In the final analysis, however, the terms drawn in the Panama Canal Treaty mean that the citizens of the government of Panama will have much to do with whether or not skilled employees remain on the isthmus or whether or not we have an efficient canal. This brings me to the last, and perhaps most important, matter arising from our trip. Some members of the delegation that visited the canal, including members who will play a major role in the shaping of the implementing legislation, became quite concerned that some of the key understandings that underlie the Panama Canal treaty are now in shambles. Last year when the treaty debates were ongoing in the Senate, numerous amendments and reservations were turned back only by strong assertions that Panama and the United States had clear understandings of the meanings of certain provisions. Now we are hearing from some representatives of the Panamanian Government that these understandings do not exist. If this is the case, at worst, there may, in fact, be no true treaty agreement to implement. At best, there will be a need to clarify the terms of the treaty in the implementing legislation. The terms will have to be drawn in a fashion that will allow no possible misinterpretation by Panama as to the intent of the United States, and in a way that will deny the executive branch the ability to conclude new terms with Panama that might be detrimental to U.S. interests. In many senses, the Panama Canal Treaty that has been con- cluded between the United States and Panama is an incomplete 849 document, even with the implementing agreements. The treaty is an agreement to agree in more detail. It was intended that it be supplemented by other agreements of varying levels. It is going to prove virtually impossible to arrive at other agree- ments or to do a good job in writing implementing legislation unless the basic terms of agreement are clear. Interpretations that violate not just the spirit but even the letter of the treaty, such as the demand for personal property not intended to be transferred to Panama, the demand for the payment of back taxes for a decade by organizations doing business in the Canal Zone — we were assured it would put many private enterprises out of business immediately if that were to go forward — and the upgrading of facilities not used for 20 years, imply that we really do not have an agreement at all. In general, then, the field hearings and visits to the isthmus demonstrated the vital need to carefully write the implementing legislation. It also showed how much the understandings, or misun- derstandings, between the United States and Panama are related to this legislation. Ambassador Moss, we are certainly privileged to have you here with us this morning. We appreciate the courtesy that you ex- tended to the Committee in Panama this weekend, and we hope to clarify, or at least set clearly forward, the basic misunderstandings that clearly were pointed out to every member of this Subcommit- tee. The subcommittee, in toto, was completely aware of the difficul- ties. If you will take the stand, we certainly would appreciate hearing from you. STATEMENT OF HON. AMBLER H. MOSS, JR., U.S. AMBASSADOR TO THE REPUBLIC OF PANAMA, U.S. DEPARTMENT OF STATE Ambassador Moss. Thank you very much, Mr. Chairman and members of the subcommittee. I appreciate very much this oppor- tunity to meet with you to discuss the proposed implementing legislation for the Panama Canal Treaty. I have a prepared opening statement which I will now proceed to read before I will be available for the questions on the matters you raised, sir. At present, in addition to its traditional diplomatic and consular tasks, the American Embassy in Panama is actively engaged, in close coordination with the Governor of the Canal Zone and the Commander-in-Chief of the U.S. Southern Command, in planning for the implementation of the Panama Canal Treaty, which comes into effect this October 1. Previous executive branch witnesses before this subcommittee have covered a number of aspects of the draft versions of imple- menting legislation under consideration by the committee. There are two aspects in particular I would like to address this morning which are of special concern to the embassy. These are, first of all, our overall objective in building a partner- ship with Panama in the canal enterprise, designed to maintain a safe and efficient canal; and, second of all, the need to safeguard the interests of American citizens in the present Canal Zone whose lives will be affected by the implementing legislation. 850 First, I would like to make a few observations to the subcommit- tee about the cooperation I have observed thus far between the United States and Panama. Although there is a great deal of work to be done between now and October 1, and there are obviously a tremendous number of difficult decisions to be made by the United States and Panama individually as well as together, the coopera- tion between our Government and the Panamanian Government has been excellent. The treaties are a mutual obligation to which both sides are committed, and in that spirit the work being done by both coun- tries' planners to date represents an honest effort to complete the arrangements called for under the treaty. We are fortunate in that many of the leaders of the Panamanian Government today were heavily involved in the treaty process over the last few years and are therefore extremely knowledgeable. President Aristides Royo, a young lawyer who became President of Panama last October 11, was a chief treaty negotiator for Panama. He has shown a particular sensitivity toward the needs and con- cerns of the United States citizens who live in the Canal Zone and who work on the canal. President Royo has visited both the Atlantic and Pacific sides of the Canal Zone where he has met with American and Panamanian citizens who work there. As a gesture of goodwill, he recorded a television message in English to the American residents of the Canal Zone which was broadcast on the local Armed Forces televi- sion stations. Ambassador Gabriel Lewis, a businessman who was Panamanian Ambassador to Washington during the treaty ratification process, returned to the private sector shortly after approval of the treaties, but now has come back to the Panamanian Government as Ambas- sador-at-Large and as the head of the Panama Canal Authority, the Panamanian organization which has responsibility for all planning for treaty implementation. He has a strong team working with him in this effort, including three cabinet ministers, two top military officers, and a number of economists, lawyers, and other advisers, many of whom have earned university and post-graduate degrees in the United States. Panama has sent as its new Ambassador-designate to the United States, Carlos Lopez-Guevara, a distinguished international jurist, who holds a law degree from Harvard. As Governor Parfitt has reported to you, numerous working subcommittees made up of representatives from our two countries have been working together since mid- 1978 to plan for the imple- mentation of the treaty in a wide range of subjects from operation transfers, such as the ports and railroads, to areas of employee and community interests, including personnel, housing, social security, utilities, the environment, and police and fire protection. Similar binational committees have recently begun work in areas of con- cern to our Southern Command and the Panamanian National Guard. The goodwill and businesslike attitude which exists between our two countries is exemplified by the fact, as Deputy Secretary Chris- topher has already observed, that last month we signed three agreements with Panama which were called for under the new 851 treaty relationship. We have thus dispatched those portions of work in a very timely manner. The first of these accords was a new civil aviation agreement, which provides for the phasing over of our present air traffic control in Panama's air space to Panama over a 5-year period. During that time, we will be training Pana- manian traffic controllers to begin replacing our personnel and also training Panamanian technicians in the use and maintenance of the equipment. The FAA agreement will represent a consider- able cost savings to the United States. The second agreement provides for a permanent United States cemetery at the present Corozal Cemetery in the Canal Zone, over which our flag will fly and which will be administered by the American Battle Monuments Commission in the same way that our military cemeteries abroad are maintained. The third of these agreements is a prisoner exchange treaty, which will be submitted to the Senate for ratification, which pro- vides that American citizens convicted of a crime in Panama can elect to serve their sentences in the United States and Panama- nians convicted of a crime by a U.S. court can serve in their homeland. It is apparent that we are already beginning to realize the bene- fits of our new partnership with Panama in the military field. During the last 2 months, conventional warfare exercises have been held by our 193d Infantry Brigade at the Rio Hato military base in cooperation with the Panamanian National Guard. This military area, large in size and ideal in terrain for such exercises, is deep into Panama's interior and would not have been made available to use except under the new treaty relationship. On February 16, I accompanied President Royo on a visit to the U.S. Army School of the Americas. President Royo, who was given full military honors on his arrival, stated in a press conference at the school that he wished it to continue in operation after the present 5-year agreement expires, and encouraged the beginning of talks between the United States and Panamanian representatives for that purpose. He has remarked to me that he is proud of the fact that there have been numerous Panamanian graduates of the school, and he hopes for greater Panamanian participation in it. The foregoing remarks are background observations leading me to the first point I wanted to make about the committee's consider- ation of implementing legislation. The new Panama Canal Treaty was designed to create a working relationship between the United States and Panama in the operation and defense of the canal, so that it would remain efficient and secure in the future. It is important that implementing legislation support the concept of partnership with Panama for two essential reasons. First, during the period of our stewardship of the canal operation until the year 2000, there will be continuous need for full cooperation between both governments in numerous respects, and the canal's operation will necessarily be affected by the degree to which that exists. The United States has a dual mission with regard to canal operation: to keep it functioning efficiently and securely, as it has in the past, but also to bring Panamanians into all levels of its management so that they will be perfectly prepared to operate the canal after the year 2000. 852 Although the treaty clearly puts the United States in control of the canal operation, that operation will function most efficiently if both sides regard it as a partnership. That will require an addition- al ingredient in addition to simple compliance with the treaty's terms. That element is the willingness of both sides to approach the task in a spirit of collegiality. We see that spirit developing on the isthmus today, in the detailed work being accomplished by technical experts of both countries, and implementing legislation can help promote that spirit by giving life to the new institutions which will take effect under the treaty. The principal new institution is the Panama Canal Commission itself. In my view, it is of great importance to follow the adminis- tration's proposal that the Commission be constituted as a govern- ment corporation, subject, as is the present Company, to the con- tinuing oversight by the Congress of its activities and budget. This form would best provide for a close working relationship between both countries in the manner contemplated by the treaties. A government corporation would not only assure continuity in the canal's operation, but it would also be instrumental in bringing Panama's minority representatives on the Board of Directors of the Commission into a genuine decisionmaking forum on policy mat- ters. In this way, over a period of years, Panamanians would devel- op a tremendous expertise and appreciation for the extremely intri- cate problems of managing canal operations, because they would share in the process of making important managerial decisions. They would also share responsibility for them. In this respect, I would also like to point out that one of the principal concerns frequently expressed by Members of the Con- gress has been whether or not Panama would, after the year 2000, appreciate the need for adequate maintenance and capital improve- ment of the canal operation. I believe that a corporate structure would best convey the concept that the canal be operated as a business, on a self-sustaining basis, and that proper provisions for maintenance be made in its financial structure. Indeed, since much of the business of the board of the Government corporation would involve approval of canal maintenance programs, Panamanian members would be personally involved and would share responsi- bility for the upkeep of the canal. Anyone who is familiar with Panama knows that the country has a large number of highly qualified people, a great many of them with university degrees from the United States. It is impor- tant, however, that Panamanian personnel be given the opportuni- ty to work as closely as possible with their U.S. counterparts in all aspects of canal management so that the institutional knowledge that we have concerning the canal's operation can be transmitted to them well in advance of the year 2000. My second point involves safeguarding the interests of U.S. citi- zens. Mr. Chairman, both the administration bill and the bill intro- duced by yourself contain numerous provisions relating to the em- ployment and to the quality of life of the U.S. citizens who are presently living in the Canal Zone. Governor Parfitt has given extensive testimony on this subject to the Post Office and Civil Service Committee. I wish to associate myself with the Governor's testimony. During the 4 months since my appointment as Ambas- 853 sador, I have had the opportunity to meet with numerous citizens' organizations and the labor unions in the Canal Zone, and I can attest to the fact that our citizens living there, although the great majority of them did not favor the treaties, have a high esprit de corps, love their work on the canal, and wish to stay if the terms and conditions of their employment and the quality of life in their communities remain similar to those which they enjoy today. Many of them are apprehensive about the future, generally for two reasons. First, of course, they want to be assured of Panama's goodwill and sensitivity toward their concerns. Our Embassy, along with the Panama Canal Company and the U.S. Southern Com- mand, is very mindful of this concern, as are the representatives of the Government of Panama. But, a second reason for their concern is the notion that Washington, by which they mean both the execu- tive and legislative branches, may no longer care about them and may not provide for them in the ways promised in the treaties. In this respect, the provisions in both the administration's and the chairman's bills are of critical importance. It is in the best interest of the continued efficiency of the canal that these loyal employees and citizens be treated fairly, in recognition of the significant role they play today as well as the valuable contributions they have made in the past. I should also add that we are asking our employees to undertake an additional, and highly essential, mission: that of training Pana- manians to assume increasingly greater responsibility in the canal organization. Many Americans in the Canal Zone with whom I have spoken are very much aware of this extra requirement and respond to the challenge with understanding and goodwill. We need their continued support, and I feel it is in our highest nation- al interest to enact the provisions made for the employees of the canal enterprise which are contained in the administration's pro- posed implementing legislation. In conclusion, Mr. Chairman, let me say that I believe there is every reason to be optimistic about the success of our cooperation with Panama in treaty implementations. Our Panamanian counter- parts have shown their desire for a spirit of partnership in our great common enterprise. A new government in Panama took office last October which is composed of young, energetic, highly- educated people who are determined to make their country an economic and social success. They have expressed a policy of vigor- ous stimulation of the private sector and have extended an open invitation to private foreign investment. An important part of their program is continued cooperation with the United States in every area. They have demonstrated sensitivity to the concerns of the American citizens who live in the present Canal Zone, and have repeatedly stressed their desire for our citizens to remain in Panama after they retire. If we are able to implement both the spirit and letter of the treaties with respect to Panama and to our own employees, and if we can help maintain between both coun- tries a true spirit of collegiality, we will assure that the Panama Canal will continue to provide its important service to our country and to world shipping. Thank you, Mr. Chairman, and I will be able to answer any questions that you and members of your committee may have. 854 The Chairman. Thank you, Mr. Ambassador. We appreciate your very forthright statement. If the committee were looking for a spirit of collegiality on its visit to Panama, I am sure it would have recognized it. At the briefing by the Panama Canal Authority, there was anything but a spirit of collegiality. In fact, I found the attitude of the chairman quite demeaning to the committee, particularly where he referred to the United States once again as the big boy on the block and asked how would we look in the eyes of the world if we did not put the Coco Solo Navy Base back in 100-percent operating condition. Now, this is a base that was abandoned 25 years ago. It has had no relationship to the operation for the canal at any time, other than its defense during a World War II-Korean war period. Now, where is the spirit of cooperation, let alone collegiality? The clear understanding was the United States would turn the canal over in operating condition. It was clear to us, from Governor Parfitt and the entire staff and operational people in the canal Zone that we are, in effect, upgrading existing functions for the operation of the canal. Then we come along and hear a demand for a 25-year-old Navy area to be put back in A-l condition. You were sitting on one side of them, and I was sitting on the other when the statement was made, and I would appreciate your responding to that attitude. Ambassador Moss. Mr. Chairman, I will respond to that. Certain- ly, the Director General of the Panama Canal Authority did raise this point. I am not going to present a brief in favor of everything he said there. I think other Panamanians have recognized that a demand to upgrade the Coco Solo facilities, which were abandoned many, many years ago and were precisely in the same state of repair when the treaty was negotiated as they are today, is one, frankly, without foundation. The point that he said he was trying to make was simply that if there were some old and abandoned buildings, that we had, per- haps, a problem together, in that we want the best possible appear- ance put on the transition period when the treaty comes into effect on October 1. Nonetheless, I will say that the Panamanian Government has recognized in many ways the fine job that the Canal Company has done in maintaining the present facilities. Before your visit to the isthmus, in fact, an article published in the Panama Canal Spill- way, the Panama Canal Company newspaper, on the subject of maintenance was reproduced in all Panamanian newspapers and had very favorable editorial comment from the Government-con- trolled press. So I think that whereas you are seeing one manifestation on the part of the Director General about one particular set of facilities that concerned him, there is at the same time a general recogni- tion on the part of the Government of Panama that the company is doing a superb job and is absolutely above reproach in all respects in maintaining the canal facilities that are going to be turned over, such as the bridge, for instance, in which new paving sections have just been completed; such as the railroad, in which there is a great capital and maintenance improvement program going forward even though the railroad is going to be transferred. 855 I believe that throughout the Panamanian Government such recognition does exist. I would, however, share your view that the remarks we heard were an aberration from that general spirit, and an unfortunate one. The Chairman. What I drew in addition to the fact that it was an almost total abrogation of prior understandings was an attitude that Ambassador Moss and Governor Parfitt, if they do not give in to any tantrum that is thrown by that Authority, will just be end- run up here in Washington and "we will get what we want up here." Now, do you have that attitude, or do you pick that up from those meetings? Ambassador Moss. No, sir, I do not. The plan has been worked out where at least a survey of the condition of buildings will be made. This is not to say that we plan to — that anyone plans to upgrade facilities to improve the state of repair that they were in when the treaties were signed or that they are in at present. But at least to show whether there is any real basis for any concern, I know the Governor is planning right now to have a survey taken to show what condition buildings are in, just by way of information. I think that may lay to rest a lot of the apprehensions. From time to time in Panama, there have been feelings that, we would allow buildings to deteriorate or that we would carry materi- al off. I think the article in Spillway which I mentioned laid to rest in the minds of most Panamanians this particular question, be- cause the evidence is totally to the contrary. The Chairman. Well, let us leave a couple of million dollars item and go to a $200 million item, the issue of the contingent payment to Panama, article XIII, 4(c) of the treaty. Is it not true that State Department officials said repeatedly last year that the contingent payment to Panama did not have to be in the tolls base, and this was understood by Panama? Ambassador Moss. That is correct, Mr. Chairman. The Chairman. Is it not further the case that Planning Minister Barletta of Panama stated in San Francisco last year that Panama recognized the contingent $10 million payment as just that, contin- gent on a surplus and not on the tolls base? Ambassador Moss. That is correct, Mr. Chairman, and Planning Minister Barletta was the Panamanian who negotiated that por- tion of the treaty. The Chairman. Well, why do we now have new interpretations by Panama, by people who participated in the negotiation of the treaty, to the effect that they must achieve the $10 million each year? Ambassador Moss. Let me say, Mr. Chairman, that it should be entirely clear between Panama and the United States that the United States does not have the obligation in any way to build into the toll base the article XIII, 4(c) contingent $10 million payment. This is not only reflected in the statements of Planning Minister Barletta, but in the understandings attached by the Senate to the treaty which were expressly accepted last June by Panama in the instruments of ratification. I will say, just by way of explanation, that the opinion that you and your committee were given in its session with the Panama 856 Canal Authority was made, to be sure, by an official of the Pana- manian Government. That means it has to be taken seriously. Nevertheless, he stated that the opinion that was being given was his own and it was not an official government position. That is not to say that it need not be taken seriously. The fact is that it was made by a Panamanian government official, and therefore I under- stand your concern. The Chairman. You can understand the concern of the Ameri- can taxpayer. Ambassador Moss. As a legal matter, Mr. Chairman, I would say that we consider this matter to have been definitely settled in an understanding to the treaty which was added by the Senate and which were expressly accepted by the Government of Panama. The Chairman. A supposedly responsible official of the Panama- nian Government brought it up to our hearing, and they specifical- ly requested that we come over for that briefing and hearing. And I would think that it was a planned, stated fact for us to take back with us and perhaps to accede to that and change the previous understanding. Ambassador Moss. Well, all I can say, Mr. Chairman, is that certainly, as far as I know, it is in no way the intention of the executive branch to make any concessions on that point. I think it is well settled in the understanding to the treaty; it is well settled in the negotiating history, and we certainly plan to make no con- cessions on that point. I understand the concern of the committee, in that such a state- ment was made, even if not as an official Panamanian Government position, by an official of the Panama Canal Authority. All I can say is that I will try to see that this matter is resolved and put to rest to your satisfaction and to that of the committee. The Chairman. This committee would like a clear statement prior to the time we mark up legislation as to the understanding of the Panamanian Government on that specific point. Ambassador Moss. I will take that message back with me. The Chairman. We expect to mark up the third week in March. Ambassador Moss. I can appreciate that concern, Mr. Chairman, and that will be, I think, an important message for me to carry back. [The following was submitted for the record:] Department of State, Washington, D.C., March 21, 1979. Hon. John M. Murphy, Chairman, Merchant Marine and Fisheries Committee Hon. Carroll Hubbard, Chairman, Panama Canal Subcommittee, House of Representatives, Washington, D.C Dear Mr. Chairmen: During the hearing held before the Subcommittee on the Panama Canal of the Committee on Merchant Marine and Fisheries on February 26, 1979, I was asked a number of questions by yourselves and other Members and was requested to provide the Subcommittee with answers for the record. The principal issues about which the Members expressed concern were a state- ment made by the Director General of the Panama Canal Authority during the Subcommittee's trip to Panama to the effect that the United States should refurbish some old buildings in the Canal Zone prior to their transfer to Panama, and statements made on the same occasion by another official of the Authority to the effect that Canal tolls should be set to include the contingent payment of ten . 857 million dollars annually under Article XIII 4(c) of the Panama Canal Treaty and that the Government of Panama had the right after October 1, 1979, to tax busi- nesses in the Canal Zone on their operations prior to that date. With regard to the first point, I have discussed this matter thoroughly with Ambassador Gabriel Lewis, Director General of the Panama Canal Authority. He states that he did not say, and that it was never his intention to imply, that the United States had any obligation to upgrade the condition of buildings beyond their state of repair at the time of the signing of the Treaty. He did urge that the United States give some of the buildings a 'face lifting' by repairing broken windows and by painting, to provide a better image for the U.S. when the Treaty comes into effect. He also acknowledged that some buildings, abandoned for a great many years, were beyond repair and might best be demolished. As I stated in my testimony before the Subcommittee, surveys are being made to catalogue the buildings and their condi- tion prior to transfer to Panama, but there is no obligation on the part of the United States to repair or refurbish buildings in the Zone. With regard to the other matters, I testified that the statements made by an official of the Panama Canal Authority had never been represented to me as positions of the Government of Panama, and that I did not believe them to be such. In order to obtain clarification of these issues in the form of an official response, I sent the following diplomatic note to the Foreign Minister of Panama: Panama, March 21, 1979. Excellency: I have the honor to refer to the Panama Canal Treaty and related agree- ments signed September 7, 1977, and which will enter into force on October 1, 1979. I wish to confirm the understanding of my Government that, in accord- ance with Article IX of that Treaty and Paragraph 1 of the Annex thereto, the laws of the Republic of Panama shall apply throughout all of its territory upon the entry into force of that Treaty. Therefore, except as specifically provided in that Treaty and related agreements, all business and non-profit organizations currently established in that portion of the territory of the Republic of Panama which constitutes the Canal Zone shall be subject to the fiscal jurisdiction of the Republic of Panama as of October 1, 1979, and thereafter, including during the 30-month transition period established in that Article. Furthermore, Paragraph 1 Article IX of that Treaty establishes the principle that the laws of the Republic of Panama shall apply to matters and events which occurred in the Canal Zone prior to October 1, 1979, only to the extent specifically provided in prior Treaties or Agreements. Therefore, it is the under- standing of my Government that after October 1, 1979, your Government will not collect taxes or other charges or impose sanctions on such businesses or organizations related to their activities or operations or other matters or events occurring in the Canal Zone prior to October 1, 1979. I also have the honor to refer to Paragraph 4(c) of Article XIII of the Panama Canal Treaty and to the instruments of ratification thereto. That Article pro- vides, in part, that the Panama Canal Commission will pay to your Government out of Canal operating revenues a sum of up to ten million dollars per year to the extent that such revenues exceed its expenditures. It is the understanding of my Government that your Government accepts that the United States need not sell toll rates for the Canal at levels designed to produce revenues to cover such payment. However, my Government will ensure that a notation concerning the provi- sions of Article XIII 4(c) will be made in each annual budget for the Panama Canal Commission. If the foregoing accords with the understanding of your Government, I shall be grateful to have an acknowledgement from your Excellency. Accept, Excellency, the renewed assurances of my highest consideration. I have received the following response from the Minister: Dear Ambassador: I have the honor to acknowledge the receipt of Your Excellency's note of today's date which states as follows: "Text" I have the honor to confirm that the foregoing accords with the understand- ing of my Government." (Complimentary close) (Foreign Minister). 858 Thus, we have received a satisfactory assurance from the Government of Panama that there is no difference in our respective views as to the meaning or application of Article XIII 4(c) and Article IX, Paragraph 1, of the Panama Canal Treaty. The remaining information which I promised for the record of the hearings of the Subcommittee will be transmitted directly by the Department of State. Sincerely, Ambler H. Moss, Jr., Ambassador. The Chairman. On the matter of retroactive taxation of busi- nesses now operating in the Canal Zone, is it not clear to the Department of State that article IX, paragraph 1 of the Panama Canal Treaty precludes any retroactive assessment such as the type we heard about Saturday from Mr. Manfredo? Ambassador Moss. That is the position of the Department of State, Mr. Chairman. In fact, it was precisely consideration of the protection of these businesses which led us to the inclusion of that paragraph in the treaties. We consider that that matter is settled, and article IX, paragraph 1 would specifically preclude the tax- ation of Canal Zone businesses on their business activities prior to October 1. The Chairman. The treaty clearly says: "The law of the Republic of Panama shall be applied to matters or events which occurred in the former Canal Zone prior to the entry into force of this treaty only to the extent specifically provided in prior treaties and agree- ments." Ambassador Moss. Again, Mr. Chairman, I might say just by word of explanation, not by word of excuse, that the fiscal authori- ty of Panama, that is the fiscal jurisdiction over Canal Zone enter- prises, has been a matter of contention between the United States and Panama during the whole history under the 1903 treaty. Panama has always claimed the right to tax those businesses. We were anxious, of course, in the treaty negotiations that that right not be recognized, or at least that provision be made, as it is made in the treaty, that this matter need never be litigated but be made moot by inclusion of such a provision in the treaty. I think it may represent simply the desire of perhaps some elements within the Government of Panama not to give up on the point, but as far as the executive branch, is concerned, it is settled; the matter is absolutely clear and is settled in the treaty. [Whereupon, Mr. Hubbard assumed the Chair.] The Chairman. Well, I would appreciate your communicating to the Government of Panama that it would be virtually impossible for this committee to write legislation with the misinterpretations, and the changes of such a stark nature, such as those that I have just discussed — on the upgrading of unnecessary and outdated property, on the article XIII contingency fund payments, on the taxation issue. If issues that we felt had already been clearly resolved are now subject to change, it is going to be very difficult for any committee to properly write implementation legislation. We would like the answers to those questions and an assurance, somehow, on the part of that government that they are going to be acting in this spirit of collegiality that we have heard about this morning, or certainly in some spirit of good faith. Mr. Hubbard. Mr. Bonior? Mr. Bonior. Thank you, Mr. Chairman. 859 Mr. Ambassador, I have not followed these proceedings to the extent perhaps that others have over the last 2 years, although since becoming a member of this subcommittee, I have felt, obvi- ously, an obligation to make myself aware of the issues involved as best I could. I, in my brief journey to Panama, was impressed with the spirit of collegiality. I had the feeling — and I am reluctant to draw the analogy because of a former President who often uses the anal- ogy — of a football team marching down the field, but I had the feeling that we have gone, 90 yards, starting at our goal line, and we are just about ready to punch the ball in, if you will. Many of the important questions, certainly, have been settled with the treaty, and we are at a point, it seems to me, in which both countries, both entities are concerned about getting the maximum that is left in terms of negotiations. While I can understand well the concerns of the American people and members of this committee concerning the issue of a contingency payment and I can understand the questions that were raised by members of this committee on retroactive taxes, I think I can also understand the feelings of members of the Panamanian Government about some statements that have been issued recently by Members of the Congress. I can understand, I think, their feelings, perhaps, concerning the confirmation of Panamanians to the Commission. I think, as Americans, we would be incensed if we were in their position, to have Americans confirmed by Panama- nians. I can understand their concern about the toll structure and some of the things we are about to consider, and I also can understand the whole question of how they will have to relate to the potential problems of, for instance, hydroelectric power and the cost to Zon- ians versus the cost to Panamanians. So it seems to me what we have here is a question of — we are right there, pretty close; we have an October deadline. And it would seem incumbent upon this Government and the Panamanian Government to continue to work in that spirit of collegiality that you often mention in your statement to resolve these issues that have been brought up by both sides. The difficult part, it seems to me, is that we are under a time constraint to write implementing legislation, and it seems important to this member that we under- stand from President Royo, from former Ambassador Lewis, and other members of the Panamanian Government what is it that they are requesting of us, in addition to what we have, indeed, already requested of them in our latest trip. I have no questions, Mr. Chairman. If the Ambassador would like to comment, I would enjoy hearing from him. Ambassador Moss. Mr. Chairman, if I just may make a comment on Congressman Bonior's statement, I think that he has pinpointed with great sensitivity the fact that building a partnership under the present circumstances does take a certain amount of work and a certain amount of goodwill on both sides and, of course, the reason is because we have had a relationship of a different sort oyer the past 75 years. It has often led to disputes and we have not always been on the friendliest of terms. And, of course, what we are faced with now is the requirement, under a terribly short time 860 constraint, and to try hard to lay aside all the old differences as well as the tendency to try to catch up and grab extra advantages, which, frankly, has been manifested through the years on both sides, and to work in a truly cooperative manner. That means, in many cases, setting aside old habits and adopting new habits, new mental attitudes, new approaches. It is something that does not always happen overnight, given the past history of the relations between the two countries. But I think, as Congressman Bonior correctly observed, the spirit is there, the willingness is there, and the appreciation is there that a partnership is certainly the best way to work in the future. I think that we will see from time to time little aberrations from what would be a perfectly smooth functioning partnership. These are explainable, but I think these are aberrations, and in the main, the building of our partnership is proceeding very well. Mr. Bonior. I have no further questions or comments, Mr. Chair- man. Mr. Hubbard. Thank you, Congressman Bonior. Congressman Bill Carney? Mr. Carney. Mr. Ambassador, with all due respect to you and your position, I feel as though I was not in Panama for the last few days, but in another country, because I did not at any time feel that there was a spirit as you have discussed between the two nations, and certainly — and this was a great concern that I have had — I did not feel that there was an esprit de corps of the Ameri- can citizens; in fact, they are quite confused, quite concerned, and they brought out the point that there has been an accident in- crease rate of 96 percent in fiscal year 1978 because of the lack of esprit de corps, because of the concern that they have for their well-being and the concern that they have for their status. I think that was the feeling of the Panamanians who work for us at the canal. I think that we certainly have a great deal of difference of opinion as to the way you read the situation and as to the way I have in the last three days, and I think the Panamanian Govern- ment certainly has a difference of opinion as to the way we read the treaty and the way they do. I know the Chairman asked the four questions that I was most interested in hearing, and I am sure that you will provide us with that information. I would feel it impossible to formulate legislation without getting the answers that we need on those questions, par- ticularly title XIII, chapter (c) on the $10 million. That is a consid- erable amount of money, and Mr. Manfredo did say that they would expect the United States to make up any deficits in any years. That could be over $200 million, as the chairman pointed out. Gabriel Lewis indicated that they will levy back taxes. And I have a request of you, if I could — I would like to obtain a list, as well as the amount of tax that will be levied, and to which corpora- tions they will do that. The Ambassador, Mr. Lewis, indicated that he had that information; it was not made available to us. I would like to get that list before we go too much further. Of course, once again, the chairman mentioned the improve- ments of some of our properties there. He did mention that they have been considered properties of no use to the American Govern- 861 ment and they have deteriorated, but now the Panamanian Gov- ernment feels, "for the good will of the United States," that we should spend millions of dollars to make them look good. Movable properties, is another question that I have; I have some grave concern about movable properties. On February 2, there was an order calling for the movement of some movable assets that the Navy had. We are not talking about the Panama Canal Company; we are talking about the Navy. They had an entire list of lathes and machinery that they used to repair the naval fleet, and that list on market values today was in excess of $100 million. It is true that the value, the book value was $15 million, but the replace- ment value was in excess of $100 million. On February 9, the Navy canceled that order. I would like to know if the State Department was involved at all with that decision to cancel that order to move that property I think that is important before we go much further. I have to say, after reading this statement, that I did rK and any sense of cooperation between the Panamanian Gove nent and the American Government down there. I could r i your statement be read without my making my personal o- _ .ations entirely to the contrary. The Chairman. Would the gentleman yield? Mr. Carney. Yes, Mr. Chairman. The Chairman. On the question of overall assistance to Panama, your very capable staff briefed us early Friday morning and Mr. Culbertson, the AID Director, discussed the level of aid to Panama over the past years and over the years to come, and it is our understanding that Panama was either number one or, at the very most, number three on the list as far as total payments and aid assistance is concerned, particularly in the areas of housing, sanita- tion, and schooling. That is another reason that we find this misinterpretation— and trying, in effect, to gouge the zone for so much more— irritating and it just points up what Congressman Carney just brought out. Thank you. Mr. Carney. In the hearings that we had, the Panamanian na- tionals who worked for the Canal Zone expressed a concern about their well-being, particularly the West Indians, the black Panama- nians of West Indian origin. They expressed particularly that they felt that there were poor relationships between the Panamanian Government and their group. It was also brought out that Panamanians in general who enjoy the benefits of working in the Canal Zone, the economic benefits of working in the Canal Zone, were somewhat concerned about their acceptance back into the normal economy of Panama, both from their economic well-being and from their social well-being. I think there is an underlying fear, and I think more from their social well-being than from their economic well-being. I was wondering if you could answer or perhaps speak on the human rights and civil rights issue of Panama. Specifically, we are talking about a group of people who have worked for the canal and have done a good job over the years; they are quite concerned. There is a report from the Organization of American States on human rights in Panama. Certainly, it is the administration's 862 policy not to favor countries that do not live up to our ideals of human rights, and that report certainly would not say that Panama does live up to these ideals. Can you give me your opinion on that particular issue, specifical- ly related to the West Indians who are working for the Canal Zone? Ambassador Moss. Certainly, Mr. Chairman, I would like to re- spond to Congressman Carney's question and also to a few other points that you made, Mr. Chairman. Let me start with the West Indians. A fairly large West Indian population came to the canal during the time of its construction and worked there. They came from islands such as Jamaica and various other parts of the Caribbean, lived by and large within the Canal Zone, continued to speak English, and continued to hold their own community values. Actually, up until a few years ago, the only available education provided for them was in the English language, so they were kept, really, as a community apart from Spanish-speaking Panamanians. Now, of course, they never acquired anything other than Pana- manian nationality at birth; they did not acquire U.S. nationality. So they were virtually in a position in many cases, of being Pana- manians, who did not speak the language of the country and who, in most cases, did not belong to the majority religion of the country and therefore were culturally separate. They have been, I think quite rightly, concerned about their future under the treaties, because they have not assimilated into Panama's social structure. And for that reason, out of sensitivity to the particular problems and concerns of this group, we have includ- ed in implementing legislation a special immigration provision whereby they could quite freely migrate to the United States on liberal terms. We do not know at this point and we do not have any hard evidence as to whether or not their concerns are justified, but just given the sociological background that I have described to you, I think there is certainly ample explanation as to why they feel that they are a people apart and do not know where they will come down into the social structure when it sorts itself out after October 1. I hope that provision for special immigration rules will allay some of their fears. That is an escape route if they feel that there is too much pressure on them to assimilate or there is discrimina- tion against them because they have not, and that may meet some of their concerns. We do not have any accurate notion at the moment as to how many of them will take advantage of the special immigration provisions; we have not been able to get any kind of reasonable idea, but I think we will as the months go by. I certain- ly think that those special immigration provisions are very impor- tant; they would let a number of the people affected into the United States, as I say, on rather liberal terms when you consider our normal immigration laws, and I think those provisions ought to be passed. Moving on to the concerns of employees generally, I understand perfectly what you mean and what you must have heard by way of concerns expressed by employees both American and Panamanian. I think the basis of their concerns in most cases arises from uncer- 863 tainty. They know exactly what their life is like now, what their benefits are, what their working conditions are, the quality of life, how they interact socially with the rest of the people in their communities, and they are not so sure of what comes later. In many respects, of course, the Panamanian employees who express their concerns over labor conditions are expressing the same con- cerns that Panamanian and American employees are expressing over our labor conditions. In many cases, our executive branch has not fully defined the labor rules, wage rates, and benefits. A number of citizens are still worried about that. I think as time goes on and as we work within our own Govern- ment and Panama works within its own government to try to define what the rules of the game are and come up with the answers and make it all clear, and as the two governments work together to settle some of these crucial problems — I think the big ones really are in the labor area — that the people's concerns will be allayed. Now, I would say that I think that the Panamanian Government has understood with great sensitivity the concerns about the American population in the Canal Zone, as to that aspect of the quality of life that bothers them about the disappearance of the zone — namely, the prospect of Panamanian policemen coming through their neighborhoods. Panama is taking steps to insure that there will be joint patrols and that special training is given to Panamanian policemen. I think they are very aware of it. Panama- nian Government leaders have said publicly that they want the Americans who live and work in the Canal Zone to stay there; they want to make conditions right for them so that they do not feel they have to leave and so that they do not feel put upon. I think it is very important to our official government repre- sentatives down there— the Governor, the commanding general, and myself— to keep following that problem and to keep making sure that those things get done. But I would say that I have seen considerable evidence of Panamanian sensitivity about that. On the human rights situation generally, you may have seen the Department of State's latest human rights report on Panama. I think it shows a steady improvement in the human rights area; certainly in the core elements of human rights— freedom from torture, arbitrary arrest, and things like that— Panama comes out rather well in the Latin American spectrum. The whole picture, I think, generally is gradually improving in the human rights area, and we hope that it will continue to do so; we obviously urge and support that. Amnesty International just published its 1978 report, and once again, it does not even list Panama in the listing of the countries that the report covers. That is not to say that people are not going to have some human rights complaints in Panama, as they do in practically every country, including our own, but I think there has been a notable improvement. Let me address finally the question of the Navy property that you mentioned, because I think I ought to just say that I have not heard about this before; I have no knowledge of any decision which was made to move property or that it was scheduled to be moved. To my knowledge, if such a decision was made, there was, to the 864 best of my knowledge, no State Department and certainly no Em- bassy role in the reversing of such a decision. However, I will promise to look into that, Mr. Chairman and Congressman Carney, and try to get you an answer and find out what that is all about. Mr. Carney. Mr. Chairman, I have a list of that naval property and the orders to remove it and the orders rescinding the move- ment of that property 6 days later. My question that I would like to have answered is, with these two sets of orders, has there been any State Department intervention? Ambassador Moss. I will get that answer, as I say, Mr. Chair- man. To my knowledge, there has been none, nor on the part of the Embassy. Of course, I spent 4 years as a naval officer and I know that the Navy can change its mind on occasion about things. But I will look into the particulars of this case to the best I can. [The following material was submitted for the record:] Department of State, Washington, D.C., April 5, 1979. Hon. Carroll Hubbard, Chairman, Panama Canal Subcommittee, House of Representatives, Washington, D.C. Hon. John M. Murphy, Chairman, Merchant Marine and Fisheries Committee, House of Representatives, Washington, D.C. Dear Messrs. Chairmen: In his letter of March 21 Ambassador Ambler H. Moss provided you with answers to a number of questions asked of him during his February 26, 1979, testimony before the Panama Canal Subcommittee of the Mer- chant Marine and Fisheries Committee. He noted that the Department of State would be replying to other questions on his behalf. During the hearing Congressman William Carney of New York asked whether there had been any involvement by the Department of State or the Embassy in a reported February 9 decision by the United States Navy not to remove certain Navy equipment from the Canal Zone. The Ambassador testified that to the best of his knowledge there had been no involvement in the February 9 decision, and certainly no Embassy role in it. The Ambassador is correct: neither the Department of State nor the Embassy was involved in the decision which was made by the United States Navy. It is my understanding that the Department of the Navy will be communicat- ing directly with you on this matter. In connection with Chairman Murphy's request to the Ambassador for a state- ment of the Governor of Panama's interpretation of the Panama Canal Treaty with regard to tax claims by Panama against organizations in the Canal Zone, Congress- man Carney requested a list of the organizations involved and the amount of the tax being levied. I am pleased to note in this regard that the Panamanian Foreign Minister confirmed our understanding on March 21 that, under the Panama Canal Treaty, Panama will not collect taxes or other charges or impose sanctions against businesses or organizations operating in the Canal Zone for their activities prior to October 1, 1979. Congressman Carney also asked for information concerning the amount of reve- nue being gained or lost as a result of the transfer of commercial and retail activities from the Canal enterprise to Panama under the Treaty. We have been informed by the Panama Canal Company that there is no significant gain or loss to the Canal resulting from the transfer of such activities to Panama. According to the Company, the activities of such a group generally have operated at a break even level, generating annual revenues and expenditures in the neighborhood of $60 million. Sincerely, Douglas J. Bennet, Jr., Assistant Secretary for Congressional Relations. Mr. Carney. There is no doubt about the ability of the Navy to change its mind. 865 I would also like to point out that the West Indians, or the Panamanians that do not live in the Canal Zone will not enjoy those immigration rights, although they work for the Canal Zone governments or for the Panama Canal Company; if they live in Panama, they will not have that same enjoyment. They are the ones who expressed some fear for their civil and human rights. You brought out an interesting point on the issue of utilizing the Guardia Nacional and our police department in the next 30 months. Well, some of the members of the police department ex- pressed a fear — in fact, one in particular expressed a fear for his life with this cooperation, and he was somewhat concerned about it. Would you like to make any comment on that, as to what we will do to protect the West Indians who cannot enjoy those immi- gration benefits and the members of our Canal Zone Police Depart- ment who feel that they could really be in a precarious situation? Ambassador Moss. Certainly, Congressman Carney. First of all, on the immigration question, the West Indians who have served a certain number of years with the Company will be eligible even if they live outside of the Canal Zone. Mr. Carney. How many years? Ambassador Moss. I believe that is 15 years; those retired from the service now, or currently having 15 years of service. Now, that will include a lot of them that live in Panama. There may be some who retired or left the Company and did not complete that time of service, but we figure that this type of provision would include most of them and would include most of the group which would be most concerned, which is quite often the older part of the popula- tion. Mr. Carney. But those with less than 15 years of service do not enjoy that immigration provision? Ambassador Moss. That is correct. On the other hand, remember that these are not U.S. citizens — this is something we are doing for people who have been our employees. We are not talking about U.S. citizens here that we are trying to protect; these are foreign nationals. We are trying to be as generous with them as we possi- bly can, given the fact that they have been loyal employees of the Company. Mr. Carney. I appreciate that. Ambassador Moss. And it is really on the basis of their employ- ment with the Company and with our organizations that we draft- ed these special immigration provisions, not simply because they are a different population within the country of Panama that we feel sorry for. Mr. Carney. I appreciate that. I think that when you have a segment of the population that lives outside of the Canal Zone and have worked between 60 days, let us say, and 15 years, and they are concerned, I think that the U.S. Government should be con- cerned for their welfare, whether they worked for 2 days or 25 years in that situation. I would like to know how we are going to protect those particular people. Ambassador Moss. Congressman Carney, the only way to do so would be, as we are proposing, through legislation, because I think that probably the immigration provisions on the books now might 866 be a bit difficult to comply with, and therefore only by further liberalizing the present administration bill or H.R. Ill would that be possible. Mr. Carney. Thank you. Mr. Hubbard. Thank you, Congressman Carney. Ambassador Moss, would you tell us exactly, please, what role the U.S. Embassy in Panama plays in the coordination of planning for treaty implementation? Ambassador Moss. Certainly, Mr. Chairman. That is a complicat- ed question. Of course, down on the isthmus, we really have three principal government organizations at work, in addition to the numerous departments and agencies who have set up shop there in the last 70 years. We have, principally, the Panama Canal Company and Canal Zone Government, headed by Governor Parfitt; the Southern Com- mand, headed by the Commander-in-Chief, General McAuliffe; and myself, as Ambassador. We meet together in the forum known as the PRC, the Panama Review Committee, and generally review at all stages matters of common concern in carrying out Government policy and planning for implementation. On the civilian side, the primary agency at work sorting out all these problems is a group now called the Binational Working Group, composed of about 26 subcommittees which work in ports, the railroads, boundaries, surveys, nonprofit organizations — a range of technical subjects — in which are represented Panama- nians, Panama Canal Company officials, and a member of the Embassy in each case. So we coordinate in that manner. On the military side, a series of subcommittees has been set up strictly, at the moment, on a military-to-military basis, with our officers and officers of the National Guard, and they have not advanced quite so far in their planning stage as has the Binational Working Group set of subcommittees. Those subcommittees, as I mentioned, have been actively en- gaged since the middle of last year, and that is a good sign that they have started. Of course, they have spent a lot of time just drawing up plans, identifying problems, and getting going. I think all of us are quite aware — sometimes painfully aware — of the fact that there are only approximately 32 weeks left until treaty day and a lot of work is yet to be done. But I think that all of the work that is being done in these subcommittees is being done on a very professional basis by people sitting down as techni- cal experts, looking at what the problems are, and trying to figure out solutions to them. Of course, there are many problems. I am very satisfied with that method of operating; I think it is a good way of coordinating. We just simply have to accelerate the work as we come down to the deadline. Mr. Hubbard. In how many planning subcommittees is the Em- bassy involved? Ambassador Moss. We are involved in all 26 of these subcommit- tees, and what we have done, really, is not to set up a treaty planning unit in the Embassy, but really to consider the entire Embassy as one big treaty implementation planning team to work with Pan Canal and Southcom. That is the only way we can do it. 867 We would not be able to have enough people to work on the problem if we had just one little office within the Embassy. So we constituted the entire Embassy, including AID, to work on the problem and to cooperate in the subcommittees. We have got somebody assigned to each of them to cooperate with our counter- parts in Pan Canal and Southcom. Mr. Hubbard. Mr. Ambassador, discussion of the embassy's role in planning brings to mind the sections in H.R. Ill and H.R. 1716 concerning the authority of the Ambassador. The language of sec- tion 109 of the Murphy bill, of which I am a cosponsor, differs slightly from section 102 of the administration bill. Do you have any comments on the provision applying to the U.S. Ambassador? Ambassador Moss. Mr. Chairman, I think they are roughly simi- lar; let me see if I can find the page there. I just might have a couple of comments. The administration bill says: "The ambassador to the Republic of Panama shall have full responsibility for the coordination of the transfer to the Republic of Panama of those functions that are to be assumed by the Republic of Panama pursuant to the Panama Canal Treaty of 1977 and related agreements,"; that same provision in H.R. Ill says: "The ambassador of the United States to the Republic of Panama shall coordinate with the Republic of Panama." I think that the administration bill is a bit broader, because it says the Ambassador "shall have full responsibility for the coordi- nation," which I think implies coordination not just with the Re- public of Panama, but with the other U.S. Government agencies on the isthmus, such as the Panama Canal Company and Southcom. I think it is important to stress that idea, that coordination has to take place among our U.S. Government partners down there, as well as between the Embassy and the Republic of Panama. I think in that sense, though, that may be a small distinction, but I think the provisions are roughly similar. Mr. Hubbard. I might say, Ambassador Moss, that many of the members of the subcommittee are happy to see the emphasis you have placed in your prepared statement on protecting our citizens in the present Canal Zone. Too often, the Department of State seems to be representing, at times, the foreign country, not our own people. Do you see any difference in this situation? Ambassador Moss. Well, I think there is something that we have to be very mindful of, Mr. Chairman, and that is that the jurisdic- tion of the United States over the Canal Zone will disappear on the October 1, and there are thousands of U.S. citizens over there who need and want the Embassy to be involved with their problems and concerned with their lives. And, moreover, I think in the interest of overall efficiency of the operation, we simply have to be con- cerned with their lives, not only for humanitarian reasons, but as a practical matter, because it leads very directly to the efficiency of the operation and defense of the canal. So I think it is not only in the national interest, for the reason of Protecting and safeguarding the interests of our citizens, but also, additionally, for providing for a smoother canal operation, that we 868 be concerned with all of their problems. And, as I say, we have to do that in a very coordinated way with our other Government agencies, and, I think, the Embassy definitely has a role in this respect. The citizens there need to be represented and feel repre- sented by us. Mr. Hubbard. Thank you, Ambassador Moss. I call on Congress- man Lowry from the State of Washington. Mr. Lowry. Thank you, Mr Chairman. Mr. Ambassador, the other members have stressed those important points that we are concerned about — the costs; it looks like perhaps some changes and differences in interpretation from those things that our Nation and Panama have entered into in good faith. I am confident in your ability to represent those very important interests that we are all concerned with during the negotiations going those last 10 yards that Congressman Bonior has referred to. I would like to ask a broader question. How important to the United States, in your opinion, is a stable and friendly nation to the United States in that part of the world? Ambassador Moss. Congressman Lowry, I have worked on Latin American affairs for some time, both in public and private life, and I feel it is absolutely crucial. I think that Panama is a country that has very much of an orientation toward us. It welcomes our private corporations to come in and set up business. Panamanians come to our colleges and universities; they have institutions they borrow from us, such as Lions Clubs, Rotary Clubs, Kiwanis Clubs. This is the type of friend we need to main- tain and cultivate. I think that the pro-American attitude which is generally apparent on the part of most Panamanians is something that works very much in our favor in Latin America, and I think that this new relationship will encourage it. I think, also, it is very much in our national interest to see Panama overcome its economic difficulties. I think this can be done through trade and cooperation and through private foreign invest- ment, principally, and I think it is very much in our national interest to wish them well and help in a friendly and noninterfer- ing way in their efforts to expand their economy and to be prosper- ous. I think all these things are terribly important, and you are absolutely right about that. Mr. Lowry. Is it going to be possible in the future, 5 or 10 years from now, for there to be a stable democracy in operation in Panama that will realize the interests of private enterprise and free enterprise and the importance of that within our hemisphere and within our world? Ambassador Moss. I hope very much that there is. The United States certainly should encourage this trend. As you may know, the Panamanian Government has adopted certain moves toward greater participation in the legislative process and toward direct popular election of the President by 1984. At the same time, the Panamanian Government has, in fact, laid much more stress, since I have been there and since the new government came into power last October 11, on development of the private sector and working with the private sector in trying to create a better business climate. 869 These are all very encouraging signs. One does not like to make any predictions, with the world economy being in the shape it is in, but I think the trends certainly are encouraging and we shall do everything we can in the proper way to encourage these trends. Mr. Lowry. What is your estimate of the costs of the implemen- tation of this change we are going through? What is the annual and the overall cost? Ambassador Moss. I am not an expert on the question of the full treaty costs. I know that during testimony during the Senate ratifi- cation process last year, in a letter from Secretaries Vance, Brown, and Alexander, the overall figure of $350 million during the life- time of the treaty was mentioned. I think that figure, as do all figures in government and private life, has to be revised from time to time, and I think that it is probably under revision right now. I am not aware of any different figure at this moment, but I think that it probably will be revised, one way or another. As for how that breaks down into annual costs, of course some of the costs will impact most in the next couple of years during the transition period — items such as military construction. I do not have a com- plete annual breakdown. I think we have to come up with a better revised figure for the total treaty cost package before we can estimate exactly where those costs would fall. Mr. Lowry. How important would you consider those estimated costs of, say, $350 million over the life of the treaty in comparison to having a friendly neighbor in that part of the world? Ambassador Moss. I think, Congressman Lowry, it is obviously an important sum of money; it is a large sum of money. At the same time, I consider it a good investment, because I think it will pay off rather handsomely in terms of our safeguarding our inter- ests in the canal, its operation and defense, and in terms of every- thing we are trying to do in Latin America to protect our interests in the free world generally. So, I think that, generally speaking, it is money that represents an investment that we can see a future return on. Mr. Lowry. Do you recall the amount of money we spent a day in Vietnam? Ambassador Moss. I do not have that figure, sir. Mr. Lowry. It would be 12 days. Ambassador Moss. Twelve days' worth? Mr. Lowry. Yes; thank you. I felt that that attitude of our people in Panama was excellent. As a newcomer that really benefited from that trip, I thought the attitudes were excellent. I also concur— and I do not want to dis- tract from it— I concurred with the amount of concern of the other members of this committee on those particular points that they have gone through on having to renovate those old bases, and costs that were clearly not within the good faith negotiations of this Nation. We expect you to do that job, and we think you can. I think we are entering into a very positive situation there. Ambassador Moss. Thank you, sir. Mr. Lowry. Thank you. 870 Ambassador Moss. Thank you, also, for your comment that we had moved 90 yards. I would have said somewhat less than that, but I appreciate the comment. Mr. Bonior. As long as we do not have any end runs. Ambassador Moss. Right. Mr. Hubbard. Before we call on Congressman Bauman who has just come in — we will give him time to collect his thoughts — we will call on Congressman Joe Wyatt, a member of our full commit- tee, whom we are glad to have with us today in the subcommittee's hearings. Mr. Wyatt. Ambassador, the Chairman, pointed out a couple of things that he would like to see answered. One thing he mentioned in particular was the question of the electricity situation. Do you think we could get some clarification from the Republic of Panama in that regard, because I think that has a lot to do with the apparent costs to some of the nonprofit corporations that are in there, as well as the overall lifestyle of people, both American and Panamanian, who live there? Ambassador Moss. Yes, Congressman Wyatt, that is an impor- tant question; it is one that is being worked out within the context of this Binational Working Group, in one of the committees. I think it needs attention, because, of course, there is a great dispar- ity in electricity costs — the cost of electricity presently being fur- nished not only to American citizens who live in the Canal Zone, but also to nonprofit organizations such as churches. I hope we can come up with a satisfactory resolution. We certain- ly regard it as a significant problem, because it is one of those many elements which goes into the quality-of-life situation. If too many of those are out of kilter with peoples' expectations, then there is a perception that the quality of life is not going very well. So f think all these things need detailed attention. Mr. Wyatt. Also, as I understand it, employees would lose the privileges of purchasing from the company store. Is this by treaty that they are going to lose these rights? Ambassador Moss. Yes, sir, that is correct; that is in accordance with the treaty arrangement. This was a provision which the Gov- ernment of Panama sought in the treaty arrangements, I think for reasons of adding to their economy. It is in accordance with the treaty. Mr. Wyatt. The Government of Panama is the one that wanted those particular provisions? Ambassador Moss. That is correct. Mr. Wyatt. Third, could you give us some reason why there could have been, during the last several days when the committee was in Panama, differences that you got from the Panamanian leadership, versus what the treaty may say? I agree with the chairman; I think there are some real problems. I can see very little reason for us to go down there again to joust; this is a committee of the U.S. Congress. These feelings were not strongly held by not just the individuals who testified, or the visitors, but by various people in the Government of Panama itself. This is a general question. Ambassador Moss. As I mentioned, I feel that the positions which you heard at the end of the briefing session with the 871 Panama Canal Authority, which were certainly surprising to the members of the committee — and, frankly, surprising to myself— expressed, as the speaker mentioned, his own opinion, and possibly the opinion of certain elements within the Panama Government, but not an official government position. Nonetheless, they obviously have to be taken seriously, because he is, undeniably, an official of the Panamanian Government and of the Panama Canal Authority. So, as I mentioned to the chair- man — and the chairman's message to me certainly was that they are matters that have to be cleared up, simply because of the way in which they were brought up. I think it is an important distinction, however, to say that these were not official positions adopted by the Government of the Re- public of Panama, nor, in fact, by individuals who had direct per- sonal knowledge of those particular clauses of the treaty because they negotiated them. But, nonetheless, I recognize their importance and the effect that such statements had on the members of the committee that heard them. Mr. Wyatt. Thank you, Mr. Chairman. Mr. Hubbard. Congressman Bauman? Mr. Bauman. Mr. Ambassador, you disappoint me, because I fully understood that you were going to laugh if you made the statement that you just made before this committee. I think, if I heard you correctly, that the statements made to us by the officials of the Panama Canal Authority — all of them Panamanian Govern- ment officials — did not necessarily represent the official position of their government, is that correct? Did you say that? Ambassador Moss. That is correct. Mr. Bauman. And you did not laugh. Ambassador Moss. I made a correct statement. In fact, the speak- er himself said that; he said they represented his personal opinion. I think that later he added that there were some people in the Panamanian Government who felt that way and that they were working on an official position paper. That is not to say that I am claiming he made those remarks as a private citizen because, of course, when he is an official of the Government and stands before the members of the committee and makes a statement of this sort, these, of course, are not the re- marks of a private citizen. I am not trying to make that case. I am only trying to put into context the way in which the statements were made and, more precisely, where they fit into official positions. Mr. Bauman. Mr. Chairman, I regret that I did not get here earlier this morning. I would almost think, if I didn't know better, that the State Department was in charge of the weather and the traffic between here and Easton, Md. It is not as though I have not discussed this matter with Ambas- sador Moss extensively in the last 4 days, because I have on numer- ous occasions and he has been very courteous to me. But I do want to state for the record, since I was not here earlier, that those of us who oppose these treaties in the House of Representatives and were disposed to deal with this implementing legislation in a manner that would try and salvage, as we view it, the best possible 872 case for the United States now have very serious doubts about whether we want to even bother with the implementing legislation; whether or not it might not be better, as I said yesterday in Panama, to seek some constitutional means to either repeal or to oppose these treaties completely, by whatever method is available to us. Certainly, there is still a dispute about the House's right under article IV to dispose of property. Unless these questions are cleared up — and I gather from the briefing from staff, since I did miss your statement, many of the points that were raised by the Panama Canal Authority remain to be clarified and that report will be referred to this committee. Is that correct, Mr Ambassador? Ambassador Moss. That is correct. The chairman requested, and I promised to do my best, to produce a satisfactory response for the members of the committee so that these matters which were raised during the course of that briefing would be clear in the commit- tee's mind. Mr. Bauman. I think that is essential, because it is incredible to me that in all these negotiations, you could serve as many months as you have dealing directly with the Panamanians — and then a congressional committee, who luckily happened to meet with these Panamanian officials on what we are now told is an unofficial or informal basis — and give us interpretations that are not only dia- metrically opposed to your understanding and our understanding, but to the treaty's specific terms. That was confirmed to us by Governor Parfitt in our debriefing session. There is no right of the Panamanians to apply, retroactive- ly, their laws, tax, criminal, or otherwise. There is no right for them to take our movable property which is not needed for the operation of the canal. There is no right for the Panamanians to demand that we renovate dilapidated property. There is a right to remove a property, such as the locomotive that became such an emotional issue last week in Panama. Now, if we cannot deal on a basis of understanding at this point, I do not know when we can. I would restate my own view, at least from this one member's finding, that what we saw in Panama was the basis for this Congress, if it is to act on implementing legisla- tion, to adopt the strongest possible legislation to curtail the power not only of the Panamanians to misinterpret, but the power of the State Department and others in the administration who appear to be, at many points, not on the side of the position that many of us, at least, in the Congress hold. I think it is unfortunate that we have come this far to a juncture where we have to write this legislation and have not resolved these issues. So I do hope that your guarantee of a full explanation will be given to this committee, and I also want to thank you for your many courtesies to me extended through the time that I stayed there. Mr. Chairman, I have had so many questions asked and an- swered during the last 4 days, I do not think I need to ask any more and I thank you for your indulgence. Mr. Hubbard. Thank you, Congressman Bauman, for your com- ments. Are there any other questions, counsel? 873 Mr. Corrado. Yes. Mr. Hubbard. Mr. Ernest Corrado, counsel for the committee; go ahead. Mr. Corrado. Thank you. Ambassador, as I understand it, the only drydock for thousands of miles around where the gates of the locks can be repaired is at Balboa, and I understand that this goes over to the Panamanians on October 1. If this is so, and I understand it is, it is a critical facility and it seems that there are some political-based questions, if I could ask a few, with respect to this situation. Do we have any assurances from the Panamanians that they will allow the gates to be repaired there, and what will we do if they will not? What recourse do we have in the event of a refusal? Is there any protection for us in the treaty with respect to this? Have there been any discussions with the Panamanians regard- ing the costs to be assessed for repairs when we float the gate down to the drydock? Are there any assurances in the treaty or from the Panamanians, or otherwise, that the costs for the repairs will not be exorbitant? Has the Embassy taken any actions with the Panamanians to prepare them to take over this facility? Lastly, have there been any discussions or any preparation for training the Panamanian employees who will run this facility? Obviously, the reason I ask all of these things is, if the gate cannot be repaired for any of the reasons that I mentioned, it is obvious that the facility will not function. For the record, could we hear whether there has been any work done on this and whether we have any assurances that this will all function smoothly. Ambassador Moss. Well, Mr. Corrado, I certainly think that both sides recognize the tremendous importance of having the facility to overhaul our lockgates. They go through periodic overhauls, and I think a complete overhaul something like, I think, every 25 years, where they are completely taken apart and put back together again. That is an essential part of the operation of the canal. As for the specific discussions with the Panamanians of the future of that maintenance and of the training of personnel, I am not an expert on that subject. I believe they have been taking place within the context of the discussions with the Panama Canal Com- pany, because I know that on a number of technical levels and I believe that drydocks is one of them, Panamanian observers have been brought in and they are beginning to be apprised of the problem and of the nature of the work that is going to have to take place. I am not aware of any specific discussions between the Panama Canal Company and the Government of Panama at this point as per the costs involved in drydock lock gate overhaul. I think it is a matter of great interest to both governments. Certainly, I believe that one place in which that question would be addressed, of course, will be in the board of directors of the new Commission, which will have a minority membership of Panama- nians. So, in a way, the Panamanians will be sitting on both sides of the table. They will be negotiating the price for the overhaul of the lock gates; at the same time, other Panamanian interests, 874 possibly private interests, may be negotiating the price of that overhaul. I am sorry that I am not an expert on the fine points and the details of the work that has progressed to date in discussing that particular subject. I do feel, however, that both sides recognize it as an important one, and one that certainly has to be dealt with, because it is one of the essential functions of the operation of the canal. It is not one in which the Embassy has played a principal part. I think that is going to be worked more through the Panama Canal Company and the Binational Working Group, but it is one where we have an obvious interest. Mr. Corrado. With respect to the water situation, is it not true that most of the water sources and the backwaters will be under Panamanian jurisdiction after October 1, and have there been any agreements or any discussions with respect to the control of the mosquito? Ambassador Moss. On water resources, there have been some significant developments that have taken place. One of the big problems in the Canal Zone and the adjacent areas of the water- shed which are now in the Republic of Panama has been the progressive deforestation over the years. If you see aerial charts of the 1950's down to the present, on both sides, in the zone and out of the zone, you will notice a consider- able amount of deforestation. That, of course, has to be halted and, in fact, turned around and areas reforested, if the proper amount of rainfall is to continue to be available to the canal. We need 52 million gallons of fresh water for each ship transit, so it is very, very essential for the operation of the canal. In that respect, work has been going forward on the creation of an environmental committee which will include American and Panamanian representatives. And even before that time, we are taking steps with the Government of Panama, through a new AID watershed management loan, to provide some loans to try to start the reforesting process again. I think there is a tremendous amount of sensitivity on the Pana- manian side and, of course, Panama has a stake in the tonnage that goes through the canal in that that is the principal source of their payments under article XIII of the treaty. So I think there is a great awareness on both sides, and actually plans in action which will attack the water problem and which will insure that the deforestation which has been devastating the isthmus can be turned around, and that proper care of the environment can be taken. On the Panamanian side, they have plans in some of the areas you mentioned that fall back under Panamanian control in creat- ing protection of the national park reserve, increasing enormously the amount of land included under national park protection right now. So I think there is awareness of the essential value in protecting the watershed and, in fact, even improving it from its present state. In the area of mosquito and pest control, of course this is one of the great historic features of why the canal was originally success- ful — the conquering of disease. The Panamanians have been 875 trained progressively through the years, and through their minis- try of health, have had a very good mosquito control project within their own territory. I recall that sitting in my office one day, Panamanian Ministry of Health inspectors came in with funny-looking apparatus and asked if they could check my office for mosquitoes. This was obvi- ously something learned through the long development by us, origi- nally, and the work of Dr. Gorgas and the Americans who pioneered the sanitation of the isthmus. I think that program seems to be going along very satisfactorily, both on our side and on theirs. Mr. Corrado. I understood that there has always been a constant program underway to control the mosquito, and it possibly could be a problem if, in fact, it was not under our control and it could become a health hazard again. Ambassador Moss. I hope that does not happen; I would not expect any reason why it should, given, I think, the recognition and the scientific capability on both sides to deal with that prob- lem. As I say, just in my own observation, I have noticed the Panamanians doing a pretty good job on that side, too, working, as they have through the years, with our people who developed these sanitation methods. Mr. Corrado. One further question, Mr. Chairman, if I may. Mr. Hubbard. Go ahead. Mr. Corrado. Mr. Ambassador, we have found, from talking to the people in Panama and from our hearings over the last few days, that, in fact, it may be necessary to appropriate funds, for example, with respect to the payment of early-out pension rights. And there were a number of other areas. Furthermore, it is conceivable that in the next few years, the tolls revenues may go down instead of going up or remaining the same because of the pipeline that might be built from Long Beach to the Midwest or because of the swap of Alaskan oil. I recall that a few years ago, we went down there and they were operating even or with a loss. Now, if this should happen again, I do not see where all the money will come from for the 30 cents per ton, plus the several $10 million payments we have to make. When Ambassador Linowitz testified before this committee on August 17, he stated: "The Canal itself will earn the money to pay that amount to Panama. The American taxpayer will not be asked to make the payment." Now, it is conceivable that, in fact, it may be just the opposite. Would you care to comment on this statement and this situation? Ambassador Moss. I would only want to comment that the treaty was negotiated and written without actually taking into account the contribution that would be made by Alaskan oil. That, of course, has been an unexpected boon that has added quite a number of millions of dollars to the canal's revenues over the last year or so. I think the expectations are that even if a pipeline were built that would take some time and the Alaskan oil would continue to flow through the canal for at least a couple of years, which would be the highest cost years in the transition period, in operation under the treaty. 876 Now, no one can sit here and make an economic forecast and guarantee you that the canal will continue to be prosperous through the years. I think however, that certainly in the short run, there is not the prospect for a severe downturn in toll revenues. Indeed, I think that under the treaties, simply because of the disappearance of U.S. jurisdiction and therefore the nonapplicabi- lity of Federal minimum wage provisions in the present Canal Zone, that suggests certain areas in which costs in the future might be cut in which they are not able to be cut today. So I think there is no reason for undue pessimism about the ability of the canal to pay for itself and to generate the revenues required. Incidentally, when the treaty was negotiated, our negotia- tors, in testifying before this committee and others, gave estimates varying anywhere from 25- to 40-perce*nt increases in tolls. The present estimate, of course, is way below that, partly because of the inflow of Alaskan oil, but also through the general traffic pattern. So I think the outlook, certainly for the period of time that we can foresee it, is one which would give rise to optimism about the economics of the canal enterprise. Of course, I do not want to pontificate about that at great length; that is not my special area of expertise. But I think that on the evidence that I have seen, we can make such a statement certainly with respect to the short run. Mr. Corrado. One of the things of concern is that I recall, before the treaty negotiations reached fruition, several times the Panama- nians were on record in this committee as talking about a 300- to 400-percent toll increase, which I think certainly indicates their philosophy with respect to toll increases. Now, there have been two toll increases already, and a de facto third one. The traffic just will not bear a heck of a lot more. I do not care what anybody says; it is not going to bear a heck of a lot more. You may find yourself coming and going in circles, because if there is any kind of further substantial toll increase for Panama- nian payments, for example, the container operators will go land bridge in the United States. I talked to a number of the foreign operators and they have said: "We will make other arrangements, too." I just think, aside from the Alaskan oil problem, which I realize was a boon, there is a propensity there for economic disaster, and certainly a raid on the pocketbook of the U.S. taxpayer, ultimately. That is what I person- ally predict will happen. Ambassador Moss. Well, I would only say that I think that the best guarantee now is that we have total control over the toll raises between now and the year 2000. I think what you may be primarily concerned with would be what the Panamanians would do after the year 2000. Now, since they will be working with us for 21 years, I think they will, over that period of time, have a very good appreciation of the sensitivity of traffic to toll increases — a kind of an appreciation which perhaps was not present at the time of the early part of the negotiation of the treaties, simply because they had never been involved in studying questions such as toll sensitivity, as had been the Panama Canal Company and other agencies interested in the subject. 877 I think that is why the treaty scheme is a sound one, because it gives us a 20-year period, working with our colleagues in their minority representation on the Board of Directors of the Commis- sion, to understand fully that the Canal is a very competitive business in the world of transportation; that there are other forms of transportation that compete very hard with it. They will learn this by traveling around to different port areas, as do our Panama Canal Company people, understanding the con- cerns of the shippers as to possible toll increases in the future. I think that over that period of time, they should become very cost conscious and conscious of toll sensitivity as we have become over the years. Mr. Corrado. That will depend, I think, to some extent upon who the American representatives of the Commission are, and also the Panamanians. But I fear that somewhere along the line in the next 20 years, and even sooner, there may be a severe dislocation with respect to the tolls and the revenues. Thank you very much, Mr. Ambassador. Thank you, Mr. Chairman. Mr. Hubbard. Thank you, Mr. Corrado. Is there unanimous consent that Congressman George Hansen, who has testified before our subcommittee, may ask one question? Mr. Bonior. Mr. Chairman, I reserve the right to object, but I will not object. I think the Congressman has been involved in this issue for a long time and has deep interest, but I just wish that that type of invitation would be given by other committees. I have, on occasion, attempted to do the same thing in other committees and have been rejected by the chairman. It would seem to me that if a Member of the Congress has an interest in a piece of legislation and has worked on it, that, indeed, he or she should be able to ask questions and to participate. I will not object, for that reason. But anytime the opportunity comes along where I get to make my point of view known, I certainly want to do that. Mr. Hubbard. You do have different types of chairmen; I agree with that. [Laughter.] I am on the House Banking Committee and the House Merchant Marine and Fisheries Committee; I can see differences on those two committees. But, let us go ahead and allow George Hansen to ask his question. Mr. Bonior. Before you do, I just would like to be excused, and make the observation that I have not seen a nationalist mosquito. In fact, I have been told that most of the mosquitoes are binational in Panama. They bite with equal fervor, I understand, although I was not bitten by a mosquito in Panama, although I was bitten by other things while I was there. Speaking of mosquitoes, I have to go over to the Alaska hearing, because we have some important legislation that we have there, so I ask your indulgence and I commend the Ambassador for his statement. Mr. Hubbard. We thank Congressman Dave Bonior of Michigan for being here. Go ahead, Congressman Hansen. 878 Mr. Hansen. Thank you, Mr. Chairman, and I just have one short question. I do think that the point made by Congressman Bonior about committee courtesies was a good one. You and I share another committee, the Banking Committee, and perhaps we can exert whatever influence we have in extending similar privileges there and beyond. I would like to ask you, Mr. Ambassador — I am sure the question has been asked many times, but very pointedly — you were involved in the treaty negotiations, and is it your understanding that any deficiency in tolls that would apply to payments to Panama would be made up by U.S. taxpayers? Ambassador Moss. If I interpret the question correctly, sir Mr. Hansen. Any deficiency in toll income that created a short- age in payments to Panama. Ambassador Moss. If there were insufficient toll revenues to cover the payments to Panama, then it is my understanding that they would not be owed by the U.S. taxpayer. Let us take a simple and perhaps the most extreme example. If the canal, due to an earthquake or a landslide, simply were not to function, then I would say that under the treaty there would be no money coming out of toll revenues, and therefore no article XIII payments. Mr Hubbard. Congressman Bauman? Mr. Bauman. I just want to make one statement while the Ambassador is still here, so that if he has any disagreement with it, he could let us know for the record. And any other of the Members who were in Panama, I would like to hear their disagree- ments, although Mr. Lowry and Mr. Carney are the only two. I was given to understand that when we met with the Panama Canal Authority that they represented not only the official position of the Government, but that they had been working individually for many months with the American authorities to work out the various areas of their disagreement. And in the specific case of the claim that Panama has now made as of last Saturday, and has not refuted, that the second $10- million contingency had to be budgeted into the tolls, that state- ment was made at length and in detail by Mr. Manfredo, who is rumored to be the deputy administrator under the new treaty, along with the American. Now, whether that comes about, I do not know. And it was made at the specific request of Ambassador Lewis, who is in charge of the Canal Authority on the Panamanian side. The answer was at great length and very specific that that was their position and their understanding, and he reiterated that to me at least twice privately during the discussion; once before I asked him the question — I warned him of the question — and once after. Now, the quality of the other answers on the other issues I have mentioned were the same, and I know that a member of your staff, after our press conference in Panama, was talking with a number of members of the press and seeking to give the same impression that you gave this morning, that the Canal Authority people were not speaking for the Government. Now, I think they were, and until their positions are changed, we are operating in a very uncertain area that may very well influ- 879 ence the legislation. Now, if you wish to disagree with me, Mr. Ambassador, I wish you would now. Ambassador Moss. Congressman Bauman, I do not wish to dis- agree with you; I just wish to make a bit more precise the context in which the remark was said. The gentleman who made the statement said very specifically that that was his personal opinion, and he gave to understand that that may be the opinion of some of the elements of the Panama- nian Government. But he did say very specifically that it was not the position of the Panamanian Government, as such. I have never received any official notification, in writing or orally, that that was the position of the Panamanian Government. Nevertheless, that having been said, which I think will help to put it in the context in which the remark was made, I am not going to try to make a case that he only said it off the top of his head or as a private individual. He is a government official and therefore is responsible for what he says. For that reason, the chairman made a very strong point this morning to me, which I take very seriously, that some word of understanding is required by the members of this committee, and I take that very seriously. But I think it is important to state pre- cisely the context in which the remark was made because the official representations of the Government of Panama are, to the best of my knowledge, those expressed in the protocol of exchange of the instruments of ratification, in which the Panama Govern- ment very clearly and expressly accepted the reservation added to the Panama Canal Treaty by the U.S. Senate which says precisely that the article XIII payments need not be included in the toll base. As far as I am concerned, that is the only possible legal position for that issue. Mr. Bauman. It was late in the afternoon on Saturday and we had been holding hearings for about 7 or 8 hours, but I do not recall Mr. Manfredo qualifying his statement, saying: "This is my personal view and does not represent the Government's view." On the contrary, when I asked him the question at the break so that he would not be surprised, he scurried around and got some consultation with Ambassador Lewis and others. The specific ques- tion I put to him was: "What is your Government's position on these tolls and this second $10 million?" If he is going to sit before seven Members of Congress, including the chairman of this committee, and toss off a personal opinion in a delicate matter like this, it calls into question the competency of some of the people negotiating on both sides. But I await with great interest the real, true position of the Government of Panama. Thank you, Mr. Ambassador. Mr. Hubbard. Lastly, I believe, we have a couple of questions from Mr. Bernie Tannenbaum, consultant to the full Committee on Merchant Marine and Fisheries on the subject of the Panama Canal. Then we will have our next witness. Mr. Tannenbaum. Mr. Ambassador, it is conceivable, is it not, that the canal will be operating in the red in the foreseeable future? 880 Ambassador Moss. Mr. Tannenbaum, it is not my understanding that in the foreseeable future, that problem could exist. Now, no one can make any economic predictions, I do not think, about anything over a very long period of time. So, therefore, as to the long term, I would not want to say. But in the short term, from the evidence I have seen and the studies made by the Panama Canal Company and others, it is my judgment that there is no short-term risk of the canal operating in the red. Mr. Tannenbaum. Well, it may not be probable, but it is possi- ble, is that correct? Ambassador Moss. Well, I think anything in the world is possi- ble. Mr. Tannenbaum. You have a canal operating with gross rev- enues of a little over $300 million right now. The payments to Panama alone are being increased from $2 million, some odd, to $75 million a year, and with a contingent payment, $85 million a year. That payment increases in 5 years by maybe another $25 to $50 million, so the annual payments will soon be over $100 million a year just to Panama. Ambassador Moss. Only if the traffic increases. Mr. Tannenbaum. No. On the 30 cents per ton payment, there is an escalation provision built into that, and I am sure that very shortly we will be paying them well over $100 million; probably somewhere between $100 and $150 million a year just to Panama. If we have a recession like we did in 1974 and we lose some of the grain shipments and we lose the Alaskan oil shipments, I think it is a serious problem and something we should consider. Now, of course, you have ways of making things break even by not paying the interest payment that has historically been paid and by transferring costs to the Department of Defense, but these are really payments by the American taxpayer, are they not? Ambassador Moss. I would also like to say that there are other posssibilities now of cutting costs which possibly do not exist under the present arrangement, simply because of the greater flexibility with regard to labor costs and contracting for services. When, for instance, a contractor comes into the Canal Zone to perform a piece of work, he has to pay a minimum of $2.90 an hour, when the minimum wage in Panama is 60 cents. This is true for any work done in the Canal Zone by anyone, whether it is by a Canal Zone enterprise or a Panamanian enterprise coming in. So I just say that by way of suggestion that there are ways of cutting costs that may be even more flexible in the future than at present. I think that, certainly, one would first turn to cutting costs. Raising toll rates, of course, is another way. We had reckoned, in negotiating the treaties, that toll increases of somewhere in the neighborhood of 30 percent were what we budgeted for. As a result, of course, of the favorable economic situation, if we were not to continue the interest payments, the toll raise would be about half that amount. Sensitivity studies have shown that you could increase the tolls by somewhere between 75 to 100 percent without a fall off in revenue, so that there is flexibility built in. That is why I think that, certainly for the foreseeable future, unless there were a world . 881 economic disaster that hit very suddenly, it is hard to see that the canal would be faced with a deficit operation over the short term. As I say, I am not an economic expert and do not want to hold myself out as one, but over the short term, just from the evidence I have seen, that would not be the case. Mr. Tannenbaum. The only difference I have with you there is that I think the sensitivity studies which said between 75 and 100 percent preceded our previous increases of almost 50 percent. Also, on the question of lowering of the wage base for the Pana- manians, you are then going back to the gold and silver standard problems, and that creates some serious problems in my mind. Ambassador Moss. I am not suggesting that there should be a policy of lowering the wage base at all. I think, to the contrary, that that would buy a considerable amount of labor difficulty. I am only suggesting that with regard possibly to future increases in the Federal minimum wage which the Congress may enact or with regard to the contracting for outside services and in other respects, if done in a proper way, there possibly is a cost flexibility which we will have in the future which we do not have at present. Mr. Tannenbaum. Well, I am a great admirer of yours, and I wish I could share your optimism. Another point here, though, is that Congressman Murphy and the other members raised the ques- tion of the serious differences of the treaty interpretations between our Government and Panama, involving hundreds of millions of dollars and perhaps going to the core of the treaties themselves. Do you know of any other major areas of differences which have arisen, other than those discussed this morning? Ambassador Moss. I think one possible area — and I do not know if it is a difference or not — but I think one thing we have to be mindful of is the labor provisions. Certainly, in statements made by Ambassador Lewis and others, they have stressed that there should not be any continuation of, as you described it, the silver and gold roll notion in the future; in other words, that all Panamanian and U.S. employees ought to be on the same wage level. That is a decision that the Department of the Army and the Panama Canal Company are studying. Our position is that we have managerial flexibility there. I think that is one area to which we have to look at carefully and make sure that we are on the same wavelength. It is not so much a question of treaty interpretation as a question of policy, and I think that is a very real and important issue which both sides face. Mr. Tannenbaum. One final issue here. Do you have any evi- dence of anticipated additional costs which will be added to the canal operation post-October 1979? An example would be that yes- terday we heard that the railroad is operating at a loss, and the Panamanian officials indicated that they expect it to be operating at a profit very shortly. I wonder if the profit will just be added cost to the U.S. operation. Ambassador Moss. No, sir. As I understand it, the profit arises from some plans that they have to improve the railroad, possibly with some international institutional support, to extend it into commercial areas on the Colon side, and then up into the sugar- producing country near Veraguas, and actually to improve the 882 rolling stock and to add other features in such a way that it would be turned into a profitable operation. I have heard no demand that any of that come from the United States, but I think it is merely a prediction of what they would hope to do with the railroad in the future. Mr. Tannenbaum. Do you think there will be any other oper- ational cost increases by reason of the Panamanians operating the ports and causing additional costs to other agencies, like DOD, which are really U.S. taxpayer costs? Ambassador Moss. Certainly, a lot of additional costs have been discussed — such things as military costs and other things that have been identified. I do not personally know of any additional costs other than the ones that have been identified and discussed and debated so far. I just do not know of any additional ones other than those that are on the public record and are a matter of knowledge. Mr. Tannenbaum. I heard one thrown out the other day of $46 some-odd million for just reconstructing certain buildings in other areas while contracting the U.S. operations. Ambassador Moss. I think that may have been part of the mili- tary construction costs which, of course, are now and have been under scrutiny. Mr. Tannenbaum. Thank you very much. Mr. Hubbard. I have one final question that I did not anticipate, but I have been asked to ask, and it is a question that is pertinent. Mr. Ambassador, in the recent trip by the committee to Panama, members of the committee heard continually from the Zonians about the loss after next October 1 of such prerogatives as commis- sary and PX privileges after 5 years for the canal employees. Is that right? Ambassador Moss. That is correct, sir. Mr. Hubbard. I understand that there is no such cutoff of com- missary privileges for employees of the Embassy 5 years from now, is that correct? Ambassador Moss. That has not been discussed with the Pana- manian Government. It is certainly not in the treaty, but I would say it is a different situation. Mr. Hubbard. How? Ambassador Moss. In that around the world, our embassies abroad and foreign embassies in the United States generally enjoy free import privileges as a matter of comity. The Embassy, for instance, would be able to set up a commissary in its own basement if we wanted to, and I think that is really a question aside from the treaties. The Embassy has had commissary privileges off and on through the years from the military forces. Before my time, I gather that sometimes the Embassy has had them and sometimes it has not. But I think that question is not as important as the general princi- ple that embassies generally around the world enjoy import privi- leges on the basis of reciprocity with other countries, and that really is not something that enters into the treaty relationship, but is a question of diplomatic practice apart from the treaty relation- ship. Mr. Hubbard. Would you not agree, though, that it is difficult to justify the disparity of treatment between the employees in the 883 Embassy and disenfranchised employees formerly enjoying such privileges when the zone was in existence? Ambassador Moss. I will agree with you that apart from the legal aspect of the problem, there may be sort of a public relations or political aspect to it, only in that sense. But, as I say, I think the question is really a much broader one and involves our reciprocal practice around the world. Mr. Hubbard. I am informed that Congressman Carney has one more question. Mr. Carney. Mr. Chairman, I appreciate your giving me this additional opportunity to ask the Ambassador a question, but real- izing that he is going to be 2,400 miles away, I think I should. Mr. Tannenbaum was asking questions pertaining to additional costs. There would be a 14-percent increase in the cost to use the canal; 6 percent of which is brought about by the amount of money we have to pay to Panama. Now, in the treaty, we have lost certain facilities that generate revenues in the Canal Zone. The Panamanian Government now will own those facilities on October 1. Do you have any idea of how much revenue we will lose because the nation of Panama will gain those? For instance, the docking facilities in Balboa, and then how much of that would be reflected in the increase of tolls? Ambassador Moss. Congressman Carney, I know that we will be giving up certain facilities that are revenue-producing. We will also be giving up certain facilities which are unprofitable or which lose money. Now, again, I am not an expert on this, but I believe that when you balance the profitable against the unprofitable activities over the years, it probably comes out to a slight gain. I am not aware of the figure; I can try to supply that for you. But, of course, there are both sides of the ledger; we also give up some losers, such as, for instance, the railroad. Mr. Carney. The reason I ask that question is, apparently, we are going to be losing a lot more than we are gaining, because there is an 8-percent difference in the tariff to use the facility, as of October 1, and I can only account for 6 percent. I have been trying to get some sort of an accountability of why the tolls are going up 14 percent. Now, I have been told that one of the reasons is because we are losing some facilities that generate a profit, and I would like that clarified as quickly as possible. Ambassador Moss. I will ask the Panama Canal Company to try to come up with that figure; they are the ones who calculated the 14-percent figure and who have made the studies in total increase requirements. I will certainly endeavor to get that for you. Mr. Carney. Thank you very much, Mr. Ambassador. Thank you, Mr. Chairman. Mr. Hubbard. I believe that finally does complete the questions, and we appreciate the question by Congressman Carney, as we do each of the questions by the Members of Congress and staff mem- bers. We very much appreciate you, Ambassador Moss. I think I speak for each member of our subcommittee who have known you briefly or for a long time when I say that you are a plus and a real credit 884 to our country, and we admire you and congratulate you on the work you are doing. In your position, at times you will disagree with some of the Members of Congress, but you always have shown us respect, and we thank you for being with us this morning. Mr. Bauman. Mr. Chairman, I want to join in thanking the Ambassador, also. And may I ask, were there any representatives of the Panamanian Embassy present during the testimony this morning? [There was one acknowledgment.] Mr. Bauman. Gracias. Ambassador Moss. Thank you, Mr. Chairman. I thank you and the other members for your generous remarks. Mr. Hubbard. We next welcome Hon. Clifford L. Alexander, Jr., Secretary of the Army. We apologize for the delay in reaching you as a witness. We anticipated you would be gone by now. But we will move as quickly as we can. At this time I do have to make a unanimous consent request and make some brief announcements. H.R. 1958, a bill introduced by Congressman George Hansen, to ''protect the interest and express wishes of the taxpayers of the United States on the Panama Canal Treaty of 1977" has been added to the list of bills to be considered in these hearings. This brings to five the number of bills we are now considering. We will, of course, be asking for agency reports on House bill 1958, Mr. Hansen's bill. At this time I would like to ask unanimous consent that all of the bills which are the subject of these hearings, and the accompa- nying section-by-section analyses and reports thereon, be placed in the record on the first day of our hearings, immediately after opening statements. Is there any objection? Hearing none, it is so ordered. I further ask unanimous consent to place into the record of these hearings, immediately after H.R. Ill and agency reports thereon, an analysis of that bill with appendices as written by Merrill Whitman, congressional consultant to the committee. This analysis was a part of the briefing book previously sent to all members. Is there any objection to that unanimous consent request? Hear- ing none, it is so ordered. Next, to prepare the subcommittee for future unanimous consent requests, I want to announce that I will ask that several studies in relation to the implementation of the new Canal Treaty and ar- rangements have been prepared for the committee to be placed in the hearing record, either before or after the testimony of the administration witness to which they most closely relate. Is there any objection? Hearing none, it is so ordered. Our second witness this morning is Hon. Clifford Alexander, Secretary of the Army, who has held this position since 1977. Before that time he served in a number of very distinguished posts in the Government, and has been an attorney in private practice for many years. The Secretary of the Army has been for some time the officer of the United States designated by the President to be the sole stock- holder of the Panama Canal Company, and supervisor of the Canal 885 Zone Government. As stockholder, the Secretary appoints members of the Board of the Company, and he also is delegated the Presi- dent's authority with respect to employment and the coordination of employment practices in the Canal Zone. So, Mr. Secretary, we are especially interested in questioning you, please, about the perspectives for the Board of the Panama Canal Commission, the ramifications of the Panama Canal employ- ment system, and several other regulatory aspects of the Commis- sion. Mr. Secretary, we will ask you to give us your testimony and to answer questions. And if you desire to stay on afterward and visit with us, please feel free to do so. STATEMENT OF HON. CLIFFORD L. ALEXANDER, JR., SECRETARY OF THE ARMY Secretary Alexander. Thank you, Mr. Chairman, and members of the committee. It is a pleasure to be here with you today. As you know, my primary responsibility as Secretary of the Army is to head the Department of the Army. However, I also have a major responsibility for overseeing the effective operation of the Panama Canal. While the administration's legislation does not implicitly assign an oversight role, I can tell you that the Secretary of the Army will continue to have this oversight responsibility. There are a number of differences in the two major pieces of legislation you are considering. Conversely, a number of the sec- tions are generally parallel. I would like to highlight the differences in certain key sections in which I believe the administration's version to be markedly superi- or in facilitating the continuing efficient operation of the canal. I consider the form that the Panama Canal Commission is to take as one of the most important differences in the two pieces of legislation. Our proposal continues it as a corporate agency while H.R. Ill would make the Commission an appropriated fund agency. Next, the employee provisions in both bills are very similar. But H.R. 1716 would place all employees of the Commission under the same labor management policy, while H.R. Ill would place all employees of Federal agencies operating in the former Canal Zone area under the same labor management policy. Further, the administration's bill deletes the requirement to pay interest to the U.S. Treasury. This would enable the maintenance of the lowest toll rate practicable. H.R. Ill, by contrast, continues to include the interest and, in addition, requires that amortization of the investment be included in the toll base. There are a number of other differences, many important, be- tween the two bills. I am confident that they have been, or will be, brought to this committee's attention during the course of these hearings. But let me focus on the three key aspects that I have mentioned. As recommended in H.R. 1716, the corporate form of the Panama Canal Company has proven for almost 30 years that it is an effi- cient system of operating the canal. While the canal enterprise has a unique operating environment and unique responsibilities, it is 886 primarily and essentially a business enterprise. It therefore re- quires a combination of managerial and financial flexibility. To operate the canal efficiently, the Commission will have to deal successfully with the problems of functioning in a foreign country. If local authority is not granted the Commission to resolve problems with Panama, every incident could have the potential for escalation into a country-to-country confrontation. By separating the Commission as a corporate entity, the likelihood of such escala- tion could be diminished. Authority for decisionmaking to meet operational problems re- quires that the Commission be granted financial flexibility in order to carry out its responsibility for financial self-sufficiency. In order to achieve financial self-sufficiency, the Commission must be able to adjust its costs and rates to respond to changing traffic. The Government corporation form proposed by the administra- tion for the Panama Canal Commission would essentially continue the organizational form of the present Panama Canal Company, which was created by Congress in 1950 in recognition of the busi- ness activities inherent in the canal operation. Under the corporate form, the Company has been able to maintain an amazing degree of stability in its toll rates and its service to shipping and has never needed a congressional appropriation. While successful Company operation is attributable in large part to the managerial and financial flexibility it enjoys in its corporate form, it also has maintained a high degree of accountability to Congress. The 1950 legislation established the Company and set forth the guidelines for its operation; the budgetary controls im- posed by the appropriations committees that annually review the budget assure that the Company is spending within its revenues; and audit by the GAO, which reports upon the Company's account- ing procedures and policies, further assures that the Congress maintains control over the corporation. Congress has consistently, for more than 50 years, incorporated many Government agencies which function primarily as commer- cial activities. The incorporation of the Panama Canal Commission, which like the Company, will be in the business of transiting ships, would therefore appear to be entirely appropriate. H.R. 1716 would take this approach and would retain for the Commission all of the congressional controls which have pertained to the Company. The remarkable record of achievement of the Panama Canal Company during its 28-year existence as a corporate entity also supports the argument that the Commission should be a corporate rather than an appropriated fund agency. The Company has oper- ated on a self-sufficient basis since its creation, while at the same time paying back to the Treasury millions of dollars on the invest- ment of the United States in the agency and many more millions in interest on that investment. Further, it has also invested a considerable sum of internally generated funds in capital improvements to Company facilities, while at the same time financing capital improvements to Canal Zone Government facilities. Although it is authorized both appro- priations and a $40 million borrowing authority, it has not re- quired the use of either, even during a period of operating losses. This record of the Panama Canal Company speaks for itself on the 887 question of the efficiency with which a corporate agency can oper- ate. In the area of labor relations, the administration's bill proposes that all employees of the Panama Canal Commission, both United States and non-United States, be covered by a labor-management policy tailored to meet the needs of the unique situation in Panama. U.S. employees of other Federal agencies operating in the area would be covered by Federal labor-management relations enumer- ated in title VII, Civil Service Reform Act, while the heads of these agencies would be given the option to place their non-U. S. employ- ees under the Panama Canal Commission's labor management pro- gram. The Panama Canal Commission is a unique organization, with a work force which will become increasingly Panamanian at all levels over the next 30 years. A labor relations system focused largely on local conditions and issues would be most appropriate in terms of facilitating — or at least avoiding interference with — the gradual transition to Pana- manian control of canal operations. Coverage by a separate labor relations policy, dedicated to the local situation, will serve to facili- tate the evolutionary process which will be taking place. This will not be true, however, for DOD elements in Panama which will continue to perform the same functions as they do today until phase out of their operations. In all other areas of the world we apply the labor relations policy specified in title VII of the Reform Act to our U.S. citizen employees and we believe that this should also be the case for the DOD-U.S. employees in Panama. The administration's proposed bill also provides for a package of personnel benefits. Because of the great decrease in the size of the Panama Canal Commission in comparison to the Panama Canal Company and the Canal Zone Government, we have projected that some 2,600 employees, both United States and non-United States, will lose their jobs through a reduction-in-force action. Due to the size and complexity of this action, and in consideration of its impact on the lives of employees and their families, we ask passage of H.R. 1716 by May 31 so that critical preparatory actions can be completed by the treaty effective date. The most critical problem that will develop by late passage of the proposed legislation involves the transfer of over 3,000 employees to local Department of Defense activities. If passage is unduly delayed, this transfer would be seriously hampered because of the lead time required by law and regulation to effect such actions and to guarantee observance of employee rights. If passage is delayed beyond October 1, the transfers will be prevented because the Department of Defense activities will not have been legally authorized to pay the transferred employees from appropriated funds. Inasmuch as the Panama Canal Commission is precluded by the treaty from continuing the functions in question, it would then be necessary for the Commission to terminate these employees. This would be chaotic, not only for the Commission, but for all Federal agencies operating in the area. One of the primary goals of the Panama Canal Company is to maintain the toll rates as low as practicable in order to continue to 888 attract shippers worldwide. As mentioned earlier, the Company has been successful in this endeavor. It will, however, be necessary to raise tolls to accommodate the increased payments to Panama provided for in the treaty. We want to keep the tolls increase as low as we can, consistent with sound business practices. Initial estimates indicate that a tolls increase in the neighbor- hood of 14 percent under the administration's legislation would meet the Commission's financial requirements, provided that, as recommended in the administration's bill, interest on the invest- ment is no longer required. Under H.R. Ill, with its interest and amortization of the invest- ment, it is estimated that the increase would be considerably more, approximately — and I stress approximately — 35 percent. We oper- ate a utility for world shipping, and the tolls must be kept low enough so as to be financially advantageous for the shipper to use the canal. We are asking the Congress to now pass the necessary legislation authorizing the United States to properly operate and defend the Panama Canal, and to effectively carry out the functions author- ized through our treaty. We believe that H.R. 1716 accomplishes this. Thank you very much. I will now answer any questions you have. [Questions submitted by the subcommittee to the witness and answered for the record of the hearing follow:] Questions of Subcommittee Answered by Mr. Alexander Question. How would labor-management provisions of H.R. Ill and H.R. 1716 affect the ability of the Secretary of the Army to negotiate collective bargaining schemes for the Canal and other agencies in the Canal area? How will the H.R. Ill provision on labor-mangement relations applying to all agencies relate since the Treaty guarantees collective bargaining only for the Commission? Answer. H.R. Ill would require the Secretary of Defense to establish a labor- management relations policy, providing for collective bargaining between manage- ment and employees of all government agencies in the Canal Zone. H.R. 1716 would require the President to establish such a policy applicable only to employees of the Panama Canal Commission, US citizen and non-US citizen employees alike. In practical terms, under both bills the labor relations policy would be installed by the Secretary of the Army after consultation with all interested parties. H.R. 1716 would make inapplicable to US employees of the Panama Canal Com- mission the provisions of Title VII, Federal Service Labor-Management Relations, of the Civil Service Act of 1978 (5 U.S.C. 71). A separate policy (now in draft form entitled "Joint Panama Canal Commission /Department of Defense Labor Relations Policy") would apply to all employees of the Commission, US and non-US. The Joint Policy could also be administratively applied to non-US employees of the US South- ern Command (SOUTHCOM) if the Commander-in-Chief, SOUTHCOM, so deter- mined, other non-DOD agencies in the Canal Zone would be free to apply Joint Policy provisions to their non-US employees. Title VII would automatically apply to US employees of all government agencies (exclusive of the Commission) in the Canal Zone. The Panama Canal Commission is a unique organization, with a workforce which will become increasingly Panamanian at all levels over the next twenty years. A labor relations system focused largely on local conditions and issued would appear to be most appropriate in terms of facilitating — or at least avoiding interference with — the gradual transition to Panamanian control of Canal operations. Coverage by a separate labor relations policy, dedicated to the local situation, will serve to facilitate the evolutionary process which will be taking place. This will not be true, however, for DOD elements in Panama which will continue to perform the same functions as they do today until phase out of their operations. In all other areas of the world, we apply the labor relations policy specified in Title VII of the Reform 889 Act to our US citizen employees and we believe that this should also be the the case for the US employees in Panama. By the terms of Title VII of the Reform Act, non-US employees of US government agencies employed outside the United States are excluded from its coverage. This provision appears to mandate a labor relations system for Panamanian and other non-US employees of DOD elements which is more attuned to local conditions and customs. Thus, two elements form the basis for our advocacy of H.R. 1716: (1) the statutory exclusion of non-US employees in the Canal Zone (and the concomitant inclusion of US employees) and (2) the unique characteristics of the Panama Canal Commission which require a distinct and dedicated labor relations policy. Question: Would meetings of the Board of the Panama Canal Commission be open for public scrutiny under the provision of law requiring such meetings be generally open to the public? Need there be any special language to insure that such meetings be closed? Answer: We assume that you are referring to the open meeting provisions of the Government in the Sunshine Act, 5 U.S.C. § 5526. Those provisions apply to "any agency . . . headed by a collegial body composed of two or more individual mem- bers, a majority of whom are appointed to such position by the President with the advice and consent of the Senate." 5 U.S.C. § 5526(a)(1). The term "agency" includes "any executive department, military department, Government corporation, Govern- ment controlled corporation, or other establishment in the executive branch of the Government." 5 U.S.C. § 552(e). There is no doubt that under either H.R. Ill or H.R. 1716, the Commission would constitute an "agency" within the meaning of section 552(e), However, as estab- lished by H.R. 1716, the Commission would not fall within the scope of section 5526(a)(1). Although the Commission would be headed by a collegial body (the Board of Directors) appointed by the President (see Section 205 of H.R. 1716), such appoint- ments would not be with the advice and consent of the Senate. Therefore, reading the terms of the statute literally, the open meeting provisions would have no applicability. The answer with respect to H.R. Ill is more difficult because the Board of Directors would be appointed by the President with the advice and consent of the Senate (see Section 102(b) of H.R. 111). The significant question is whether the provision that the Board "shall act under the direction of the Secretary of Defense" (section 102(a) of H.R. Ill) would cause the Government in the Sunshine Act not to apply. The answer to that question is simply unclear. The argument can be made that the Commission would not be "headed by a collegial body" because the Board of Directors ultimately would be subject to the direction of the Secretary of Defense. It is our view that the provisions of H.R. Ill for "direction by the Secretary of Defense" is inconsistent with paragraph 3(a) of Article III of the Panama Canal Treaty of 1977 which provides that "the Panama Canal Commission shall be super- vised by a Board." Accordingly, if it were considered to apply the provision of the Sunshine Act to meetings of the Board, an explicit provision to that effect should be included in the implementing legislation. However, we do not consider direct appli- cation of that statute to be desirable. As a practical matter, we have no objection to the general concept that the meetings of the Panama Canal Commission should be open to members of the public. However, compliance with the explicit provisions of the Government in the Sunshine Act often can be a complicated and burdensome exercise. Moreover, given the substantial involvement of the Republic of Panama in the affairs of the Commis- sion, application of the Act may in certain instances cause unforeseen problems. Accordingly, the better approach would be not to have the Act apply to the Commis- sion but to have in the legislative history of the Treaty implementing legislation an expression of Congressional intent that, to the extent feasible and practical, given the peculiar situation of the Commission, Commission meetings should be open to the public. Question. Under the plans of the Executive in connection with the provisions of H.R. 1716, would the Stockholder of the Commission be a general coordinator for matters affecting the Panama Canal with respect to the Commission as well as other entities connected with Canal operations? Answer. The role contemplated by the Administration for the Stockholder of the Commission would be the same as that provided by the current law for the Stock- holder of the Panama Canal Company, i.e., he would represent the United States in its capacity as owner of the Canal Agency. It is the Administration's intent that the President would retain his statutory role as Stockholder. In this role he would appoint the members of the Board supervising the Commission. It is intended that 890 five cabinet level U.S. agencies would be represented on the Board under the Chairmanship of the DOD representative, who would be the Secretary of the Army. This would provide for coordination of matters affecting the Panama Canal with respect to the Commission as well as other entities connected with Canal operations. Mr. Hubbard. Thank you, Mr. Secretary. No provision in the legislation directly addresses the question of the Commission's Board operations. If one or more of the seats on the Board are for any reason vacant, would language stating that the Board will continue to function as long as a certain number of members are sitting be desirable? Secretary Alexander. No, Mr. Chairman. Section 206 of the bill provides for the conduct of business by the Board with a quorum consisting of fewer than all of the members present at a particular meeting. This section also preserves the U.S. majority on the Board. We expect vacancies on the board will be filled probably by both coun- tries. We therefore believe the proposed language is unnecessary. Just by virtue of the U.S. majority, it will be able to assure the Commission's bylaws and mode of operation are consistent with the U.S. interest. Mr. Hubbard. How will the United States coordinate the activi- ties of the five U.S. members of the Commission's Board of Direc- tors? Secretary Alexander. While the proposal legislation does not address the point, the President has directed that an interagency group cochaired by representatives of the Department of Defense and State coordinate with other involved agencies — Treasury, Transportation, and Commerce — in the formulation of policy posi- tions which the U.S. Board members will carry out. Mr. Hubbard. Mr. Secretary, how do you feel about the concept of limiting the terms of members of the Commission's board of directors? Secretary Alexander. To limit their terms of office? Mr. Hubbard. Yes. Secretary Alexander. I would feel, sir, this would be unneces- sary and that it would be appropriate they be representatives from the U.S. Government and that they would serve at the pleasure of the President. The President could appoint someone else, but I should think they would serve at the pleasure of the President. Mr. Hubbard. Will the United States and Panamanian members of the Commission be subject to the executive branch rules on financial disclosure or ethical conduct? Secretary Alexander. I believe legally, both United States and Panamanian would not be, in that they're in an advisory capacity as Board members. For practical purposes, it is important that those who are on the Board would be subject to the recently passed legislation that goes into effect on July 1. They would be Presidential appointees and would have submitted all the forms required and would have the matters out in public, in terms of their net worth and whatever potential conflicts there might be. But I don't believe the law requires that someone in an advisory capacity, as the Board would be, to actually be subject to these provisions. 891 Mr. Hubbard. Would the Deputy Administrator or other high- ranking Panamanians, other than Board members, be subject to such rules? Secretary Alexander. I do not believe the Board members would be, for the same reasons as would be true for Americans. In terms of employees, they would be subject to the same rules that the upper-level U.S. employees would be subject to. Mr. Hubbard. In its testimony the State Department spoke brief- ly to the Office of the Chief Engineer. What is your view of this Office, which is established by House bill 111? Secretary Alexander. I do not believe we need that specific office. The Administrator and Deputy Administrator will provide for the overall supervision, and the necessity for that kind of expertise would be included, obviously at high levels within the staff. But as a specifically designated position, I do not believe it would be necessary. Mr. Hubbard. Aside from the Panama Canal Commission, agen- cies of the United States in the canal area will have an opportunity to opt in or out of the Panama Canal employment system. Could you explain the theory behind the employment system and why you feel it should be an optional system for U.S. agencies? Secretary Alexander. As far as DOD, as I indicated in my statement, we believe they should continue under title VII of the Civil Service Reform Act. For the new Panama Canal Commission, the flexibility that would be given to us in a Commission that is in transition, with more and more Panamanians, and a Commission that is unique in terms of its function for the next 20-plus years, we feel it would be useful to have a specifically tailored program for that Commission and to give to non-U.S. citizens, Southcom, and other potential DOD entities, an opportunity to opt into it if they so desire. Mr. Hubbard. In response to questions for the record you made reference to a Joint Panama Canal Commission, and a Department of Defense labor relations policy. Would you please explain the origins and the present status and meaning of that policy? Secretary Alexander. Article X of the Panama Canal Treaty requires us to develop a labor relations system — a collective bar- gaining system— for the Canal Zone after consultation with labor organizations. We began considering how to meet this requirement last spring and determined that there were at least five different options possible. All were based on Executive Order 11491, as amended, Labor-Management Relations in the Federal Service. The five options were presented to the various agencies in the Canal Zone as well as to unions having recognition in the Panama Canal Company/Government and the U.S. forces early last summer. In August, the AFL-CIO formally presented us with a sixth option. While we were considering the AFL-CIO comments, the Civil Service Reform Act— CSRA— was signed by the President on Octo- ber 13, 1978. Title VII of the act governs Federal sector labor relations and represents a significant change from Executive Order 11491. These changes also had to be considered when revising the Canal Zone policy. Thus, the labor relations policy you refer to 892 represents an amalgam of our ideas, Panamanian-based agency and union comments, and the major provisions of title VII, CSRA. We are in the final stages of consultation with the AFL-CIO on the policy. It will contain all salient features of title VII, CSRA, as required by both H.R. Ill and H.R. 1716. The one major exception will be that the dispute resolution machinery will be wholly dedi- cated to the unique local situation rather than being provided from Washington, D.C., by the Federal Labor Relations Authority. The policy will apply to U.S. and non-U.S. citizen employees of the Panama Canal Commission. It could also be administratively ap- plied to non-U.S. employees of Ussouthcom and other Federal agen- cies in the area. Title VII, CSRA, automatically applies to U.S. employees of all Government agencies— exclusive of the Commis- sion — in the Canal Zone. Mr. Hubbard. How do you expect the collective bargaining scheme that is adopted for the canal area will affect either the personnel regulations issued by the Commission and other agen- cies, or the concept of U.S. control of the canal for the next 20 years? Secretary Alexander. I would think that under both Chairman Murphy's bill and the administration's bill the concept of consulta- tion with the Board and the Department of the Army would be in order. So I don't see great variations, in terms of practicality, how the ultimate judgments would be reached through the collective bargaining process. There would not be collective bargaining, for example, over wages, as there would not be in other Federal entities. Mr. Hubbard. What was that last statement? Secretary Alexander. There would not be collective bargaining over wages, just as in other Federal entities. Mr. Hubbard. On page 7 of your statement, Mr. Secretary, you talked about a reduction in force of 2,600 employees. The canal organization now has 14,000 employees, and the canal Commission will have about 8,000 employees. This would mean a loss of some 6,000 employees. What happened to the other 3,400 employees? Are they retiring? Secretary Alexander. No, sir. Several of the functions that are now performed by the Canal Zone Government will be undertaken by agencies of DOD. Some 3,400 of the Canal Zone Government employees will be transferred to the DOD. Further, some additional personnel will be eliminated during the 30-month period after October 1 in other zone functions, such as police and fire, which will be phased out. Mr. Hubbard. Who will take over that? Secretary Alexander. That will be taken over by the Govern- ment of Panama. Mr. Hubbard. Lastly, what are the reasons for the change in reporting channels cited on page 1 of your statement, to the effect that, as a stockholder of the Commission, you would be reporting to the President through the Secretary of Defense? Secretary Alexander. The reason for this is, in all other areas of my responsibility, with the exception of the Corps of Engineers, the reporting is through the Secretary of Defense. It seemed to us to be a more orderly and sensible route, while much would be delegated 893 to the Secretary of the Army, that the reporting mechanism be the same or similar — as on most other functions. Mr. Hubbard. Chairman Murphy? The Chairman. Thank you. I welcome Secretary Alexander to the Committee. I have no questions, but I have some questions which I would pose to the Department. I appreciate your testimony. Secretary Alexander. Thank you. Mr. Hubbard. I recognize Congressman Bauman, the ranking minority member. Mr. Bauman Mr. Secretary, I know my colleagues have heard me make this statement before, but just for your own edification — and indeed, it is that — we were told, the people of the United States and the Congress, by President Carter, by Secretary Vance, by Mr. Linowitz and Mr. Bunker, and uncounted other offir Is, that the treaty would not cost the taxpayers of the United r :es one single dollar more. Now, when we were in Panama previously and had n to talk to General McAuliffe, it appears that an estin ; f the annual cost being transferred to DOD, for the functions tnat DOD will assume from the Canal Company and Canal Government, the original estimate is from $60-65 million annually, and it has now risen to at least $80 million annually by 1984. This means any- where from a $1V2 to $2 billion in 20 years will be assumed by the taxpayers as a result of this treaty, instead of one single dollar. I would ask you to give the committee, to the extent possible, an accounting of all the projected costs for the life of the treaty, and if you also can, the Defense Department as a whole. We have to assume that is now projected so that we can have that figure before we start our markup. I think it will bear on the type of bill in some respects, if you could provide that for us. Secretary Alexander. Certainly, sir. I could just for the present provide what is in our budgets, and there is precision as to those. There was a payment, as you know, of $10.9 million under the contingency fund in the 1979 budget for the Defense Department. And there is a fiscal year 1979 supple- mental request of $36.9 million before the Congress, and of that, $32.2 million was for the Army. For the 1980 fiscal year budget, the DOD amount is $89.5 million, and of that, $51.2 is Army-related. So the total for DOD through fiscal year 1980, with some precision, is $137.3 million. Mr Bauman. That is the projected operating cost, as well as military construction required to carry that out? If you could give us some detailed accounting beyond the totals, it would be helpful. Mr. Secretary, in your statement you say you will continue to have the primary authority of oversight under the treaties and under the law in terms of the President's bill, the administration's bill. We have been assured of the same thing by Secretary Christo- pher and other witnesses. If that is the case, what is the objection to writing into law that the Department of Defense or yourself would advance more appro- priate than the Secretary of Defense, who will in fact continue to have this authority? Because at one point we were told the admin- 894 istration might at some point want to transfer it to the Depart- ment of Transportation. Secretary Alexander. Certainly, as you indicated, there was dis- cussion within the administration of that. The decision has been that it would be through the Defense Department and primarily the responsibility of the Secretary of the Army. The tradition, as you well know, has been the Secretary of the Army has been the stockholder. I believe, however, that the President should retain his flexibility in this regard. I believe there are several logical reasons for it continuing this way. It is our position that this will take place, and is the most orderly way to proceed for the future of the United States and for the canal traffic. Mr. Bauman. Well, you might want to confirm your opinion of what will happen in law. Let me ask you one other question. There has been some discus- sion about the inability of the Congress to pass on the legislation by the required date, or even the possibility that the Senate-House conference might get bogged down. I notice you say that if action isn't taken by October 1, the Department of Defense will be unable to pay a certain number of employees to carry out the functions assigned them undet the Treaty; is that correct? Secretary Alexander. That is correct, sir. Mr. Bauman. So it would not be very easy for the administra- tion, under its general executive discretion, to implement this treaty if, indeed, the people who are expected to carry on the operations now aren't being paid. Secretary Alexander. It is the legal responsibility of all of us under the treaty to do the best we can to implement it. Obviously, it's a treaty of the United States and we'll do the best we can. The point I intended to raise in my statement was the hardships placed, not only on us in Government, but particularly individual employees of the Canal Zone now who might, through employment actions, be RIF'd, to have proper notice served on them or their families. So there would be significant problems if much of the legislation were not completed by or before May 31. Obviously, I have no control over the will of your committee, nor of the Congress Mr. Bauman. Very few of us do. Secretary Alexander. Certainly the chairman of this sub-com- mittee and Chairman Murphy have indicated that markups will be taking place in March. We only hope the legislation will follow in due time. Mr. Hubbard. Do you believe that the Panama Canal Treaty best serves the interests of the United States? Secretary Alexander. I certainly do, personally, yes, and for a whole host of reasons. Mr. Hubbard. Thank you. Congressman Carney? Mr. Carney Mr. Secretary, I appreciate your coming in today. I would like to ask some questions that haven't been referred to in the presentation. I am a new member of this committee, and my line of questioning has to do with our ability to defend the canal. 895 Can we, today, defend the canal from terrorist attacks? Secretary Alexander. I think the 193d Brigade, which is our principal unit in Panama, is quite competent. I have seen them train and they are prepared to meet certain terrorist contingencies. But can we protect against any and every single contingency; I can't say we could. I think it's in our best interest to always be alert to those contingencies and to continue to work with the Government of Panama, as we are, to try to spot any problems that might arise. That, of course, is one of the reasons the treaty itself is useful, where we have cooperation between the two nations. Mr. Carney. So basically the canal could be deemed impassible at any time and we really cannot guarantee that won't happen today, or from the time of October 1 and the year 2000. And, of course, after that, we can't guarantee anything. Secretary Alexander. Well, I would not be that pessimistic. It seems to me there are certain contingencies that we cannot protect against, but there are also many, many more that we are capable of protecting against. General McAuliffe and Anson can see to it that those contingencies will be protected against. We have highly motivated and well-trained soldiers, and they have done their training exercises and done them extremely well. I think to be a prophet of doom would be inaccurate. Again, we have all heard the stories during the debate over the treaty, that if you drop a glove in the lock it will freeze the lock and shipping will be halted for such and such a period of time. Those contingencies are possible, but the probability is diminished significantly by the cooperation between the two governments, and I think by the strong presence of the 193d Brigade. Mr. Carney. Do you think under the terms of the Treaty, where we lose the 5-mile buffer zone inside the canal, that our ability to defend the canal diminishes? Secretary Alexander. Not one bit. We couldn't have people on every inch of those 5-miles on either side, and 51 miles across. We have certain defense commitments which will continue to be met. We are able to do that in those zones. As you know, many parts of those zones are wooded areas, and we have methods of overflying those and knowing what is going on there. But their ownership is not going to increase any problems. Mr. Carney. Will it decrease the probability of any terrorist action? Secretary Alexander. I think there are some who would specu- late that it does. I think it is better to say, through the cooperation between the two governments, that their mutual interest is in the preservation of a safe canal for international shipping, and it is our responsibility to work and preserve that; and also, it requires the cooperation of the Panamanians as well. I think that will be forth- coming. Mr. Carney. Of those some, then, you would be in that category that feels we would enhance our ability? Secretary Alexander. I think we would be capable of maintain- ing our defense of the Panama Canal throughout, and I think that will continue. 896 Mr. Carney. Do you anticipate a reduction in military forces over the next 20 years in the Panama Canal? Secretary Alexander. I would not anticipate at the present time a reduction. Of course, it's up to us within the Defense Department to continually assess our needs there. I could not really speak to the future, nor for the other services there as well. Mr. Carney. Do you feel the presence of large defense forces in the Panama Canal has an effect on military capabilities in South America? Secretary Alexander. I believe General McAuliffe's command, as it relates to your question, insures that the entire region would be properly protected. Mr. Carney. My next question, then, would be: Are we making any contingency plans, any efforts to find out where we can have this type of military exposure in the proximity of South America, or even within the countries of South America, once we lose them in the year 2000? Secretary Alexander. As far as the year 2000 is concerned, and the possibilities at that stage, it really would only be reasonably assessed at least a decade from now, probably more. I don't think we should say that any part in that section of the world would be precluded, and that includes everybody potentially. I would not exclude any country at this stage. Mr. Carney. But you do feel their presence has a stabilizing effect on other nations now? Secretary Alexander. I think it's a very useful presence; yes. Mr. Carney. When will we lose the jungle training school? Secretary Alexander. The jungle training school continues to the year 2000. Mr. Carney. We will control that area to the year 2000 in the jungle training school? Secretary Alexander. Yes. Mr. Carney. You don't have the ability to project over two decades, I guess, the military capability, our military capability. So in general, would it be fair to say that you, as the Secretary of the Army, feel our defense capability in the canal would remain the same with or without the treaty? Secretary Alexander. I would say it's fair to say that we have a treaty, and having that treaty enhances our relationship with the sovereign state where the canal is located, and that is useful from a foreign policy point of view, and it is probably useful in terms of, many would say, in cutting down the problems that might arise in having some country being antagonistic to us. So it's a yes and no answer to that, I guess. I perhaps am oversimplifying it. We know the long history of some good relationships and some not so good, relating to the fact that we, as the Panamanians construed it, were in the middle of their country and that had an effect on them, and potentially could have an effect on the people. Now, to the credit of their government at the time, there was no damage to the canal. I don't believe, however, that has been the issue. The issue has been, do you reduce the number of people you potentially have, and I think reasonable people can say that can be reduced by treaty. I think it's in our best foreign policy interest; yes. 897 Mr. Carney. I seem to recall many occasions in the past few years where our best interests in foreign policies have not been the best interests in our ability to defend our Nation. However, the point I am trying to bring out is that — I'm not trying to bring the point out, but I would like you to express it for me. Is it your feeling that we will reduce the chance of having a Panamanian national, through some terroristic act, deny us the use of the canal because of the treaty? Secretary Alexander. Again, with the treaty in effect, I would guess that reasonable people could come to the conclusion that you therefore cause fewer people to feel antagonistic toward the canal and its function. I think that has certainly been the foreign policy position of our country. The essential point is, the canal itself, I believe, will be protected by our presence; it will be important for both countries to continue to have the canal function well for the interests of international shipping. And if I could put on my other hat, that of a stockholder, it is important in that context, particularly in our work with the Pana- manians, because it is in their mutual interest to have the canal function, and in the best interests, economically, of international shipping. Mr. Carney. If I might continue, do you believe there are any other nations in South or Central America, or let's say Cuba, for instance — do you believe any of those nations have the capability of breaching the canal, for whatever reason, and rendering the canal useless? Secretary Alexander. I guess every nation could breach it, but I don't think they could make it useless. Mr. Carney. In other words, you feel our defenses are adequate now to prevent any foreign nations from attacking the canal, say from the air or something like that? Secretary Alexander. That is correct. Mr. Carney. Your concern would be for someone in the near proximity of the canal to go up and perhaps sink an oil tanker or something like that in the lock area? Secretary Alexander. Well, I guess there are many potential hypotheticals, but very few of them are realistic. I think we are prepared to do our job. Again, I don't want to mislead you and say we can protect against all contingencies, but I think on a very significant number of them we can. Mr. Carney. Thank you, Mr. Chairman The Chairman. Thank you. I would ask counsel to clarify some of the financial differences between H.R. Ill and H.R. 1716. Mr. Tannenbaum. Mr. Secretary, I am sure you agree with Congressman Murphy and the other Members, that they are as concerned as you are, and as the administration is, in keeping the tolls as low as possible. Secretary Alexander. I don't just agree with you, but I know of Congressman Murphy's interest. Is the canal functioning well in the best interests internationally? 898 Mr. Tannenbaum. Yet the administration points to its magic formula by keeping tolls increases to 14 percent, versus a 35- percent increase that you state exists in the Murphy bill, in H.R. 111. Aren't we really kidding ourselves here? The difference between the two bills on the cost element is a shifting of the costs? In the administration's bill the costs are shifted directly to the U.S. tax- payer, whereas the Murphy bill considers all the existing elements of the costs? Secretary Alexander. I don't think in either piece of legislation are these particular costs borne by the U.S. taxpayer. They are borne by international shipping. The contention we would make is that adding amortization costs, and adding an interest payment that is now running just over $20 million to the requirement, would cause us, in order to be a self- sufficient entity, to have to increase tolls, of approximately 14 percent versus the 35 percent. Mr. Tannenbaum. Then we get into the question of using the words ' "adding" or "subtracting." The interest cost has been a cost of the canal operation for quite a few years, isn't that true? Secretary Alexander. It has, indeed, yes. Mr. Tannenbaum. And the administration's bill proposes to sub- tract it and charge it to the taxpayer, which as Congressman Bauman pointed out, runs in the face of the statements previously made by the treaty negotiators before the Congress. Secretary Alexander. The administration feels that without the requirement of the interest payment, that the toll rates could be maintained and the toll increase could be maintained at approxi- mately 14 percent. Mr. Tannenbaum. I understand that. But by shifting the interest costs, which I think amounts to about 11 percent of the toll base, if I understood Governor Parfitt's analysis correctly, that is just shift- ing that 11 percent cost to the U.S. taxpayer, which he estimates would be in the range of some $20 to $26 million a year. Secretary Alexander. I would not see it as a cost. I would presume an interest payment is subject to whatever the capital it is being paid on. It is not as if it were an appropriated amount coming from the U.S. taxpayers, so I don't see it in that sense. But now I see the argument and understand the argument, and I suppose it's terminology that we differ on. I also believe it's impor- tant that we realize if those two items are added, that potentially the toll increase could be some 35 percent. Mr. Tannenbaum. Yes; we understand that, and we're very con- cerned about it. You take the other components of the differential between 14 and 35 percent, the other costs again would be indirect costs, which would be chargeable directly to the U.S. taxpayer. There's no ques- tion about that, is there? Secretary Alexander. I don't know that I follow the other costs you're referring to. Mr. Tannenbaum. Let's take amortization. If you charge amorti- zation, then you really are reducing interest and depreciation. So for the long haul it's a wash. I can see that factor as being not a very serious one, but 899 Secretary Alexander. It lessens. It isn't a wash at the present time, I don't believe. Mr. Tannenbaum. Initially it looks good, to say it's only a 14- percent increase. What I'm saying is that, in the long run, you have the serious problem — such as the payments now to Panama which you just heard me discuss with Ambassador Moss — and now it's acknowledged those payments would be $65 million a year, plus another $10 million on the contingency item. I think there is no question but that such payments would be well over $100 million because of the increments mandated by the treaty within the next 5 or 7 years, and probably as high as $150 million per annum during the term of the treaty. Are you concerned about this canal operation running in the red in the foreseeable future? Secretary Alexander. It has been in our interest to see to it our operation is run in a fiscally sound manner, and I think it can continue to do so. The contingency payment, although I gather there's some talk about it in Panama, it is certainly my understanding, and that of many others, that it's contingent upon what the profits show. If it doesn't show anything, then the contingency payment can not be realized. The other items, as Ambassador Moss indicated, are treaty-relat- ed items, and the $10 million payment that relates to the operation of the canal. I know in the early days of the canal, from 1914 or so, until the seventies, there were no toll increases whatsoever. There have been toll increases, a little over 19 percent, two of them, since that time. It's a more realistic period, frankly. So I would guess in the future, in a reasonable period of time, there may be some additional toll increases. I would not be a prophet of doom, that the canal will run in the red in the future. Mr. Tannenbaum. Just on that one item, the payments to Panama, you go from $2 million to $100 million, or $150 million a year Secretary Alexander. On those figures, the projection, as I re- member it, for the fiscal 1980 budget, is $54 million. Then there's a $10 million payment under the treaty itself, and then potentially another contingent payment after that. I believe those are the Mr. Tannenbaum. There are three $10 million payments. Secretary Alexander. Well, one is for services, and one pre- sumes you have services that are worth $10 million. Mr. Tannenbaum. And the $55 million payment is to be re- evaluated in 5 years, and then biannually. It certainly will increase that overall payment substantially, and I would imagine within the next 10 years it will double. Secretary Alexander. I don't feel competent to say what may happen in a decade from now. I would only give those figures that I know presently within fiscal year 1980, on those payments payable to Panama. Mr. Tannenbaum. I don't think there is any question but that the dollar value today is half what it was 10 years ago, and with the increments called for in the treaty of those 10-percent pay- 900 ments, I don't think it will be less than that over the next 10 years. So the $54 million, just automatically, if we hold our costs down, will more than double in that period. Secretary Alexander. I hope it doesn't. Mr. Tannenbaum. I hope it doesn't either. Mr. Hubbard. Is there any objection to Congressman George Hansen asking a couple of questions? All right. Mr. Hansen. Thank you, Mr. Chairman. Mr. Secretary, we were originally told there would be no cost to the American taxpayers for the treaties, but now, of course, we find $2 or $3 million cropping up for the transfer of graves, and find within the line items of the Air Force budget that we're going to fund post office expenses that were covered by the Panama Canal operation before. We're going to fund police expenses, and the sanitation expenses which are a part of the $10 million annual payment to Panama. Then there is the loss of income from some of the facilities in the zone and the increase in tolls. Finally, as we discussed this morning, we guarantee the payments to Panama that the tolls don't cover. All of this brings us down to another open-ended question. Beyond the year 2000, if we still are committed, as the treaties provide, to some defense of the canal, and we have vacated our bases as required don't we get into a base rental problem similar to the agreements we have had to make around the world, agree- ments which cost us hundreds of millions of dollars per year? What do you envision as far as our payments to Panama beyond the year 2000 for military bases and other commitments? Secretary Alexander. Congressman, I could not give you an estimate of what those costs would be. Mr. Hansen. There will be expenses? Secretary Alexander. Yes. Mr. Hansen. And they probably will be considerable? Secretary Alexander. I would say there will be expenses, but I would hate to guess that far out. Mr. Hansen. There are a lot of people who wonder how Panama can make it after the year 2000 without the U.S. subsidy provided for the next 20 years. It appears that the military subsidy of hundreds of millions for base arrangements is one of the ways they're going to do it. It is all very simple — they can then charge rental on bases that they haven't been able to heretofore. Another question would involve the fact that the Secretary of Defense, through your office, arbitrarily released $10.9 million con- trary to congressional instructions for pretreaty readjustments of Army facilities in Panama. This action occurred after there had been a direct rejection of a request for permission by the House Appropriations Subcommittee on Military Construction regarding the possibility of going ahead with realinement work before the treaties were to be implemented as stipulated by the Brooke amendment directing that instruments were not to be exchanged until the March 31, 1979. In fact, the memos from your agency were very direct in saying this was for treaty implementation. 901 Is it a regular practice for you to defy a subcommittee of Con- gress and proceed with something that they have absolutely told you no on? Secretary Alexander. That's a question that obviously, any way I answer it, I'm doomed. So let me not answer it — or Til answer it this way: The Army does not defy Members of Congress, nor committees of the Congress. The history of this, as I believe you know, is the Defense Department consulted with the Southern Command, Gen- eral McAuliffe, and we construed it to be a necessity under the emergency funds to expend these moneys. There has been, I think, an exchange of correspondence on this Mr. Hansen. Mr. Alexander, where there hasn't even been an opportunity for Congress to act on treaty implementation, and when you assumed in your agency, through the Department of Defense, that you could proceed with treaty implementation before the Congress even acted, how can you justify this course of action, especially when the matter was run before a committee of Congress and you were denied the opportunity pointblank, by the chairman of the Military Construction Subcommittee, Mr. McKay? I might mention that Governor Parfitt made the same request of another subcommittee chairman, of the Appropriations Committee, and he was also denied. He managed to properly abide by the denial. But here, under your direct jurisdiction, you are making treaty implementation provisions without any authorization from the Congress. Secretary Alexander. The request was made and followed, I think, according to the powers within the Defense Department, to utilize their $10.9 million within their contingency fund. Mr. Hubbard. Thank you so much, Secretary Alexander. We appreciate your presence here today and your good testimony, and answering our questions personally. As one who has served in the U.S. Army, and only reaching the high rank of captain, I congratulate you on the job you're doing with our Army. I hope you keep up the good work and that you will come back and be with us again Secretary Alexander. Thank you, gentlemen. Mr. Hubbard. Our next witness is the Comptroller General of the United States, the Honorable Elmer B. Staats. Mr. Staats has testified before the subcommittee and several other committees of the Congress on the subject of the Panama Canal, but this will be his first testimony on this particular bill before the House for consideration. The subcommittee will be addressing questions on the substantive and technical financial aspects of the legislation Welcome, Mr. Staats. We're happy to have you with us. STATEMENT OF HON. ELMER B. STAATS, COMPTROLLER GEN- ERAL OF THE UNITED STATES ACCOMPANIED BY FRANK M. ZAPPACOSTA, ASSISTANT DIRECTOR, GAO Mr. Staats. Thank you very much, Mr. Chairman. I realize the hour is late, and in the interest of saving the committee's time, I believe I can start my statement on page 8— the material preceding that relates to the question of organization. 902 Mr. Hubbard. Your entire statement will be included in the record. Is there any objection? Hearing none, it will be inserted in the record. [The following was received for the record.] Statement of Elmer B. Staats, Comptroller General of the United States Mr. Chairman and Members of the Subcommittee: We appreciate this opportu- nity to discuss the recently introduced legislation for implementation of the Panama Canal Treaty. A little over a year ago when we testified before the Senate Armed Services Committee, we stated that the treaty-implementing legislation would be the key determinant of the financial viability of the Panama Canal Commission. This is still our view and we, therefore, are gratified that most of our previously expressed concerns have been addressed either in the Senate resolution of ratifica- tion or the proposed legislation. Today, we would like to discuss the fundamental organizational, accounting and financial issues; compare how these issues are dealt with in H.R. Ill and the Administration's bill, H.R. 1716; and offer suggestions for legislative consideration. what form of organization is best suited for the new commission? As you know, the Panama Canal Company is a government corporation which operates under the provisions of the Government Corporation Control Act. The Administration's bill H.R. 1716 would continue this form of organization for the new Panama Canal Commission. H.R. Ill, on the other hand, would organize the Com- mission as an executive government agency. In our previous testimony, including testimony before this Subcommittee, we recommended that the new Commission be operated as a government corporation. We continue to hold this view. Even though the Commission could operate as an executive agency, the administrative burden and loss of management flexibility involved in a change from a government corpora- tion would not be compensated for by improvement in congressional oversight. Before discussing the specifics which underlie this conclusion, I would like to briefly review the rationale for the 1950 legislation which completed the separation of the business-type and government activities of the Canal organization by creating the present Panama Canal Company and Canal Zone Government. In 1950 testimony before this Subcommittee, the Bureau of the Budget, now the OMB, took the position that the financial controls generally applicable to govern- ment-type programs, such as civil government, health and sanitation were not appropriate for programs which were essentially business operations. BOB noted that the operation of the Canal was a business which produced revenue, was expected to be self-sustaining, and required considerable operating flexibility. The Bureau of the Budget concluded that the business-type budgeting, accounting and auditing provisions of the Government Corporation Control Act were more appropri- ate for the business of operating the Canal than were the provisions of the Budget and Accounting Act of 1921 under which the Canal organization was then operating. The GAO concurred in this conclusion because we had found that the accounting system was inadequate for determining and presenting revenues, costs and expenses and net profits or losses. The Bureau of the Budget's conclusion was also in line with the Hoover Commission recommendation that * * * straight-line business activities be incorporated so as to secure greater flexibility in management and simpler accounting, budgeting and auditing methods. We believe that the successful operation of the Panama Canal Company since the 1950 legislative changes has demonstrated the appropriateness of the corporate form of organization. What changes would H.R. Ill require? Section 234 of the bill would require the Panama Canal Commission to establish and maintain its accounts pursuant to the Accounting and Auditing Act of 1950, the basic legislation governing accounting for executive agencies of the government. Under this change, the commission would have to develop an accounting system which would conform to the principles, standards and related requirements prescribed by the Comptroller General for executive agencies. Ths accounting system would include a series of accounts not now maintained by the Panama Canal Company such as appropriation, allotment, and obligation accounts. In addition to requiring the establishment of a new series of accounts designed for executive agencies of the government, H.R. Ill would require the new Commission to continue to maintain the business-type accounting 903 system required of government corporations. The result would be a hybrid account- ing system creating additional administrative burden for the Commission. GAO audits would continue Both H.R. Ill and H.R. 1716 provide that the General Accounting Office shall audit the Panama Canal Commission. The Administration's bill, H.R. 1716 would allow for commerial type audits under the Government Corporation Control Act. H.R. Ill, however, requires a two-pronged audit. Section 236(a) of the bill requires a GAO audit pursuant to the Accounting and Auditing Act of 1950, while Section 236(b) requires that our report be in the form of an audit report for a government corporation. In fact, the language of this subsection is virtually identical to Section 106 of the government Corporation Control Act which specifies what should be included in audit reports for government corporations. In essence, these sections would require GAO to audit the Commission in accordance with standards estab- lished for government agencies and for government corporations. From an audit and reporting standpoint, this requirement would increase the complexity and degree of GAO's involvement. Before leaving the subject of audits, we would like to note several other differ- ences between our current audits of the Panama Canal Company and the provisions of H.R. 111. First, the Company is now required to reimburse GAO for our audits; H.R. Ill does not provide for reimbursement. Second, H.R. Ill would require annual audits with a report to the Congress no later than 6 months after the end of the fiscal year. Under a 1975 amendment to the Government Corporation Control Act, GAO is required to audit each corporation at least once in every 3 years. At the present time, we are conducting the majority of the examinations required by the Act on a biennial basis which has proved to be satisfactory. Our last audit of the Panama Canal Company covered the fiscal periods 1977, transition quarter, and 1976. Because of the financial significance of the Treaty, we are following up this audit with an audit of fiscal 1978. After the first few years under the new organiza- tion, however, biennial audits may again be satisfactory. Would a change in organization improve congressional oversight? Since the creation of the Panama Canal Company the Corporation's activities have been under the same form of congressional oversight as the approximately 100 government corporations now in existence. The Company's budget is reviewed annu- ally by the Office of Management and Budget and the cognizant authorization and appropriation committees of Congress. No funds have been appropriated for the Company; instead, the Company is authorized to use funds and the $40 million borrowing authority available to it. The Company's budget, however, is subject to the imposition of limitations on spending. For instance, the fiscal 1979 budget limits general and administrative expenses to $31.3 million and the purchase of passenger motor vehicles to 48. The current procedures afford the Company managerial flexi- bility to adjust the level of operations and expenditures on the basis of business experience. To date, the Company has been self-sustaining and has not used its borrowing authority. H.R. Ill would require existing funds and future revenues to be deposited in the general fund of the Treasury. Expenses would be met by annual appropriations. In addition, the Commission would be authorized to draw on a $10 million emergency fund to be established in the Treasury to defray emergency expenses and to insure continous operation of the Canal. In essence, congressional oversight and control would revert to the system which existed prior to the creation of the Company. We think that these changes are unnecessary and that there is adequate congres- sional oversight and control under the existing system for reviewing the Company's activities. There is now ample opportunity for congressional modifications and limi- tations to the Company's annual budget. We are wary of a reversion to the old system which unduly restricted managerial flexibility and which failed to emphasize management responsibility for self-sustaining, business-like operations. Under the changes proposed in H.R. Ill, there could be an erosion of management responsibili- ty and a temptation to subsidize operation of the Canal through appropriations. For these reasons, we would prefer to see the Panama Canal Commission organized as a government corporation subject to the existing system of congressional oversight and control. SHOULD THE UNITED STATES FORGO INTEREST PAYMENTS AND RECOVERY OF ITS INVESTMENT? As we have previously testified, the questions of whether the United States continues to receive interest payments and also attempts to recover its investment 44-394 O - 79 - pt. 2-5 904 are policy questions which should be decided by implementing legislation. These decisions will have significant financial implications for the new Commission, future toll rates and U.S. consumers and taxpayers. From inception, interest has been charged on the U.S. investment in the Panama Canal enterprise. When the present organization was established in July 1951, interest charges were continued for the Panama Canal Company but not for the investment in the Canal Zone Government. As of September 30, 1978, the U.S. investment in the equity of the Panama Canal enterprise was $589.8 million. Of this amount only $318.9 million was considered to be interest-bearing. The remainder, which has been legislatively determined to be non-interest bearing, consists of reinvested earnings ($187.3 million), investment in the Canal Zone Government ($65.4 million) and the Thatcher Ferry Bridge ($18.1 million). *BAD MAG TAPE**ERR01* The applicable rate of interest is determined by the Secretary of the Treasury and under present practice it is the computed average coupon rate on outstanding bonds as of July 31 of each year. For fiscal 1978, the rate was 6.071 percent and interest payments were $19.3 million. Since interest payments are an operating cost for the Panama Canal Company, toll rates have been set to recover this cost. Under Senate Reservation 6 to the Panama Canal Treaty, the Panama Canal Commission would continue to pay interest, at a rate determined by the Secretary of the Treasury, unless new legislation provides otherwise. By eliminating the requirement to pay interest, the Administration's bill, H.R. 1716, would reduce the Commission's operating costs and relieve some of the pressure to increase toll rates. But it also would reduce Treasury receipts and, thereby, ancrease the burden on U.S. taxpayers. H.R. Ill, on the other hand, would retaan intejest payments to the Treasury at the expense of higher Canal operatang costs and toll rates Highej toll jates ho e ej, have an impact m U.S. cati ens as pjoducers an consumers by adding to the cost of goods shipped through the Canal. E Concerning recovery of the U.S. investment, the evisting practices differ between the Panama Canal Company and Canal Zone Government The Company repays invested capatal only throueh dividends declared by the Board of Directors. The Comnany has repaid $40 million in dividends since its incorporation. The capital invested in the Canal Zone Government, however, is being systematically repaid. Its operating cost and capital programs are initially financed by appropriations. The government charges users for services and pays the revenues into the Treasury. The difference between these revenues and expenses including depreciation, which is the net cost of the government, is then paid into the Treasury by the Company. Therefore, the entire costs of the government, including the capital investment, are being recovered. Section 412(b) of H.R. Ill includes amortization of the U.S investment as a cost to be included in the toll base in addition to depreciation. This cost representing accelerated depreciation of assets, however, is excluded from the calculation of the annual $10 million contingent surplus payment to Panama called for in Article XIII, 4(c) of the treaty. Therefore, if the Commission's revenues met all costs including the accelerated depreciation of assets, Panama would be assured of receiv- ing the $10 million contingent surplus payment. The United States would retain annual amounts above $10 million and, thereby, recoup only a portion of its invest- ment. Obviously, if the intent of H.R. Ill is to recover the U.S. investment then the accelerated depreciation charges should be included both in the toll base and as an element of cost for the calculation of the contingent surplus payment. The Administration's bill, H.R. 1716 would continue the existing practice of not requiring the recovery of the U.S. investment in Canal except through dividends. Under the treaty, however, dividends could be paid only after the $10 million contingent surplus payment to Panama. It is not clear from our analysis of the studies prepared by the Company or the executive branch that toll rates can be raised high enough to cover both interst payments and complete recoupment of the U.S. investment. There is a practical limit to toll rate increases beyond which total earned revenues would fall as traffic would be divereted to alternative shipping methods and new trading patterns would emerge. Last year, Governor Parfitt expressed concern about the long-range ability to raise toll rates to cover projected costs. His conern was based on anticipated cost inflation and foreseeable drop in North Slope oil traffic because of alternative pipeline development. Because of the uncertainty about the Canal's long-range revenue potential, we think it may be diffcult to recover the U.S. investment through accelerated depreciation charges which would significantly increase toll rates closer to the point of diminishing returns. On the other hand, the Canal has historically generated adequate revenues to pay interest on the U.S. investment. 905 Existing legislation requires the Panama Canal Company to make annual interest payments to the Treasury to the extent earned. If not earned in any given year, interest payments shall be made from subsequent earnings unless the Congress otherwise directs. We believe that these provisions should be incorporated in the treaty-implementing legislation and that interest payments should be specifically considered an operating expense in the calculation of the $10 million contingent payment to Panama. The implementing legislation should also address the possibil- ity of any unpaid interest liability upon termination of the treaty. Based on the current value of the interest-bearing investment, and the applicable rate of interest for fiscal year 1978, interest payments over the life of the treaty would amount to about $400 million. This is only a rough projection. The actual annual amounts and cumulative total would depend on the value of the interest- bearing investment after property transfers to other U.S. Government agencies and to Panama and on the applicable rates of interest which are determined each year. WHAT TREATY RELATED COSTS HAVE BEEN IDENTIFIED? Costs associated with the Panama Canal Treaty have been the subject of consider- able discussion in testimony before your Committee and other Committees of the Congress. We would like to highlight some of the costs, excluding the additional treaty-specified payments to Panama of about $60 million each year (that will result in increased toll payments by users), which we believe are directly or indirectly related to the Treaty and will be borne by U.S. Government agencies unless other- wise legislated. Some of these costs have been estimated for the life of the treaty while other costs are stated on an annual basis because they would vary widely each year. Therefore, it is not possible to accurately estimate the total cost. At a mini- mum, however, the cost would be about $399 million. If the Commission is not required to pay interest on the U.S. investment, there would be additional costs of about $20 million each year, or approximately $400 million over the treaty lifetime. The estimated costs would include: Early optional retirement payments estimated at $270 million. Severance pay liability estimated at $3.5 million for employees losing their jobs. Defense relocation and other costs were originally estimated at $43 million. The current estimate for the first 5 years is $88 million. This estimate includes treaty-related construction to be completed by October 1, 1979, estimated at $10.9 million. Discharging the existing accrued annual leave and repatriation liability for employees scheduled for transfer to DOD is estimated at $6.3 million for leave and $3.7 million for repatriation. DOD would have to request appropriations for payment of these liabilities if no funds are transferred. We recommend that the implementing legislation specifically require the Commission to transfer the necessary funds either to DOD or to the Treasury. If this authority is not provided for by legislation, then the Commission would be relieved of this liability, thereby, increasing the Commission's income. Loss on retail store inventories estimated at $2 million. Disinterment and reinterment of remains of United States citizens estimated at $1.7 million. General and administrative expense associated with a reduction in force and related activities estimated at $1.8 million. Cost for health services by DOD estimated at $32 million direct funding less recoveries of $10 million, net cost $22 million. State Department personnel costs associated with Embassy consular activities for visas and passports estimated for fiscal year 1980 at $184,100. Other identified costs for which estimates are not available are: Additional educational costs for dependents of the estimated 2,600 employees transferring to the Department of Defense. Adjustment of compensation for the loss of exchange and commissary benefits after 5 years by U.S. citizen employees of the Panama Canal Commission. Concerning retirement costs, we would like to add that both H.R. Ill and H.R. 1716 would establish a special early retirement program for employees who leave government service, either voluntarily or involuntarily, and provide higher than normal retirement benefits for those who stay off. We have been asked by the House Post Office and Civil Service Committee's Subcommittee on Compensation and Employee Benefits to analyze each of the provisions that would add to the retirement system's liability with particular attention on their justification and cost. Our analysis is currently in process. The Office of Personnel Management's initial rough estimate of the added retirement outlays is $9 million a year for 30 years 906 which is an unfunded liability of $270 million. The Office is now preparing a more precise estimate which we will be evaluating. HOW SHOULD THE COMMISSION'S ASSETS BE VALUED? Both H.R. 1716 and H.R. Ill provide for the depreciation of assets, but neither bill states the basis to be used for the valuation of the assets assumed by the Commission. Annual depreciation charges would be an expense to be recovered through tolls and also would be included in the calculation of the contingent payment to Panama. To avoid any misunderstanding by all parties concerned, we believe that the implementing legislation should establish the basis for valuation of assets. By way of background, when the present Panama Canal Company was established in 1951, the Company's charter prescribed the criteria for valuation of the trans- ferred property. The original cost of $634.7 million was adjusted for defense costs, interest during original construction, suspended construction projects, accrued de- preciation and an economic valuation allowance, making the net transfer value $402.1 million. The transfer value was approved by the Bureau of Budget and accomplished in three stages, February 1, 1950, July 1, 1950, and July 1, 1951, or about lVfe years. The valuation and inventory process which cost about $750,000 required the creation of a special staff of engineers and accountants. The assets to be transferred to Panama and U.S. Government agencies at varying times, as well as those to be assumed by the Panama Canal Commission, are now stated at net book value which is cost less depreciation and allowances. We recog- nize that other bases of valuation, such as current and replacement costs, can be applied to these assets. The revaluation of assets, however, would involve the substitution of another basis and identification of the assets that would continue to be used in operations and those to be disposed of or retired. This would be accom- plished through a detailed inventory which we have advocated in prior testimony. We understand that the Company is presently in the process of inventorying only those assets to be transferred to Panama. Although we have not fully analyzed the alternative methods of valuing the assets to be transferred to the Commission we believe that until some operating experience has been gained, for the transition period at least, the most expedient and preferred method would be to make the transfer at book value when the Treaty goes into force on October 1, 1979. In closing, we would like to comment on three other matters — amortization of the "Use-rights," the Panama Canal Emergency Fund and the administration of pay- ments between the United States and Panama — which may require some revisions to the implementing legislation. Amortization of use rights Both H.R. Ill and H.R. 1716 provide for the amortization of the U.S. rights to use certain assets. Ownership of these assets, principally housing, will be transferred to the Republic of Panama on October 1, 1979, but the United States will continue to use them as the need exists. It is not possible to establish an exact value for the right to use a particular house because the United States may relinquish its use- right at any time during the treaty. Therefore, the Company's proposed policy is to establish the use-right value at the net book value of the assets at September 30, 1979, and amortize the asset at the same annual dollar value as they were depreci- ated under the Panama Canal Company. Since these amortization charges will be considered operating costs of the Commission, they should be included in the toll base. We note that there is a possible oversight in H.R. Ill in that amortization charges for use-rights are specifically mentioned in Section 234 as an expense but Section 412(b) of the bill fails to include it as a cost to be recovered through tolls. Panama Canal emergency fund The Panama Canal Company has the authority to borrow up to $40 million from the Treasury for any purpose. H.R. 1716 would continue the borrowing authority for the Commission. H.R. Ill, however, would replace this authority with an Emergen- cy Fund on which the Commission could draw. There may be some confusion about the amount of the proposed Emergency Fund. Section 233 of the bill stipulates that the fund would be $10 million but the section-by-section analysis mentions a $40 million fund which would be consistent with the existing borrowing authority. Administration of payments between the United States and Panama The treaty stipulates certain annual amounts which the United States shall pay to Panama but does not specify whether payments may be made semi-annually, quarterly or more frequently. The treaty also provides for reimbursement of each party for services rendered. For example, the United States shall reimburse 907 Panama for railway shipments and Panama shall pay for utility services which the United States continues to provide. The treaty, however, does not provide detailed guidance on the administration of these payments. We think that the treaty implementing legislation should address the question of frequency of payments because of the cash flow implications for the United States. Neither H.R. Ill or H.R. 1716 specifically cover this question. Section 251 of H.R. Ill does provide that Panama's payments to the Commission may be offset against amounts due the Republic of Panama by the United States. From a financial standpoint, an offset of payments appears to be an equitable arrangement. We also suggest that consideration be given to incorporating Senate Understand- ing 1 to the treaty in the implementing legislation. This understanding provides a mechanism for establishing the quality of public services to be provided by Panama. The understanding also provides that the United States would pay $10 million for each of the first 3 years. Based on an examination of the actual costs to Panama for providing the services, payments for each of the following 3 years would be adjusted by one-third of any excess or deficit. The procedure would continue through the life of the treaty. Mr. Chairman and Members of the Committee, this completes our prepared statement. We will be pleased to answer any questions you or members of the Committee may have. Mr. Staats. In general, we support the Secretary of the Army, that their organization is desirable. We don't think it diminishes in any way the congressional oversight role. And our audit authority would be continued. I would first like to address the question of interest payments, on the interest-bearing investment, and on the question of the recov- ery of the investment itself. As we have previously testified, the questions of whether the United States continues to receive interest payments and also at- tempts to recover its investment are policy questions which should be decided by implementing legislation. These decisions will have significant financial implications for the new Commission, future toll rates, and for U.S. consumers and taxpayers. From inception, interest has been charged on the U.S. invest- ment in the Panama Canal enterprise. When the present organiza- tion was established in July 1951, interest charges were continued for the Panama Canal Company but not for the investment in the Canal Zone Government. As of September 30, 1978, the U.S. investment in the equity of the Panama Canal enterprise was $589.8 million. Of this amount, only $318.9 million was considered to be interest bearing. The remainder, which has been legislatively determined to be noninter- est bearing, consists of reinvested earnings of $187.3 million, invest- ment in the Canal Zone Goverment of $65.4 million, and the Thatcher Ferry Bridge, $18.1 million. The applicable rate of interest is determined by the Secretary of the Treasury and under present practice it is the computed average coupon rate on outstanding bonds as of July 31 of each year. For fiscal 1978, the rate was 6.071 percent and interest payments were $19.3 million. Since interest payments are an operating cost for the Panama Canal Company, toll rates have been set to recover this cost. Under Senate Reservation 6 to the Panama Canal Treaty, the Panama Canal Commission would continue to pay interest, at a rate determined by the Secretary of the Treasury, unless new legislation provides otherwise. By eliminating the requirement to pay interest, the administration's bill, H.R. 1716, would reduce the 908 Commission's operating costs and relieve some of the pressure to increase toll rates. But it also would reduce Treasury receipts and, thereby, increase the burden on U.S. taxpayers. H.R. Ill, on the other hand, would retain interest payments to the Treasury at the expense of higher canal operating costs and toll rates. Higher toll rates, however, have an impact on U.S. citizens as producers and consumers by adding to the cost of goods shipped through the canal. We believe that only about 30 percent of the canal traffic is destined to U.S. ports. The remainder is destined to other nations' ports. Concerning recovery of the U.S. investment, the existing prac- tices differ between the Panama Canal Company and the Canal Zone Government. The Company repays invested capital only through dividends declared by the Board of Directors. The Compa- ny has repaid $40 million in dividends since its incorporation. The capital invested in the Canal Zone Government, however, is being systematically repaid. Its operating cost and capital pro- grams are initially financed by appropriations. The Government charges users for services and pays the revenues into the Treasury. The difference between these revenues and expenses, including depreciation, which is the net cost of the Government, is then paid into the Treasury by the Company. Therefore, the entire costs of the Government, including the capital investment, are being recov- ered. Section 412(b) of H.R. Ill includes amortization of the U.S. in- vestment as a cost to be included in the toll base in addition to depreciation. This cost representing accelerated depreciation of assets, however, is excluded from the calculation of the annual $10 million contingent surplus payment to Panama called for in article XIII, 4(c) of the treaty. Therefore, if the Commission's revenues met all costs, including the accelerated depreciation of assets, Panama would be assured of receiving the $10 million contingent surplus payment. The United States would retain annual amounts above $10 million and, there- by, recoup only a portion of its investment. Obviously, if the intent of H.R. Ill is to recover the U.S. invest- ment, then the accelerated depreciation charges should be included both in the toll base and as an element of cost for the calculation of the contingent surplus payment. The administration's bill would continue the existing practice of not requiring the recovery of the U.S. investment in the canal, except through dividends. Under the treaty, however, dividends could be paid only after the $10 million contingent surplus pay- ment to Panama. It is not clear from our analysis of the studies prepared by the Company or the executive branch that toll rates can be raised high enough to cover both interest payments and complete recoupment of the U.S. investment. There is a practical limit to toll-rate increases beyond which total earned revenues would fall as traffic would be diverted to alternative shipping methods and new trading patterns would emerge. 909 Last year Governor Parfitt expressed concern about the long- range ability to raise toll rates to cover projected costs. His concern was based on anticipated cost inflation and foreseeable drop in North Slope oil traffic because of alternative pipeline development. Because of the uncertainty about the canal's long-range revenue potential, we think it may be difficult to recover the U.S. invest- ment through accelerated depreciation charges which would signifi- cantly increase toll rates closer to the point of diminishing returns. On the other hand, the canal has historically generated adequate revenues to pay interest on the U.S. investment. Existing legislation requires the Panama Canal Company to make annual interest payments to the Treasury to the extent earned. If not earned in any given year, interest payments shall be made from subsequent earnings unless the Congress otherwise directs. We believe that these provisions should be incorporated in the treaty-implementing legislation, and that interest payments should be specifically considered an operating expense in the calculation of the $10 million contingent payment to Panama. The implement- ing legislation should also address the possibility of any unpaid interest liability upon termination of the treaty. Based on the current value of the interest-bearing investment, and the applicable rate of interest for fiscal year 1978, interest payments over the life of the treaty would amount to about $400 million. This is only a rough projection. The actual annual amounts and cumulative total would depend obviously on the value of the interest-bearing investment after property transfers to other U.S. Government agencies and to Panama and on the applicable rate of interest which is determined each year. But I think as a rough measure, the $400 million figure is a good figure. Costs associated with the Panama Canal Treaty have been the subject of considerable discussion in testimony before your commit- tee and other committees of the Congress. We would like to high- light some of the costs, excluding the additional treaty— specified payments to Panama of about $60 million each year— that will result in increased toll payments by users, of course — which we believe are directly or indirectly related to the treaty and will be borne by the U.S. Government agencies unless otherwise legislated. Some of these costs have been estimated for the life of the treaty, while other costs are stated on an annual basis, because they could vary widely each year. Therefore, it is not possible to accurately estimate the total cost. At a minimum, however, the cost would be about $399 million. If the Commission is not required to pay interest on the U.S. invest- ment, there would be an additional cost of about $20 million each year, or approximately $400 million over the treaty lifetime. These two figures added together are about $800 million. The estimated costs would include: early optional retirement payments, estimated at $270 million; severance pay liability, esti- mated at— that figure should be $4.6 million— for employees trans- ferring to Panama or losing their jobs; defense relocation and other costs were originally estimated at $43 million. The current esti- mate for the first 5 years is $88 million. This estimate includes 910 treaty-related construction to be completed by October 1, 1979, estimated at $10.9 million. Discharging the existing accrued annual leave and repatriation liability for employees scheduled for transfer to DOD is estimated at $6.3 million for leave and $3.7 million for repatriation. DOD would have to request appropriations for payment of these liabil- ities if no funds are transferred. We recommend that the implementing legislation specifically require the Commission to transfer the necessary funds either to DOD or to the Treasury. If this authority is not provided for by legislation, then the Commission would be relieved of this liability, thereby increasing the Commission's income. Loss on retail store inventories are estimated at $2 million; disin- terment and reinterment of remains of U.S. citizens is estimated at $1.7 million; general and administrative expense associated with a reduction in force and related activities is estimated at $1.8 mil- lion. The cost for health services by DOD is estimated at $32 million direct funding, less recoveries of $10 million, with a net cost of $22 million. The State Department personnel costs associated with Embassy consular activities for visas and passports are estimated for fiscal year 1980 at $184,100. Other identified costs for which estimates are not available are: Additional educational costs for dependents of the estimated 2,600 employees transferring to the Department of Defense; the adjust- ment of compensation for the loss of exchange and commissary benefits after 5 years by U.S. citizen employees of the Panama Canal Commission. Concerning retirement costs, we would like to add that both H.R. Ill and H.R. 1716 would establish a special early retirement pro- gram for employees who leave Government service, either volun- tarily or involuntarily, and provide higher than normal retirement benefits for those who stay. We have been asked by the House Post Office and Civil Service Committee's Subcommittee on Compensation and Employee Bene- fits to analyze each of the provisions that would add to the retire- ment system's liability with particular attention to their justifica- tion and cost. Our analysis is currently in process. The Office of Personnel Management's initial rough estimate of the added retirement out- lays is $9 million a year for 30 years, which is an unfunded liability of $270 million. The Office is now preparing a more precise esti- mate which we will be evaluating. That $270 million is a part of the $399 million figure that I mentioned earlier. The question we would like to address now is how should the Commission's assets be valued. Both bills provide for the depreci- ation of assets, but neither bill states the basis to be used for the valuation of the assets assumed by the Commission. Annual depre- ciation charges would be an expense to be recovered through tolls, and also would be included in the calculation of the contingent payment to Panama. To avoid any misunderstanding by all parties concerned, we believe that the implementing legislation should establish the basis for valuation of assets. 911 By way of background, when the present Panama Canal Compa- ny was established in 1951, the company's charter prescribed the criteria for valuation of the transferred property. The original cost of $634.7 million was adjusted for defense costs, interest during original construction, suspended construction projects, accrued de- preciation and an economic valuation allowance, making the net transfer value of $402.1 million. The transfer value was approved by the Bureau of the Budget and accomplished in three stages, or in a period of about 1 V2 years. The valuation and inventory process, which cost about $750,000, required the creation of a special staff of engineers and account- ants. The assets to be transferred to Panama and U.S. Government agencies at varying times, as well as those to be assumed by the Panama Canal Commission, are now stated at net book value, which is cost less depreciation and allowances. We recognize that other bases of valuation, such as current and replacement costs, can be applied to these assets. The revaluation of assets, however, would involve the substitution of another basis and identification of the assets that would continue to be used in operations and those to be disposed of or retired. This would be accomplished through a detailed inventory which we have advocated in prior testimony. We understand that the Company is presently in the process of inventorying only those assets to be transferred to Panama. Although we have not fully analyzed the alternative methods of valuing the assets to be trans- ferred to the Commission, we believe that until some operating experience has been gained for the transition period at least, the most expedient and preferred method would be to make the trans- fer at book value when the treaty goes into force on October 1, 1979. In closing, we would like to comment on three other matters — amortization of the use rights, the Panama Canal emergency fund, and the administration of payments between the United States and Panama— which may require some revisions to the implementing legislation. Both bills provide for the amortization of the U.S. rights to use certain assets. Ownership of these assets, principally housing, will be transferred to the Republic of Panama on October 1, 1979. But the United States will continue to use them as the need exists. It is not possible to establish an exact value for the right to use a particular house because the United States may relinquish its use- right at any time during the treaty. Therefore, the Company's proposed policy is to establish the useright value at the net book value of the assets at September 30, 1979, and amortize the asset at the same annual dollar value as they were depreciated under the Panama Canal Company. Since these amortization charges will be considered operating costs of the Commission, they should be included in the toll base. We note that there is a possible oversight in H.R. Ill in that amortization charges for use-rights are specifically mentioned in section 234 as an expense, but section 412(b) of the bill fails to include it as a cost to be recovered through tolls. 912 The Panama Canal Company has the authority to borrow up to $40 million from the Treasury for any purpose. H.R. 1716 would continue the borrowing authority for the Commission. H.R. Ill, however, would replace this authority with an emergency fund on which the Commission could draw. There may be some confusion about the amount of the proposed emergency fund. Section 233 of the bill stipulates that the fund would be $10 million, but the section-by-section analysis mentions a $40 million fund which would be consistent with the existing bor- rowing authority. Now, the treaty stipulates certain annual amounts which the United States shall pay to Panama, but does not specify whether payments may be made semiannually, quarterly, or more frequently. The treaty also provides for reimbursement of each party for services rendered. For example, the United States shall reimburse Panama for railway shipments, and Panama shall pay for utility services which the United States continues to provide. The treaty, however, does not provide detailed guidance on the administration of these payments. We think that the treaty-implementing legislation should ad- dress the question of frequency of payments because of the cash flow implications for the United States. Neither bill specifically covers this question. Section 251 of H.R. Ill does provide that Panama's payments to the Commission may be offset against amounts due the Republic of Panama by the United States. From a financial standpoint, an offset of payments appears to be an equitable arrangement. We also suggest that consideration be given to incorporating Senate understanding 1 to the treaty in the implementing legisla- tion. This understanding provides a mechanism for establishing the quality of public services to be provided by Panama. The understanding also provides that the United States would pay $10 million for each of the first 3 years. Based on an examina- tion of the actual costs to Panama for providing the services, payments for each of the following 3 years would be adjusted by one-third of any excess or deficit. The procedure would continue through the life of the treaty. This completes our prepared statement, Mr. Chairman. Mr. Zap- pacosta, to my left here, and I would be glad to respond to any questions you have. Mr. Hubbard. Thank you very much, General Staats. The Members of the House have a conflict, and we would ask you to please bear with us and understand that we have 10 rollcall votes. This one now is 15 minutes in duration, and following that we have nine more of 5 minutes each. So there is no way we can meet earlier than 3 o'clock to reconvene. The best we can do is recess at this point. Mr. Staats. Would you like for us to come back at 3? Mr. Hubbard. Please. And also Mr. Carswell, please; 3 o'clock is the earliest possible time we could reconvene. [Whereupon, at 12:35 p.m., the subcommittee was in luncheon recess, to reconvene at 3 p.m. the same day.] 913 Afternoon Session 3:11 P.M. Mr. Hubbard. The subcommittee will again come to order. Our apologies for the delay caused by 10 rollcall votes in the House. [Buzzer sounds.] Let's assume that's going to be adjournment. Four bells will be good news in this regard. And so it is. Mr. Staats, to the questioning now, if you would, please. In 1977 testimony before this subcommittee, you advocated a corporate form for the Panama Canal Commission, but you also stated: "New capital budgets should receive close scrutiny by the administration and Congress to insure that only essential capital investments are made." Doesn't the need to scrutinize the capital program lend itself toward an appropriated-fund agency? Mr. Staats. Mr. Zappacosta will Mr. Hubbard. Sure, Mr. Zappacosta? Mr. Zappacosta. Not necessarily, Mr. Chairman. You could actu- ally scrutinize the capital program under the normal corporate type of structure. If the Congress so desired, they could place the limitations on the capital expenditures. Incidentally, we reviewed the capital program and issued a report on May 11, 1977; we looked at the 5-year plan. But in the budget review process this could be done — it could be done either way. There's no definite reason it has to be in appropriated form in order to have the controls. Mr. Staats. Mr. Chairman, the reason we stress this point — it's a particularly important point that if legislation does not require repayment of the unpaid capital investment, then we think you ought to look at any new capital improvements pretty carefully here in the Congress from the point of view of turning over the Canal in the year 2000. It would be an important point either way, but it would be particularly important if there was no provision made in the legis- lation for repayment of the capital investment. Mr. Hubbard. Thank you. Governor Parfitt, in his statement, talks of a tolls surcharge on vessels in order to help finance the capital program for the Commission. What financial restraints would you recommend be tied to the disposition of any surcharge imposed? Mr. Zappacosta. Well, if you are going to impose any surcharge for capital improvements, then the surcharge would have to be specifically earmarked for that purpose — if that is what the sur- charge is going to be. Mr. Staats. I'm not clear what a surcharge would achieve that you could not achieve by accelerated depreciation arrangements. The line that has to be drawn here is what kind of improvements are necessary to operate the canal as long as we have the responsi- bility for it, and to turn over the operation in an operable condition in the year 2000, as against improvements that may not be essen- tial for that purpose. 914 That is, again, one of the reasons that we felt that the Congress ought to give special scrutiny to new capital investment. Let me say this additionally. With respect to the corporate form historically — and this is true of all government corporations — Con- gress can impose in any year any restriction it wants to impose on the operations of the corporation — and this in fact is done. There are administrative cost limitations, limitations on capital improve- ments by the Congress — but unless the Congress does that in some restrictive way, then it goes ahead and is operated by the Board of Directors. But that opportunity is always present on any government corpo- ration in the annual budget review. Mr. Hubbard. Has the General Accounting Office had any dis- cussions with the Government of Panama or the Panamanian comptroller general as to the transfer of property or financial arrangements under the treaty? Mr. Staats. No we have not. We have indicated to the Ambassa- dors, former Ambassador Jorden and Ambassador Moss, that should it be indicated that this could be useful in any sense to the Panamanian Government, we would be happy to cooperate with the Comptroller General of Panama. But we thought it would be better to leave it that way and leave it at their initiative rather than our volunteering directly a role which they might not appreciate. Mr. Hubbard. Would you tell us now about your assessment of the progress made by the Panama Canal organization in preparing for the entry into force of the new treaty arrangement. More specifically, has the complete inventory of assets you recommended in 1977 been accomplished? Mr. Staats. No, it has not been accomplished. I would like Mr. Zappacosta to elaborate on that. We renewed that suggestion in the statement which I presented here earlier today. Mr. Zappacosta. Actually, Mr. Chairman, the inventory is in process. The policy of the company has been a multiphased type of operation. The first basic thing they are doing is to actually inventory the assets for the activities that are going to be turned over either in whole or in part to the Republic of Panama or will be going over to DOD or any other Government agency. The rest of the assets are not being inventoried at this time, based on our understanding; it is still in process — it has not been completed, according to our information. Mr. Staats. And there remains the question of how you value those assets that we refer to in our statement. Mr. Hubbard. Has identification of property to be turned over been made? Mr. Zappacosta. Well, that would be part of the process of the inventory. Actually, I think that is going to be done once you have taken the inventory, then it will be necessary to make a specific identification with the provisions of the treaty. 915 Mr. Hubbard. Do you have any suggestions as to provisions that should be placed in this implementing legislation we seek to pass, to make sure that everything has been properly done by October 1? Mr. Staats. Are you referring to the facts of what should be done in the taking of the inventory or the valuing of the assets? Mr. Hubbard. Both. Mr. Zappacosta. Well, we advocated that once before. We felt that a complete inventory should be taken, because you are going to start off with a new type of operation. However, in 1951 the last inventory that was taken, the last complete inventory, cost some- where in the neighborhood of $750,000 and required a staff of about 54 engineers and accountants to do it. At today's prices it would probably cost you somewhere in the neighborhood of maybe $1 or $2 million. It's hard to say. But if you are going to have a sound basis to start from, from an accounting standpoint, you should have a complete inventory. But at least a half a loaf is better than none. If you are going to at least inventory the assets that are going over to Panama — when the treaty enters into force, then you should put in a procedure whereby you will periodically review and take inventories — have your own internal audit organization to do that. In our annual audit we make test checks. Then I think you would have a pretty good fix on it. Mr. Hubbard. Lastly, I gather from your comments, Mr. Staats, on page 6 of your testimony you think that in the initial years of the Commission's existence whether as a corporation or an appro- priated fund agency, there would be a need for an annual audit in order to insure that funds are being spent properly; is that correct? Mr. Staats. That's our present view on the matter; yes, sir. Mr. Hubbard. Congressman Bauman. Mr. Bauman. Mr. Staats, you placed before us several arguments in favor of retaining the corporate form of the company's oper- ations. Let me relate to you my own view, which is essentially a political problem that I have with that continuation. It appears to me from all that I have heard in these hearings and from the reading that I have done on the treaty negotiations and the text itself, that the commission form of government lends itself very easily to the appointment of people whose sympathies don't necessarily lie with perhaps the majority of the Congress as to the manner in which the canal should be run in the next 20 years. Already we have had a number of indications that the State Department is in fact working against even provisions of the treaty, advising the Panamanians to make claims for property that the treaty clearly doesn't give them. In this atmosphere, it doesn't lend much confidence to people like myself that we continue the corporate form that indeed does give flexibility which now ought to be denied. Would it be possible, do you think, to continue the corporate form and impose upon it an annual appropriations process out of the revenues of the canal, which would be earmarked in the U.S. Treasury, so that there would be no question about the amount of income and the amount of expenses— an earmarked fund, but sub- ject to annual appropriation in advance — and graft onto that fund 916 an emergency procedure — or perhaps not even an emergency proce- dure — but a procedure for contingencies, something like we have in the Trade Act where they could submit requests to the appropriate committees of the Congress and within a certain time, if no action was taken, say 30 days, they would be able to spend the money for that unforeseen purpose. I think you see what I am driving at. Mr. Staats. Yes. Mr. Bauman. And I see no other way to solve this, because we have no influence over appointees to the Commission, and I frankly have no confidence at all that they will carry out the will of the Congress. Mr. Staats. Well, let me respond in two parts. First, certainly you could write a statute along the lines that you have indicated, and that would be the manner in which the usual operating agency of the executive branch would be financed by appropriations. Rev- enues which it generated go to the Treasury and the Congress appropriates a certain amount each year. The reason we came out where we did is that the Panama Canal is a utility-type operation; it's a business-type operation. And you cannot foresee what the volume changes may be during the course of the year — no one can. So there has to be some flexibility there, and if you were to write it in the form of an appropriated agency, then I think you would inevitably want to give it flexibility, from the operating point of view, and you would have to take into account the fluctuating nature of the business that is involved here. The counter to that is that we feel that, even with the corporate form, as proposed, the Congress has an opportunity to review the operations and impose whatever controls and restrictions they want under the Corporation Control Act. I guess we would prefer to see you do it in that way. The review is made, of course, by the Appropriations Committee, but there is no reason why there could not be an annual review by this commit- tee as well. So we don't really see that the Congress loses in terms of over- sight and direction by virtue of having the corporate-type organiza- tion which is contemplated in the proposed legislation. And, in addition, we will be doing more than just a financial audit. As the chairman suggests, we would contemplate that we would do a financial audit annually for at least a period of time. At the present time, we have discretion to make either an annual audit or an audit within a 3-year time frame on all Government corporations. But in this case we would undoubtedly want to make an annual audit. But in addition to that we are available to respond to the re- quests of the committee, to review any particular aspect of the operation. And we would be more than pleased to respond to such a request that would come from this committee. Mr. Bauman. I have no doubt of that, but all of the provisions that you describe as now being available to us constitute oversight after the fact, constitute an assessment of what has been done. 917 What I am looking for is a projection, at least on an annual basis, and a justification of the Commission's operations. It seems to me that under the Government Corporation Control Act, we have little more than oversight. And in fact such corporations are given the right to act, for instance, without reference to the fiscal year limitations. Mr. Staats. I think you can go beyond that. I think you can, as we suggest in our earlier testimony, that you can put a limitation on capital improvements, and types of improvements. That could be written right into the annual review of their budget. And you can put a limitation on administrative costs. There is no limit in the Corporation Control Act as to the kind of restrictions that the Congress may choose to write. And that is in advance, rather than hindsight. Mr. Bauman. I don't understand in the absence of a specific appropriation bill being reported or an authorization bill annually, we could write such restrictions into the law unless it were a separate piece of legislation, which would immediately be vetoed by the President, since it would not be grafted upon any appropriation bill where the force would be to go ahead and sign it despite the restriction. In other words, if the administration is of a mind to implement this treaty as the Panamanians want to, as they apparently are now, we would never have any real control. Sure, we could try, but it wouldn't get out of committee, or if it came to the floor and passed both Houses, which is unlikely, it would be vetoed. So we are caught in a bind. Mr. Staats. Well, your judgment on that might be at least equal- ly as good as mine, but in the past there has been a long history of Congress placing restrictions on corporations — in advance — through the appropriations process. And I wouldn't want to speculate what this President or any other President might do. Mr. Bauman. I am aware of that history, but I just think we have reached a point in the history of this particular facility, which is, of course, unparalleled, and we have to assume the worst, it seems to me, based on our past relations with Panama— not the worst in the sense that everything's going to go wrong, but the worst in the sense that the Congress will probably lose a large measure of the control it had in the past. So I appreciate your thinking on it. Let me ask you, if I may, Mr. Chairman— you have given us a rather extensive estimate of the cost of the implementation of the treaty, and if no other testimony should lay to rest the song that it was not going to cost the taxpayers $1, this certainly has. But did you also include in the new-rated items the operating costs of the Department of Defense on an annual and cumulative basis for the life of the treaty? It's my impression that I didn't see that in there; you talked about the military construction figures. Mr. Zappacosta. No, sir, they are not. These are strictly the military construction costs. When you mentioned that this morning, Mr. Bauman, in refer- ring to your discussion with General McAuliffe, I was kind of 918 curious as to whether you said it was $80 million per year or whether it was $80 million for the first 5 years into the treaty. Mr. Bauman. Well, Mr. Bonior was present, and my recollec- tion — and it never was really answered squarely — when I asked General McAuliffe at the briefing — his response — I have the figure, entertained the figure — was roughly $60 to $66 million annually to start. The cost to DOD previously had come out of the totals and had been paid by the zone government for the company. And he said it would be somewhere in the neighborhood of $60 to million— and I think he said $80 million within about 5 years— afterwards he had no projections. Mr. Zappacosta. Over and above the construction costs. Mr. Bauman. Yes; you could see why I am interested, because obviously this Mr. Zappacosta. We certainly would be interested in it also, because we'd like to check on it and see exactly what that figure represents. Mr. Bauman. Well, of course, it triples the estimate given in your statement of the cost of implementing procedure. Mr. Zappacosta. Right, and basically this is the information we received from SOUTHCOM and also from DOD. Mr. Bauman. So you don't have the operating costs. Perhaps you could provide us a figure for that. Could you tell me exactly what would be lost if interest is not paid? The interest payments are now deleted there under this legislation. Mr. Zappacosta. $400 million — that's a rough estimate. Mr. Staats. That's over the period until the year 2000. Mr. Bauman. I also noticed in your statement on page 10 — you talk about the contingent payment. Is your reading of the treaty and the projections you have made based on the understanding that Panama has no right nor does the Commission have a right to raise the tolls to meet that contingency, that the contingency is only available if in fact income and expenditures are in such a position that they can pay it, but there is no absolute necessity to project totals for payment? Mr. Staats. It's our understanding that this $10 million would be out of surplus. I don't know of any reason, unless the statute specifies otherwise, that they could not raise tolls enough to gener- ate a surplus out of which they could make the $10 million pay- ment. Mr. Bauman. But the treaty standing alone without further elaboration does not require that payment. Mr. Staats. That's right. And we raised that question extensive- ly last year in the hearings before this committee and before the Senate. And we received a reply to Mr. Zappacosta here, from the legal advisor of the State Department, a letter which I think would be useful, Mr. Chairman, to your committee, and we would be happy to have it placed in the record. But it is very explicit on this point that you have raised a question about. Mr. Bauman. Well, the State Department quite obviously has taken that position and continues to take it. However, on Saturday, when we met with officials of the Panamanian Government, as you 919 may know, they very clearly contradicted their view and felt that there was an obligation Mr. Staats. That is precisely the reason we asked the legal advisor to respond to our question, because we, through our office in Panama — we have an office in Panama — had learned about the same question on the part of certain Panamanians as to whether or not $10 million was truly out of surplus or whether it was an obligation to be paid; and, second, whether it would carry over from one year to another so that in the year 2000 any unpaid amount out of the $10 million would then be due and payable from the U.S. Government. Mr. Bauman. What was your estimate on that last point? Is it cumulative and payable? Mr. Staats. No. It is our understanding now from the State Department that it would not be cumulative and payable. But we believe it would be wise to have this nailed down, if I might put it in those terms — nailed down in the legislation. Our whole point last year and again this year is that it would not be advisable or wise to leave these issues open to become irritants and problems of misunderstanding later on. And the implementing legislation is one way, it seems to us, the Congress can exercise its discretion on these matters. It should not be enough simply to have a communication from the State Department on their understanding, which could be sub- ject to later discussion and negotiation with the Government of Panama. It seems to us that the wise thing to do would be to have this explicit. And the only way we know how to make it explicit is for the Congress to exercise its discretion and put it in the implement- ing legislation. Mr. Bauman. Well, Mr. Chairman, like I said, I couldn't more firmly agree with you on that point, and I am doubly convinced over the weekend. One last question, if I may — I don't want to monopolize the time. On page 19 you advise us that we should create in the legislation a system governing the frequency of payments. Are you familiar with the fact that the Government of Panama last November sent a letter to U.S. officials, a very brief four-paragraph letter, in which they stated their desire to be paid first of all a $10 million annuity payment annually in advance; and, second, a $10 million contingency payment annually in advance; the 30 cents per canal- ton to be made every 2 weeks; and, last, $10 million for sanitation facilities? Mr. Staats. I am not familiar with such a communication and my colleagues here are apparently not either. Mr. Bauman. Well, what does that do to the cash-flow situation, for instance, if every 2 weeks you had to deliver 30 cents per canal- ton, which will now be about $55 million a year? Mr. Staats. The payment formula we think could be spelled out in the statutes, and that is what we have recommended. Mr. Bauman. But you have not been privy to any judgment— they haven't asked your judgment on what system of payments should be made? Mr. Staats. Not to the best of my knowledge. 44-394 O - 79 - pt. 2 920 Mr. Zappacosta. Mr. Bauman, we have not seen the letter. In general conversation we were made aware of it, that they wanted some sort of payment other than an annual payment. However, we have not been asked to give our views on it; we haven't even seen the letter. Mr. Bauman. Well, the only reason I raise it now is because General Staats has made this recommendation about frequency of payments, and it seems to me that the Canal Company could be stripped of its ability to respond on a cash basis, if every 2 weeks they have to turn over — for all I know they may want it in cash. And then what happens to the operation of the canal? We are talking about $55 annually at the current increased rate of tolls. Mr. Staats. We say on page 19 of our statement that the treaty stipulates certain annual amounts which the United States shall pay to Panama, but does not specify whether payments may be made semiannually, quarterly, or more frequently. The treaty also provides for reimbursement of each party for services rendered. Then we go ahead and say we think the treaty-implementing legislation should address the question of frequency of payment because of the cash-flow implications for the United States. Mr. Bauman. Thank you very much. Thank you, Mr. Chairman. Mr. Hubbard. Congressman Dave Bonior. Mr. Bonior. Thank you, Mr. Chairman. Mr. Staats, I didn't have a chance to hear your testimony. I was absent this morning, and I would like to submit some questions to be answered for the record. Mr. Staats. Be very happy to respond. Mr. Bonior. To follow up, though, on the last point that was raised on page 19 — I did peruse the statement in the time that I have been here, and you don't seem to suggest any type of imple- mental legislation as far as the administration Mr. Staats. Don't seem to be what? Mr. Bonior. You didn't suggest — on page 19: We think that the treaty-implementing legislation should address the question of frequency of payments because of the cash-flow implications for the United States. Neither bill specifically covers the question. Are you recommending anything to us for Mr. Staats. I see your question. I have not personally thought about exactly what we would recommend to you to write into the legislation. Mr. Zappacosta may have some suggestions on it. If not, then we will give it some thought, if you would like, and suggest some language to you. Mr. Bonior. I think that would be helpful. Mr. Staats. We would be happy to do that. [The following was received:] Suggested Language for Frequency of Payments The frequency of payments should consider the operating cash requirements of the Commission, and such payments should not be prepaid. Further, payments should be made according to a schedule mutually agreed to by both parties. Mr. Bonior. I have no further questions. Mr. Hubbard. Congressman Bill Carney. Mr. Carney. Thank you, Mr. Chairman. On page 12 you talk about the yearly payments to Panama. You say approximately $60 921 million. I believe the figure that we have been using now is $75 million. Is there any reason why you have a difference in there? We talked about $55 million in tolls and $10 million. Mr. Zappacosta. That's $10 million fixed annuity, about $51 million based on the 1980 budget estimate at 30 cents a ton, less the $2.3 million that you currently pay them. It comes out to about $60 million. We are saying additional cost right now. Mr. Carney. Well, the figure we have been working with is 75 the last 3 days, and we got that from the Panama Canal Zone. Mr. Zappacosta. Well, if you take the $10 million for the fixed plus the $55 — you get your $65. Then if you are talking about an additional $10 million for the public service, then, of course, you are going up to that figure. Mr. Carney. OK, I just wanted that clarified. Would you care to estimate what you think the additional military construction cost might be after the 5-year period? I see that you have an estimate for the first 5 years. Would you think that that would become static? We'd have additional military construction costs in the fol- lowing 15 years. Mr. Zappacosta. We don't have anything beyond the estimate for the first 5 years, outside of the fact that we do know that at the end of the treaty there will be some material turned over to Panama, as far as military-type facilities. We think something like in the neighborhood of $353 million. Mr. Carney. Well, that we are aware of. I just was — what I am trying to bring out is for the next 5 years we will have a military construction program estimated to be about $80 million, I believe. Mr. Staats. $88 million is the figure we have. Mr. Carney. $88 million. Do you estimate any further military construction program? Mr. Zappacosta. We haven't seen any additional estimate. Mr. Carney. Fine, thank you. Mr. Staats. This is information that we got from the Defense Department, but, to the best of my knowledge, they have not made a projection beyond the 5-year period. But we could inquire further. Mr. Carney. I know these are very hypothetical questions. The figure that we are trying to nail down as best we can is what this is really going to cost the American taxpayer. It seems that every day that we have testimony that figure goes up and up and up. And it's because we can speak to people who have their figure on different costs — so that's why I was pursuing this. I am trying to get it down to something that I can really feel is a comfortable figure. The other two additional costs that you cannot identify at this time-would you try to, could you be in a position to give us some sort of idea of what the cost would be to educate those 2,600 dependents? Mr. Staats. The item referred to on page 15? Mr. Carney. Yes. Mr. Staats. I think we could make an estimate on that. Mr. Carney. Would you be kind enough to provide that for us? 922 Mr. Staats. Yes, indeed. [The following material was received for the record:] Department of Defense Educational Cost for 2,600 Dependents The Department of Defense estimate of the educational cost for the dependents of the estimated 2,600 employees transferring to the Department of Defense is not available as of March 14, 1979. We understand, however, that the Department of Defense is presently in the process of preparing their estimate of Treaty-related costs that will include the educational cost, and this information will be incorpor- ated in a state Department reply on cost data. Mr. Bonior. Would the gentleman yield on that point? Mr. Carney. Yes. Mr. Bonior. We had testimony in Panama concerning the college also, the 2-year college that's run in the Canal Zone. Could you include the costs on that in terms of at least the transition period, the 36-month period? Or are those figures includ- ed already in your detailed estimates on pages 13, 14, and 15? Mr. Zappacosta. Basically the construction costs included in that $88 million. There is an $8.9 million figure in there for DOD schools, which includes the Pan Canal College. Mr. Wyatt. Which is $1 million, isn't it? Mr. Zappacosta. Just about $17 million, yes, sir. It's $8,925,000 for all schools. Mr. Bonior. I thank the gentleman. Mr. Carney. I thank you, Mr. Bonior, you took the question right out of my mouth. I was concerned about that. And, again, on the following area, the compensation for loss of exchange and commissary benefits to U.S. citizens, on compensat- ing them, could we get some sort of estimate on that? Mr. Staats. That would be more difficult, but we can give you a ball park figure. [The following was submitted:] Cost of Living Allowance— COLA We would like to point out that there are different methods of computing a COLA and there are several factors such as the rate of inflation, salary base, and number of employee entitled to the COLA that make it very difficult to estimate the cost at this time. However, we understand that in his testimony, Governor Parfitt estimat- ed the cost to be about $10-11 million, based on 15 percent of the 1980 average wage adjusted for a 7 percent inflation factor, and will submit the details of the calcula- tion. This would be one method computing the COLA. Another method would be the one presently used by the State Department in accordance with the Standard Regulations, Government Civilians, Foreign Areas (Section 941.1). This method is based on a survey of the cost of living at a given post, exclusive of quarter costs, compared to Washington, D.C. The computation of the allowances takes into consid- eration, the marital status, family size, income level and post classification based on the survey. We would like to point out that as of December 14, 1978 (Section 920 of the regulations), only 2 out of 17 State Department posts in the vicinity of Panama are receiving post allowance. The posts are Caracas, Venezuela and Paramaribo, Surinam, which have a post classification of 20 and 10 respectively. Using the post classification for Caracas and Paramaribo as hypothetical examples, for an estimat- ed 1,700 employees with a salary range of $24,000 - $25,999, a rough estimate of the COLA would be as follows: 923 Caracas (post class 20): 1 family member: 1,700 x $2,080 yr. = $3,536,000 yr. 2 family members: 1,700 X 2,420 yr. = 3,910,000 yr. 3 family members: 1,700 X 2,420 yr. = 4,114,000 yr. Paramaribo (post class 10): 1 family member: 1,700 X $1,040 yr. = $1,768,000 yr. 2 family members: 1,700 X 1,150 yr. = 1,955,000 yr. 3 family members: 1,700 X 1,210 yr. = 2,057,000 yr. However, to arrive at a precise estimate under this method, it would be necessary to know number of family members of each employee and salary range. Mr. Carney. Ballpark would be fine. At least we are getting somewhere now, and I appreciate your cooperation. We are start- ing to see the light at the end of the tunnel, I believe. If I might just summarize — then, you feel that the concrete cost that you can identify now would be about $400 million? Mr. Staats. That's in addition to the $400 million that would be lost if we do not Mr. Carney. Charge the interest. Mr. Staats. Interest on the interest-bearing investment. Mr. Carney. Right. Now we are at $800 million, depending on how you would like to interpret that. Mr. Bauman said before, of course, that General McAuliffe indi- cated that the additional cost to DOD could run between $60 and $80 million; there could be a conflict with some of your figures — we could be hitting the same things twice. I think that's how I read your answer. Could we try to clarify that? And then I think we would really be down to a point where the members of this committee will know exactly how much the taxpayer in the United States is going to have to pay to implement this treaty? Mr. Staats. We could get the head of our office in Panama to get from General McAuliffe the figures that he has used, so we could reconcile our data with his. Would that take care of it? Mr. Carney. I think that would, and then I think finally we would have some kind of figure that we could work with. We have identified some costs that we cannot put a figure on, but we realize that they will exist— and I think then this committee can act from a standpoint of having some intelligence as to the cost. And I appreciate it. I thank you very much for your testimony, too, by the way. Thank you, Mr. Chairman. [The following was submitted:] Department of Defense Additional Costs The Department of Defense additional costs referred to by General McAuliffe of $60-$80 million was not available as of March 14, 1979. We have been informed that the Department of Defense is currently in the process of developing the Depart- ment's incremental costs for the life of the Treaty. Mr. Hubbard. Thank you, Congressman Carney. I now call on counsel for the full committee, Mr. Ernest Corrado. Mr. Corrado. General, in line with the Mr. Hubbard. My apologies, Congressman Wyatt. Go ahead, Ernie— he doesn't mind. I will come right back to you, Joe. Mr. Corrado. Mr. Comptroller General, we have heard all the figures that have been laid out with respect to costs— and these don't take into account the 30 cents per ton or the three $10 924 million incremental figures. I look at the budget and I see that the line item for tolls in 1977 was $163 million; it's projected to be $180 million and then $188 million. Where, in your opinion, will all this money come from? Obvious- ly the tolls can't supply it. The toll figures that are projected can't even come anywhere near addressing the cost. Where, in your opinion, will this money come from? Mr. Staats. Well, of course, we do know there is a great deal of difference of opinion as to how high we can raise those tolls and not divert traffic overland, for example, from Japan. We do know that the pipeline will be in operation before too long from Long Beach to Midland, Tex., which will divert certainly part of the North Slope oil off of the canal traffic. These are all very difficult matters to estimate. The special study made last year indicated that maybe an overall increase of, what, 35 percent? Mr. Zappacosta. Of 35 to 37 percent. Mr. Staats. Would be possible. Mr. Zappacosta. Maximum of 75 percent. Mr. Corrado. You mean maximum to the point where you will divert traffic? Mr. Staats. At some point it becomes counterproductive. But I am not sanguine myself with respect to any set of figures, except in a broad range, that I would want to rely on as to where that point will be reached. For example, I am told that the profit margin in banana sales is so small that any substantial increase in tolls might be enough to discontinue the shipments. The Panama Canal Company, I believe, is in the process of updating the data with respect to the amount of increase in the tolls that could be made without diversion of traffic in any substan- tial amount. That is to be available I believe by Mr. Zappacosta. By mid-March, so we understand. Mr. Staats. In about 2 weeks. Mr. Corrado. You know, we have had numbers of studies over the years on this very question, and I can remember some years ago when the figure 25 percent was used. Well, we have exceeded that in the last two toll raises, and a third de facto toll raise. And I know the figure 30 to 37 percent has been used before we hit the so-called point of no return, but if you talk to the shipping public, U.S. flag, and the consumer and foreign flag, they will tell you a different story even from that. And when we consider these tremendous costs in addition to the cost to be paid to Panama, I don't know if you agree or not, but where will the money come from? Because obviously it won't come from the tolls. Mr. Staats. Well, you may be right about whether it can come from the tolls or not, and I agree with you — it certainly is a good question. If it doesn't come from the tolls, there is only one other place it can come from, you know that. Mr. Corrado. Well, that's where I was trying to get to. Thank you very much. Thank you, Mr. Chairman. 925 Mr. Hubbard. Thank you, Ernie. Congressman Wyatt? Mr. Wyatt. Mr. Staats, do you have any information on the increase in oil costs — increases by virtue of the fact of increases in the tolls in the two bills? Mr. Staats. On oil flowing through the canal? Mr. Wyatt. Right. Mr. Staats. I don't have it; no, sir. Mr. Wyatt. Obviously you've done studies. What is the percent- age of petroleum as part of the total shipments through the canal? Mr. Staats. Oh, yes, we can get that. There is no problem in getting that. I don't have the figure offhand. Mr. Hubbard. We will have the Energy Department with us Wednesday who will be best informed on that. Mr. Staats. That data is available, I know that. Mr. Wyatt. But you think the biggest problem in terms of in- crease in tolls is with the shipment of oil. Mr. Staats. I think that's one of the biggest question mark*- ith respect to the future traffic, because one of the main items suit- ing in the increase in revenues has been the North SJope oil. Mr. Wyatt. In fact, the Canal Company was losing mor until, what, 1976? When there was (a) an increase in tolls, 1976-1977, and (b) a rather large increase in the movement of oil. Mr. Staats. Right. If you would like for us to get the data for you, we would be happy to do it. Mr. Wyatt. I think I have seen it. Mr. Hubbard. If the Energy Department cannot supply us with that information Wednesday, then we would maybe ask you to help inform us. Mr. Wyatt. Probably more important than that would be those other transshipments that could potentially be affected by an in- crease in tolls. You mentioned bananas, in other words. Are we talking in terms of food costs for the American consumer going up? Mr. Staats. Well, the one that we have been thinking about most directly is one that was mentioned here this morning, and that is on your containerized shipments from the Far East. At some point it is cheaper to ship those overland by rail than it is to go through the canal. I think the best we could do probably would be to give you the major items that now constitute their revenues and give you our own analysis as to what sensitivity there might be with respect to those shipments. Mr. Wyatt. Thank you. Thank you, Mr. Chairman. Mr. Hubbard. Congressman George Hansen. Mr. Hansen. Thank you, Mr. Chairman. It's good to see you again, Mr. Staats. I wondered, on the $70 million approximate surplus there is in the Panama Canal operating fund, has there been any recommen- dation made as to what to do with this? Should there be a retire- ment of part of the $319-million debt, or should it be left there as a contingency operating fund— or what would your recommendation be? Mr. Staats. I am not sure I am clear with respect to your question. 926 Mr. Hansen. There is approximately $70 million that exists in the Panama Canal fund as a surplus. Mr. Staats. Yes; I see the figure. Mr. Zappacosta. Well, actually, Mr. Hansen, after the company has determined, in accordance with OMB instructions, the liquidity requirements that are necessary, then I think it would be prudent for the Board of Directors to declare a dividend to the Treasury. Mr. Hansen. I would think so. Mr. Staats. And that would be, of course, credited against the investment which we have identified in our statement. Mr. Hansen. Would it be necessary to include this in legislation in order to assure that this happens, considering the flexibility of treaty terms, as we have seen them? Mr. Staats. You are really getting at the question of whether or not the investment should be repaid before the canal is turned over to Panama. And the one way you could do that would be to accelerate depreciation, and those costs, then, would have to be worked into your toll base again. Some part of the $70 million conceivably could be used for that purpose also. Mr. Hansen. I might ask you now — I think it's been developed — I haven't been here for your whole testimony — but I did read and follow your testimony as you delivered it earlier. And as I under- stand, there is going to be a substantial cost, $800 million or more, as far as taxpayers are concerned in the transfer of the Panama Canal; is that correct? Mr. Staats. That would be a minimum. Mr. Hansen. And there will be a substantial cost also to consum- ers in terms of the toll increases that are anticipated, would that not be a fact? Mr. Staats. Well, that is a cost that is involved in the toll increases directly, would be a cost to the general public for that portion of the traffic which originates in the United States or is destined to a U.S. port. Mr. Hansen. And tolls can only go so high, and then you reach a point of diminishing returns, as far as traffic through the canal is concerned. Mr. Staats. Yes; that is a point we have just been discussing here. It's not at all clear, and there is not agreement as to what that point is, but everyone agrees that in principle there is such a point. Mr. Hansen. So if that point is reached one way or another, then it does become incumbent upon the taxpayers, to fulfill the obliga- tions of the treaty in terms of payments to Panama and this type of thing; is this correct? Mr. Staats. I think that's a correct interpretation. Mr. Bonior. Would the gentleman yield just a second? Mr. Hansen. Yes, sir. Mr. Bonior. Congressman Hansen's question about $800 mil- lion—you said "minimum." Mr. Staats. Well, it's a minimum if you assume — that you are not going to forgive the interest on the interest-bearing capital investment. Mr. Bonior. OK, I just wanted to clear that. 927 Mr. Staats. That's the $19.3 million current rate, which will go up over a 20-year period — that translates to about $400 million. Mr. Hansen. And does the gentleman anticipate, with regard to Alaskan oil, that a problem may arise in terms of its ability to compete with Near Eastern oil with perhaps a resultant diversion of that oil to Japanese or other oriental markets as an adjustment pursuant to the law of supply and demand? Mr. Staats. Well, you could be right on that. I was not really thinking about that so much as I was the fact that part of the increase in the traffic for oil from the North Slope has been due to the fact that the pipeline is not operating from Long Beach to Midland, Tex. Mr. Hansen. Does the gentleman have an estimate — you have talked about book value, talked about depreciated value — what would replacement value be. Do you have a ballpark figure of what the replacement value would be for the Panama Canal? Mr. Staats. We do not have. It would be very high. Mr. Hansen. $10 billion, $20 billion? Mr. Staats. I have no basis for a particular figure. Mr. Hansen. Probably scare you to estimate, wouldn't it? Thank you, Mr. Chairman. Mr. Hubbard. Thank you, Congressman Hansen. Bernie Tannen- baum, staff counsel, do you have some questions? Mr. Tannenbaum. I have a couple of questions, Mr. Chairman. On page 17, to follow up the question just asked, you suggest that the preferable method for valuing the assets would be the book value. Of course, that is the net depreciated book value. Don't we have a problem with the replacement of these items over the term of the treaty and keeping them in good repair? The obligation under the treaty is that in the year 2000 they be turned over in good working condition, free from all expenses. So wouldn't the proper valuation to be placed on these assets be one that would assure that the depreciation that is set aside would be sufficient to keep them in good working condition throughout the term of the treaty? Mr. Staats. Well, that sounds logical to me. But the question here that we have raised earlier, in terms of Congress monitoring the capital investment program, has to do with at what point you are making investments which are really designed to keep the operation going and turned over in an operating condition, as against those which might represent a major improvement in the entire operation, which would not be required for that particular purpose. Mr. Zappacosta. Also, are you suggesting, Mr. Tannenbaum, that you revalue those assets to current value? Mr. Tannenbaum. Well, current value might be Mr. Zappacosta. Or using an index, price-level index? Mr. Tannenbaum. A replacement value possibly. Mr. Staats. You are speaking only for a new capital investment? Mr. Tannenbaum. So that there would be sufficient funds availa- ble taken out of depreciation so as to be sure to maintain the equipment. 928 Mr. Zappacosta. Remember this: If you revalue, you are increas- ing the depreciation charge and you are bumping that toll rate up again. Mr. Tannenbaum. I realize that the problem is, how do we, without supplementing the budget, how do we maintain these assets in good working condition throughout the term of the treaty, unless the Mr. Zappacosta. If you were replacing any asset that's coming in after the treaty has gone into force, naturally it will be based on the cost at that point in time of replacement of the new asset, and it then would be depreciated over the remaining life of the treaty. But if you start off, say, on October 1 and revalue all those assets as shown in our 1977 report, where we put in price-level state- ments — you can see what the effect on depreciation is. Under his- torical dollars for fiscal year 1977, the annual depreciation charge was $18,896,000. Under price level dollar valuation, it was $41,883,000. You went from a $4.4 million profit to a $23 million loss. That's based on current toll rates. Now, the replacements would be at the current dollar value, yes, and would be depreciated. But to revalue the existing assets would have an effect on toll rates. Mr. Staats. I think the distinction here is a very important one. You are talking only about new investments. You will still get normal depreciation against that. And that would be worked into your rate base. Mr. Tannenbaum. I gather you do share with the members of this committee the concern that the Commission will be able to continue to operate in the black, and that it is a serious concern for us to contemplate. Mr. Staats. Yes; we have stated that concern here in our state- ment today. But I guess the bottom-line question, here which we all face is how far can you raise the tolls without their becoming counterproductive. I think that is the bottom-line question, which I am not sure that anyone can provide a 100-percent answer to today or at the time you will have to act on this legislation. Mr. Tannenbaum. And I gather, too, that you are not too im- pressed with the magic formula in H.R. 1716, which keeps the toll increase down to 14 percent for the reasons you stated; namely, that those costs are just being transferred to the taxpayers. Mr. Staats. That's right. Mr. Tannenbaum. One point, just for clarification. You estimate that the 30-cent-per-ton payment for 1980 would be $61 million, did you say? Mr. Zappacosta. Yes; based on their budget figure for 1980, it was around 62 million, yes. Mr. Tannenbaum. And then we had the other 10 million Mr. Zappacosta. It was $51 million plus the $10 million fixed annuity. Then what we did was subtract out the $2.3 million that is currently being paid, and came down to a round figure, $60 million. Now, if you add on top of that the $10 million for public services, you are up to $70 million. Mr. Tannenbaum. Well, Governor Parfitt uses a $54 million figure plus the $10 million. 929 The other thing, too — on the interest rate charge — you pointed out that the current rate is, of course, escalating and that the interest charge — he estimates that close to $26 million. Mr. Staats. That's the reason I used the word "minimum," because we are talking here about the long-term rate, and as your debt turns over, that rate is bound to go up. So the $400 million is based on the current interest rate, and everyone knows that it will go up some. Mr. Tannenbaum. Am I off the wall in suggesting that the payments directly to Panama will soon exceed $100 million a year? Mr. Zappacosta. It depends basically on what the rate of infla- tion is going to be when you revalue the 30 cents a ton biannually. Mr. Tannenbaum. But even assuming the current rate of infla- tion? Mr. Zappacosta. And if your tonnage keeps up, it's entirely conceivable. But getting to your interest question, the rate that would be used, if they continue to use the July rate, the computed interest rate on the long-term bonds for fiscal year 1979 would be 6.509, whereas it was 6.071 for fiscal year 1978. Mr. Tannenbaum. And that's a bargain rate under today's inter- est costs. Mr. Zappacosta. Now, the question is this: The July rate was used, I think, in the past when you had a June 30 fiscal year, and now that the fiscal year has changed to September 30, you may want to continue with the interest factor and consider changing that date to possibly the interest rate as of September 30. And, of course, like the example in this case, September 30 will be 6.587. That's just on the long-term bonds. If you use the whole marketable issues of the Treasury, then, of course, it's going to be closer to what you are talking about — it's going to be up there. Mr. Staats. But the long-term rate is the proper one, we think. Mr. Tannenbaum. Thank you very much. Mr. Hubbard. Are there any other questions for Mr. Staats by a member of the committee? Congressman Bauman. Mr. Bauman. Just one last question, Mr. Staats. When you handed down your opinion regarding expenditure by Department of the Army for $10 million plus the military construction cost last fall, that was preceded by a colloquy on the floor in which I participated with the gentleman from Utah, Mr. McKay, as well as report statements from the Appropriations subcommittees denying the expenditure of those funds. The ultimate outcome was a ruling that, in an emergency situation as was characterized by the appro- priate officials, it is legal to go ahead and do so. May I infer from that that anything we say in our reports regarding these cost matters and expenditures are really worthless if indeed an emergency is declared by the Executive, so if it's going to have any impact you have got to write it into law? Mr. Staats. Let me say this about the problem that we faced in this particular case. We get asked the same question in a hundred different situations literally during the course of the year. Over time our office has had to take the language of the act itself as governing. And the reason for that is that the legislative 930 history in one body as against the other may be quite different; the Senate may take one position, the House take another position. It is the language or the wording of the statute itself that we think has to be governing. We don't know of any alternative to that. It seemed to me that the question which has been raised here, if I may say so, is more a question of whether or not the Department of Defense acted in a manner which ran counter to the obvious sentiment, feeling about the matter, in the House. I don't think there is much question about that. But we were asked the legal question, and that is what we have to use as our authority, if we have to disallow an expenditure. That is, what we have to rely upon is the wording of the statute itself. Now, whether or not the Department of the Army and the De- partment of Defense acted properly in this case, without coming to some agreement with the House, is another question. But all that we could do was act on the legal question that was before us. Mr. Bauman. Well, I appreciate that answer because I think it would serve as a good guideline for anything we might be drafting here. There is a tendency on the part of the Congress, as you know, to compromise things out in the belief that a report means some- thing beyond the words on the paper — and, as you indicate, it sometimes doesn't even mean the words that are on the paper. So I appreciate that legislative guidance. Thank you, Mr. Chairman. Mr. Hubbard. Congressman Carney. Mr. Carney. I have one more question of Mr. Staats. Concerning liabilities, supposing the canal was exposed to a liability of, say, a passenger ship going through or something like that where there was an extensive liability, and the canal was at fault and they were subject to this large financial loss, where would that be taken care of? Mr. Zappacosta. Are you talking about marine accidents? Mr. Carney. Yes, that would be my example. Mr. Zappacosta. At the present time what the Panama Canal Company does is, they have set up a provision for marine acci- dents, and through charges to operations. Basically, what they do is, once they receive a claim and after all the investigation has come about as to whether or not it was in fact the fault of the company or the fault of someone other than the company, then the charge or the payment of that claim is charged against that provi- sion that has been set up in the statements by a periodic charge to the operating cost. They do the same thing for lock overhauls. In other words, what you are trying to do is even out your charges. Instead of going up like this, they are trying to even it out, so they are taking a periodic charge annually and putting it into a reserve, so to speak. And when you actually incur the expense, it is charged against the reserve. Mr. Carney. A self-insurance program. Mr. Zappacosta. In a sense, yes. Mr. Staats. Exactly, that's right. Mr. Carney. As of October of this year now, will they continue that program of having a self-insurance program, so to speak? And if there wasn't enough funding in that self-insurance program to 931 cover this type of contingency, would the taxpayer of the United States be subject to that liability? Mr. Zappacosta. Well, actually, if they operate under a corpora- tion, based on their estimate, they would put aside out of their revenue a provision for this. As a matter of fact, in fiscal year 1977, at the insistence of the General Accounting Office, we made them adjust to the extent of about $957,000 — almost $1 million — in that provision, because of the fact that the actual charges for accidents were greater than what had been provided for. Mr. Carney. Would you be in that position to make them adjust between now and 1999, if you felt it necessary? Mr. Zappacosta. In the audit, certainly; under any audit we would. Mr. Staats. That's right. Mr. Hansen. Would the gentleman yield? Mr. Carney. Yes. Mr. Hansen. I would just like to make one observation. They have a situation like that now where they had a cruise ship run aground in the channel. This incident created extensive damage; and meant that they had to send the passengers home by air, drydock the ship and cancel a further cruise that was planned, causing at least a half-million-dollar liability. Under the new treaty, the drydocks go to Panama and canal operations won't have first call on these drydocks as before, which is going to increase the expense or the liability involved in one of these types of incidents. Therefore the gentleman has a real strong point in the fact that expenses are going to escalate which had been minimized before under the Canal Company where they had priority call on the drydocks and everything else. Such minimizing of charges and the liabilities will be practically impossible from now on under the new treaties, the canal will no longer have first call on those docks, but will get access in the order of things as Panama sees it. That is according to Governor Parfitt. Mr. Zappacosta. That's entirely possible, Mr. Hansen, but still, from an accounting standpoint, this provision would still be set up— it would still have to come out of the revenues. It could possi- bly cost you more; we don't know. Mr. Carney. I have one last question. Do you have any idea of how much revenue we will lose now because we are losing areas like the drydocks in Balboa— how much revenue the Panama Canal Company generated to offset the cost of running the canal, but now that will go directly to the Panamanian Treasury? Mr. Staats. I think we have that. Mr. Zappacosta. Well, as a rough estimate, basically if you take the tentative statements for fiscal year 1978— the Company would have this broken down by their various operations, but just as a wild ballpark figure, they had a total of $331 million in total revenues; of that $195 million was from tolls. So you have other revenues of $135 million. Now, it could be from everything; it is from the rental of your housing, your retail operations; it's from your marine bunkering, railroad, and what have you. 932 Mr. Carney. Well, everything you have mentioned now we lose and that would go directly to the Panamanian Treasury, so, in other words, we are talking about a sizable sum that we are going to have to make up. Is that what makes the difference in the 14-percent increase of the tolls, proposed 14-percent increase? Mr. Zappacosta. It's additional costs that also are going in there, the additional payments to Panama. Mr. Carney. Well, I understand that; 6 percent of that would be the additional payments. Mr. Zappacosta. That's right. It's a combination Mr. Carney. It's a combination of the two. Mr. Zappacosta. But let me caution you. This figure I am quot- ing you now is just a wild ballpark figure. I mean, you would have to get the minute detail of it. I'm just saying other revenues total this much, and it can encompass everything. It can encompass revenues for the operations that aren't going over, but the ones that are going over are revenue producing. Mr. Staats. That would be your starting point to make that kind of analysis that you are seeking. That would be the outside figure. What the actual figure would be would be somewhat less than that, but I don't think we can give you the details today. Mr. Carney. Those costs, in fact, would be covered by the 14- percent increase; is that correct? Mr. Zappacosta. I would think so. Mr. Carney. Thank you. Thank you, Mr. Chairman. Mr. Hubbard. The general counsel is called on for clarification. Ernie Corrado. Mr. Corrado. I would just like to say that, although the port facility, such as the Balboa drydock, goes over to the Panamanians, we find out now that in article V, the United States actually will have the use of those facilities in these situations that may arise. In other words, we will be able to put our employees in down there and use it and pay for the materials. So it is a little different from the whole thing going over totally. Apparently there is a reservation out for our use in article V. Mr. Carney. I fully understand that, but if a foreign flag ship needed to use that facility, the Canal Zone would receive that revenue and that would offset the cost of running the canal. Now that goes to the Treasury of Panama, so they had to raise the revenue, the totals, to offset that. Mr. Corrado. I don't think this affects your argument with respect to the revenue. I just wanted to make sure that the record was not unclear, though, since I raised it this morning about the Balboa drydock, that it is a total reversion — a total giving over to Panama. Apparently article V does reserve the right for us to use the port facilities, which doesn't affect the revenue aspect of it. But I wouldn't want the record to remain unclear with respect to our rights to use it if occasion arises and to pay for the materials. Mr. Hubbard. Minutes ago the letter that was referred to — do you have that entered in the record? Mr. Zappacosta. I gave it to the reporter. [The following was received for the record:] 933 The Legal Adviser, Department of State, Washington, D.C., July 24, 1978. Mr. Frank M. Zappacosta Assistant Director, U.S. General Accounting Office Washington, D.C. Dear Mr. Zappacosta: This is in response to your letter of April 4 posing several questions concerning the interpretation of the Panama Canal Treaty. The delay is regretted. The following responses are keyed to the questions posed in your letter. 1. a. The procedure to be followed in implementing Article 111(5) of the Treaty is set forth in an understanding adopted by the Senate and agreed to by the Republic of Panama. That understanding provides in pertinent part: Before the first day of the three-year period beginning on the date of entry into force of the Treaty and before each three-year period following thereafter, the two Parties shall agree upon the specific levels and quality of services, as are referred to in paragraph 5 of Article III of the Treaty, to be provided during the following three-year period and, except for the first three-year period, on the reimbursement to be made for the cost of such services.* * * If payments made under paragraph 5 of Article III for the preceding three-year period, including the initial three-year period, exceed or are less than the actual costs to the Republic of Panama for supplying, during such period, the specific levels and quality of services agreed upon, then the Panama Canal Commission shall deduct from or add to the payment required to be made to the Republic of Panama for each of the following three years one-third of such excess or deficit, as the case may be. Thus, the Canal Commission is to pay Panama $10 million a year for the first three years of the Treaty. Any difference between that amount and the actual cost to Panama of providing services during that period, however, will be made up through adjustments to the payments in the subsequent three-year period. 1. b. It is contemplated that Panama will transmit to the United States its determination of the costs incurred in supplying the public services both during the initial three-year period and thereafter. The initial assessment of the validity of the cost data submitted by the Republic of Panama would be made by the appropriate agency of the United States Government, presumably the Panama Canal Commis- sion. Pursuant to the aforementioned Senate understanding, "there shall be an independent and binding audit, conducted by an auditor mutually selected by both Parties, of any costs disputed by the Parties." 1. c. As indicated in the answer to question 1. a. above, the level and quality of services to be provided is to be agreed upon prior to each three-year period, includ- ing the first three-year period. The Senate understanding specifies that the services to be agreed upon are "to be limited to such as are essential to the effective functioning of the Canal operating areas and the housing areas.* * *" 2. a. & b. Yes. We have consulted with the Panama Canal Company, and it is contemplated that the Canal Commission would respond to reasonable requests of the utilities agencies of the Republic of Panama for such cost data. 3. a. The use of the terms "expenditures" and "surplus" in Article XIII (4)(c) does not mandate the use of any particular system of accounting. Rather, the provision reflects the agreement of the two Parties that all legitimate costs attributable to the operation, maintenance and improvement of the Canal, including the payments to Panama provided for in Article 111(5) and Article XIII (4)(a) and (4)(b), would be deducted from the revenues of the Canal each year, and if a surplus existed, Panama would receive the amount of such surplus up to the maximum specified in the Treaty. Within this framework, the United States would have discretion, pursu- ant to its authority under Article III of the Treaty to manage, operate, and main- tain the Canal, to adopt any generally accepted accounting system to determine the amount of any surplus. This interpretation is buttressed by an understanding adopt- ed by the Senate and agreed to by the Republic of Panama which provides: Nothing in paragraph 4(c) of Article XIII of the Treaty shall be construed to limit the authority of the United States of America, through the United States Government agency called the Panama Canal Commission, to make such finan- cial decisions and incur such expenses as are reasonable and necessary for the management, operation, and maintenance of the Panama Canal." 3. b. The Treaty provides for payment of up to $10 million out of the operating surplus in a given year. It further provides that "in the event Canal operating revenues in any year do not produce a surplus sufficient to cover this payment, the unpaid balance shall be paid from operating surpluses in future years in a manner to 934 be mutually agreed upon" (emphasis supplied). There is no provision for payment out of surpluses accumulated by the Canal Commission in past years. 3. c. No. The $10 million contingnet payment is payable in a given year only to the extent that revenues exceed expenditures. 3. d. An understanding adopted by the Senate and agreed to by the Republic of Panama provides that "toll rates . . . need not be set at levels designed to produce revenues to cover the [contingent $10 million] payment to the Republic of Panama." 3. e. In the event of a short-fall in revenues, the contingent $10 million payment would not be payable under the terms of the Treaty, inasmuch as it is contingent upon the existence of a surplus of operating revenues over expenditures in a given year. 4. a. As you correctly note, the respective commitments of the U.S. and Panama set forth in Article X, paragraph 7 of the Treaty with respect to current employees of the Panama Canal Company/ Canal Zone Government do not constitute absolute guarantees of continued employment at the same terms and conditions in effect at present. Rather, they are qualified by the phrase "to the maximum extent feasible." In our view, the effect of this qualifying phrase is to make clear that neither the U.S. nor Panama is required to take steps that are simply not feasible from a practical standpoint, such as retaining personnel in positions that are no longer required for the conduct of the activity in question; conversely, the Parties are obligated by these provisions to take in good faith all reasonable and practicable steps open to them to carry out their respective commitments with respect to the employees. We will be discussing with Panama their plans for implementing their commit- ments with respect to employees of activities to be transferred to Panama. Hopeful- ly we will then be better able to assess the full impact of the transfer of these activities on the workforce. 4. b. The Treaty does not establish any obligations with respect to the payment of severance pay. This is a matter which would be governed entirely by U.S. domestic law and regulations. 4. c. No. Panama's commitment to retain existing employees of transferred activi- ties to the maximum extent feasible and to ensure, to the maximum extent feasible, that the terms and conditions of employment applicable to such personnel employed in these activities are no less favorable than those in effect prior to the entry into force of the Treaty, is independent of any benefits that may be afforded such persons by the United States. I hope the foregoing information will be of use to you in your assessment of the financial impact of the Treaties. Sincerely, Herbert J. Hansell. U.S. General Accounting Office, Washington, DC, April 4, 1978. Mr. Herbert J. Hansell, The Legal Adviser, Department of State Dear Mr. Hansell: Our current assessment of the financial impact of the Panama Canal Treaties has raised several questions as to the interpretation of certain articles of the Treaties. We would appreciate receiving the Department of State's interpretation or position to the questions enumerated below. 1. Article II, paragraph 5, of the Treaty states that the Panama Canal Commis- sion shall reimburse Panama the amount of $10 million a year for police, street cleaning, traffic management and garbage collection services, and that every 3 years the cost involved in furnishing the services, shall be reexamined to determine whether an adjustment of the annual payment should be made because of inflation or other relevant factors affecting the cost of such services. a. Does this require a flat payment of $10 million a year for 3 years regardless of cost to Panama? b. After the 3-year period, will the payments be based on cost data supplies by Panama and adjusted accordingly, and who will examine the validity of the cost data? c. Have any standards been established to ensure the quality of the services to be provided by Panama? 2. Article VI, paragraph 6, of the Agreement in Implementation of Article III of the Panama Canal Treaty, provides in part that Panama Canal Commission shall on 935 behalf of the utilities agencies of the Republic of Panama, continue to provide utilities such as power, water and sewers to industrial and commercial enterprises and other persons in the area, other than United States citizen employees and dependents; and the utilities agencies of the Republic of Panama will be responsible for setting rates for and billing such customers, and shall reimburse the Commission for its cost in providing such services. a. Is it contemplated that the Commission will supply the utility agencies of the republic of Panama cost data for the services rendered by the Commission? b. Will the utility agencies of the Republic of Panama have access to the cost data for examination? 3. Article XIII, paragraph 4(c) of the Treaty, states that the Republic of Panama will receive an annual payment of up to $10 million to be paid out of Canal operating revenues to the extent that such revenues exceed expenditures of the Panama Canal Commission, and if operating revenues in any year do not produce a surplus sufficient to cover this payment, the unpaid balance shall be paid from operating surpluses in future years in a manner to be mutally agreed. a. Was the term "expenditures" intended to pertain only to cash outlays and synono- mous with the term "disbursement", or does it equate to the term "expense" or "cost" in the accounting sense, which under the accrual basis of accounting would include amounts paid or payable, as well as amounts for non-cash ex- penses such as depreciation and reserves? b. Was the term "surplus" intended to mean cumulative net profit as defined in the accounting sense as "earned surplus"? c. Is the $10 million contingent payment to the Republic of Panama a binding obligation of the United States, if the revenues do not exceed expenditures? d. Was it intended that the $10 million contingent payment be excluded from the toll base? e. What are the relative priorities of payment in the event of a shortfall in revenues? 4. Article X, paragraph 7, of the Treaty provides that the Republic of Panama will hire former Canal entity employees at salaries and fringe benefits comparable to the former salaries, "to the maximum extent feasible." The Panama Canal Compa- ny is currently estimating that it must pay severance pay to all employees whose functions are being assumed by Panama. We understand that this is being based on an interpretation that there is no absolute requirements nor guarantee that Panama will provide employment or comparable benefits. a. What is meant by "to the maximum extent feasible"? b. Are employees retained by Panama entitled to severance pay by the Canal Organiza- tion? c. If retained employees received severance pay, would this have a financial affect on the renumeration to be paid by Panama? Please advise us if you have any questions or wish to discuss the request for information. I can be reached on 275-5889. Sincerely yours, Frank M. Zappacosta, Assistant Director. Mr. Hubbard. We have a few more questions. Mr. Carney. On that clarification, if I might ask, do we have right of first use under Article 5? Mr. Corrado. We do not have the right for first use. Absolutely not. Mr. Carney. And just for a matter of record, the figures that we talked about before do not include the loss of that $135 million revenue? That's an entirely different thing, right? Mr. Zappacosta. What's that again, sir? Mr. Carney. Well, I am saying that we are losing $135 million in revenue that the Canal Zone made other than the revenue they made through tolls, and we are losing some of that. Mr. Zappacosta. That's right. Mr. Carney. And that is not part of the $400 million we spoke of, because that is considered recapped by adding on 14 percent of the toll. 44-394 O - 79 - pt. 2 936 Mr. Staats. Just to be sure there is no misunderstanding here, the 135 that Mr. Zappacosta referred to are revenues, but there are costs that have to offset part of that; that's the revenue side of the ledger. But there are costs that have to be looked at also. And we would be losing those, too. Mr. Carney. Right, I agree with you on that. But the problem is that there is a third entry, and that's the Bank of Panama who's getting the revenues which weren't there before; they stayed within the Panama Canal Zone, all that money — and the costs stayed within that. I don't want to get into this, but we are involved in a three-way party now, for instance, with providing electricity to the people who are going to rent those same houses and use the same facili- ties, only we will provide the electricity and Panama will bill them. So there could be an increased cost to the people living there — that type of thing. I know it is not a full $135 million, but certainly we are going to lose some more money to Panama. It will be a windfall profit to Panama. That's the point I am trying to bring out. And, more specifically, it is not part of the $400 we talked about. Mr. Staats. Yes. Mr. Carney. Thank you. Mr. Hubbard. And I believe counsel was in agreement that we do not have first use, to answer your question. Mr. Carney. Thank you, Mr. Chairman. Mr. Hubbard. Congressman Bauman. Mr. Bauman. Is GAO involved right now in any assistance to the inventory that is being taken of equipment and so on in the Canal Zone? Mr. Zappacosta. As far as actual taking inventory, no, sir. We observed some of it that is being taken by the various divisions and the general auditor of the company. We have not gone out and actually taken it. In the course of our annual audit of the financial statements, however, we do a certain amount of independent testing. Mr. Bauman. Then you have no knowledge of this instance that came to our attention about the possibility of the Navy having decided to remove a great many movable personal property and Mr. Zappacosta. I will check on that for you, if you like. Mr. Bauman. I would appreciate it. Thank you, Mr. Chairman. [The following was received for the record:] Removable Navy Property We do not have the specific details of the property in question or the basis for the Navy's rationale and reasons for deciding to remove personal property at this time (March 14, 1979). However, we have been informed that the Navy is currently preparing a response to the question, and after we have had an opportunity to review the response, we will pursue the matter further with the Department of Defense. Mr. Hubbard. Thank you, Congressman Bauman. Are there any other questions? Hearing none, we want to thank you, Mr. Staats, the Comptrol- ler General of the United States, for appearing before our subcom- 937 mittee on the Panama Canal along with Mr. Frank Zappacosta and Mr. John Watson. We appreciate your helpfulness and information. Mr. Staats. Thank you, Mr. Chairman. Mr. Hubbard. We need at this point unanimous consent to submit questions for the record by Mr. Merrill Whitman of our staff, who has written quite a few good questions. And is there a unanimous consent that we enter these in the record? Any objec- tion? Hearing none, it is so ordered. [The material follows:] Questions of W. Merrill Whitman, and Answers Supplied by General Accounting Office Question 1. As you point out on page 2 of your statement, one of the fundamental differences between H.R. Ill and H.R. 1716 is that H.R. 1716 would continue under another name, the corporate agency now known as the Panama Canal Company, while H.R. Ill provides for operation of the Panama Canal by an unincorporated executive government agency. What do you regard as the ultimate basic difference between agencies in corporate form and non-corporate form? Answer. An essential basic difference is that corporations are business-type enti- ties whose performance can be measured in terms of a profit or loss. Their activities are financed principally from revenues generated by their operations contrasted with activities of executive government agencies which are financed through the appropriation process. Question 2. Could not the Panama Canal be operated with either form of agency? Answer. Yes, as we stated in our testimony, the new Commission could operate as either an executive agency or a Government corporation. However, we believe that there would be an additional administrative burden and loss of management flexi- bility in the executive agency form of organization which would not be compensated for by an improvement in Congressional oversight. Question 3. What provisions of law setting up an agency determine whether it enjoys the advantages you have described as those of the corporate form? Answer. In order for a Government entity to be treated as a corporation as advocated in our testimony, the organic legislation establishing the corporation must include a provision which would specifically make the entity subject to the Government Corporation Control Act, 31 U.S.C. section 841 et seq. (1976). We note that this language is adequately included in H.R. 1716, title II, section 209 (a). Under that act, a corporation must prepare an annual business-type budget for submission to the Office of Management and Budget pursuant to 31 U.S.C. section 847 (1976). The budget must contain a statement of the corporation's financial condition, its income and expenses, and analysis of the surpluses and deficits, and other data pertaining to the corporation's business operations. Pursuant to 31 U.S.C. section 848 (1976) this budget program, as "modified, amended or revised by the President, shall be transmitted to the Congress as part of the annual budget," for consideration by the Congress in determining what appropriations or limitations thereon are necessary (31 U.S.C. section 849 (1970)). The act also provides for a GAO audit of the corporations finances every 3 years, 31 U.S.C. section 850. Under 31 U.S.C. section 851, GAO must report the results of its financial audit to the Con- gress. [The act has a provision which would bring Government corporations under greater fiscal control if the need arises. Under 31 U.S.C. section 852, OMB, with the approval of the President can recommend that any wholly owned Government corporation be treated as a Government agency with regard to fiscal matters. If Congress approves such a recommendation, ordinary Federal fiscal restraints would apply, resulting in greater accountability under the Budget and Accounting Act of 1921, as amended, 31 U.S.C. section 1 et seq. Question 4. What exactly would be the powers of the Commission under the provisions of H.R. 1716? Answer. Title II of H.R. 1716 is concerned primarily with the organization of the Panama Canal Commission, its financial management, operations and authority. Under this title the Commission would be established as the successor to the Panama Canal Company, and would assume the assets and liabilities of the com- pany and the Canal Zone Government which were not transferred under the treaty or otherwise disposed of, and would be subject to most of the statutory provisions which now govern the company, including its powers as a Government corporation 938 and its authority to borrow funds up to a fixed ceiling from the Treasury. The transition is effected to a large extent by the definitions in section 2 of the bill, which provide that references in the Canal Zone to the "Panama Canal Company" would be amended to read the "Panama Canal Commission." (See our response to No. 5 below.) Question 5. Article III of the treaty provides that on the effective date of the treaty, the Panama Canal Company shall cease to operate in Panama. H.R. 1716 changes the name of the corporation and continues its operations under the same provisions of law applicable to the Panama Canal Company, with certain amend- ments. Would this device, i.e., the change of the Company's name, be regarded as compliance with a private transaction in which a company or individual agreed to go out of business? Answer. Clause 10 of Article III of the treaty does require that the Panama Canal Company (Company) shall cease to operate within the Canal Zone, on the effective date of the treaty. Clause 3 of that same Article provides that the: * * * United States of America shall, in accordance with the terms of the treaty and the provisions of the United States law, carry out its responsibilities by means of a United States Government agency called the Panama Canal Commission which shall be constituted by and in conformity with the laws of the United States of America. H.R. 1716 contains the implementing legislation necessary to establish this new entity. Title II of H.R. 1716 sets forth the specific powers, duties, and organization of the Commission for the purpose of managing, operating, and maintaining the Panama Canal in accordance with the treaty. Section 2 (c)(1) of H.R. 1716, provides for the change of names from the Panama Canal Company to the Panama Canal Commis- sion. This provision does not provide for the continuance of the Canal operations under the same provisions of law applicable to the Panama Canal Company. It is merely a device which would amend all references to the company which would appear in the Panama Canal Code and in other laws of the United States, thereby conforming existing law with the treaty. This provision can be considered as a means to smoothly effectuate the transfer of certain functions from the company to the Commission. Question 6. Would you provide a specific reference to the report of the Hoover Commission containing the recommendation of incorporation of "straight-line busi- ness activities" referred to in the Hoover Commission report? Answer. Recommendation No. 3 of the Hoover Commission's (Commission on Organization of the Executive Branch of the Government) 1949 report on Federal Business Enterprises states that: We recommend that straight-line business activities be incorporated so as to secure greater flexibility in management and simpler accounting, budgeting, and auditing methods." At the time of this recommendation, administration of the various business enter- prises in the Canal Zone was divided between the Panama Canal, an independent executive agency, and the Panama Railroad Company, a wholly-owned Government corporation. The Hoover Commission recommended was subsequently cited by the Bureau of the Budget (1) in recommendations to the President for the reorganiza- tion of the Panama Canal and Panama Railroad Company (81st Congress, 2nd Session, Document No. 460) and (2) in testimony supporting legislation to accom- plish the reorganization (Hearings on H.R. 8677 before the Subcommittee on the Panama Canal, House Committee on Merchant Marine and Fisheries, 81st Congress, 2nd Session). The reorganization of business activities under the Panama Canal Company and governmental functions under the Canal Zone Government was au- thorized by Public Law 81-841, approved September 26, 1950. Question 7. What specific types of business activities of the Government were referred to in the Hoover Commission report? Answer. The Hoover Commission report contained recommendations applicable to a number of Federal business enterprises such as the Federal Housing Administra- tion, Home Loan Banks, the Panama Railroad Company, Washington National Airport, the Rural Electrification Administration and the Commodity Credit Corpo- ration. Question 8. The report of the second Commission on Organization of the Executive Branch also discussed business activities of the Government in considerable detail. What types of business activities were under consideration of that Commission? Answer. The second Commission on organization of the Executive Branch dis- cussed all types of Government business enterprises. The Panama Canal Zone activities are discussed in detail in the Commission's March 1955 report to the 939 Congress on transportation. (For a complete listing, refer to pages 14 and 15 of the June 1955 index of the Commission's reports). Question 9. Was the operation of the Panama Canal considered by either the first or second Commission on organization of the Executive Branch, and if so, did either report recommend incorporation of the agency operating the Panama Canal? Answer. Panama Canal activities were considered in reports of both Commissions and in considerable detail in the second Commissions previously cited report on transportation. As stated in the answer to question 6, at the time of the first Commission's 1949 report, the Panama Railroad Company was incorporated but certain business activi- ties were being conducted by the Panama Canal, an independent executive agency. At the time of the second Commission's 1955 report, the Canal activities had been reorganized with the business activities under the Panama Canal Company, a Government corporation. Question 10. What were the purposes of construction of the Canal as you under- stand them? Answer. The history of the Canal indicates that both commercial and national defense considerations were important in the construction of the canal. This dual purpose was recognized in the 1950-1951 reorganization which excluded the costs of certain defense-related facilities from the investment base of the Panama Canal Company and which initiated the policy of charging tolls on military and other U.S. Government vessels. (See House Committee on Merchant Marine and Fisheries report to accompany H.R. 8677, 81st Congress, 2nd Session). Question 11. Do you distinguish in any way between the activities of the Panama Railroad Company and its successor, the Panama Canal Company in the operation of the railroad, ports, retail stores in the activities generally referred to as transit activities on the one hand and other obviously commerical activities, such as the railroad, ports and retail stores, on the other? Answer. Prior to the 1950-51 reorganization, the Panama Canal agency was responsible for the transiting of vessels through the Canal and the Panama Railroad Company's major responsibility was operating the trans-Isthmian railroad. Howev- er, both entities were engaged in business activities. (See House Document No. 460, 81st Congress, 2nd Session). The reorganization combined the transiting, railroad and business activities under the Panama Canal Company. Question 12. On page 4 of your statement, you refer to a series of accounts not now maintained by the Panama Canal Company that would be required under the Accounting and Auditing Act of 1950 which would be made applicable to the Company by section 234 of H.R. 111. Does the Accounting and Auditing Act of 1950 now apply to the Canal Zone Government? Answer. Yes, the Accounting and Auditing Act of 1950 applies to the Canal Zone Government. Question 13. Who maintains the accounts of the Canal Zone Government? Answer. The Panama Canal Company maintains the accounting records of the Canal Zone Government. Question 14. What is the statutory basis for requiring the allotment accounts referred to on page 4? Is this statute inapplicable to the Panama Canal Company? Answer. The statutory basis for maintaining the series of accounts mentioned on page 4 of our testimony is the Accounting and Auditing Act of 1950, as amended, 31 U.S.C. and 65 et seq. (1976). This act does not apply to the Panama Canal Company. Our authority to audit the financial transactions of the Company is authorized by the Government Corpo- ration Control Act, 31 U.S.C. section 850. In the past we have undertaken the audit of the Panama Canal Zone Government as an integral part of the audit because the Company and the Government are closely related in terms of purpose and organiza- tion and because the Company is required by law to absorb the net cost of the Government. Question 15. What are the "obligation accounts" to which your statement refers? Answer. The obligation accounts would be included in the budgetary accounts that would be maintained to provide a clear showing of the status of appropriations in terms of apportionments, allotments, obligations, accrued expenditures, revenues, and reimbursements. Some of the basic accounts would be Unapportioned Appropri- ation-Current Year, Unalloted Apportionments-Current Year, Unliquidated Obliga- tions-Current Year and Prior Years, Expended Appropriation-Current Year and Prior Years, revenues and reimbursements to Appropriation. Question 16. How do they differ from the accounts maintained by the Panama Canal Company? 940 Answer. At the present time, the Panama Canal Company does not maintain the "Obligation Accounts" referred to in our statement and in question No. 15. (See response to question No. 15) Question 17. Could not the accounts described in section 234 be established under principles, standards and related requirements prescribed by the Comptroller Gen- eral under the provisions of the Accounting and Auditing Act of 1950? Answer. Yes, the accounts described in Section 234 could be established in accord- ance with the principles, standards, and requirements prescribed by the Comptroller General for federal agencies. The principles, standards, and related requirements are contained in Title 2 of the GAO Policy and Procedures Manual for Guidance of Federal Agencies. Question 18. How significant would be the administrative burden for the Commis- sion resulting from establishing accounts under section 234? Answer. Without specific knowledge as to the method of funding by the Congress, that is whether the one overall funded account is used or a variety of funded accounts, it is difficult to determine what the additional administrative burden would be. As a minimum, there would be an increase in administrative work due to additional operating procedures, maintaining the required accounts and preparing necessary reports. Question 19. Please describe specifically what steps would have to be taken to enable the Commission to keep it accounts in accordance with section 234. Answer. The starting point would be to make a limited review of the exisintg accounting system to determine what accounts are being maintained, operating procedures employed, and documents and reports prepared maintaining the system either manually or computerized. The data obtained would then be compared with the requirements of maintaining the accounts in accordance with section 234 to determine what changes had to be made in the accounts structure, operating proce- dures, documents and reports, and related computer programs and procedures. The specific procedures to implement the changes differ based on whether the accounts would be maintained manually or computerized. Question 20. On page 17 you refer to the requirement of H.R. Ill that revenues of the Canal be deposited in the Treasury and expenses be paid pursuant to annual appropriations. Your statement suggests that these changes are unnecessary and that there is adequate Congressional oversight and control under the existing system of operation by an agency in corporate form. What does the treaty provide in reference to the disposition of tolls received for operation of the Canal and other revenues derived from the operation of the Canal? Answer. Article III 2(d) of the treaty states that the United States May "Estab- lish, modify, collect and retain tolls for the use of the Panama Canal, and other charges, and establish and modify methods of their assessment." The treaty also states in Article XIII 4 that payments to Panama shall be paid out of Canal operating revenues. Since the Commission will be a United States Government agency under H.R. Ill, the receipts and disbursement will be in accordance with U.S. laws and regulations. Presently, all cash receipts exceeding current operating requirements are deposited with the U.S. Treasury. Question 21. What do the laws of the United States provide in reference to the disposition of funds received for The United States? Answer. Funds received for the United States are deposited in the Treasury as miscellaneous receipts unless legislation provides for some other disposition, such as allowing a specific agency to deposit the funds in a Treasury Account for the express use of the agency carrying out its programs and activities 31 U.S.C. section 484. Question 22. What was done with toll receipts and other revenues of the Panama Canal between 1914 and 1951? Answer. All toll receipts and other revenues were deposited in the general fund of the U.S. Treasury, prior to the establishment of the Panama Canal Company on July 1, 1951. Question 23. What is done with revenues received by the agency known as the Canal Zone Government? Answer. The revenues received by the Canal Zone Government are deposited in the Treasury as miscellaneous receipts. Also see reply to question 27. Question 2k- In the absence of inclusion of a specific limitation in the appropri- ation act, would the approval of the budget program of a corporate agency limit the expenditures of the agency to the amounts shown in the budget program? Answer. In the absence of the inclusion of a specific limitation in an appropri- ation act limiting corporate expenditures, a wholly-owned Government corporation subject to the Government Corporation Control Act, 31 U.S.C. section 841 et seq., 941 would not be limited as a matter of law in its budget request. However, their budget would come under the annual scrutiny of Congress. It has been a practice to subject many Government corporations to specific limitations regarding both expenditures and types of expenditures in their specific appropriation acts. See, for example, the Tennessee Valley Authority and the Export-Import Bank. Question 25. Can you cite any instances of limitation on expenditures (other than for administrative expenses) imposed on the Panama Canal Company in appropri- ation acts approving the budget programs of the Company? Answer. To the best of our knowledge, expenditure limitations on past budgets of the Panama Canal Company have been restricted to general and administrative expenses, including the purchase of passenger motor vehicles. Question 26. What part does the legislative committee having jurisdiction over a corporate agency perform in the process of consideration and approval of the budget program of a corporate agency? Answer. The Government Corporation Control Act, supra, is not dispositive on this point, however, the legislative history of the Act does indicate that the House Appropriations Committee would play a major role in the consideration and review of the budget programs of wholly-owned Goverment corporations. In its report on that Act, the Senate Committee on Banking and Currency states the following: Section 104 provides for the consideration by the Congress of the budget programs and the enactment of legislation, if necessary, making available such funds or other financial resources as the Congress may determine. Under this procedure, it is contemplated that the budget programs as transmitted by the President to the Congress would include, as in the case of estimates of appropri- ations, language suitable for enactment as the authorizing legislation. Such programs would be referred to the House Committee on Appropriations and, after hearings, be reported to the House, in the form of (1) simple authorizing legislation, showing that the Congress had considered and approved the budget program but not setting a limitation on the corporate financial activities other than that provided by substantive law, or (2) legislation incorporating such specific limitation as necessary to enforce the will of Congress in the carrying out of the corporate financial activities or to conform such activities to the general financial program of the Government. S. Rep No. 694 (1945), 1945 U.S.C.C.A.N. page 902 In practice, however, this has not always been the case. In many instances, legislative committees have held hearings concerning the content of the budget submitted by wholly-owned Government corporations. Therefore, we would recom- mend that the jurisdiction of the legislative committee over the budget of the Commission be specifically set forth in the implementing legislation. This would eliminate any jurisdictional problems in the future. Question 27. The annual budgets of the Canal Zone Government show that until recently the Canal Zone Government paid all its revenues into the Treasury, but the budget now shows that the agency uses certain revenues derived from payments for services by other government agencies for payment of costs of the agency and pays only the balance into the Treasury. What is the legal authority for not paying all revenues of the Canal Zone Government into the Treasury? Answer. Basically, the system provides that the Canal Zone Government income from all sources be deposited in the Treasury as miscellaneous receipts. However, recently certain funds received from other Government agencies for services per- formed for them by the Canal Zone Government on a reimbursable basis are used to pratially finance operations. Accordingly, appropriation requests are reduced to the extent such funds are available and used. The basic authority to use the funds for providing these services is Section 686, 31 U.S.C. Question 28. Under H.R. 1716, is the Panama Canal Commission authorized to make payments to Panama out of funds received by the Commission without paying such funds into the Treasury and without such payments having been authorized by appropriation? Answer. Sec. 203 of H.R. 1716 would authorize the Panama Canal Commission to make payments to Panama out of operating revenues wihtout the necessity of appropriating funds for much payments. Since the Commission would be organized as a Government corporation under H.R. 1716, all cash receipts, other than those needed for cash operating requirements, would be deposited in the Treasury as received and disbursements made as needed for operating expenses, including pay- ments to Panama. Question 29. While the Panama Canal was operated with appropriated funds, can you point out any instance in which the operation was embarrassed because of the application of the appropriation process for financing the agency? 942 Answer. We are not aware of any instance where the application of the appropri- ations process prior to 1951 "embarrassed" the Canal operations in the sense of a financial embarrassment of being unable to meet its obligations. Adherence to the appropriations process did result in a change in a 1948 amend- ment to the Canal Zone Code (Public Law 81-223) which authorized the Governor the Panama Canal — * * * within the limits of available funds, to purchase or otherwise acquire equipment and within the Canal Zone to purchase or otherwise acquire, con- struct, repair, replace, alter, or enlarge any building, structure, or other im- provement, when in his judgment, such action is necessary for the operation, maintenance, sanitation, of civil government of the Panama Canal or Canal Zone. The legislative history of this change in the Canal Zone Code indicates that prior to its enactment the Comptroller General had questioned the use of appropriations for constructing buildings and other improvements because specific authority could not be cited in the Canal appropriation acts. To overcome this objection, specific authority for such expenditures was included in appropriations acts from fiscal year 1940 until the 1948 change in the Code. Mr. Hubbard. Thank you, Deputy Secretary of the Treasury, Robert Carswell, for your patience, for appearing here at 9 a.m. this morning and waiting until 4:25 in order to testify. Our final witness for the day is Mr. Carswell, who has been in his Treasury post since June of 1977 and who has been represent- ing the Treasury as a member of the Panama Canal Company Board of Directors for the last year. Secretary Carswell, we hope you will provide us with some in- sights into some of the financial decisions involved in the imple- menting legislation, and how you see the Treasury interest affected by the legislation. We await your statement. STATEMENT OF HON. ROBERT CARSWELL, DEPUTY SECRETARY OF THE TREASURY Mr. Carswell. Thank you, Mr. Chairman. I am pleased to be here today to testify before this subcommittee on the legislation to implement the Panama Canal Treaty of 1977 and related agree- ments, as embodied in the administration bill, H.R. 1716, and the similar bill introduced by Congressman Hansen, H.R. 454, and H.R. Ill, introduced by Chairman Murphy for himself and others. Others appearing for the administration have described for you the general purposes and objectives of the implementing legisla- tion. So I will address myself, as you requested, to the issues of greatest concern to the Treasury and to the Treasury's role in the canal enterprise. The Treasury's greatest concern is, of course, the efficiency and sound financial management of the canal, both now and after the year 2000 when management of the canal will be turned over to Panama. For the present, while the United States has primary responsibility for the canal's operation, it is important that the canal be administered in a businesslike, prudent, and fiscally re- sponsible manner. The canal and its operations should be self- sustaining and should not be a drain on the U.S. taxpayer. At the same time, if the canal is to facilitate the continuing expansion of United States and world trade, it is important that tolls be as low as possible, while still covering costs. To accomplish these objectives, it is important that there be financial accountability at all levels to provide an adequate basis 943 for oversight by the executive branch and by the Congress. On the other hand, financial and management controls must not be so obtrusive as to interfere with operating efficiency and to unduly restrict flexibility to cope with unexpected developments. It is also important that the groundwork be laid now for the canal's efficient management after the year 2000 and that those Panamanians who will have exclusive responsibility for the canal's operation after 2000 receive on-the-job management experience in the years ahead. It is my belief that a Government corporation as envisioned in the administration bill would best promote efficient and effective management. Significant differences in operations and financial management flow from a decision to organize the canal enterprise as a U.S. Government corporation as proposed in the administration bill rather than as an appropriated funds agency as proposed by H.R. 111. The canal has been operated through a corporate form for the past 28 years and on a self-sustaining basis — without recourse to appropriated funds or drawing on its $40 million borrowing author- ity. Since our objectives for the future are the same, unless overrid- ing considerations dictate otherwise, there would seem to be a presumption in favor of retaining the same form of organization. If the Canal Commission is established as a Government corporation, substantially the same accounting and management practices can be continued, subject to congressional oversight, and the Canal Commission will have the management systems, internal controls and disciplines to operate within its revenues. To achieve financial self-sufficiency, the Commission must be able to equate its costs with toll rates and traffic levels. It must also allocate its resources so as to achieve the optimum balance between present and future needs. As at present, profit and loss accounting policies would identify costs and revenues clearly, thus assisting in setting tolls at an appropriate level to cover all costs. Capital would be recovered from users rather than funded through appropriations. These prac- tices offer the best guarantee possible that canal operations do not sooner or later become a burden on the American taxpayer. Fur- thermore, the corporate structure firmly establishes an appropriate vehicle for eventual full assumption of canal operations by Panama with the least possible confusion and maximum likelihood of con- tinuous businesslike and efficient operation of the canal after the year 2000. To assure that the canal is able to handle unpredictable changes in the volume of its transit business while continuing to operate within its revenues, the management of the canal will benefit from the flexibility and control over operations which is implicit in the structure of a government corporation. Even with the best of inten- tions, this flexibility is not necessarily present in the operation of a government agency in which a variety of goals, in addition to meeting break-even points and providing efficient service, becomes important. We must guard against the evolution of a situation in which appropriations to cover costs over time are considered sepa- rately from expenditures. That kind of problem is inherent in a government agency approach where there are loose ties between revenues and costs. 944 We believe the record of the Panama Canal Company shows that the corporate structure has been and continues to be the wise choice for control of canal operations, and that this form will be even more important to continued efficient operation of the canal in the future as the Panamanian Nation begins to have an increas- ing impact on the canal and its operating environment. The administration bill assures continued congressional over- sight of the operation of the Canal Commission although it does not subject the Commission to the annual appropriations process as would H.R. 111. The Government Corporation Control Act would require the submission of the Commission's annual budget to the Congress after review by the Office of Management and Budget, just as it has required the submission of the Canal Company's budget in the past. This submission will permit the Congress to review the budget in detail and to make modifications in it. In addition, the Commission would be audited by the General Ac- counting Office. The Comptroller General is required to report the results of such audits to the Congress. These review provisions have proven adequate to provide effective Congressional control over the operations of the canal in the past and, in our view, would continue to do so. H.R. Ill proposes that membership on the Board of Directors of the Panama Canal Commission, with the exception of the Defense Department representative, be composed of private individuals. The administration bill grants the President the power to appoint board members. The administration has already decided that this power would be used to appoint to the board representatives of the U.S. Government agencies most interested in the efficient oper- ation of the canal — the Departments of State, Transportation, Com- merce, and Treasury, in addition to Defense — in order to assure U.S. Government policy control over the 5 to 4 bilateral board. We believe the broad policy representation possible under the administration bill confers two principal advantages. First, it as- sures that U.S. Government policies and national interests are fully understood and weighed by the Commission in its policies and decisions. Representation of interested agencies provides greater assurance of direct communication and high-level agency involve- ment. Second, it provides a mechanism for carrying through Treas- ury's concerns that the canal be operated in a financially sound and businesslike manner. Other differences between the administration bill and H.R. Ill, which are of special interest to Treasury, concern payments of interest and amortization on the so-called net direct investment of the United States in the canal. H.R. Ill would continue the pres- ent requirement for interest payments by the canal enterprise into the U.S. Treasury and proposes that amortization payments be made annually as well. The administration bill calls for repeal of the present interest payments provision and contains no specific provision for amortization, although the existing statutory provi- sion for payment of dividends to the United States would remain. In light of the special circumstances projected in respect of tolls increases, expenses, and payments to Panama, we believe that foregoing the interest payments is consistent with the broad eco- nomic and foreign policy objectives of the United States. 945 The principal reasons for the administration's position not to require payments of interest and amortization are: (1) To insure so far as practicable that the Commission is and will remain self- sustaining for the life of the Treaty, and (2) to avoid an excessive increase in tolls. In conclusion, we want for the long term: (a) An efficient, finan- cially self-sufficient operation, (6) an adequately trained and finan- cially responsible Panamanian staff and management able to assume responsibility in the year 2000, and (c) minimization of the cost to world commerce of the transition now and in the year 2000. I believe that the administration bill can achieve our objectives and will permit effective control and oversight by Congress. Thank you. I will submit specific answers to the technical ques- tions which you requested. [The following material was received for the record:] Questions Submitted by the Committee to the Treasury Department and Answers Thereto Question 1. Explain (as specifically as possible) what the role of the Treasury Department and the U.S. Treasury would be in relationship to the canal under both H.R. Ill and H.R. 1716. For example, does the Department of Treasury have a view as to whether military vessels should pay tolls (as per section 232(b) of H.R. 1716), or whether a credit for the Commission with the Treasury will be allowed pursuant to section 412(c) of H.R. 111? Answer. In addition to the matters discussed in the testimony, the Department of the Treasury has a number of specific financial relations with the Panama Canal Company. These are set out below. (a) Company cash assets exceeding current requirements are desposited in Treas- ury, and are available to the Company without appropriations action but subject to Congressional review. This practice would continue under H.R. 1716. Under H.R. Ill, all receipts of the Commission would be deposited in the Treasury as miscella- neous receipts and all expenditures would be made from appropriations. (b) The Panama Canal Company is empowered to borrow from the U.S. Treasury a total not to exceed $40 million. Under H.R. 1716 the existing authority for borrowing up to $40 million will be continued. H.R. Ill would repeal the existing borrowing authority, and provide an emergency fund to which appropriations of $10 million would be authorized for fiscal year 1980, and such sums as may be necessary for subsequent fiscal years. (c) Financing for various Canal Zone Government expenses is made from appro- priations. Monies for financing various Canal Zone Government activities are repaid to the U.S. Treasury by deposits of revenues for Canal Zone Government services and by the Panama Canal Company revenues which are paid to the Treasury as reimbursements for the net cost of the Canal Zone Government. This practice would end under both bills because the Canal Zone Government will not exist under the Panama Canal Treaty of 1977. (d) An annual interest payment on the net direct investment of the U.S. govern- ment in the Panama Canal Company is made to the Treasury. H.R. 1716 will repeal this interest payment requirement. H.R. Ill contemplates continuation of the inter- est payments. (e) Dividends of the Panama Canal Company in excess of working capital require- ments and plant replacement and expansion are paid into the Treasury, and are treated as a reduction in the U.S. net direct investment in the Company. The dividend provision would remain under H.R. 1716. H.R. Ill contemplates amortiza- tion of the U.S. investment in the Canal. (f) Tolls computed but not collected on government vessels which transit the Canal are offset against certain Company obligations to Treasury. Under H.R. Ill, the President would be authorized to require government vessels to pay tolls; H.R. 1716 requires government vessels to pay tolls. As a fundamental principle of sound budgetary accounting, all costs of an agency's activities should be reflected in the agency's budget. Adherence to this principle provides the basis for rational decisions regarding the allocation of scarce budgetary resources, and in this case, use of the Canal. 946 (g) The Panama Canal Company reimburses Treasury for $430,000 of the annual $2.3 million annuity payments made to Panama. This practice would be discontin- ued because the Commission will make Treaty payments to Panama from its rev- enues under H.R. 1716, or from appropriations under H.R. 111. Question 2. What do you recommend as to specific methodology for the payments to Panama under Articles XIII and III of the Treaty? Answer. Under both H.R. 1716 and H.R. Ill we would contemplate that annual payments pursuant to Articles 13 and 3 of the Treaty would be made to Panama at mutually agreeable intervals. Question 3. What are the differend advantages and disadvantages attached to the covering of all unexpended funds of the Panama Canal Company and Canal Zone Government into the Treasury (per subchapter I of chapter 5, H.R. Ill), as com- pared to transferring all remaining assets (including accounts) of the Panama Canal Company and Canal Zone Government to the Panama Canal Commission (per section 210 of H.R. 1716) upon its establishment? Are the provisions of sections 231 and 232, subchapter V, chapter 5, H.R. Ill adequately drawn to provide for the covering of all funds into the Treasury? Answer. The difference between transferring assets to the Commission and cover- ing funds into the Treasury reflects the fundamental difference between the two bills, namely whether the Commission should be a Government corporation or an appropriated funds agency. This difference is discussed in our testimony. The advantage of transferring all remaining assets (including accounts) of the Panama Canal Company and the Canal Zone Government to the Panama Canal Commission (per section 210 of H.R. 1716) lies mainly in the prompt, accurate manner in which the transfer can be accomplished, that is, by amending the titles of the accounts. We see no disadvantage attached to this method. However, the provisions of section 231 and 232, subchapter I, chapter 5, of H.R. Ill would, in our view, require more complex accounting procedures. The legislation provides for the repeal of the Panama Canal Zone Government and the Panama Canal Company accounts after unexpended balances are covered into the general fund of the Treas- ury. No provision for the continuity of activities by the Panama Canal Commission is apparent. Note that a discrepancy exists between the language of section 231 and 232 and their section analyses. The bill refers to certain "unexpended" balances which would be covered into the Treasury on the effective date of the Act, while the section analyses refer to "unobligated" balances. Since the two terms are not interchangeable in Federal accounting parlance, the drafters' intent should be cor- rectly reflected in the Act, and the section analyses should be conformed thereto. Question 4- Since the Panama Canal Treaty requires that the canal be turned over to Panama "in operating condition and free of liens and debts," there was a good deal of debate in the Senate as to how the United States could protect the U.S. Treasury from absorbing costs of funds expended for emergencies and for capital programs. One reservation (introduced by Sen. Stone) addressed the issue of expend- iture of funds for emergencies. How is the U.S. Treasury protected from absorbing extraordinary costs when the canal is transferred in the year 2000? In order to protect the treasury, what recommendations do you have for the administration of the canal under the Panama Canal Treaty? Answer. Article XIII of the Treaty provides that the Canal "shall be turned over in operating condition and free of liens and debts, except as the two parties may otherwise agree." There are some capital projects which are required to maintain the Canal in operating condition, and these would be necessary in order to comply with the Treaty. This will primarily involve routine replacement of existing plant and equipment, which the Commission should be able to finance from its own resources. However, many capital projects are discretionary in nature and represent real improvements over existing plant and provide benefits over an extended period of time. To the extent that such projects cannot be financed from Commission resources, financing of major projects in the latter category should be subject to special arrangements. Agreements on joint governmental financing, or assumption by the Government of Panama of the related liabilities after 1999, is a possible arrangement for such projects before they are started. Under H.R. 1716, funds required to meet a catastrophe in excess of those available to the Commission through its earnings and its statutory borrowing authority would require Congressional action. Under H.R. Ill, funding in excess of that appropriated for maintenance and emergency funds would require Congressional action. Therefore, the Treasury would be protected against unbudgeted expenditures unless authorized by Congress. Question 5. What views does the Department of Treasury have with respect to the provisions in the bills (sec. 240 in H.R. Ill and sec. 212 in H.R. 1716) with respect to 947 reimbursements of one agency to another for services rendered. Are there any accounting or fiscal impacts to the Treasury that should be given attention? Answer. Treasury endorses the concept of reimbursement for services between government entities. The reimbursement provisions of H.R. Ill and H.R. 1716 can be handled through routine accounting documentation. We see no accounting or fiscal impacts to the Treasury from these provisions. Question 6. What views does Treasury have on the regime for claims presented in H.R. Ill and H.R. 1716? Given the provision of H.R. Ill which authorizes the Panama Canal Commission to settle claims only to a limit of $60,000, are there statutes, court decisions, or administrative interpretations which would provide pertinent background for the consideration of such a limitation? Answer. There are two principal differences between the bills. First, the Adminis- tration's bill unlike H.R. Ill could limit claims arising from injuries in locks of the Canal by permitting the Commission to establish that the injury did not result from the negligence of officers or employees of the Canal. Second, H.R. Ill limits the authority of the Commission to settle claims to amounts of $60,000 or less. Governor Parfitt's testimony addresses the regime for claims in H.R. Ill and H.R. 1716 in considerable detail. The Treasury Department brings no special expertise to this discussion of the resolution of claims arising from injuries to persons or property. While we have not independently researched the proposed $60,000 limit on the settlement of claims by the Commission, which we understand has been drawn from a pre-1951 provision of the Canal Zone Code, we note that imposition of the limit would represent a significant departure from the current requirements of Canal Zone Code which permit the Commission to settle claims without limit. Further, the imposition of a new ceiling on the settlement authority of a Government agency appears to be contrary to the recent trend of Congressional action in this area. For example, in 1966 the Congress amended 28 U.S.C. Section 2672, which provides for the administrative adjustment of tort claims against the United States, from a provision which had limited the settlement authority of Federal agencies to claims for money damages of $2,500 or less to remove the limit entirely, provided that awards in excess of $25,000 were issued only with prior written approval of the Attorney General or his designee. We also note that a limit of $60,000 appears to be very low compared to the claims the Canal Company has recently had before it. An unnecessarily restrictive settlement authority may not be consistent with the devel- opment of the Commission's ability to manage its affairs independently in the future and may prove unfair to Canal users. Question 7. Is there a need for the continuation of the concept of U.S. net direct investment in the canal enterprise? If there is a need to continue such a concept, how should assets transferred to Panama and written off against the U.S. net direct investment in the canal enter- prise be evaluated? What will be the remainder of the net direct investment figure after subtraction of the worth of transferred assets at book value? at market value? or at other evaluations? (See p. 123 of hearings of the Subcommittee on Panama Canal, November 30-April 1, 1977). Answer. A principal function of the "net direct investment" concept, as it appears in the Canal Zone Code, is to determine the base against which interest due Treasury is calculated. Since the Administration recommends that interest pay- ments be discontinued, the Code provisions regarding net direct investment will no longer have policy significance. Continuation of the concept, however, is provided in the Administration bill to maintain accounting consistency regarding U.S. Govern- ment equity in the Canal. The Administration intends to use net book value of the assets to be transferred to Panama as the basis for writing them off against U.S. net direct investment, as was authorized by Congress in the implementing legislation for the 1955 treaty. Since the Administration proposes that interest payments based on net direct in- vestment be discontinued, however, these changes in net direct investment are accounting transactions without policy significance. Any attempt to calculate a market value of the Canal would necessarily be highly speculative, since such a calculation would depend upon assumptions made concern- ing future traffic flows, operating costs and toll levels. Mr. Hubbard. Thank you, Deputy Secretary Carswell. You've been a member of the Board of Directors of the Panama Canal Company. How involved have you been in the activities of the Board? 948 Mr. Carswell. Well, I went to Panama for 3 days with them, about 3 months ago now, and I have been to Board meetings and I have consulted from time to time with members of the Board and of other agencies and of the Company in between Board meetings. I have not spent any huge percentage of my time on it, but it has not been noninvolvement. Mr. Hubbard. Have you attended all the meetings convened since your appointment to the Board? Mr. Carswell. I did not attend the meeting 2 weeks ago in Panama. Mr. Hubbard. The Company, I understand, has a higher than usual cash balance on hand due to the transit of Alaskan oil. What has been your view as to whether the excess cash balances should be placed in the U.S. Treasury to reduce the investment of our Government in the canal enterprise? Mr. Carswell. Of course, the cash is in the Treasury now in the sense that receipts from the Canal Company are on deposit at the Treasury, and it's just like any other cash held by the Treasury. So it really doesn't make a difference whether you declare a dividend now or you don't, because you still have the money. But before the commission form takes effect, I think the board can, should, and will consider whether a dividend should be declared of excess cash, if there is excess cash. Obviously the Commission will need some working capital, so I don't think you could declare a dividend of all the cash that is now in the Panama Canal Company, but it may well be appropriate to declare a dividend of some of it and recover some of the invest- ment. Mr. Hubbard. That would be a good idea, wouldn't it? Mr. Carswell. To the extent that it wouldn't disable the Com- mission from operating, yes, it would be. Mr. Hubbard. Under one interpretation of the administration bill, payments under article III and article XIII of the Panama Canal Treaty would be paid directly to Panama without going through the U.S. Treasury; is this correct? Mr. Carswell. I am sorry. Mr. Hubbard. Under one interpretation of the administration bill, payments under articles XIII and III of the treaty would be paid directly to Panama without coming through the U.S. Treas- ury. Mr. Carswell. It depends, I suppose, on where the cash of the Canal Company is kept. The payment I guess under one interpreta- tion would be made by the Commission, because it would be an expense of the Commission, that is, the service charges and the $10 million annuity at least, are an expense of the Commission. The cash itself would be on deposit, I assume, with the Treasury. Mr. Hubbard. But these payments would be paid directly to Panama without going to the Treasury. I believe that those with you would be in agreement that that is accurate. Mr. Carswell. Cash comes in from tolls, goes into the deposit accounts of the Canal Commission— it will after the event— and those Commission deposits are with the Treasury, and in that sense the Treasury has whatever the cash is and then from those ac- counts the Canal Company will pay Panama. 949 Mr. Hubbard. Is the Treasury Department aware of any other instances in which money is retained by U.S. Government agency and subsequently has been paid to a foreign government without an appropriations act providing for such by Congress? Mr. Carswell. I don't know. There are plenty of instances where U.S. Government corporations obviously make payments out of receipts that they collect. I don't know whether any of them were ever paid to a foreign government. I'm just not familiar with all the U.S. Government corporations. But, for instance, our banking agencies— the Comptroller of the Currency, for instance— gets receipts from the banks, assessments, and then pays his bills. And they never are paid by the Treasury as such. Mr. Hubbard. Would you please provide for the record any in- stances at all like this situation, where the Treasury Depart- ment Mr. Carswell. You mean where a Government corporation Mr. Hubbard. Right, were money retained by a U.S. Government agency has subsequently been paid straight to a foreign govern- ment. Mr. Carswell. We'll certainly look for that. I am not quite sure Mr. Hubbard. Without an appropriations act providing for such. Mr. Carswell. I am just not quite sure what kind of accounting we would have to pull that out, but we will look for it. [The following material was received for the record:] Instance in Which Money Retained by a U.S. Agency Is Subsequently Paid to Foreign Governments The Panama Canal Commission will be a unique Federal entity in the sense that it will be the only Government entity whose functions stem from a bilateral treaty between the U.S. and a foreign government and through which payments are made to that government from operating revenues. There is no other U.S. Government corporate entity whose roles and missions involve similar payments to a foreign government from program-generated revenues. The present Panama Canal Compa- ny is now making such payments to the Institute of Hydrolic Resources and Electri- fication (IRHE), an autonomous agency of the Panamanian Government, in return for purchases of electrical energy. These purchases and payments are made under a 25-year contract initiated in 1965. Although not strictly analogous to the Panama Canal Commission because its payments are in the form of loans, the Commodity Credit Corporation offers one instance in which money returned to a U.S. agency and not appropriated is paid to foreign governments. In this case, repayments under Pub. L. 480 Title I made to the Commodity Credit Corporation are used by that Corporation for new loans to foreign governments without a new appropriation. The repayments supplement appropriated funds within a total authorized program level. Similarly, the Exim- bank makes loans to foreign entities from repayments on earlier lending which are available subject to annual limitations. Moreover, there are numerous instances where revolving-fund financing is used for reasons similar to those used in the Panama Canal Commission account struc- ture, although the payments do not go to foreign governments: there is a continuing cycle of operations in which outlays generate receipts, most of which come from a non-Federal source; the program is substantially self-sustaining; and there is a substantial need for flexibility to meet unforeseen requirements. Mr. Hubbard. OK, fair enough. Now I have my last question. I think it is important that we discuss the interest payments to the Treasury that are discontinued by the administration bill. Has the Department a figure for the total of potential funds for the U.S. Treasury foregone by discontinuing the payments? 950 Mr. Carswell. I don't think we have any difference with the figures that I just heard from Mr. Staats — today it's $19 million; if you assume that that is the figure that would continue, then 22 years times $19 is $418 million. There are all kinds of ways you can figure out what that interest should be based on. We are going to transfer to the Panamanians some assets when the treaty comes into effect a year from now, October 1. If you subtracted the value of those assets from the $319 million now the net book value and only paid interest on what was left, then that interest figure would come down a bit. On the other hand, if there is some other type of accounting used, as General Staats was suggesting you might want to consider, I suppose the figure could change again. And it also will depend in part on what the Treasury's long-term borrowing rate was, so I don't think you can give the right answer for any of this. But based on the assumptions that General Staats used, I think $418 million is as accurate a figure as you are going to get. Mr. Hubbard. Congressman Bauman. Mr. Bauman. Mr. Secretary, you say in your statement that these practices — referring to the Company's operations and their proposed continuance, as you suggest — offer the best guarantee possible that the canal operations do not later become a burden on the American taxpayer. In another part of your statement you suggest that the interest shouldn't be paid. Isn't the $400 million that the Treasury doesn't get a burden on the taxpayers? Mr. Carswell. Obviously a decision was made at the time that the treaty was negotiated to try to create an entity that would work in the future, and to the extent we add to its expenses the chances of this happening, of its continuing to exist over to the year 2000 as a self-sustaining independent government corporation are impaired. Mr. Bauman. We are not adding to its expenses, we are subtract- ing, if you take out the interest. Mr. Carswell. We are relieving them of that burden. One has to look at it with a short- or a long-term view. Until 1951 there was no interest charged; I suppose there were in those years good and sufficient policy reasons why the United States decided not to put interest costs in the toll base. Then after that it was decided that those tolls were too low, and that one way of getting those tolls up a little was to put the interest into the base. It started off rather small. In the beginning, in 1951, the interest rate was about 2 percent; come up through the years and now we are at a level of around 19 million. We have had all kinds of policies about what sort of burden the tolls ought to bear in terms of paying interest to the United States. Our decision — the administration decision now — is that probably a prudent thing to do is not to continue to impose the level of burden that we are now at in the years ahead. It's a judgment issue. Mr. Bauman. It's a judgment issue, but it's a judgment that was made after the assurance was given repeatedly by administration officials that this transaction wasn't going to cost anything. And I don't particularly focus my remarks toward you, because your 951 statement bears the testimony we have heard essentially from every administration witness — they have all raised the same argu- ment. But it seems to me that the entire presentation, once again, is cloaked in terms of self-sufficiency and no cost to the taxpayer, when we just got through with the previous witness telling us that it might cost $3 billion after we get through sifting through all of the money that is extraneous to the toll income. I'm not picking at you, because you just happen to be the witness at the moment, but I have heard this statement so many times I just wish somebody from the administration would come up here and tell us honestly that this is going to cost the taxpayers a hell of a lot of money and that they didn't admit it before the treaties. And I am really sick of hearing this repeated over and over by every one of our witnesses. And if that is the kind of statement we are going to get from now on, we might as well just hand them all in, because I have heard that statement 25 times now, and it's not true. Now, forgive me for taking it out on your hide, but you just happen to be here. Mr. Carswell. I really can't speak for what others have testified here. I do know that Tony Solomon, when he testified in the Senate, specifically stated this interest position. And the vote in the Senate came after that. Now, obviously it isn't in the treaty as such — you are right, in that sense; it is within the power of the Congress now to do what you are suggesting. But the administration's position on this point Mr. Bauman. You are placing this subcommittee and the full committee in the House— and the Senate, God forbid, too — in the position of having to dishonor a commitment your administration made on the cost of this treaty. We are being asked to bail you out; we are being asked to vote and go back and explain to our constitu- ents why the statements were not true when Jimmy Carter and Mr. Vance and all the rest said it wasn't going to cost $1. I sat here and listened to all that bunk. You can read our hearings; there was no mistake. You represent the Treasury, and you should know— you agree with Mr. Staats— and you are asking us to bail you out. The least you can do is to be honest and lay it all out and tell us what it is going to cost and stop dancing around with all these phrases about self-sustaining. That is baloney— and you know it. Again, I am sorry to have you take the brunt of it, but I have been listening to it for two solid weeks— and all of us have— and we know it isn't true. Forgive me at this late hour, I have had a long day, it took me 3 hours to drive in this morning. And I apologize for the outbreak, Mr. Chairman. Mr. Hubbard. That's all right. Let us all have a chance to do that every now and then. Congressman Joe Wyatt— no question. Congressman Bill Carney. Mr. Carney. Yes, I would like to question you on your statement. At page 5 you are talking about the membership of the Board of the Panama Canal Commission. And the administration has al- 44-394 O - 79 - pt. 2 952 ready decided just how it will be used to appoint four representa- tives, in particular from the State Department, Commerce, Trans- portation, and Treasury — and, as we all know, the Defense Depart- ment will be in on either bill. One, I question the wisdom of that, because I think with the Department of State providing one of the members, the power would go 5 to 4 to Panama. But nonetheless, I am asking — do you imply that they will vote in a bloc? Mr. Carswell. I think it is clear — I tried to discuss a little bit about how the budget of the Commission would work. And the budget of the Panama Canal Commission would be submitted through a normal Government corporation budgeting process. That means that it would go through the Office of Management and Budget and it would be treated like any other Government corpora- tion is today. And while the Board of Directors would be voting on that, I assume that they would be bound, being Government officers, by whatever decision the Office of Management and Budget came up with as to what the budget of the company should be, and that that would be a Presidential decision, and that at least as to that basic financial structure, you don't have to worry about splits among the agencies or whether you feel, which I don't agree with, that the State Department might or might not support sound financial man- agement — I think it obviously will. But, in any event, on the question of how the financial manage- ment would go, there isn't any real room for basic splits. There are on policy questions, I think. Mr. Carney. Would you suggest then, if the House of Repre- sentatives were to go with the concept of H.R. Ill, as far as the composition of the Board is concerned, that we should also include in that legislation that that membership should and in fact are bound to vote en bloc? Mr. Carswell. I really am not clear on the concept behind having the other four — that is, one from Defense and four coming from outside the Government — I am not sure the reason why that is in H.R. 111. Obviously it creates problems as to whether they will vote together on any particular issue or whether they will vote for Panama. You don't know who is going to be on that Board, and even when he is on the Board, he's then been appointed and he is not under the same discipline that I am when I serve on a Govern- ment corporation board. Now, once you start talking about bloc voting of that sort of individual, I just don't know how it comes out, because I don't understand the concept of why one would want to have our four representatives, representing diverse interests, that you wouldn't necessarily be able to have consider the United States as a whole. Mr. Carney. But you are saying, on the other hand, that it would guarantee the bloc vote if we go with the administration's concept. Mr. Carswell. On significant issues, yes; I don't think there is any— who knows, somebody can go crazy— but normally speaking, yes. Mr. Carney. The point that I am trying to bring out is that I think that the Congress, and particularly the House, would like to 953 have some kind of control of what goes on in the next 20 years in light of what has gone on in the last 3 or 4 years down at Panama. And if we were to go that way, would you suggest that we make sure that those representing us instead of the administration vote in a bloc? Mr. Carswell. Again, because I don't understand the concept, I hesitate to advise on whether you want to tie them — it's kind of inconsistent with the idea of putting private diverse interests on the Board. But I suppose that is one way one could go. Mr. Carney. There is really no need to have a Board made up of five people, then. What we can do is have the President of Panama and the President of the United States make up the Board and the President of the United States can veto the President of Panama any time he wants to. Mr. Carswell. You could, but I think you do want responsible people working on the development of a budget here, because there are serious financial issues — setting the toll rate is very difficult, and will be through the years; there are diverse interests, ranging from defense interests to financial interests. And I think you do want to have a mechanism where those are handled at a high level by people who you can point to — call up here and ask them why they did whatever they did. In that sense a board is a good mechanism and should serve us well through the years. Mr. Carney. I agree with you, too, on that. And that points to the fact why the Members of the House of Representatives should have someone on that Board, because we are equally concerned as is the current administration. But with the administration's bill we would have virtually nothing to say about what goes on with the Panama Canal. That's why I think H.R. Ill addresses itself to it. I have no further questions, Mr. Chairman. Mr. Hubbard. Thank you, Congressman Carney. I believe Bernie Tannenbaum has a couple of questions and that will complete our questions of this cooperating witness. Mr. Tannenbaum. Just one point of clarification. You agree that interest has been a cost since 1951, for the last 28 or so years, but you differ from Comptroller General Staats' statement on page 8 in which he says: "From inception, interest has been charged on the U.S. investment in the Panama Canal enterprise." Could you just explain why you say that? Mr. Carswell. I must say, I read his statement when he was reading it. As I understand it— maybe he is talking about the way he handled his accounting at the GAO; that is, they may have imputed interest to the base of the investment. But I don't think it was in the toll base. Mr. Hubbard. I think Mr. Whitman can explain it. Mr. Whitman. To the best of my knowledge, from the very first time the President set the toll, a factor for interest has been included in the rate. It was stated in the formula developed by Dr. Johnson at the University of Pennsylvania, that tolls should be set at a rate sufficient to recover operating costs, including interest, which then was about 3 to SV2 percent. That continued over the whole time that the appropriated fund agency operated the canal. 954 Mr. Carswell. All I can do is go back and get it for the record. All I know is — what we are on now, the 1951 addition of what's going on — that resulted in a payment of interest on $319 million, or whatever the number is. Mr. Whitman. It is stated differently now and the mechanism for getting it into the Treasury is different now, because back then all revenue of the canal was paid into the Treasury, so there wasn't any point in labeling as you made the payment — this is interest and this is something else. Mr. Carswell. Our books are such that for the early years we can't even tell what the right amount of the investment was, so it would be, for some periods at least, difficult to know what interest would have been paid. Mr. Whitman. They had a figure — whether or not it was the right one, they computed interest Mr. Carswell. Well, we had serious difficulty working this stuff up — you know, in the very early years. Mr. Whitman. The annual reports of the old Panama Canal agency show the interest paid in each year of operation. Mr. Carswell. I stand corrected. [The following material was received for the record:] Interest Payments The Panama Canal Company has provided additional information to the Depart- ment concerning interest payments by the Company and its predecessor organiza- tions. The issue is complicated and the past situation is not as clearly delineated as it might be. From inception until the President transferred the canal to the Panama Canal Company by Executive Order in 1951, there was no statutory requirement that interest on the investment in the canal and directly associated equipment be paid to the Treasury, and no cash payments specifically for interest on such investment were made to the Treasury. The Panama Railroad Company was treated slightly differently at certain periods as outlined below. The Spooner Act of 1902 authorized the President to purchase assets of the New Panama Canal Company, to purchase the capital stock of the Panama Railroad Company, and to negotiate for control of the right of way for a canal. The Secretary of Treasury was authorized to issue bonds to finance the purchase and construction of the canal. After its acquisition by the United States, the Panama Railroad Company was apparently required to issue notes to the Treasury in return for appropriations specifically for its activities. However, no principal and interest payments were required after March 4, 1911, and the notes were cancelled in 1928 (48 USC 1333). A Special Commissioner, Emory R. Johnson of the University of Pennsylvania, was appointed to recommend an appropriate toll rate for the Canal once it opened. Mr. Johnson performed a comprehensive study of the potential traffic in the canal and recommended to the President that the toll be $1.20 per net vessel ton for laden commercial vessels with a 40 percent reduction for ships in ballast. 1 President Taft accepted the recommendation and established the tolls at the recommended rates by proclamation on November 13, 1912. In making his recommendation, Mr. Johnson incorporated a component in his calculation of an appropriate toll that would allow toll revenues to include an amount determined by applying an interest rate of 3 percent on the $375 million in capital invested to that date. A 3 percent figure was apparently used because it approximated the interest rate on U.S. Government bonds which were issued to finance the construction of the canal. The toll was a flat amount and did not fluctuate according to the expenses of the canal operation, and no modification was made to reflect any interest component based on the capital expenditures subsequent to 1912. The tolls were not changed until 1937 and thereafter in 1974 and 1976. The 1937 change, a nominal reduction, was primarily to account for differences between the Canal method of measurement of vessels and a method based on registered weight. Johnson, Emory R.; Panama Canal Traffic and Tolls, Aug. 7, 1912. 955 Prior to the 1950 Act, the Panama Canal agency, predecessor to the present corporation, was required to deposit all revenues directly into the Treasury Depart- ment. The agency was appropriated funds for its operation. Toll revenues were deposited in the Treasury without reference to the cost components used to estab- lish toll rates. The accounting system of the Panama Canal agency calculated interest at 3 percent on the amount of capital invested and this figure was shown in an exhibit in the Annual Report of the Governor after net earnings. According to the Annual Reports, the interest calculation was included to illustrate what the effect of inter- est would have been had it been charged by the United States Government and for comparative purposes had the canal been run on a private corporation basis. 2 The accounting procedures as modified in 1932 calculated interest compounded at a 3 percent rate on construction funds spent to the end of fiscal year 1921 and capital- ized this as interest during construction in the total capital investment account on the balance sheet. The reason for using a compound rather than simple interest calculation is not clear and was later questioned by the Bureau of the Budget. Capital interest at the 3 percent rate subsequent to 1921 was considered "a statisti- cal charge to operating expenses for comparison with net revenues." 3 In 1948, the Panama Railroad Company, a U.S. Government-owned corporation operating under the aegis of the Panama Canal Agency, was in effect reincorporated pursuant to the Government Corporation Control Act of 1945 (Canal Zone Code, Title 2, Sec. 62; 62 Stat. 1075). In conjunction with this reincorporation, a new section was added to the Canal Zone Code which required that interest be paid on the amount of net direct investment of the United States as evidenced by a transfer receipt for the railroad company issued upon reincorporation plus subsequent appro- priations or transfer of assets. The initial transfer receipt in the amount of $1 was to be delivered to the Secretary of the Treasury acknowledging the transfer of net assets from the old Railroad Company to the reincorporated Railroad Company. Thus, the Panama Canal Railroad Company was required to pay interest as calcu- lated by the Secretary of the Treasury on future increases in direct investment after 1948. The 1950 Act (Canal Zone Code, Title 2; 64 Stat. 1038) changed the name of the Panama Railroad Company to the Panama Canal Company and authorized the President to transfer the canal and related facilities and appurtenances to the Panama Canal Company. Interest would be charged according to provisions of the 1948 Act once the canal and associated equipment were transferred to the company. The president subsequently transferred these assets by Executive Order in 1951. The 1950 Act also required by statute that tolls include interest costs. The facilities related to the civil government were separated, and no interest payments were required on those facilities. It should be noted that the 1950 Act stipulated that the capital investment for interest calculations should not include interest costs during construction which had been capitalized as mentioned above. In summary, an imprecise sort of interest on the original investment in the canal might be considered to have been paid during the period 1912 to 1951 in the sense that the toll revenues were originally set assuming an interest calculation. The basic investment used in the toll calculation recommended in 1912 was not adjusted for subsequent capital investment. Interest payments were not required by statute nor did the Treasury charge interest on the funds appropriated for the Panama Canal and associated equipment during the period 1912-1951. As mentioned above, the Panama Railroad Company was required to pay interest on future investment or transfer of assets after 1948. Mr. Hubbard. Any other questions? Mr. Tannenbaum. You don't have any magic formula to keep the toll rates down to the administration's 14-percent figure rather than the 35-percent figure, other than charging the differential to the general public, do you? Mr. Carswell. Well, it depends on how you put it. I think the chairman was careful to say "forgo receipts" when he discussed it, and you say "charge the general public." It's the same interest, and, depending on how you look at it, we are not going to get the receipts if you follow the administration bill. 2 The best explanation of this system can be found in the Annual Report of the Governor of the Panama Canal for the fiscal year ended June 30, 1933. p. 120-145 3 Ibid, p. 120. 956 Mr. Tannenbaum. The difference comes out of the taxpayer's pocket — there is no question about that. Mr. Carswell. No, it means we essentially don't get the receipts, and it means then that if we want to use those receipts for some- thing up here, I guess we have to pay for them in taxes. Mr. Tannenbaum. Thank you. Mr. Hubbard. Our last witness has been Deputy Secretary Robert Carswell; we appreciate your being here and your informa- tion Mr. Carswell. An announcement of future hearings that will be held. Our next hearing will be Wednesday of this week, February 28, I believe it is, at 10:30 a.m. in room 1334 in the Longworth Building, the normal meeting place for our full committee, and subcommittee. [The following was submitted:] Panama Canal Traffic and Tolls By Emory R. Johnson, Special Commission on Panama Canal Traffic and Tolls CHAPTER XII Panama Tolls I PRINCIPLES AND CONSIDERATIONS THAT SHOULD CONTROL IN FIXING TOLLS The Panama Canal has been constructed and undoubtedly will be operated pri- marily to promote the commerce and industry of the United States and the world. In deciding upon the policy to be adhered to in the administration of the canal the commercial usefulness of the waterway should be given first consideration. Tolls may wisely be imposed to secure revenue, but the transit dues must not prevent the canal from fulfilling its primary function. The tolls should not only be within what the traffic will bear, but should be low enough to permit commerce to derive substantial benefits from the canal. The canal to be commercially self-supporting The canal should however, be required to yield such revenues as can be secured without unduly limiting its usefulness. The United States has made a heavy invest- ment, and will have large current operating and maintenance expenses to meet year by year. Business prudence and political wisdom demand that the canal shall be commercially self-supporting, provided revenues large enough to enable the canal to carry itself can be secured without unwisely restricting traffic. This principle was advocated by the President in his message of December 21, 1911, in which he stated: I believe that the cost of such a Government work as the Panama Canal ought to be imposed gradually but certainly upon the trade which it creates and makes possible. So far as we can, consistent with the development of the world's trade through the canal and the benefit which it was intended to secure to the east and west coastwise trade, we ought to labor to secure from the canal tolls a sufficient amount ultimately to meet the debt which we have assumed and to pay the interest. The canal will cost the United States Government $373,000,000, much of which has been or will be, secured by borrowing funds. The interest and principal of this debt must be paid either from funds secured by general taxes or from the revenues derived from canal tolls. It seems wise and prudent that the United States should adhere to sound business principles in the operation of the canal and in levying tolls. Public expenditures are increasing rapidly. Funds are required in increasing amount for the promotion of the public health, for irrigation and reclamation, and for maintaining the military power and naveal prestige of the United States. Large expenditures upon rivers and harbors are urgently needed. Taxes must inevitably increase. The demands upon the United States are certain to be much greater in the future than they have been in the past, and it does not seem wise for the Federal Government to construct and maintain at the expense of the general budget such a costly public work as the Panama Canal. Those who derive immediate benefit from the use of the Panama Canal may properly return to the Government a portion of the profit secured from using the canal, provided this policy can be followed out without burdening commerce. 957 In reaching this conclusing the fact has not been overlooked that the people of the United States will have in the Panama Canal a great military and naval asset. The naval advantages derived from the Panama Car will be of such value that many men regard the waterway primarily as a military asset, as a work that must have been, and would have been executed regardless of its commercial usefulness. This is an exaggerated view of the military, as compared with the commercial, value of the canal, the chief purpose of which is to shorten the routes of ocean commerce. However, the Navy will be very definitely benefited. The mobility of the fleets will be increased, and they will be able to defend our now widely separated seaboards more economically and more effectively. It is often said that the canal will double the efficiency of the Navy. This may be an overstatement of the facts, but is probably approximately correct. The strong fortifications that will be maintained at the Atlantic and Pacific termini of the canal will enhance its value to our Navy. The Canal Zone will be a strong naval base from which our fleets may go forth to strike a blow, and to which they may return, confident of being protected while coal and other supplies are being secured and while the vessels of of the fleet are being given necessary repairs. It would be difficult to overestmate the importance to the United States of having strong fortifications and a secure, well-equipped naval base at the sole gateway between the Atlantic and Pacific. The canal, however, will add to our military expenses as well as to our f ting strength. To maintain strong fortifications at the Altantic Pacific termini of the canal, manned by at least 6,000 troops, to keep 1,200 marines stationed on the Isthmus, to support naval coaling depots at Cristobal and Balboa, and dry docks and repair shops for the Navy at Balboa, and to provide and operate the transports and colliers which the Army and Navy will need to have to maintain the military establishments on the Isthmus will require an annual outlay quite equal to the cost of operating the canal and paying interest on the investment. The necessary addi- tion to out military and naval expenses (which are already heavy in comparison with the expenditures for civil affairs) consequent upon the utilization of the canal as a military asset will be so large as to emphasize the advisability of adopting the policy of making the canal self-supporting as a commercial highway. The policy of having the annual operation, maintenance, and interst charges borne partly by the military and naval budgets and partly by the revenues derived from tolls has some advocates. Those who hold this view contend that, inasmuch as the canal is a benefit to the Navy and to the Army as well as to commerce, a part of the canal expenses should be charged against the appropriations made for the support of the Army and Navy. Two objections may be made to this policy. 1. The canal, as has just been stated, will bring about a large increase in the annual Army and Navy expenses. 2. The Navy is maintained and the canal is fortified not only to enhance our military power but also to protect American commerce on the high seas and to facilitate the extension of our foreign trade. Commerce will derive large indirect benefits from the addition which the canal willl make to our military strength and naval efficiency. The policy of charging tolls upon shipping large enough to produce a revenue equal to the operating, mainte- nance, and interest expenses will inflict no injustice upon those who use the canal. It will be borne in mind, of course, that the Panama Canal, at least during the early years of its operation, will be used more largely by foreign ships than by American vessels and that the commerce passing through the waterway will, for some years to come, be more largely foreign than American. Revenue and rate of tolls that will make the canal commercially self-supporting The annual revenue ultimately required to make the canal commercially self- supporting will be about $19,250,000. It is estimated that the operating and mainte- nance expenses will amount to $3,500,000 yearly and that $500,000 will be required for sanitation and for the government of the zone. The interest on $375,000,000 at 3 per cent per annum will amount to $11,250,000, and the treaty with Panama guarantees an annuity, beginning in 1913, of $250,000 to the Republic of Panama. The sum of these four items is $15,500,000. If to this there be added 1 per cent per annum on $375,000,000 to accumulate a fund to amortize the investment the total annual expenses will be $19,250,000. In deciding what tolls shall be charged for the use of the canal, the fundamental question is whether a system of charges can be devised and levied that will ulti- mately yield about $19,250,000 per annum without unduly burdening American trade and without seriously limiting the ability of the canal to compete for traffic against the routes via the Straits of Magellan, the Cape of Good Hope, and the Suez Canal. 958 The investigation of the traffic available for the use of the canal led to the conclusion that about 10,500,000 tons net register of shipping will pass through the canal during the early years of its operation. The rate at which the Suez Canal tonnage and the commerce of the world is increasing indicates that an increase of at least 60 per cent in the traffic of the Panama Canal may be expected during the decade 1915-1925. It is thus probable that there will be 17,000,000 tons of shipping using the canal during 1925. An increase of 60 per cent during the second decade of the canal's operation would bring the traffic up to 27,000,000 net register tons at the end of 20 years. These estimates are believed to be conservative. If the traffic of the Panama Canal shall be equal to these estimates, it will be possible to secure from moderate tolls enough revenues to enable the canal to be commercially self-support- ing. If tolls of $1.20 per net vessel ton, or charges equal to those which the Suez Canal will impose on and after January 1, 1913, are levied for the first 10 years on all shipping using the Panama Canal, the annual receipts at the end of the first decade will more than cover the estimated operation, maintenance, zone sanitation and government, Panama annuity, and interest charges. It will be possible within 10 years after the opening of the canal to begin the accumulation of an amortization fund. If a toll of only $1 per net ton is maintained during the second decade of the canal's operation, the annual receipts will be large enough to meet operating, maintenance, zone sanitation and government, interest, and Panama annuity ex- penses, to set aside a liberal amount for the amortization of the investment, and to furnish several million dollars per annum for the betterment of the canal, which by that time will probably be necessary. A toll of $1.20 per net vessel ton would, in the case of the ordinary cargo steamer, impose a charge of 44 to 80 cents per ton upon the freight carried. This is due to the fact that freight vessels can carry from lVfe to 2% tons of cargo for each net register ton — the ratio of freight tonnage to vessel tonnage depending upon the type of ship and the character of the goods carried. A toll of $1.20 per net ton would add about 2 to 4 cents per hundredweight to the freight rate. After the Panama Canal is opened, it is probable that some low-grade bulk freight may be carried as full-vessel cargoes between our two seaboards at rates as low as $5 per weight ton. The charges on high-class measurement freight will probably be from $12 to $15 per ton. If these are the rates charged, a toll of $1.20 per net ton on vessels passing the Panama Canal would add about 10 or 12 per cent to the rate of freight charged on low-grade bulk commodities and about 4 or 5 per cent to the rate of freight on high-class goods shipped as measurement cargo. Tolls of this amount, whether borne by the shipper or the carrier, would not materially restrict the use of the canal nor would such charges be a serious burden upon traffic. Of course, any toll is a burden that must be borne either by the carrier, the shipper, or the producer; but, if the toll charged neither limits canal traffic nor hinders the healthy and profitable extension of trade, the burden is one which the Government may properly impose in order to secure the revenues required to meet canal expenses. Taxes, as well as tolls, are a burden; and it is probable that the canal revenues can be secured with minimum public burden by taking, as canal revenues, a portion of the profits derived by those that directly use the canal. The different interpretations given the Hay-Pauncefote Treaty There has been much discussion of the policy of exempting American ships from the payment of Panama Canal tolls. Those who favor this policy believe it to be permitted by the Hay-Pauncefote treaty, Article III, section 1, of which stipulates that— The canal shall be free and open to the vessels of commerce and of war of all nations observing these rules, on terms of entire equality, to that there shall be no discrimination against any such nation, or its citizens or subjects, in respect of the conditions or charges of traffic, or otherwise. Such conditions and charges of traffic shall be just and equitable. Some advocates of free tolls for American vessels are of the opinion that the coastwise shipping of the United States can be exempted from Panama tolls without discriminiating against foreign shipping, because vessels under foreign flags are not allowed to engage in the coastwise trade of the United States. Being excluded from our coastwise trade, such vessels, it is contended, are not discriminated against by favors granted to our own ships. Other advocates of free tolls for American shipping so interpret the Hay-Pauncefote treaty as to exempt from the restrictions of Article III, section 1, all American ships — those engaged in foreign commerce as well as those employed in our coastwise trade. Those who give the treaty this interpretation hold that Article III of the convention formulates the rules which the United States adopted for the use of the canal by all other nations than the United States, i.e., that the United States agreed to maintain the canal as a highway to be used by all 959 foreign nations under terms of entire equality as long as such nations observe the rules laid down by the United States. Among those who interpret the Hay-Pauncefote treaty as requiring the payment of the same Panama tolls by all vessels, both American and foreign, are advocates of the policy of relieving the American coastwise shipping of the burden of canal charges by the repayment from the United States Treasury to the owners of Ameri- can vessels using the canal the amounts collected as tolls. The result of this policy would be the same as the exemption of American coastwise shipping from the payment of tolls. Repayment of the exact tolls collected would give the same assistance to American vessels as would be rendered by the exemption of American ships from the payment of tolls. It does not come within the province of this report to interpret the scope and meaning of the Hay-Pauncefote treaty. Whatever the Hay-Pauncefote treaty may be held to mean, the policy of the United States as to the exemption of American ships from the payment of Panama tolls should not be decided with reference to the rights of the United States under the treaty. 960 75th Congress! npvr.mp /Document 1st Session / SENATE < Nq> 23 PANAMA CANAL TOLLS MESSAGE FROM THE PRESIDENT OF THE UNITED STATES TRANSMITTING THE REPORT OF THE SPECIAL COMMITTEE APPOINTED BY THE PRESIDENT ON PANAMA CANAL TOLLS AND VESSEL MEASUREMENT RULES February 24 (calendar day, February 26), 1937. — Read; referred to the Committee on Interoceanic Canals and ordered to be printed with illustrations UNITED STATES GOVERNMENT PRINTING OFFICE WASHINGTON : 1937 For sale by the Superintendent of Documents, Washington, D.C. Price 15 cents 961 Chapter XII. PanamX Canal Expenses, Kevenues, and Kates or; ■ '••: '. J ■< -Toll ■ ■"' In order to make "advisory recommendations" concerning the; tolls that should be charged for the services rendered by the Panama Canal it is necessary to consider the capital and other expenses incurred in providing and operating the facilities by which the services are performed. That will indicate the gross and net reve- nues required to meet the expenses and to make the enterprise self-i supporting. The rates of tolls to be recommended should be such as will yield a revenue which, together with the net revenue which the enterprise yields from sources other than Canal tolls, will pro-, duce an income sufficient to cover fixed charges and current operat-. ing and maintenance expenses, and normal improvements. . The total expenses of the Panama Canal enterprise as a whole are. of two general categories, those of the Canal and its auxiliaries other than the Panama Railroad Co., and those that the railroad company incurs in connection with the railroad and the other property owned and managed by the railroad company. The administration of the finances of these two parts of the Canal enterprise may be briefly described. ■ ■ i The administration and activities of the Panama Railroad Co. and the relation thereof to the Canal enterprise as a whole are described as follows in the 1936 Annual Report of the Governor of the Panama Canal (p. 66) : In 1904, before actual construction work on the Panama Canal was started, the United States Government secured control of the capital stock of the- Panama Railroad Co. which it now owns completely and has operated the company since that date through a board of directors appointed by the Secretary of War, who holds all the stork of the company except the qualify- ing .shares of the directors. By Executive order of May 9, 1904, the President of the United States directed that the general policy of the railroad be con- trolled by the United States and that the road be made an adjunct to the Panama Canal, at the same time carrying on its operations as a common carrier. Since that time the corporation has established and operates various business activities upon the Isthmus incidental to the construction, operation,! and maintenance of the Canal. Thus the United States Government ts con- ducting the business acth'ities relating to the Canal enterprise under two. distinct organizations: First, the Panama Canal, which is a direct branch of the Government; and second, the Panama Railroad Co., which is a Govern- ment-owned corporation. As the activities of the railroad company are covered in detail in its annual report, only the major' features of operation as they relate to the Canal administration are covered in this section. In addition to the operation of the railroad, the enterprises of the Panama Railroad Co. include commissaries, which are retail general stores catering primarily to Government employees, cargo-handling activities at the harbor terminals, hotels, coaling plants, a steamship line, telephone system, and certain real-estate operations in the Republic of Panama. The operations of the railroad proper, harbor terminals, coaling plants, stables, and baggage transfer were continued throughout the year under the direction of the general manager of the railroad; the telephone system under the electrical engineer ; renting of lands and buildings under the land agent; and commissaries, Hotels Washington and Tivoli, and subsidiary activities under the chief quartermaster. During the fiscal year ending June 30, 1936, the operations car-, ried on by the Panama Railroad Co. yielded a profit of $1,077,987.07, after meeting operating? costs, providing amply for depreciation and meeting all expenses other than interest on capital investment. The revenues of the company, being those of a corporation, come into 962 its own treasury and the company has control of expenditures made for operating expenses, for allotment to funded depreciation or other reserves,; for additions to surplus, and for the payment of dividends. j The Panama Canal enterprise, other than that part of it that is under the ownership and administration of the Panama Railroad Co. includes (1) property and activities connected with business operations, and '■■ (2) property and services pertaining to the transiting of vessels and to the administration of the auxiliary services incident to the ownership and operation of the Canal. It is necessary to keep in mind the distinction between the business properties and the other Canal properties. [ As the Governor of the Canal states in his 1936 annual report : Business operations of the Panama Canal are conducted separately from operating activities portaiDing directly to the transiting of vessels, and govern- ment of the Canal Zone. The annual appropriation acts for the Panama Canal authorize the use of appropriated funds, for the conduct of auxiliary business activities, provided that funds so advanced are recovered through earnings, and with the further proviso that any net profit derived from such business activities be covered annually into the United States Treasury. In the accounting of profit and losses of the business activities there is no actual interest charge on the money invested in these plants and their equip- ment This investment totaled $29,067,383.76 at the beginning of the fiscal year and $30,427,202.61 at the end. ' Based on the figure of $29,007,383.76 representing fixed property and equip- ment alone at the beginning of the year, the. profits . counted at $920,185.23 showed a return of 3.17 percent. As was stated in the previous chapter ; the Canal business proper- ties include the Canal Zone's electric light and power system, the water system, the shops, the fuel-oil plants, the general storehouses, the gold quarters for American employees, the silver quarters for other employees, the rented buildings, and properties used in minor activities. From the income derived from these business properties a funded reserve for depreciation is maintained. Only the net profits of the operations are annually covered into the United States Treasury. As the Governor states the net profits for the fiscal year amounted to somewhat more than 3 percent upon the capital invest- ment in the business properties. The entire revenues of the Panama Canal, other than those from the business properties just referred to, are covered into the United States Treasury. These revenues consist mainly of receipts from tolls which in the fiscal year 1936 amounted to $23,506,806.46. In addition there were civil revenues of $119,915.21 consisting of miscel- laneous receipts of $95,298.01 and of a postal surplus of receipts over expenses of $24,617.20. These receipts plus $920,185.23 of profits from the operation of the Canal business properties made the total revenues from Canal operations (not including the dividend received from the Panama Railroad Co.) in the fiscal vear 1936 $24,546,906.90. (Tables 20 and 21, Panama Canal Annual Report for 1936.) To meet the expenses for the maintenance of the Canal, for sanitation and civil government in the Canal Zone, and for the annual payment of $250,000 to the Republic of Panama the Con- gressional appropriations for the fiscal year 1936 amounted to $9,047,597. The actual net Canal expenses for that vear, including an unfunded expense item of $1,006,625.28 for depreciation on fixed 963 property was $9,095,067.13. The Government's receipts for the year ending June 30, 1936, from the Canal enterprise, other than the Panama Railroad Co.'s property, exceeded the net Canal expenses by $15,451,839.77. Such are the pertinent facts concerning the finances of the Panama Canal enterprise as now administered. The Committee is not sug- gesting that the present general plan of administering the Canal and railroad be changed. The present investigation and discussion are concerned with finding out what are the net revenues of the Canal enterprise as a whole, what capital and other expenses should be met from revenues, and with the rate of toll that with receipts from other sources will make the enterprise self-supporting in the future. Briefly restated, the present administration of the Canal enterprise as a whole provides : ( 1 ) for the ownership and management of the Panama Railroad and some other property of the Panama Canal enterprise by the Panama Railroad Co. which is an agency and adjunct of the Canal administration. The company's revenues cover current expenses, including maintenance and depreciation, and yield a net profit which is a part of and may be credited to the net revenues of the Canal enterprise as a whole; (2) for a financial management of the business properties of the Panama Canal enter- prise, other than the railroad company's property, that permits expenses, including a funded reserve for depreciation, to be met from the earnings of the property, which earnings have been sufficient to yield a substantial net, profit Mint may lx> credited to (ho net reve- ii item <>f (ho Cm ml onlopriso; (21) for covering into (ho Unilcd Stales Treasury the revenues ob(nine ian colleagues. And we still need to see what their ideas for the Commission are and work out its operations with them. With these caveats in mind, let me outline some ideas on its functions: - First, it should develop a data base to support its operations. Much of this documentation is being gathered for the Watershed Management project^ the Canal Company and Panaman- ian agencies also have a wealth of studies, maps, statistics, etc, which should enable the Commission to avoid duplication of effort. - As this indicates, cooperation with other agencies will be both necessary and helpful as the Commission starts to work. And this cooperation should encompass private and international environmental organizations, as well as US and Panamanian Government agencies. 1027 B-17 - The Commission will also monitor measures taken to implement the Treaties, its primary function, and for this it will need full and timely information on actions while they are still in the planning stage, so that their environ- mental effects can be assessed and useful recommendations made to Governments. - The Commission should also have the funds and other resources to undertake studies and analysis, if its recommenda- tions are to be meaningful. - We believe that annual reports to the two Govern- ments would be a useful means of focusing attention on en- vironmental matters in the Canal area and of indicating the value of the Commission. It can also form a useful link to interested private environmental groups. - And finally, there will be a need for follow-up on the Commission's recommendations. As for the Commission's Membership and Organization, we think that a balance among government officials (who know how to get things done through government organizations), en- vironmentalists (for their expertise and connections with the environmental community), and prominent public figures (to add weight to the Commission's recommendations) might be most effective. Limiting the size of the Commission (perhaps three from each side) would provide a group that could work closely together on a personal basis and could meet on short notice, if necessary. 1028 B-18 A small professional staff located at the Canal Commission would also be useful in our view to provide continuity and expert support for the Commissioners. And, of course, the Commission and its staff will require adequate funding, if they are to be effective. Finally, we think it important that the Panama Canal Commission should budget regularly for reforestation and other conservation measures as part of its capital improvements budget, since these measures are part of the effective opera- tion of the Canal. Lastly, let me list some of the priority tasks which the Commission should address as it starts to operate. Clear- ly the first is the preservation of the watershed forests. Assembly of an adequate data base will also be necessary for effective operation, formulation of sanitary and other health measures and regulations, and rules and ef- forcement measures for the protection of wildlife also merit early attention. These are the tenative ideas which we shall want to discuss with the Panamanian Government as we move forward toward implementation of the Panama Canal Treaties. I appreciate this opportunity to meet with this panel and will be happy to answer any questions you may have. 1029 B-19 A Description of the Canal Watershed and of a Government of Panama Watershed Management Project Proposal to be Submitted for A.I.D. Financing (delivered by Robert Jordan, A.I.D.) Introductory Remarks I would like to discuss two subjects. First, I want to briefly describe the physical and other characteristics of the Canal Watershed. Secondly, I will describe the current plans for watershed management activities in the Canal watershed which are part of a Watershed Management Project to be financed by AID. Before discussing these topics, I would like to clarify two points which have been misunderstood in earlier discussions today. First, the Canal watershed and the Canal Zone are not the same. The Canal Watershed is several times larger than the present Canal Zone. Secondly, the Watershed Management Project is a project of the Government of Panama, not of AID. The former is responsible for developing and implementing the project. If funding is authorized, AID would lend the Government of Panama approximately $10 million to cover about 60% of the project costs. Also, it should be mentioned that planned project activities are to be located outside of the present Canal Zone with the exception of the proposed Pipeline Road National Park for which implementation would not begin until the area reverts fully to Panamanian jurisdiction after October 1, 1979. Description of the Canal Watershed The watershed of the Chagres River, i.e., the Canal Watershed covers 326,225 hectares. It is located in the narrow central part of the Isthmus of Panama. The Panama Canal divides the watershed approximately at its center. Two man-made lakes, Gatun and Madden (Alajuela), which cover approximately 10% of the watershed's area are essential components to 1030 B-20 the operation of the Canal and are the source of water for Panama City and Colon. The watershed has a humid, tropical climate with a mean annual rainfall of 2,700 mm. However, some parts of the watershed receive 4 meters of rain annually. The topography of the watershed is broken except for an area west of the Canal. The major part of the watershed is characterized with hills with slopes of 45% or more and is suitable only for forest and permanent crops. Currently, 1/3 of the watershed, mostly in the Lake Alajuela sub-watershed, is in primary forest. The soils in the watershed are primarily red clay and are quite susceptible to erosion processes when the natural forest cover is removed. In many areas in the watershed there is a high potential for sheet, gully and landslide erosion. Population growth has been fairly rapid during recent years. In 1970 mora than 60,000 people resided in the watershed, an increase of 24,000 from 1960. About 1/2 of the economically active population, or about 8,000 people in 1970, have agriculturally related occupations. Most rural families practice traditional slash and burn (swidden) agri- culture. About 13% are engaged in ranching activities. Many of the slash and burn farmers are part of a migratory wave of colonizers who clear forest lands and plant one or two crops of corn or rice before moving elsewhere. Often, a campeslno who has cleared land will plant it with faragua grass pasture before moving elsewhere. They then "sell" their usufruct rights to ranchers who then use the land for extensive cattle grazing. Between 1952 and 1978, the amount of the Canal watershed's land area in forest cover declined from 83% to 32% because of this rural 1031 B-21 colonization process. Land clearing has been occurring at an accelerating rate. It is estimated that an additional 7,000 hectares will be cleared during 1978. At this rate, the remaining primary forest would disappear before the year 2000. The dramatic shift in land use, combined with natural factors, i.e., steep slopes, high rainfall, and soil type, is causing sediment yields to increase rapidly. In Lake Alajuela, a vital element in the operation of the Panama Canal because it provides water storage for the canal's grajlty- f low lock systems, the annual sedimentation rate has increased by 200% in recent years despite the fact that the major part of the Alajuela sub- watershed is still in primary forest. Hydrologic studies indicate that if the Alajuela sub-watershed is cleared of forest cover, 80% of the water storage capacity of this lake will have been lost because of sedimentation by the year 2040. Sediment yield for the entire watershed is currently estimated to be more than 9,000,000 cubic meters per year. However, the continued shift in land uses, particularly the expansion of faragua grass pastures on steep slopes which are a major source of sediment yield, will result a rapid increase in annual sediment yield. It is estimated that should current trends continue by the year 2000, the annual sediment yield in the watershed will be more than 15,000,000 cubic meters with the major increase occurring in the Alajuela sub-watershed. Canal Watershed Management Activities Proposed for Loan Financing by AID The initial concept for a project to be implemented by the Directorate of Renewable Natural Resources of the Ministry of Agricultural Development was developed two years ago. Originally, the primary project focus was 44-394 O - 79 - pt. 2 - 13 1032 B-22 reforestation; however, early in the project design process it became evident that a comprehensive watershed management project would be more appropriate and the AID Mission In Panama notified AID Washington of the new project focus a year ago. However, intensive project design work, did not begin until February of this year. Although pro- ject activities are fairly well defined, several project design activities are still pending. The Mission will present an interim report to AID Washington for review and comment next week. At present, the project contemplates the following activities: (1) Institutional Development In order to develop sufficient capacity to design and administer watershed management programs, the Directorate for Renewable Natural Resources (RENARE) of the Agriculture Ministry will be reorganized on a program-oriented basis and its professional staff will be expanded. Substantial technical assistance and training will be provided, as well as additional physical facilities and equipment. (2) Educational Activities A key element in the successful implementation of watershed management activities is the effective communication of the importance of rational resource use. RENARE will develop a dual purpose educational program aimed at the target populations within the watersheds where programs are being implemented as well as the general Panamanian popula- tion. (3) Watershed Management Activities Three watersheds have been chosen for project activities. These are the Canal, La Villa River and Caldera River watersheds. Project activities will start first in the Canal area and it will receive the bulk of project resources. 1033 23 The principal objective of a watershed management program in the Canal watershed is to reduce the elevated rate of sediment yield which enters Lakes Alajuela and Gatun. The current high rate of erosion, which is primarily caused by inappropriate land use, particularly cattle grazing in steeply sloped pastures, jeopardizes the long-term opera- tional viability of the Panama Canal and affects the quality and quantity of water available for use in Panama City and Colon. A preliminary land use management plan has been developed in which the most appropriate land uses have been spatially identified according to an analysis of physical factors (slope, soil depth micro- climate, etc.)> current land use, and the existence of special factors such as urban areas, roads, and mineral deposits. Specific Canal watershed activities are: (a) Forest Reserves Within the Canal watershed, two areas in which land use activities are to be severely limited are already legally created as a forest reserve and a national park. These are the Chagres Forest Reserve and the Altos de Campana National Park. A third area known as Pipeline Road will be established as a national park when jurisdiction of the area reverts to Panama upon implementation of the Panama Canal treaties. These three areas include more than 90,000 hectares, or more than 1/3 of the land area of the J Canal watershed. Under the project, management plans for these areas will be developed and implemented by RENARE. In addition, a forest trained guard/resource inspector corps will be formed. (b) Reforestation 1034 B-24 The land use management planning process has demonstrated that permanent vegetative cover would be a more appropriate land use for much of the Canal watershed that has been deforested and is now in pastures or used for traditional slash and burn agriculture. The reforestation activities proposed for inclusion in the project are therefore an important component of the strategy to rationalize land use in the watershed. They will provide an alternative economic activity over both the short and long term for a large segment of the Canal watershed's population and will reduce the rate of the establishment of pastures in steeply sloped hillsides. Also, the expanded forest cover will directly reduce sediment yield rates. A total of 10,500 hectares will be reforested under the project. Generally, reforestation will be done with native species. These species are naturally found in the watershed and the seed can be collected locally. They all have commercial value in the Panamanian market. Three different types of reforestation activities will be implemented. These are forest plantations, agro-forestry (taungya) and mixed forest with permanent crops. Each type of reforestation has a specific role within the proposed watershed management strategy, (c) Soil Conservation The soil conservation program will involve a number of erosion control measures. These measures will consist of a variety of small loca- tion specific activities designed to control or prevent gully erosion, particularly along roadways, in pastures, and in urbanized areas. Poorly designed, unprotected roadways, cattle trails in pastures, particularly along natural roadways, and earthmoving associated with 1035 B-25 urbanization contribute heavily to sediment yields. In the Canal water- shed there are five areas where the incidence of gullying is high. Specific control measures include grass waterways, land stabilization, gully control structures, and construction of adequately designed roadway ditching. These are labor intensive activities for which rural dwellers from the areas will be hired on a casual labor basis. Sub-project activities will concentrate on correcting or preventing major point sources of sediment. Up to 8,000 hectares will be treated. This activity, however, will directly benefit a substantially larger number of hectares. (d) Pasture Improvement Pasture improvement must address the problem of sedimentation due to cattle grazing on faragua grass. The land use planning process has led to the conclusion that grazing must be prohibited on hillside slopes greater than 45 per cent where it is almost impossible to control erosion if cattle are maintained on them. On slopes less than 45 per cent, faragua grass should be replaced by stoloniferous grasses. A pasture improvement program would be undertaken primarily in the Cerro Cama and El Cacao administrative area where there are 34,000 hectares with less than 45 per cent slope in faragua grass of which 15,000 hectares have less than a 20 per cent slope. The exact method of implementation of a pasture improvement program is still the subject of joint government of Panama-AID Mission efforts to arrive at an effective design. Current planning includes a demonstration activity in which RENARE personnel would establish 1/2 to 1036 B-26 1 hectare trial plots on approximately 600 ranches. These demonstration plots would demonstrate to the individual rancher the potential advan- tages of improved pastures. They would also provide nursery material for those ranchers wishing to convert additional hectares in improved grasses. Current planning is that AID would provide the Panamanian government with a loan of 10.8 million dollars over a five-year period for this project. The government of Panama would provide 7 million dollars. Of this total of 17.8 million dollars, 11.85 million dollars would be spent on the Canal watershed. The tentative projected schedule for this project is as follows: submission of the project paper to Washington for approval in December 1978; negotiation and conclusion of the loan agreement during the first quarter of 1979; initiation of some activities in the Canal watershed in March or April 1979; and initiation and organization of all sub-projects in the Canal watershed by the end of 1979. 1037 B-27 Recommended Plan of Action to support F orestation Efforts in the Canal Zone (By Frank Morris, Panama Canal Company) I. Introduction . The number of actions that can be taken at this time to mitigate the current rate of forest destruction and encroachment within the Canal Zone are limited by: 1. the time remaining until the Treaty comes into effect 2. the increased level of involvement by the Republic of Panama 3. the nature of the slash-and-burn farming cycle The implementation of the recommended plan of action should establish . basic guidelines that the Government of Panama (GOP) will be able to continue once the Treary goes into effect. With the financial assistance, technical training and institutional build up that the proposed AID watershed management project is to provide Panama's Renewable Natural Resources conservation agency (RENARE), the Government of Panama should be able to play a strong role in developing, establishing and maintaining watershed management programs to conserve the natural and human resources. II. Nature of Problem . Panama's resource conservation and protection efforts are at present severely constrained by strong socio-economic situations. The rapid and alarming population growth in the marginal urban areas of the cities of Panama and Colon, the rural-urban migration of unskilled labor (subsistence farmers), the present high rate of unemployment, and continual spiraling inflation are a few of the major constraining factors. 1038 B-28 A major assumption for the successful implementation of the recom- mended action is the cooperation, commitment and involvement of Panamanian Government officials in a plan of action that will stop the present rate of forest destruction within the Canal Zone. The successful establishment of a working relationship for bilateral participation and action to protect the canal watershed should be of great Importance to the Government of Panama . Most of the forested areas within the present Canal Zone will soon be under Panama's control and will be part of any resource conservation program in its long term development strategy to protect the quality of the natural environment. The traditional slash-and-burn agriculture in Panama represents 50% of the national agricultural production and over 70% of the cultivated land. Listed below is the farming cycle timetable that has developed locally: Month January-February April May September Sept ember /October 1st Crop 2nd Crop: January Activity Cutting Burning - Height of the dry season just before the first heavy rains. Seeding - After the 1st heavy rain (rice and corn) Harvesting - 1st Cleaning" •Seeding - (Mostly Com) - Just after the 1st harvesting .Harvesting 1039 B-29 Any action taken which does not incorporate the agricultural cycle will have adverse side effects and probably have limited success. Since the major environmental impact due to forest destruction is during the cutting, cleaning and burning periods, the proposed plan of action could be implemented after the first harvest in mid October. III. Responsibility . To effectively implement the proposed plan of action, an increased level of involvement by the Company/Government is required through: a) adequate funds to provide an increase in the protective force and logistical (ground and aerial surveillance) support; b) strengthen communication with the Government of Panama to reduce any adverse reaction by the press whenever an enforcement action to protect the forest from illegal commercial activity (timbering) and s lash-and-burn type agriculture takes place; c) establish formal institutional linkage with RENARE by soliciting their support in undertaking a joint environmental education campaign using the Panamanian media (radio, TV, newspaper) to stress the importance of the preservation of Panama's natural resources. IV. Recommended Plan of Action for Combating the Deforestation Problem . To control and mitigate the increased level of forest destruction and illegal farming activities, the following proposed plan is submitted: a) Immediate public notification of intended actions'^through coordinated efforts between the Panama Canal/Military Information Offices and the Panama Press. The notice of intended actions is to increase environmental awareness among the Panamanian public and to enable the Government of Panama's policy making off icials to enlist their support. 1040 ■30 Panamanian public notification and awareness could be enhanced by such actions as: 1. Post the areas alongside the Canal Zone/Republic of Panama boundary with the support of personnel from Grounds Management Branch. 2. Announcement via helicopter loud speaker once a week for the 10 week maximum enforcement period. 3. Use of Panama/Canal Zone radio and television stations to broadcast proposed actions. 4. Publish in the Panama Press articles describing the critical environmental impact slash-and-burn agriculture has on the forested ecosystems and Canal watershed. 5. Publish in the local newspapers (weekly) the increase of air and ground patrols by the Canal Zone Police. b) Establish an aggressive air and ground patrolling program from mid October throughout April, directed towards detaining and preventing further cutting, cleaning and burning operations. e) Establish an inter-government committee to coordinate, assess, and recommend new measures to improve the effectiveness of the proposed plan. d) Solicit the direct cooperation of RENARE in the implementation and enforcement of existing Panamanian Forestry laws dealing wxth the protection, conservation, prevention and control of forested lands in particular the areas bordering the Canal Zone. 1041 B-31 e) Continue the effective policing and enforcement of laws to prevent the illegal use of land within the Canal Zone, until the day the new Canal Treaty goes into effect. V. Manpower and Logistical Support . To implement the above plan, the present Interior/Water Patrol force needs to be supplemented with the below listed personnel, equipment, and services: 1. Hire six security guards or game wardens /forest guards at the NM-3 and NM-4 grade levels to support the present manpower level of the Interior /Water Patrol Officers. Approximate cost would be $38,400 per year. 2. Establish a program that would provide Canal Zone Police with at least 40 hours per month aerial surveillance for the entire Canal Zone from raid October throughout April. From May through September, the aerial surveillance could be reduced to 10 hours per month. Approximate cost for this service would be $60,750 per year. Note ; Police air patrol is the only conceivable means of patrolling the approximate 550 square miles that make up the Canal Zone because most of this area consists of water, bush and jungle without serviceable roads and are virtually inaccessible by most conventional means. 3. Two additional four-wheel drive vehicles for the Balboa District at a cost of $6,000 per year. 4. One additional shallow draft boat, motor and trailer assembly would be needed to supplement the present Balboa District water travel capabilities. Estimated cost including shipment would be $5,500. 1042 B-32 The total estimated cost to enforce a preventive program by more aggressive ground and aerial surveillance would be $110,650 per year. The logistical support, needed services, and extra manpower to activate the recommended plan of action would be utilized in the following manner: 1. Manpower within the Interior /Water Patrol, together with the guards, would be distributed into five two-man teams. Working 40 hours a week would provide that the time a majority of cutting is accomplished, four two-man teams would be on duty. 2. Weather conditions permitting, air surveillance would be accomplished 10 hours weekly divided into three days as situation dictates during the months of October through April and only 3 hours weekly during the remaining months. This surveillance would be preceded by an aerial reconnaissance and photographing of affected East and West banks of the Canal Zone. This action is needed because the profile of the overall problem changes at a rapid rate. 3. The additional vehicles and boat would be used on a daily basis for transportation to any areas of deforestation. VI. Conclusion . A decision not to implement any of the alternatives or to delay implementation would result in a significant imbalance and degradation of the Canal Zone forested ecosystem. 1043 BRIEFING FCR OFFICE CF TECHNOLOGY ASSESSMENT CONGRESS OF TEE UNITED STATES AN OVERVIEW OF PAST, CURRENT AND PLANNED PROGRAMS AND TREATY RELATED ENVIRONMENTAL IMPACT DREDGING OPERATIONS OIL POLLUTION CONTROL AQUATIC WEED CONTROL MADDEN LAKE SILTATION .0, 197S :cn, D.C. Prepared and Presented by: Charles W. Hummer, Jr. Acting Chief Dredging Division Panama Canal Company 1044 1 . INTORUDCTION : TODAY I KILL PRESENT AN OVERVIEW C? FOUR OPERATIONAL FUNCTIONS WITHIN THE PANAMA CANAL COMPANY AND 3RIEFLY DISCUSS TREATY RELATED :HA_NGES AS THEY M-.Y IMPACT ON THE ENVIRONMENT. SPECIFICALLY, I NILL "SOYSS HEDGING OPERATIONS , INCLUDING THE SILTATION OF MADDEN LAKE ; OIL POLLUTION CONTRCL ; AND AQUATIC WEES AND LE3RIS CONTROL . IN ORDER TO FYLLY APPPECIATE POTENTIAL TREATY RELATES Fig. 1 ENVIRONMENTAL IMPACTS, I WILL DISCUSS WHY THESE MISSIONS EXIST, HOW THEY ARE MANAGED OPERATIONALLY, THE RESOURCE COMMITMENT, PERFORMANCE , FUTURE PLANS AN! . FINALLY, Zr.Z POTENTIAL TREATY ENVIRONMENTAL i:U-A0TS. 2. DREDGING 0FERATI:N5: Fig WAS DURING THE CONSTRUCTION OF IHE XATERUAY. MAINTENANCE DREDGING IS REQUIRED TO REMOVE AOOUMULATIONS OF SILTATION FROM THE WATERNAY IN :ROER TO MAINTAIN Zr.Z ". PEFATICN.-.L DEPTHS REQUIRED FOR TRANSIT!'::- -.'ESSELS . SIMILARLY, OREDGIN:- IS REQUIRED TO REMOVE .MATERIAL ENCROACHING Zr.Z CHANNELS DUE TO SLIDES FROM THE 3ANMS ZZ THE CANAL AND, FINALLY, MOST MAJOR CHANNEL IMPROVEMENT PROTECTS REQUIRE A SYESTANTIAL DREDGING EFFORT . 1045 B-35 2.2 METHODOLOGY 2.2.1 MAINTENANCE DREDGING REQUIREMENTS ARE BASED UPON HISTORICAL PERFORMANCE AND AN ONGOING HYDRO- GRAPHIC SURVEY MONITORING PROGRAM WHICH DETERMINES BOTTOM ELEVATIONS AND, THEREFORE, h MEASURE OF SEDIMENTATION. THIS DATA BASE IS USED TC PROGRAM SYSTEMATIC MAINTENANCE DREDGING OPERATIONS IN SPECIFIC LOCATIONS IN ORDER TO REMOVE ACCUMULATIONS OF SEDIMENT OR SHOALING BEFORE THEY RESTRICT WATERWAY USE FOR TRANSITING VESSELS OR PRESENT A SAFETY PROBLEM. Fig. 3 MATERIAL WEIGH MUST 31 DREDGED IN ORDER TO MAINTAIN THE WATERWAY ENTERS FROM TEEEE PRIMARY SOURCES: SILTATION CARRIED INTO THE "ATEE'vAT FROM ADJACENT WATERSHEDS, EROSION OF THE CANAL SANES AND , FINALLY, BANK SLIDES. THE AGGREGATE OF TEE T'vO SOURCES - SILTATION AND BANK EROSION - IS MONITORED 3Y PERIODIC HUD? C GRAPH" SURVEYS IN THE CANAL OPERATING AREAS. ON THE BASIS OF THE SURVEYS AND PAST REQUIREMENTS Fig. 4 A CYCLIC DREDGING PROGRAM HAS BEEN ESTABLISHED. CATASTROPHIC 3ANK FAILURE, CR SLIDES, ARE SIMILARLY MONITORED; HOWEVER, THEY ARE CONSIDERABLY LESS PREDICTABLE. THE BANK STABILITY SURVEILLANCE PROGRAM INSTRUMENTS SLOPES WHICH ARE CONSIDERED POTENTIAL SLIDES AND MEASURES FAILURE PLANES, WATER TABLE AND MOVEMENT. THE RESULIS OF THIS PROGRAM IDENTIFIES FEASIBLE PREVENTIVE MEASURES, PROBABILITY OF FAILURE, ESTIMATE 1046 B-36 OF QUANTITY AND ENCROACHMENT OF SLIDES AND •■•'ZEN Zr.Z SLIDE Fig. 5 MIGHT OCCUR. SLIDES ARE THE GREATEST POTENTIAL THREAT TO A SERIOUS INTERRUPTION OF THE KATERiLAU ANC, CHLPEECRE, A PRIMARY CONSIDERATION FOR MAINTAINING AN IN-HOUSE DREDGING CAPABILITY FOR THEIR RAPID REMOVAL. Fig. 6 ANOTHER REQUIREMENT FOR MAINTAINING A IPEDGINC- CAPABILITY IS TO ACCOMPLISH MAJOR CANAL IMPROVEMENTS . THE IMPROVEMENTS ARE PRIMARILY CAPACITY PZLATED AND APE SUBJECTED 12 CONSIDER- ABLE STUDY BEFORE THEY APE FINALLY CONSIIEPZI FOR BUDGETARY APPROVAL AND IMPLEMENTATION. THIS CECEPLZNACICN IT IMPROVE- MENTS, PRIORITIZING VARCCUS PRCJECC5, ANALTIIS IF CHE ECONOMIES, ETC. IS THE FUNCTION I? CHI CANAL IMPECVEMENTS STEERING COMMITTEE, v~r.Z CHIN ?ECi:iMZNC= ACCIINS CI CHE president of the ?ana:v-. ia::ai ii::pa::u, ■."-:: SIIF" rURCHEP. APPROVALS. SUCH PROJECTS ARE SIHZICLEI I " CHE BASIS IF AVAILA3LE DREDGING CAPACITY ANC FUNCCNG. CHISZ CCNSCEUCTION PROJECTS ARE SCHEDULED ECR ACCCMPLISHMENC INSISTENT KITE THE MAINTENANCE DREDGING REQUIEEMENCS . 2.3 RESOURCES TO MEET THE CANAL'S I7ECGING PZICIPZMENCS REQUIRES A SUBSTANTIAL COMMITMENT OF ECCCPMENC, MANP "*ER ANC FUNDS. THESE RESOURCES ARE CONSISTENT NITH THE MCSIICN ANC PROVIDE FOR A FLEXIBILITY TO EFFECTIVELY RESPOND CC ZlZr.Z?. INCREASES OR DECREASES IN WORKLOAD. 1047 ■37 2.3.1 MAJOR EQUIPMENT THE PRIMARY PIECE OF EQUIPMENT PERFORMING MAINTENANCE DREDGING IS THE 28-INCH CUTTER SUCTION DREDGE MINDI. THE DREDGE DISLODGES THE MATERIAL ON THE CANAL- BOTTOM WITH A ROTATING CUTTER, SUCKS THE MATERIAL UP THROUGH PUMPS AND THEN TRANSPORTS THE SLURRY TO DREDGED MATERIAL DISPOSAL SITES. THE MINDI WAS BUILT IN 194 3 AS A STEAM POWERED DREDGE AND IS PRESENTLY BEING CONVERTED TO DIESEL ELECTRIC WITH AN IMPROVED PUMP CONFIGURATION. MAINTENANCE DREDGING OF BULKY, HARD , MATERIAL NOT SUIT- ABLE FOR SUCTION DREDGING, REMOVAL OF SLIDES AND MOST CONSTRUCTION DREDGING, REQUIRES A BUCKET DIPPER DREDGE. THE NEW 15-CUBIC YARD RIALTO M. CHRISTENSEN IS USED FOR THIS WORK. THE CKRIS, PROCURED IN LATE 1:11, IS DIESEL ELECTRIC POWERED AND IS THE LARGEST DREDGE OF ITS TYFE IN THE WORLD. MATERIAL REMOVED FRO" THE CANAL BY DIPPER DREDGE IS PLACED IN BOTTOM DUMPING SCOWS WHICH ARE THEN TRANSPORTED TO DISPOSAL AREAS OUTSIDE THE OPERATING CHANNELS. MOST CONSTRUCTION DREDGING MUST BE PRECEDED 3Y A DRILL BARGE WHICH, USING EXPLOSIVES, FRACTURES THE HARD VIRGIN BOTTOM FORMATIONS INTO SUFFICIENTLY SMALL SIZES WHICH CAN BE REMOVED BY THE DIPPER DREDGE. THE DRILLEOAT THOR, A FOUR-TOWER, FOUR-SPUD, DIESEL/AIR POWERED DRILL BARGE, IS USED FOR THIS PURPOSE AGAIN, IT IS THE LARGEST OF ITS KIND IN THE WORLD. 44-394 O - 79 - pt. 2 - 14 1048 B-38 THE FLOATING CRANE GOLIATH HAS, AS AN ANCILLARY FUNCTION, CLAMSHELL DREDGING. THIS CRANE IS EXTREMELY VERSATILE AND SERVES EFFICIENTLY AS A CLAMSHELL DREDGE FOR REMOVING SHOALS FROM THE CHATTEL, SPOT CONSTRUCTION DREDGING, SLIDE CLEARANCE DREDGING AS WELL AS SUPPORTING LOCKS MAINTENANCE REQUIREMENTS. A FLEET OF PROPELLED EQUIPMENT, SUCH AS TUGS.- DREDGE TENDERS, WORK BOATS, SU?. ,r EY LAUNCHES AND ORE" LAUNCHES IS REQUIRED TO SUPPORT THESE DREDGING OPERATIONS AS 'WELL AS OTHER ASSIGNED MISSIONS. 2.3.2 MANPOWER Fig. 7 THE MANPOWER USED ~Z OPEP.-.OE THE PRZOGES AND DRILLBOAT AROUND THE CLOCK, YEA?. APOVNI , IS APPROXIMATE!" 150 PEOPLE. THE DREDGES, WHICH OPEPAPE CONSECUTIVELY RATHER THAI-: CONCURRENTLY, USE THE SAME GPEWS. PEAT MEANS THAT WHEN THE SUCTION DREDGE IS OPERA.PIN3 PHE ZI^PEP PPEPO-E IS ESSENTIALLY NOT MANNED. IN ADDITION TO THE PERSONNEL OPERATING PHE DPZOGES, 106 PEOPLE ARE REQUIRED PO OPERATE S'JPPOP.P EQUIPMENT AND 4 5 MAINTENANCE PEOPLE ARE ASSOCIATE! WITH PUNNING MAINTENANCE REQUIREMENTS. THEREFORE, A TOTAL OF 301 PEP.SONNEL ARE REQUIRED FOR DREDGING OPERATIONS. 2.3.3 COSTS FY 78 DREDGING COSTS ARE BUDGETED AT $4.0. PAYROLL ACCOUNTS FOR $2.2, OR 55% OF TOTAL OPERATING 1049 B-39 EXPENSE. SUPPLIES, FUEL AND DEPRECIATION MAKE UP THE DIFFERENCE. THIS EQUATES TO UNIT COSTS OF $2.75/CUBIC YARD FOR DIPPER DREDGING AND $0.86/CU3IC YARD FOR SUCTION DREDGING. 2.4 PERFORMANCE : AS STATED EARLIER, DREDGING HAS BEEN VITAL TO THE Fig. 8 CONSTRUCTION AND MAINTENANCE OF THE CANAL. THE TABLE SHOWS THAT CONTRIBUTION QUITE CLEARLY AND EMPHASIZES THE MAGNITUDE OF MAINTENANCE DREDGING. DURING THE FRENCH AND U.S. CONSTRUC- TION EFFORTS, 134 MILLION CUBIC YARDS WAS REMOVED FROM THE WATERWAY BY DREDGING. THIS AMOUNTS TO OVER 4 0% OF THE TOTAL EXCAVATION. OVER 50%, C?. 27.2 MILLION CUBIC YARDS OF THE MAJOR IMPROVEMENT 6"? WHINING GAILLARD CUT WAS REMOVED BY DREDGING. ECNE"ER, CF EC.YAL IMPORTANCE IS THE FACT THAT 4 60 MILLION CUBIC YARDS HAS BEEN REMOVED BY MAINTENANCE DREDGING, OR NEARLY 4 TIMES THE AMOUNT DREDGED DURING CANAL CONSTRUCTION. SINCE THE PERIOD OF THE U.S. CANAL CONSTRUCTION, OVER 50 MILLION CUBIC YARDS HAVE BEEN DREDGED TO REMOVE SLIIIS WHICH ENCROACHED TEE CHANNEL - PRIMARILY IN GAILLARD CUT. Fig. 9 AS A MATTER OF INTEREST, THE CONSTRUCTION AND MAINTENANCE Fig. 10 DREDGING EFFORT, EXPRESSED IN VOLUME (CUBIC YARDS) , IS SHOWN FOR 19 74 THROUGH 197 8 AND THE PROJECTED DREDGING VOLUMES ARE SHOWN FOR 1979 AND 1980. THE ONLY IMPACT ON THE DREDGING OPERATIONS ENVISIONED BY THE TREATY IMPLEMENTATION IS THE 1050 B-AO probable relief of mai::tenance dredging in the terminal earsohs and piers. hc"~".~er, if Panama sz choses, we may ferform this dredging 0;: a cost reimbursable 3asis . this requirement has ::ct yet bee:: the subject of coordination ano is not currently planned cr budgetee fop accomplishment BY COMPANY FORCES. IN SUMMARY, DREDGING OPERATIONS EAVZ PLAYED A MAJOR ROLE IN THE CONSTRUCTION AMI IFERATICN IF THE "ATERKAY AND KILL CONTINUE TC EC SO, FELATIVELY UNAFFECTED BY TEE TREATY IMPLE MENTATION • 2.6 e:-"r:nmental considerations : ereeging is ni?mally asscciatei "ieh major environ- \.T' ,= the ?.-:cuct or c: IN REESTABLISHING A EYNAMIC BALANCED NATURAL ECOSYSTEM. FUPTHERMCRE, KITH THE ABSENCE OE INDUSTRIAL POLLUTION THERE IS "IPTUALLU NO PROBLEM ASSOCIATED '••■'IEH Zr.Z DISPOSAL OF DREDGED MATERIAL. SIMILARLY, SINCE Zr.Z OANAL -CAS ESTABLISHED AS .-. PRIMARY SYSTEM KITE APPURTENANT SYSTEMS, DKLDGZD MATERIAL DISPOSAL AREAS KZRE PROVIDED FRIM THE OUTSET AND PRESET N'C'NE OF THE PRCELEMS ASSOCIATED KITH DISPOSAL IN 7E1 URBANIZED OR INDUSTRIALIZED AREAS IN THE U.S. AND OTHER HIGHLY DEVELOPED NATIONS . STUDIES CONCLUDED ON BENTHIC 1051 B-41 COMMUNITIES, ARCHAEOLOGICAL OR NATURAL RESOURCES, WATER QUALITY, ETC. HAVE CLEARLY INDICATED THAT NO MAJOR ENVIRONMENTAL IMPACT IS ASSOCIATED WITH THE DREDGING OPERATIONS. 2.7 TREATY IMPACT ; Fig. 11 AS STATED ABOVE, WITH THE EXCEPTION OF MAINTENANCE DREDGING OF THE HARBORS AND PORTS, THE TREATY HAS NO SIGNIFICANT IMPACT ON THE DREDGING OPERATIONS. ONE MIGHT SPECULATE ON POTENTIAL IMPACTS SUCH AS INCREASED SILTATION DUE TO THE CHANGE IN LAKE USE IN ADJACENT WATERSHEDS; HOWEVER, NO FIR:-! DATA EXISTS TO QUANTIFY THIS EFFECT. THE WATERSHED HAS ALREADY SUSTAINED MAJOR CHANGES DURING THE PERIOD FOLLOWING CANAL CONSTRUCTION TO DATE AND WHILE IT IS REASONABLE TO EXPECT INCREASED SILTATION, THE SIGNIFICANCE OF SUCH SILTATION MUST HAVE BEEN RELATIVELY SMALL SINCE NO "CTICEAEII INCREASES IN SILTATION NOR DREDGING FREQUENCY HAS BEEN 03SERVED. ON THE OTHER HAND, BANK EROSION ASSOCIATED WITH LARGER VESSELS AND GREATER USE OF TOWBOATS HAS 3EEN IDENTIFIED AS A PRIME CONTRIBUTOR ' TO THE SILTATION AND SHOALING OF THE CHANNELS. THE LACK OF SIGNIFICANT INCREASES OF SEDIMENATION IN THE CANAL DUE TO EXTANT LAND USE CHANGES AND DEFORESTATION SEEM TO BE CORROBORATED 3Y THE RESULTS OF SEDIMENTATION STUDIES IN THE MADDEN RESERVOIR. 1052 B-42 MADDEN LAKE IS A 19 SQUARE MILE, KAN-MADE RESERVOIR WHICH RESULTED FROM THE DAMMING Or THE CHAGRES RIVER IN THE EARLY ISiO'S. THE LAKE LEVEL VARIES 3ETKEEN 190 FEET AND 252 FEET, COVERS 12,416 ACRES WHEN FULL AMD PROVIDES A MAXIMUM USABLE STORAGE CAPACITY OF OVER 32 THOUSAND ACRE FEET. IT IS SUPPLIED 3Y A WATERSHED CF NEARLY 4 00 SQUARE MILES. THE LAKE/DAM SYSTEM IS USED TO PROVIDE THE FOLLOWING: Fig. 12 • ADDITIONAL WATER STORAGE CAPACITY TO SUPPORT TRANSIT LOCKAGE WATER REQUIREMENTS GATUN LAKE LEVEL MANAGEMENT ° FLOOD CONTROL ° POTABLE RAW WADER :C?. PANAMA REDUCTION IN USABLE WADIR CAPACITY IF THE MADDEN LAKE RESERVOIR DUD TO THE EFFECTS CF 3ILTATII:: WAS A CINSIDERATICI FROM THE OUTSET AS KITH AMY DAM FACILITY. IN ORDER TO MONITOR SILTATION, PERIODIC SURVEYS USING SDANDARD TOPOGRAPHIC AND HYDRCGPAPHIC SURVEY TECHNIQUES HAVE BEEN EMPLOYED SINCE 1923. USING 1522-2= PPE-IINSTRUCTICN TOPOGRAPHIC SURVEYS AS A BASELINE, SURVEYS HAVE BEEN RUN ON BASELINE CROSS-SECTIINS IN 1557, 1973, 1974, 1975 AND 1978. THE MOST RECENT SURVEY WAS COMPLETED IN JULY CF THIS YEAR. ALTHOUGH Tr^L RESULTS OF TEIS SURVEY HAVE NOT 1053 B-43 BEEN FULLY ANALYZED, A PRELIMINARY ANALYSIS INDICATES THAT THERE HAS BEEN SHIFTING OF THE BOTTOM MASSES - A COMBINATION OF AGGREGATION AND DEGRADATION NO SIGNIFICANT SILTATION HAS OCCURRED OUTSIDE THE HIGHLY LOCALIZED TRIBUTARY DELTAS ° THERE HAS BEEN NO SIGNIFICANT REDUCTION IN THE USABLE WATER CAPACITY THE DATA WILL BE ANALYZED IN GREATER DETAIL AND DEPTH WITH CORRELATION MADE TO PREVIOUS SURVEYS AND OTHER SILTAT'CN ANALYSES; HOWEVER, INITIAL INDICATIONS HAVE LEAD OUR EXPERTS TO CONCLUDE THAT SILTATION IS NOT NOV." A CRUCIAL PROBLEM AND THAT UNLESS ENORMOUS CHANGES IN THE WATERSHED OCCUR WITHOUT RESPONSIBLE PLANNING, THE LAKE WILL PERFORM ITS PRIMARY MISSION OF CANAL SUPPORT FOR THE FORESEEABLE FUTURE. IF HEAVY INDUSTRY, URBANIZATION OR AGRICULTURAL ENTER- PRISE DEVELOPS AT AN ACCELERATED FATE ON THE WATERSHEDS WITHOUT PROPER PLANNING OR REGULATION OF EMANANTS FROM THESE FACILITIES, ONE WCVLD REASONABLY EXPECT INCREASES. IN SILTATION, A DEGRADATION OF WATER QUALITY AND A CONCOMMITANT PROBLEM OF CONTAMINATED SEDIMENTS. THIS POSSIBILITY HAS FAR MORE POTENTIAL IMPACT IN OTHER AREAS THAN DREDGING, HOWEVER. CURRENT AVAILA3LE DREDGE MATERIAL DISPOSAL AREAS REMAIN WITHIN OR AVAILABLE TO CANAL OPERATING AREA AND HAVE A 1054 B-44 PROJECTED LIFE AT LEAST TO THE YEAR 2000. IF, HOWEVER , THE PORTS AND HARBORS ARE DREDGED BY OTHER THAI: THE COMMISSION, SUITABLE DISPOSAL AREAS MIGHT WELL PRESENT A PROBLEM. 3. OIL POLLUTION CONTROL : 3.1 MISSION STATEMENT Fig. 14 THE PANAMA CANAL OIL POLLUTION CONTROL PROGRAM WAS Fig. 15 ESTABLISHED IN ORDER TC INSURE COMPLIANCE KITH THE FEDERAL WATER POLLUTION CONTROL ACT, AS AMENDED. IN ACCCRDANCE WITH THAT ACT, THE PROGRAM DEVELOPED A OIL AND HAZARDOUS MATERIALS POLLUTION CONTINGENCY PLAN; A SURVEILLANCE , PREVENTION AND ENFORCEMENT PRCC-RAM WITH THE COMPANY DELEGATED AS THE COAST GUARD ON-SCENE COORDINATOR, AND A ROUTINE A::0 CONTINGENCY SPILL RESPONSE SPILL CLEANUP CAPABILITY. 3.2 METHOOOLOGY : THE Oil POL1VTICN CONTROL PROGRAM :-JZZ?ZSSZS IN ITS OPERATION PREVENTION CE OIL POLLUTION BY: Fig. 16 " SOURCE IDENTIFICATION ° ROUTINE SURVEILLANCE OF POTENTIAL SOURCES ° FACILITY IMPROVEMENT PROGRAM ° FUEL HANDLING OPERATIONS IMPROVEMENT PROGRAM ° WASTE OIL COLLECTION AND OISPOSAL Fig. 17 FURTHER, USING BOTH THE CRIMINAL PENALTY PROVISIONS OF TITLE 35 CODE OF FEDERAL REGULATIONS AND TEE CIVIL PENALTY 1055 B-45 PROVISIONS OF THE FTvFCA >:Z HAVE ESTABLISHED AN AGGRESSIVE PROGRAM FOR THE PROSECUTION OF OIL SPILL VIOLATORS. THE MAJOR SOURCES OF OIL POLLUTION ARE: c OIL HANDLING PLANT FAILURES OIL HANDLING OPERATIONS FAILURES EITHER SHORE OR SHIF CAUSED ° MARINE ACCIDENTS IMPROPER DISPI3AL OF WASTE OILS ROUTINELY, THE TERMINAL PORTS OIL HANDLING OPERATIONS C0NTRI3UTE THE HULK Or ^TAiniTY AND FREQUENCY OF OIL SPILLS, HOWEVER, MARINE ACCIDENTS HAVE TEE FAR GREATEST POTENTIAL FOR CREATING A MAJOR SPILL. THIS LATTER FACT IS PARTICULARLY SIGNIFICANT SINCE PETRI1IUM PRODUCTS ARE THE LARGEST COMMODITY GROUP TRANSITING THE CANAL. WITH THE SIGNIFICANT UPSURGE IN OIL TRANSITINO FROM THE ALASKA NORTH SLOPE THIS POTENTIAL POLLUTION SOURCE IS GREATLY INCREASED. A CANAL ZONE OIL ANT HAZARDOUS MATERIALS CONTINGENCY PLAN WAS DEVELOPED ANT FIRMS A PART OF THE REGIONAL PLAN FOR THE ATLANTA REGION, IN ACCORDANCE WITH THE STATUTORY AND REGULATORY MANDATES IF THE FWPCA, AS AMENDED. THE PANAMA CANAL IS A MEMBER OF THE REGIONAL RESPONSE TEAM AND MAY CALL UPON THE COAST GUARD'S GULF STRIKE FORCE, ENVIRON- MENTAL PROTECTION AGENCU, OR ANY OTHER REGIONAL RESOURCES UNDER THE JURISDICTION IF THE REGIONAL RESPONSE TEAM. 1056 TEE OIL POLLUTION CONTROL PROGRAM HAS A PERMANENT MINI-MUM STAFF FOR ONGOING OPERATIONS AND IS AUGMENTED DURING CONTINGENCY RESPONSE. THE HARBORS AND CHANNELS HAVE A ROUTINE SPILL CLEANUP FORCE TO REMOVE ACCUMULATIONS OF OIL AND DEBRIS EMANATING FROM THE MARINE BUNKERING SYSTEM OR OPERATIONS C? SHIPS. THESE SAME PEOPLE PROVIDE A NUCLEUS FOR LARGER CONC INGENCY OIL SPILL RESPONSE. 3.3 RESOURCES 3.3.1 EQUIPMENT : Fig. 19 SPECIALIZED EQUIPMENT IS REQUIRED TO SUPPORT THIS MISSION. FLOATING CONTAINMENT BOOMS, VACUUM UNITS, SKIMMERS, WATER CRAFT AND BARGES ARE SOME OF THE NECESSARY TOOLS C: MAINTAIN AN EFFECTIVE CLEAN-UP PROGRAM. THE EQUIPMENT IS PPZFCSITICNED IN HIGH PROBABILITY SPILL AREAS AND CAN 3E RE1CCATEO CC FOCUS ON SINGLE LARGE SPILLS. A CAPITAL CN-.-ESTMENT OF APPROXIMATELY $625 THOUSAND HAS BEEN COMMITTED TO OIL SPILL CLEANUP EQUIPMENT. 3.3.2 MANPOWER : THE PROGRAM IS MANNED WITH A TOTAL AVERAGE FORCE C? 15 PECPLE. THIS INCLUDES THREE OIL POLLUTION CONTRCL OFFICERS WHO ARE RESPONSIBLE FOR INSPECTIONS, INVESTIGATIONS, PROSECUTION AND SUPERVISION. THE REMAINING PEOPLE ARE INVOLVED KITH ACTUAL CLEANUP OR WASTE OIL COLLECTION OPERATIONS. 1057 B-47 3.3.3 COSTS : THE PROGRAM IS RELATIVELY INEXPENSIVE IN THE PERSPECTIVE OF ITS RESULTS. TOTAL FY 77 EXPENSES WERE S303k WITH $120k C?. 40% BEING LABOR. COSTS. FN FY 77 OVER S156k OR OVER 50% CE THESE EXPENSES XZRE RSCCVERED FROM SPILLERS WHETHER THEY 3E OTHER COMPANY UNITS UE THIRD PARTY VIOLATORS. FURTHER, $21. 6k IN CRIMINAL PENALTIES OR 3AIL WAS COLLECTED ANT S21.4> IN CIVIL PENALTIES WERE LEVIED BY THE COAST GUARD FFUM GIL SPILL VIOLATIONS . 3.4 PERFORMANCE 3.4.1 CONTINGENCY FLAWING : MATERIALS SPILL CONTINGENCY FLAN WAS CEVEIIPEI IN Li "1 AND UP-DATED PERIODICALLY, IT IS AN INTZ7-PAL FIETICN OF THE ATLANTA REGIONAL PLAN. 3.4.2 THE PANAMA CANAL COMPANY WAS DELEC-ATID AS ON-SCENE COORDINATOR BY THE SEVENTH COAST GTAFD DISTP.ICT AND PERFORMS ALL COAST 3UARD FCNCTICNS UNCI? THE FWPCA EXCEPT THE ACTUAL LEVYING OF CIVIL PENALTIES. ZNTZSTXG&TXV] REPORTS ARE PREPARED AND RECOMMENDED PENALTIES FURNISHED TO THE COMMANDER, SEVENTH COAST GUARD DISTRICT. 3.4.3 PREVENTION/ENFORCEMENT TO FEDUCE SPILLAGE OF OIL INTO CANAL WATERS IS BY FAR THE MOST COST EFFECTIVE 1058 B-48 APPROACH. ACCORDINGLY, EMPHASIS HAS BEEN ON THE PREVENTIVE ASPECTS ; e.g.: ° IDENTIFICATION OF POTENTIAL POLLUTION SOURCES INSPECTION OF POTENTIAL POLLUTION SOURCES (APPROXIMATELY 4 MAN-YEARS ANNUALLY) ° DEVELOPMENT CF A $1 MILLION ANNUAL FACILITY AND OPERATIONS IMPROVEMENT PROGRAM FOR OIL HANDLING OPERATIONS (1972 REPORT) ° PROSECUTION CF VIOLATORS ° COLLECTION CF WASTE OIL TO PREVENT POLLUTIVE DISPOSAL I WILL BRIEFLY SHOW CHI VARIOUS PERFORMANCE INDICATORS WHICH TRACK EFFECTIVENESS CF THIS PROGRAM. Fig. 20 ° THE NUMBER CF CRIMINAL PROSECUTIONS HAS DECREASED Fig. 21 DRAMATICALLY FROM ITS PEAK CF 90 IN 1971 AND 1975. Fig. 22 ° OIL RECCVZRZC FRCM CLEAN-UP OPERATIONS IN THE WATERWAY SHOWS THE SAME TREND WITH 4 500 BARRELS (189,000 GALLONS) RECOVERED IN 1974 AND LESS THAN 500 BARRELS (21,000 GALLONS'* IN FY "3 CO DATE. Fig. 23 ° WASTE OIL COLLECTION IS AN EFFECTIVE PREVENTIVE PROGRAM. AN AVERAGE CF 14 THOUSAND BARRELS OF WASTE OIL HAS BEEN COLLECTED ANNUALLY SINCE 1974. THIS OIL WOULD OTHERWISE MOST LIKELY HAVE ENTERED THE WATER THROUGH IMPROPER DISPOSAL DOWN STORM DRAINS . 1059 B-49 THESE PREVENTIVE MEASURES HAVE BEEN VERY EFFECTIVE. THE NUMBER OF SPILLS FROM VARIOUS SOURCES HAS SIGNIFICANTLY DECREASED AND CANAL WATERS ARE NOTICEABLY F7ZER OF OIL TODAY THAN AT ANY TIME IN THE PAST. 2.4.4 OIL SPILL RESPONSE IN SPITE OF THE PREVENTIVE PROGRAM OIL SPILLS DO OCCUR AND REQUIRE CLEANUP RESPONSE. CCITTINGENCY TYPE CLEANUP OPERATIONS ARE INFREQUENT BUT MUST 31 RESPONDED TO EXPEDITIOUSLY AND EFFECTIVELY TO MINIMIZE ATYZ7.SE Fig. 24 ENVIRONMENTAL IMPACT. A LISTING OF THESE CINTINGENCY RESPONSE INCIDENTS IS SHOWN. Fig. 25 3.5 ENVIRONMENTAL CONS ITERATI INS the effect of on polluticn :n the environment IS WELL KNOWN AND ITS IMPORTANCE HAS EEEN TISTIFIEI TC IN THE PASSAGE OF STATUTES TO CONTROL AND RETYLATE SUCH POLLUTION THE PANAMA CANAL OIL POLLUTION PROGRAM IS IN AC ""ANTE THERE- WITH AND SHOULD BE MAINTAINED AND PERHAPS ACCMENTEE IN THE FUTURE . EXTREME CARE MUST BE TAKEN TO INSURE TEAT THE TREATY DOES NOT INADVERTENTLY LIMIT CUR EFFECTIVENESS IN CCNTRC11ING OIL POLLUTION. IN THIS REGARD, THE TREATY (ARTICLE III, PARA. 2c) AND THE AGREEMENT IN IMPLEMENTATION OF ARTICLE III ZT THE TREATY (ARTICLE V, PARA. 6c) AND THE DRAFT IMPLEMENTING LEGISLATION PROVIDE A BASIS FOR FLUSHING CUT AN EFFECTIVE PROGRAM. 1060 -50 4. AQUATIC WEED AND DEBRIS CONTROL : 4.1 MISSION STATEMENT Fig. 26 AQUATIC WEED INFESTATIONS AND DEBRIS HAVE BEEN A PROBLEM IN GATUN LAKE SINCE THE CANAL STARTED OPERATION. THE PANAMA CANAL AQUATIC WEED AND DEBRIS CONTROL PROGRAM IS CHARGED WITH PREVENTING ACCUMULATIONS OF AQUATIC WEEDS AND DEBRIS FROM DIRECTLY OR INDIRECTLY INTERFERING WITH TRANSIT OPERATIONS OR ESSENTIAL APPURTENANT FACILITIES SUCH AS POTABLE AND LOCKS WATER INTAKES, AIDS TO NAVIGATION, HEALTH AND SANITATION AND FLOOD CONTROL. Fig. 27 4.2 METHODOLOGY A MULTI-FACETED APPROACH IS USED TO ACCOMPLISH THIS MISSION. THE MAJOR BASIC ELEMENTS ARE: c PHYSICAL BARRIERS TO PREVENT NEED AND DEBRIS INCURSIONS c CHEMICAL AND BIOLOGICAL CONTROL OF T-7EED POPULATIONS ° MECHANICAL REMOVAL OF WEEDS AND DEBRIS 3EF0RZ AND AFTER INCURSIONS ° RESEARCH TO DEVELOP IMPROVED METHODS. THEREFORE, THIS COMPLEX MISSION IS ADDRESSED USING AN INTEGRATED CONTROL SYSTEM. 4.3 RESOURCES 4.3.1 EQUIPMENT COMMITMENT OF EQUIPMENT RESOURCES FOR THIS MISSION HAS BEEN AND REMAINS RELATIVELY MODEST. PHYSICAL 1061 B-51 BARRIERS TO PREVENT INCURSIONS OF WEEDS AND DEBRIS IS LIMITED TO THE USE OF FLOATING LOG 300MS ON THE MAJOR TRIBUTARIES ENTERING GATUN LAKE. LESS THAN TEN SUCH INSTALLATIONS EXIST; HOWEVER, THESE INSTALLATIONS EFFEC- TIVELY INTERDICT THE MAJOR SOURCES. CHEMICAL AND BIOLOGICAL CONTROL INVOLVES TEE USE OF SMALL OUTBOARD BOATS (APPROXIMATELY 30) , A SHALLOW DRAFT LAUNCH AND AN AIRBOAT. MECHANICAL REMOVAL OF WEEDS AND DE3RIS INVOLVES THE USE OF A MAJOR INSTALLATION - A SLACXLINE DRAGLINE CA3LENAY LOCATED IN THE CHAGRES RIVER BEFORE IT ENTERS GATUN LAKE , A PORTABLE FLOATING WINCK BARGE WHICH REMIVES THE ACCUMULATED MATERIAL FROM BEHIND THE INTERDICTING ' CATCHMENT 3CCMS , AND THE LABOR INTENSIVE MANUAL REMOVAL OF ISCLATEC ACCTNTLATIONS OF WEEDS AND DEBRIS FROM THE WATERWAY USING ? ITCEFCPMS . 4.3.2 MANPOWER A STABLE WORKFORCE OF APPROXIMATELY 2 PEOPLI IS USED FOR THIS MISSION. THIS NUCLEUS GROUP IS AUGMENTED DURING PEAK WORKLOAD PERIODS: e.g., FLOOD SEASON, 3COM MAINTENANCE PERIODS AND PERIODS OF INTENSE CHEMICAL CONTROL. 4.3.3 COSTS THE COSTS ASSOCIATED WITH THIS MISSION ARE RELATIVELY MODEST AND AMOUNTED TO 5350k IN FY 77. LABOR ($2 15k) AND COSTS OF HERBICIDES (S121k) MAKE U? THE BULK OF 1062 B-52 THE EXPENSE. INCREASED RESEARCH COSTS IN FY 78 - 80, AMOUNTING TO APPROXIMATELY 5300k ANNUALLY, ARE CONSIDERED COST BENEFICIAL SINCE THEY KILL HOPEFULLY LEAD TO IMPROVED AND LESS LABOR INTENSIVE CONTROL TECHNIQUES. 4-4 PERFORMANCE PRCCUCUICN FIGURES FOR THE CHEMICAL AND MECHANICAL CONTROL EFFORTS FOR THE PAST FEW YEARS ARE SHOWN. CHEMICAL CONTROL INVOLVES THE USE OF HERBICIDES; NAMELY, GRANULAR COPPER SULFATE TO DESTROY THE PREDOMINANT SUBMERSED WEED, HYDRILLA; LIQUID 2,4-D AMINE SALTS TO DESTROY THE FLOATING AND ANCHORED HYACINTHS; AVI DIQUAT TO CONTROL FLOATING PISTIA OR WATER LETTUCE. Fie. 28 IN FY 77, "_"4 TOMS OF GRANULAR COPPER SULFATE WAS USED TO TREAT NEARLY l.'.l'. A"E FEET CF HYDRILLA. IT IS PROJECTED THAT 320 TONS CF COPPER SULFATE WILL BE USED IN FY 73. Fig. 29 FY 77 USE CF 2,4-1 WAS UEAPLY 40 GALLONS TO TREAT OVER 300 ACRES CF FLOATING HYACINTH. FY 78 PROJECTIONS INDICATE AN INCREASE UP TO 70C GALLON'S TO TREAT 350 ACRES OF HYACINTH. Fig. 30 MECHANICAL CONTROL PRODUCTION FIGURES ARE SHOWN FOR THE CABLEWAY LOCATEO ON THE CHA0-RES ROUTER, THE CABLEBOAT AND MANUAL REMOVAL. MECHANICAL REMCVAL CF WEEDS AND DEBRIS AMOUNTED TO 6" THOUSAND TONS IN FY 77. IN FY 7 8 THROUGH JUNE THIS AMCUOrr HAS ALREADY BEEN HARVESTED. THE CABLEWAY OPERATIC!; ACCOUNTS FOR OVER 5 0% OF THE TOTAL AMOUNT REMOVED; HOWEVER, A CONSIDERABLE QUANTITY, OR 25,000 TONS, WAS REMOVED 1063 B-53 MANUALLY IN BOTH FY 77 AND 78 THROUGH JUNE. AS CAN 31 SEEN, THE AMOUNT OF CHEMICAL AND MECHANICAL CONTROL IS SIGNIFICANT. AN OPERATIONAL RESEARCH PROGRAM HAS BEEN REE SZA3LX SHED WHICH TESTS THOSE TECHNIQUES AN- EQUIPMENT WHICH HAVE PROVEN MERIT UNDER THE CORPS OF ENGINEERS' WATERaATS EXPERIMENT STATION AQUATIC WEED PE SEARCH PROGRAM. TO ZAZI , THE FOLLOWING FULL-SCALE OPERATIONAL ZESTS ARE UNDERWAY: INTRODUCTION OF APPROXIMATELY 2S!,C:0 '.TEED EATING WHITE AMUR FOR THE CONTROL OF SUBMERSED AQUATIC WEEDS - PRIMARILY HYDRILLA INTRODUCTION CF THE SAMEODES MOTH 72 CONTROL HYACINTHS INTRODUCTION ZF ZHE HYACINTH ZZEZLZ , NZZCHZTZNA BRUCHI USE OF SPECIAL SPRAY ZZZFIZTZZ AZR3CATS FOR HERBICIDE APPLICATION ° MECHANICAL HARVESTING AND REMOVAL OF KYDRZLLA USING CUTTER BOAT, PUSHER BOATS AND PORTABLE FLOATING CONVEYORS USE OF EXPERIMENTAL CONTROLLED RELEASE HERBICIDES FOR CONTROL OF HYDRILLA 4.5 PLANS WHILE CONTINUING ROUTINE TECHNIQUES, NEW METHODS, PROVEN EFFECTIVE IN FIELD RESEARCH EVALUATIONS, WILL 3E 1064 B-54 INTEGRATED INTO THE OPERATIONAL PROGRAMS. RESEARCH WILL CONTINUE TO FIELD TEST TECHNIQUES, HERBICIDES AND BIOLOGICAL CONTROL AGENTS WHICH HAVE SHOWN MERIT IN THE WES SCREENING PROGRAM. 4.6 ENVIRONMENTAL CONSIDERATIONS THE PRIMARY PEST WEEDS IN CANAL WATERS ARE EXOTICS OR NON-NATIVE PLANTS WHICH PROLIFERATED TO PROBLEM PROPORTIONS IN THIS ECOSYSTEM. HYACINTH, NATIVE TO ARGENTINA, AND HYDRILLA, NATIVE TO PAKISTAN, ARE THE TWO PRIMARY PROBLEM PEST WEEDS. THE INTRODUCTION OF LARGE AMOUNTS OF HERBICIDES HAS BEEN MONITORED DURING THE COURSE OF AN INTENSIVE WATER QUALITY SURVEY AND WERE NOT FOUND TO HAVE RESULTED IN ANY LONG-TERM WATER OR BENTKIC DEGRADATION. THE USE OF HERBICIDES IS REPORTED ANNUALLY TO THE PRESIDENTIAL WORKING GROUP ON PEST MANAGEMENT WITHOUT ADVERSE COMMENT. TREATY RELATED CHANGES AFFECTING THE AQUATIC WEED PROBLEM AND HAVING POTENTIAL ADVERSE IMPACT ARE AS FOLLOWS: Fig. 31 ° INCREASED URBANIZATION, AGRICULTURAL AND INDUSTRIAL DEVELOPMENT ON ADJACENT WATERSHEDS CAN BE EXPECTED TC INCREASE NUTRIENT LEVELS IN THE LAKE; THEREBY INCREASING WEED PRO- LIFERATION AND QUANTITIES OF DEBRIS COMING INTO THE CANAL OPERATING AREA. INCREASED USE OF PESTICIDES ON ADJACENT WATERSHEDS CAN BE EXPECTED TO DEGRADE WATER QUALITY. 1065 1066 ^ o H a a cu 2 O H E- 8 a H en z IT. o CT; '■x u c rt !M < J E- K « H M o U (X ^ i. < a u o c M z < a- < < u o > J o < s z K < c: o 1067 _: 2 -- < 2 ~JL — ^: w '^. < — J-< * 2 '< z H Z >-H < J W — M O 3 o w ; V 1 o: 1068 a o cm £h d 00 X W -N O C = X c^ u < 2£ o ^ OS M X Cn » ~ 04 s en < £ OS Ed 2 J3 H O D CJ «. c M s E-" < o ;,* i; 01 < a J 2 O O OS a ■5 ^ i; — fi < OS Eh > en < jl, 2S < < en Eh _: < — 3 ^ * < w 2 < «. u :; i-1 * 5 a 2 $ v; a: < Si z J Ct3 < < U u 3 J 2S 2J c: — i; 3 1H H a M Q o v — g Eh Eh i 2 < ,_ j < < O 2 2 o OS o i. i c o i. z en 3 ** M u a < < OS Eh Eh 6 < < — — < < <. c_> < < CQ Eh o s S 2 — ^■* 1069 u S. e < 5 ^" i; H 2 > < — JZ ~ U cj C O "i ■T > > 2J 3 ■3 u U O i— 2S u 3 3 ►3 j; !3 y U 1 £ ^ •H c _2 •H O s £ S e JC 3 •O J£ o 2: e — e 5 c c 2 a ^ c ~ ■a ~ T3 1070 w «H ,_! 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X 5 LU 0£. 1086 o o < ° i uJ X 90 O IfrIC ca £ S 01 H - O O U. Ul K «p o • * • JQ 10 io a N Ul - < 3 2 a Ul 1- e o P Si J" S ■ s - Ul W * H S OCT £ K Ul i * ^JKStfs Z09» ! K 3 ^ UJ R^^^>^^ O z a: \" s s aris L^^\\A^^^ o su EMI ISS9 'X ^^^\°>^S^ Q O 1 9S0I o < < " ' fc***SSK\KSS^ 9021 ^^»>^^ 6*21 R***^VSSK^ sssd NSS***StfS**^ -92IE ^?-S>^ o n CM o go o o «> . o » n "~ — * * 1087 Di [wwwnwm ; N\SSS\\\^\\\\^;^\S\\S\\\S^ s\\»\\\\\\V g f^\\ . . yvr NS^\\\\\^^.c^- \<\\\\\^^n ! 0) ^E !«S RSSS i * 1088 C-l APPENDIX C RELEVANT ENVIRONMENTAL LAWS, REGULATIONS POLICIES AND COMMITTEES Relevant Environmental Laws, Regulations, Policies And Committees (prepared by Frank Morris, Panama Canal Company) A. Federal Environmental Quality Control Laws And Regulations That Are Applicable in The Canal Zone: The Federal Environmental Quality Control Laws, Regulations and Executive Orders that have been issued to reduce adverse environmental impacts on the quality of the natural and human environment can be grouped into several categories such as national policy, water, air, wildlife, solid waste, noise and other environmental laws. Only a few of the U.S. Pollution Control Statutes are applicable to the Canal Zone (table II-I). These policies and controls follow: 1089 C-2 1. National Environmental Policy Act of 1969 (NEPA) (PL-91-190); 1970. 2. Occupational Safety and Health Act (OSHA) , (Where it regulates the environment) of 1970 (PL-91-596). 3. Clean Air Act of 1970 (PL-91-604), (Subchapter II - Emission Standards for moving sources and amendments) as amended. 4. Federal Water Pollution Control Act Amendments of 1972 (PL-92-500). a. Section 311 - Discharge of Oil and Hazardous Substance. b. Section 312 - Marine Sanitation Devices. 5. Marine Mammal Protection Act of 1972 (PL-92-522). 6. Marine Protection, Research, and Sanctuaries Act of 197 2 (PL-92-532) (Ocean Dumping Act). 7. Noise Control Act of 1972 (PL-92-574), Section 4. 8. Endangered Species Act of 1973 (PL-93-205). 9. Safe Drinking Water Act of 1974 (PL-93-523). 10. Toxic Substances Control Act of 1976 (PL-94-469). 11. Solid Waste Disposal Act (as amended by Resource Conservation and Recovery Act of 1976; PL-90-580). B. Executive Orders: 1090 C-3 1. Executive Order 11507, "Prevention, Control, and Abatement of Air and Water Pollution at Federal Facilities" February 4, 1970. 2. executive Order 11514, "Protection and Enhancement of Environmental Quality", March 7, 1970 (35 FR 46, 4247 (197 0)). 3. Executive Order 11752, "Prevention, Control, and Abatement of Environmental Pollution at Federal Facilities" December 17, 1973. To comply with the U.S. Environmental Legislation, the Canal Zone has to be specifically included in the definition of the "United States" or the tern "State" or by defining the geographical applicability to the Canal Zone, or the statutes requires all Federal agencies to comply with the Act. a. NEPA requires all Federal agencies to consider environmental factors and prepare environmental impact statements. b. FWPCA specifically include the Canal Zone in the definition of the United States. c. In the Toxic Substances Control Act: The Canal Zone is included in the definition of the term "State". d. The Marine Mammal Protection Act includes the Canal Zone by definition. e. The Clean Air Act Amendments of 1970 and as amended in 1977, did not include the Canal Zone in any of the above categories. C. Canal Zone Laws and Policies that Apply to the Local Environment: The Canal Zone has also issued rules and regulations for 1091 C-4 environmental protection and enhancement (Code of Federal Regulations, Title 35, Chapter 1) and established procedures to comply witn NEPA. (See Table II-2). These rules, regulations and policies are listed below: 1. Establishment of Procedures to comply with the National Environmental Policy Act, Federal Register, Vol. 41, No. 86, May 3, 1976. 2. Code of Federal Regulations (CFR), Title 35, Chapter I - Canal Zone Regulations, 1977. a. Part 61 - Health, Sanitation, and Quarantine (includes controls on use of pesticides, herbicides, insecticides and rodenticides) . b. Part 103.21 - Precautions against emission of sparks, smoice or noxious gases; etc. from vessels. c. Part 103.22 - Vessels at Fuel Berths. d. Part 113 - Hazardous Cargoes. Subpart B - Handling, Loading and Unloading of Explosives. Subpart C - Hazardous Liquid Cargoes Subpart D - Other Hazardous Materials e. Part 125 - Sanitary Requirements: Vessel Wastes, Garbage. Ballast. u. Canal Zone Administration and Regulations (CSAR): 1. Chapter 5, Part lo7.111 - Vehicles Transporting Explosives, 1092 C-5 flammable Liquids, and Liquified Petroleum Gases. 2. Chapter 5, Part lo7.b5 - Mufflers; Prevention of Noise. 3. Chapter 5, Part 169 - Subpart 3 - Protection of Wildlife. TABLE I 1-3 Committees Charged with Coordination and Control of Environmental Affairs I. Environmental Quality Committee, Panama Canal Company/ Canal Zone Government: Lieutenant Governor, Chairman Director, Executive Planning Staff Engineering and Construction Director Health Director Supply and Community Service Director General Counsel Environmental Officer, Executive Planning Staff, Secretary II. Interagency Environmental Committee: Panama Canal Company/Canal Zone Government Representatives: Engineering and Construction Director, Chairman Environmental Officer, Executive Planning Staff 1093 APPENDIX D LETTERS FROM PARTICIPANTS D ~ 1 THE UNIVERSITY OF TEXAS AT AUSTIN CENTER FOR RESEARCH IN WATER RESOURCES 10100 Burnet Rd. Austin, Texas 78758 H2 : 836-0440 August 14, 1978 Mr. Bennett L. Silverstein Project Director Congress of the United States Office of Technology Assessment Washington, D.C. 20510 Dear Ben: I want you to know that the meeting Thursday and Friday was very informative to me and well planned and executed. In response to Pete's request, I have the following comments. It appears to me that the scope of Panel and Joint Commission activities can be restricted to the Treaty language of environmental effects of the Treaty, which might be negligible if the Treaty doesn't result in practices that would not have taken place anyway. It can be expanded to include all effects on Canal operation, which might be justified under Section 13. Lastly, it might expand to effects on all of Panama, which might be difficult to justify under the terms of the Treaty. My comments will be based on the second of these. One more preliminary comment is in reference to selection of Commission mem- bers. The main concern at the meeting was, I guess naturally, that the members be environmentalists or environment-oriented. I believe that it is more important that they be moderates or common-sense oriented. It is essential to obtain Panama's concurrence on manyvor most operations, and extreme recommendations will be doomed to failure either through non-acceptance or eventual disillusionment. Just from my general experience and modest knowledge of Canal facilities, it is my judgment t hat deforestation will not decrease (but might increase) the C anal's water supp ly a nd have only a minor, if not tr ivial, effect o ndr edging r jlllii r °'" Q "'' e ' A re-app"ralsal J.U years trom now might give "T different indication. In view of the concern of others in this regard, I believe that any documentary evidence to the contrary should be made available to the Panel. As stated at the meeting, any recommendation that the Panel makes regarding deforestation should, in my opinion, be in regard to watershed management generally, not simply reforestation. In this connection, services of the U.S. Soil Conservation Service would be invaluable. In my view, the objective should be best land use consistent with a desirable environment (from Panama's stand- point) and consistent with efficient Canal operations. I was surprised to note that the EIS was not commented on by either of the two U.S. agencies that are perhaps most qualified from a technical standpoint — 1094 D-2 Mr. Bennett Silverstein August 1A, 1978 Page Two the Corps of Engineers and the Soil Conservation Service. I would hope that the expertise of these two agencies would be welcomed. There is a popular tendency to rule out the most expert on the basis that they might be biased. In my experience, this practice has had none but bad consequences. I would guess and hope that any further Panel business can be handled by mail (although I gained much from this one meeting). It has been a pleasure. Please let me know if I can be of any assistance. Sincerely, s&^Sz^ Leo R. Beard Director dsk 1095 D-3 PEPORT TO THE OFFICE OF TECHNOLOGY ASSESSMENT Potential Environmental Problems Affecting the Panama Canal (by Paul Campanella, JRB Associates Inc.) This report has several objectives. It broadly discusses from the point of view of an environmental manager who has 6 years experience working in Panama, a few of the social, economic and political factors affecting the Canal Watershed and, in doing this, It provides a framework for consideration of the policy issues. Secondly, it develops, in rather summary fashion, soae of the explicit ecological impacts to the watershed resulting from uncontrolled development. Finally, it offers some comments on the structure, function, and role of the proposed Joint Commission on the Environment. 1. Social, Political, and Economic Framework of the Watershed The settlement pattern of the watershed is dominated by the Panama City - Colon Metropolitan areas and the urban settlements adjacent to or located along the highway corridor between the two urban centers . Much of the commercial activity of the watershed has developed in response to urban needs and the watershed acts as a source of unskilled labor and as a sink for ranching, farming, home building and some commercial investment. A growing numbers of city dwellers use the rivers, lakes and forested areas for weekend recreation. In the last 20 years the population has increased rapidly. The annual ef- fective rate of increase (natural increase plus migration) in the watershed, as calculated by Panama's planning office, is 5.37%. According to those same sources, the density increased form 14 per Km 2 in 1960 to 23 per Km 2 in 1970. Assuming that the effective rates of increase remain constant, the population is expected to increase by 37% over the next 5 years. This figure is deceptive in the sense that 1096 D-4 the environmental pressures are not applied uniformly over the watershed. The migratory process and impact varies according Co the regioa. Some areas, like Cerro Cama are being advanced because of accelerated habitat destruction: a complex process resulting from multiple land use by agriculturists and cattlemen. The impact of the transmigratory process is evident in the wave of defores- tation advancing rapidly toward the forested areas of the Canal Zone and from the shores of Lake Alajuela toward the mountains. The fact that areas are being abandoned by people does not mean that the land will revert to its former state. Rather, the contrary is expected. Without significant inputs of tine and energy the land will remain unproductive and will thus force conversion of still more land to meet accelerating national d em a n ds. Whatever the reason for the rapid urbanization that is taking place, there can be no question that the human environment created by the process is a phe- nomenon of ever-increasing importance. The contemporary urban environment re- quires a much larger supply of energy, materials and space per person than it did 10 years ago. The accelerating needs and demands result in further pressures to increase production, expand communication, transportation and social service networks and increase physical structures. The problems generated by rapid growth are aggravated by severe economic problems. Panama's economy was hard hit by spiraling inflation and the world wide recession in 1974 and 1972. After registering average annual, 32 real growth iron- 1969 to* 1974 the rate fell to about 2. 62 la 1374 and Co less than 21 la 1975-1977. Prospects for 1978 are about the same as those experienced in recent years. Some gains have been made in reducing inflation and the cost of living increase is being held to about 112 annually. However, unemployment in the water- shed is unoffically reported to be around 302. The Government's development planning through 1980 stresses industrial and agricultural and the development of outlying areas of the country. The plan 1097 D-5 bases Its optimistic projections on taking full advantage of the country's natural resources. There is great interest in the consolidation of agricultural potential with special emphasis on the development of hardwood and softwood reserves. Priority has also been assigned to substitution of food imports, i.e., vegetable oils, milk and dairy products, processed meat, as well as to develop- ment of food crop exports: To further complicate the development picture, the areas that have been recently colonized are not well suited for agricultural development, and have poor access to the social and cultural benefits provided by the government. The present growth rate in the watershed indicates that the pollution impact from non- Indus trial man-related use will double in 12 years. This means similar expansion in the demand for sanitation and domestic water supplies. Because of the Increasing sophistication of the rural dweller, domestic wastewater contains numerous chemicals and toxic substances (for example detergents are widely used in Panama) not found In ordinary household sewage ten years ago. In addition , water may contain a greater number of pathogens than ever before. Industrial development, although still on a small scale, has created new pollution problems that Panama is not prepared to deal with. The technology for water purification Is available but with increasing multiple use of the land the Inputs are complex and the resultant processing of wastewater becomes, a costly and complicated affair with, numerous <-Hom-t<-ai and physical steps to remove pollutants'. The question of" removing pathogens becom es very important since it is well established that the conventional treatment of wastewater, even when employing both biological and chemical treatment, does not guarantee water free from microorganisms. The problems of providing adequate supplies of good quality water are already seriously taxin IDAAN. Future levels of water quality degradation will increase as 1098 D-6 the economy grows. Soil conditions are extremely variable in absorption capacity and thus strict norms must be established for use of individual or community septic tanks. Because of prohibitively high costs of constructing and operating sewage treat m ent facilities and due to the lack of a pollution inspection and reporting network, stream dilution is still the primary method of waste disposal. It is envisaged that these problems will become rapidly worse as pollution destroys available water sources and natural self -purification systems are overloaded. The limited development of Panama's natural resources has occurred on a small scale and in an uncontrolled manner. The major exception is the large-scale past and present conversion of forested ecosystems to agriculture and pasture land through traditional shifting agricultural techniques. The utilization of other natural resources like minerals and water has been limited. Consequently, the occurrence of significant degradation and major imbalances in the country's ecosystems has been minimized. However, the current scale of thinking and approaches to development of the natural resource base raises some questions about potential conflicting interests between long-range conservation of the environment and short range development objectives. Concern for Panama's long-term economic development and environmental quality are raised for the following reasons : 1) Past and present development actions have been in response to immediate short term needs without due consideration for long term cumulative costs or benefits. There is no mechanism in the planning process to call attention to the potential impacts of development and more important to determine how much environ- mental protection Panama can afford consistent with the interdependent goals for other competing social concerns. 2) Few protective measures have been instituted to mitigate and to monitor the potential adverse effects of development activities nor are there means to 1099 D-7 enforce the existing laws and executive orders. 3) The overlapping of administrative responsibilities in the areas of resource planning and economic development, land use, public services and en- vironmental protection among ministries and semi-autonomous agencies has re- sulted in neglect, misuse and loss of the country's natural resources. It would be unfair to say there is no awareness among planning officials of the significance of man's impact on the environment. However, such awareness is confined to a small fraction of the policy making community and it is clear that this level of awareness has not been suficient to generate a serious com- mitment to include concern for the human environment in the planning, design and implementation processes. Additionally, once a constituency supporting attempts to correct major environmental deficiencies is developed it will have to compete for already scarce public sector funds. Utilization of watershed land can be grouped into a number of categories: Agriculture, grazing, forestry, industry, urban development, transportation, recreation, and tourism. Each of these activities uses the environment differently, requiring certain inputs and resulting in specific outputs which are in turn linked to other systems. While our knowledge of some of man's impact is growing we are still without site specific information as to how these impacts translate into long term effects. Our ignorance is even more pronounced in tropical ecosystems. For this reason I tocos an the major problems- and my approach, while not. exhaustive, is to point out some of the potential adverse ecological effects that result from development activities in the tropics. 1100 D-8 2 . ECOLOGICAL EFFE CTS • ' 2 .1.. Introduction Both the severity and form of ecological impacts depend on the kind of development activity and the type of ecosystem in which it is deployed. For example, industrial and agricultural uses differ in their land, water, and socio-economic impacts, and sites differ in their climate, topography, soils, and plant and animal communities. The ecological impacts that result from unrestricted development are difficult to describe in quantitative terms; however, it is possible to identify technological factors associated with development and site—specific factors that cause impacts to vary and to describe those variations qualitatively. 2.2. Variation by Development Activity Several factors that vary among development activities can have major effects on the severity of impacts on ecosystems: land use, huma n impacts during both the construction and operation phases, water requirements of the activity and other induced in-stream flow changes, effluents, and air emissions associated with the development. • Land Use . First-order, direct ecological impacts are caused by land disturbances at the development site. These disturbances result in the complete removal of vegetation and animals dependent on this vege- tation- Two An important factor, which should be carefully considered in setting • up the new Comuiission is that of whether or not the Parties will instruct its members to the Commission. The IJC enjoys an "uninstructed" status. In studying a joint problem, it is not the Commission's role or purpose to negotiate a solution. -Tiat responsibility should be left with the Parties to the agreement. An "instructed" Commission would be restricted, to a very lar^G extent, in its ability to offer the best advice on measures to avoid or mitigate an environmental problem. Such advice is based more ocx the technical or scientific aspects of the problem. The decision as to the political and financial feasibility of implementing the advice remains with the two Governments. Nor is the IJC, in its present circumstance at least, required to comply with U.S. or Canadian law, i.e. preparation of environmental impact statements, Freedom of Information Act, etc. It is an international organization and exempt from certain federal regulations. In addition, it's files are priviledged unless the Commission agrees to make them available to the public. Again, this situation may appear to some to give the Commission too much administrative freedom, but the fact 1123 D-31 that its recommendations are not binding enables the Governments to grant the Commission this freedom. At the same time Governments can expect more candid advice based on factual scientific evidence from the Commission. Organization and Structure The organization and structure of the Joint Commission on the Environment will be of paramount importance. Some of the questions to be resolved include but are not limited to: (1) The number of Commissioners from each country and whether they be full time of part time, and how they are selected. (2) The size and makeup of supporting staff, and the advisability of a joint staff or bilateral units. (3) Promulgation of procedures. The number of Commissioners to be appointed is important. In this case an important factor is the size of the job to be undertaken. In the writers opinion, the number of environmental problems now in existence in the Panama Canal Zone do not appear to be to numerous. This is not to mean that they are not significant or unimportant. But existing and potential problems have been identified, and an assessment of the anticipated work load for the Commission, in my view, does not indicate the need for a large number of Commissioners - one that might represent all legitimate interests in the canal operations. The IJC has six Commissioners, three from the United States appointed by the President with the advice and consent of the Senate, and three by 1124 D-32 the Canadian Governor - General. The U.S. Commissioners are appointed for fixed terms, usually two years in duration. At present there is no stipulation for appropriate background and experience for appointees although U.S. legislation has been introduced in recent years that would, if enacted, require the President to make his appointements from appropriate disciplines. In the writer's view the Joint Commission on the Environment would be able to accomplish its purposes if it did not exceed six in number, three from each Government. In the IJC the co-chairman, one from each country, are full time employees of their respective Governments; the other four Commissioners are part-time. The United States Commissioners are compensated on a weekly "hours worked" basis not to exceed half-time on an annual basis. Such an arrangement provides full-time direction of the Commission's business by co-chairmen, with the other Commissioners participating in providing the Governments with advice and recommendations after appropriate studies are completed. In recent years the work of the IJC has expanded so dramatically as to at least double the size of the professional staffs and to cause the Commissioners be appointed on a full-time basis. Such action, however, has not yet been taken. The professional staff (s) to be established to support the Commission is also important. It might be large enough for the Commission to carry out its own studies, or it might be small enough to accomplish only the necessary basic support. Although, as I have indicated above, the IJC support staff has grown significantly over the past few years, percentage 1125 D-33 wise, it is still relatively small and does not actually carry out studies for the Commission. The staff of the U.S. Section of the Commission, located in Washington, D.C., is composed of a Secretary, a position identified by the Treaty itself, an Executive Director, an Environmental Advisor, an Engineer Advisor, and a legal advisor. A public information officer and an engineer assistant are to be added to the staff after the first of the year. The primary work of the staff is to review the work of the several Advisory Boards which serve the Commission, and provide the staff work for the Commission. The Canadian Section has a comparable staff domiciled in Ottawa. The Commission also has a joint staff, composed of equal numbers of U.S. and Canadian scientists and located in Windsor, Ontario, a central location to the Great Lakes Basin. This office has as its principal purpose assisting the Commission in overviewing the efforts of the two Governments to implement the Great Lakes Waters Quality Agreement, a major effort to halt the degradation of the largest source of fresh water in the world. Over the years of its existence the 1JC has developed a system for utilizing the expertise of existing agencies. As a result the Commission has succeeded in accomplishing its work at a minimum expense and in a manner which substantially avoids duplication of national programs. The system sets up Advisory Boards which conduct technical or scientific studies of specific problems and reports with recommenations to the IJC. The Commission then considers the Advisory Board's report, undertakes to compile other information from interested persons, industry and the public in general, and then write (s) its own report with recommendations to Governments, 1126 D-34 Such a procedure has worked well within the system of governments of the United States and Canada. The writer is not certain that this exact procedure would be effective in either the U.S. and/or Panama but there may be limited application of this procedure which would afford the JCE access to outside expertise. In the IJC operation the Advisory Boards are appointed by the Commission from agencies of governments having expertise in fields closely related to the problem being studied. These appointments require consultation with the agencies before they are made to make certain that agency cooperation is achieved and that the agency fully understands the work of the Commission and the extent of the agency's commitment in terms of manpower and financial support. In my view, the Advisory Board concept should be seriously considered in setting up the Joint Commission as a means of obtaining the maximum amount of professional help at a minimum Commission operational cost to the Governments. Information, technical data, and program expertise become available to the Commission in this process. A major staff consideration remains however; whether there should be a joint centrally located staff to support the Commission or binational staffs to support the separate U.S. and Panamanian commissioners. Because of the completely bilateral nature of the IJC, it is highly desirable to have bilateral staffs, one located in Ottawa and the other in Washington. Since the JCE will be set in a somwhat different geographical context, however, complete agreement on the makeup and responsibilities of a staff-whether joint or other - should be determined in advance. 1127 D-35 It is important that if the Commission is to be composed of equal representation, as is the case in the IJC, there will in all probability, be co-chairmen. Then the question is whether there will be a joint staff under the direction of two chairmen, or whether each Section will have its own staff under the direction of the respective chairman. It is difficult to comprehend that a single office could operate effectively if there are two persons directing its activities, even though there might be Co-Chairmen who work well together. In such a sensitive area as the environment there is substantial opportunity for disagreement. A possible solution to the Co-Chairmen - one-office concept would be the employment of a staff Director who would have substantial or even complete authority to direct the staff. He would receive his policy direction jointly from the Co-Chairman but would have full authority to direct and assign staff to perform required support function. Other Matters for Consideration There are numerous other matters to be considered having a direct impact on the kind of Commission to be established and the nature of its operations. Area of Jurisdiction After considering a number of options it is my opinion the Commission's area of jurisdiction, geographically speaking, should include the area of the agreed Canal zone, the designated military areas, the watershed including that portion outside the Canal Zone, and the approaches to the Canal on both coasts. Provision should also be made that where there is Party 44-394 O - 79 - pt. 2 - 19 1128 D-36 agreement the Commission can be authorized, on an ad hoc basis, to look at activities outside the designated areas that are having significant environmental impacts in the area. Lines of Communication Since it is incumbent on the Governments to "provide" the Joint Commission with "complete information", the Commission's findings and recommendations should be to Governments rather than to the Canal Commission. Budget The Governments should finance the costs of the Commission on an agreed- to basis. The autonomy of the Commission can be better protected if the Governments provided the funds to support its activities. If the Commission activities were financed from Canal revenues it would probably create budgetary difficulties and would probably make the (m) JCE subject to the Canal Commissions policies. 1129 J>-37 CONSULTING ENGINEERS | INTERNATIONAL ENGINEERING COMPANY, INC. HEADQUARTERS OFFICE 220 MONTGOMERY STREET / SAN FRANCISCO CALIFORNIA 94104 / U.SA TELEX (ITT) 470040. (RCA) 27836Z (WUD) 34376 PHONE (415) 544-1286 B-448 David S Parker oo n,, ni ,c + 1 Q7Q DIRECTOR OF CORPORATE PLANNING CO «Uy uil - l^'O Mr. Bennett L. Silverstein, Project Director Office of Technology Assessment Congress of the United States Washington, D.C. 20510 Dear Mr. Silverstein: I appreciated the opportunity to serve on the Ad Hoc Panel for a study of the Protection of the Environment about the Panama Canal. With three tours of duty with the Panama Canal over a period of about 25 years, and as one who has been personally involved in enforcement of environmental regulations, the subject is one of considerable interest to me. At the conclusion of the meeting on August 11, you asked individual panel members to submit their views on the important environmental concerns, on additional information which might be required for the panel at this time, and on the need for additional discussions or meetings required. I regret that I missed the meeting on August 10, but from separate discus- sions with some of the participants and from my own experience I believe that the major areas of interest are fairly obvious and easily identified. They include the impact of potential environmental changes on the following: Physical functioning of the Canal . There is some threat of increased sedi- mentation through improper land use which conceivably could aggravate dredging problems in the navigation channels and affect the storage capacity of Madden Lake for navigational and flood control use. From the evidence presented, this has not really been a critical problem, nor do I think it is likely to become one before the end of this century. It must, of course, be carefully monitored, as the Panama Canal Company is currently doing. Water quality in Gatun and Madden Lakes . Development within the watersheds around the lakes - including farming, recreational and industrial - may impact on water quality which would impair the suitability of the water supply for consumption and for recreation and general ecological impact. This is not currently overly serious, but over time could become signifi- cant, particularly if the squatter situation is not brought under control. Actions to avoid this problem will be essentially under Panamanian juris- diction. The methods of avoiding contamination are not technically diffi- cult but do involve proper regulation of development. Panama has shown an awareness of this problem. 1130 D-38 INTERNATIONAL ENGINEERING COMPANY, INC. Mr. Bennett L. Silverstein 8-448 28 August 1978 Page 2 Other health and sanitation . This is somewhat related to the preceding problem, involving control of malaria, yellow fever and other tropical diseases. The present authorities, both US and Panamanian, are undoubtedly well aware of these problems. Their control may require significant expend- itures of funds in years ahead. Scientific ecological studies . This refers to the types of studies being performed by the Smithsonian Institute, Gorgas Memorial Laboratory and corresponding Panamanian authorities. Many of these studies require an undisturbed natural environment which could be markedly affected by encroaching human activity such as the increasing number of squatters on the West Bank opposite Barro Colorado. Undoubtedly, the Smithsonian will closely monitor this situation. At the meeting on August 11, Mr. Galindo indicated that the Smithsonian representatives were satisfied with the arrangements and contracts under the new treaty. I believe this should be verified in writing from the Smithsonian. It received limited discussion at our meeting. Miscellaneous environmental problems . There are other individual problems such as oil spills in Canal waters and sewage disposal in ocean areas. These were not discussed while I was present. I assume that the appropriate US authorities will have the capability for handling those of immediate impact (oil spills), but may find a joint forum useful for others which may occur. Problems not directly associated with the Canal . Reference was made to environmental problems not directly associated with the Canal or the new treaties, such as hoof-and-mouth disease from Colombia along the Darien Highway. It is my view that the proposed committee should not address problems which are distinct from the Canal unless there is some connection (e.g., yellow fever barrier line). I believe that US technical assistance for such problems should be handled through normal Embassy-AID channels, with Canal authorities assisting where they have a capability or interest. With respect to procedures, funding, etc. when the treaty goes into effect, it is my understanding that these subjects were generally beyond the pur- view of the Ad Hoc Committee since they would be addressed by continuing negotiations through established executive channels. However, I would suggest that the implementing legislation be made sufficiently broad so as to permit, or at least not inhibit, expenditure of funds for the Joint Committee by the Panama Canal Commission. There will be many unforeseen and unresolved problems in many other fields in addition to environmental, and flexibility in handling will be essential if the Commission is to function efficiently. 1131 D-39 INTERNATIONAL ENGINEERING COMPANY, INC. Mr. Bennett L. Silverstein B-448 28 August 1978 Page 3 Even though it may be premature or inappropriate for me to comment on the organization and functioning of the final Joint Environmental Committee, I would like to offer several comments. Since both the US (Canal Commis- sion) and Panama will have environmental agencies, I believe the permanent secretariat should be vested in one of them, as a part-time duty for one or more employees. This would save duplication of files and the unneces- sary expense of full-time employees. I do not visualize an extensive program of work for the Committee — but rather occasional meetings as circumstances require -- and I find it hard to justify a permanently staffed office for problems which have surfaced to date. With respect to additional meetings or activities for the Ad Hoc Committee, I do not believe they are required unless the Executive Branch feels that additional comments could be useful in defining parameters for discussions with Panama concerning treaty implementation. Since the Ad Hoc group has no real charter, I do not believe there is much point in proceding further. As a final comment, the original purpose of the Ad Hoc group, as I under- stood it, was to offer suggestions which might influence implementing legislation. I believe the only advice appropriate at this time is, as indicated above, to keep the legislation as flexible as possible so as to permit timely response to problems which may arise. Sincerely, David S. Parker Major General, USA Retired 0SP:bhb MORRISON KNUOSEN COMPANY 1132 D-AO Resources for the Future 1755 Massachusetts Avenue, N.W. Washington, D.C. 20036 October 18, 1978 Mr. Bennett L. Silverstein Office of Technology Assessment Congress of the United States Washington, D.C. 20510 Dear Ben: Enclosed please find a brief review of priority areas of general environmental concern and some specific questions concerning health and sanitation associ- ated with implementation of the Panama Canal Treaty. I have suggested two broad areas where further information would be useful: resource availability for manitaining and improving health status: and existing health status on the Canal area. Some recommendations regarding training, surveys, and monitoring are then offered. The Panel meetings were informative and encouraging. I am sure that Panama, with some additional, critical back-up support from the U.S. and perhaps international donor agencies, will be able to maintain a healthy environment for human settlement and livelihood in the Canal area. Thank you very much for the opportunity to participate in this exercise. I hope the enclosed comments are useful. Sincerely, Patricia L. Rosenfield, Ph.D. Enclosure 202/462-4400 Cable: Resources 1133 D-41 Patricia L. Rosenfield Resources for the Future Washington D.C. October 18, 1978 IMPLEMENTATION OF THE PANAMA CANAL TREATY: ENVIRONMENTAL IMPACTS WITH EMPHASIS ON HEALTH AND SANITATION CONCERNS This report briefly summarizes priority areas of general environmental concern. The specific area of expertise of the author, health and sanitation, is then discussed. A review of the existing situation in Panama is followed by some questions concerning health conditions in the Canal Zone and recom- mendations about future health activities . Priority Areas of General Environmental Concern Important environmental concerns associated with the implementation of the Panama Canal Treaty are focussed on both the zone and watershed areas, and involve changes in the land use and water availability. The most signifi- cant concern gleaned from documents and discussions is availability of ade- quate water supplies of adequate quality. In the watershed area around the Canal Zone is found the major supply of water for maintaining sufficiently high levels in the Canal for passage of ships . Activities that limit the amount of water supply should be severely regulated. Such activities include water withdrawals from the lakes and tributaries as well as land use practices that increase sediment loads in the lakes and therefore decrease the supply for the Zone . In addition , lakes in the water shed area provide the main water supplies for the inhabitants of the Canal Zone and for the major cities in the area. As population growth rates are high (and migration to this area is increasing) , it is essential to maintain sufficiently good water quality in the lake so that potable water is easily accessible to the inhabitants of 1134 D-42 the Zone area. This means protecting the water not only from the above mentioned activities but also from polluting activities around the lake shore ranging from agricultural and industrial activities to tourism and recreational ones. A major corollary of protecting water supplies in the watershed area is regulating land use. The land in the Canal Zone area is not only affected by deforestation as mentioned above but also by attempts to provide housing for the migrants who come into the area and to expand agricultural activities . These land uses , if not adequately regulated .could adversely affect water quality and supply of the entire watershed and Canal Zone area. In the Canal Zone area proper, protecting water supply and regulating land use are natural and human resource concerns . There is a need to maintain public services for the human inhabitants of the Canal Zone , especially drinking water quality, sewage treatment, and garbage disposal. Without ade- quate services, disease could become rampant (as discussed below). In addition, a major concern is maintenance — maintenance of water quality, maintenance of land use regulations, and maintenance of services to the inhabitants of the Canal Zone. This requires both appropriate institutional arrangements and mechanisms for enforcing regulations . The appropriate laws have been passed in Panama. Enforcement of environmental protection measures and maintenance of environmental services are the keys to ensuring environmental quality in the Canal watershed and Zone areas. Area of Expertise; Health and Sanitation Health Conditions in Panama . The most recent information available on health conditions in Panama may be found in a Department of Health Education 1135 D-43 and Welfare publication (1). In this document general health status and specific health problems in Panama are outlined. The discussion is briefly summarized below. Living conditions in both rural and urban areas were not in 1972 conducive to good health. In the urban areas, the growing urban lower class was living in crowded and unsanitary conditions in poor housing. The rural areas lacked proper sanitary facilities, especially water and sewage. Indeed, the serious disease problems in Panama are related to these inadequate condi- tions. Tuberculosis in 1972 was a major problem, followed closely by enteric diseases and malaria. More recent information is not available but given worldwide decline in economic conditions since 1972 , it is likely that the situation has not greatly improved. Tuberculosis , enteric diseases, and pneumonia , complicated by widespread malnutrition are responsible for high infant and child death rates. These problems are related to inadequate living conditions compounded by inadequate immunization programs. In the young adult and working age groups, accidents and tuberculosis are the major causes of mortality. In the older ages (over 45) the leading causes of death are heart disease, cancer, and stroke. The communicable diseases may primarily affect children but they have significant impacts on the older ages in that permanent disability may result from the communicable diseases, especially tuberculosis. Tuberculosis is a particularly serious problem in Colon and Darien Provinces . Darien Province is also the site of the final portion of the Pan-American highway which means there may be infected migrants moving out of that area who could transmit tuberculosis and other communicable diseases. 1136 D-44 The HEW Panama study described briefly the health resources situation. Panama has already reached the WHO minimum standard physicial/population ratio of one doctor per 10,000 persons; it was found, however, that most of the physicians worked in more than one job and also that approximately 70 percent of all physicians were located in Panama City, 5 percent in Colon. Panama City, at the Pacific end of the Canal Zone, also has an abundance of medical facili- toes: "The major Social Security hospital, the psychiatry hospital, the University of Panama, Social Security clinics, and other large public and private hospitals are located in Panama City... yet while the physical facili- ties are abundant in Panama City, the private physicians and facilities are undoubtedly too expensive for the poor" (2) . There are few health facilities in the rural area where there is also a shortage of medical personnel. Manpower shortages could lead to complications in maintaining services in the Canal watershed and Zone areas. The health legislation in Panama contains sanitary codes supplemented by other laws regarding specific health problems : "The regulations set general sanitary standards for the production, processing and handling, and sale of foods. Environmental sanitation regulations cover water supplies and sewage systems but not industrial hygiene and urban housing. In general, there is control of the activities and the most highly trained medical personnel but not of the various categories of medical assistants and auxiliaries. The current status regarding the enforcement of these regulations is not known" (3) . Many agencies provide health services in Panama: Ministry of Health, autonomous government agencies , private sources , voluntary agencies , inter- national organizations , agencies of other governments , and nonprofessional groups (4). In 1968, it was estimated that total health expenditures were $49.9 1137 D-45 million mainly relating to increased expenditures of the Social Security Fund and IDAAN (water supply and sewage agency) . The budget for IDAAN is charged to the health budget since IDAAN is responsible for building and maintenance of water and sewage systems in Panama. These expenditures probably inflate the health budget because it has been estimated that 50 percent of water supply and 20 percent of sewage system expenditures are not directly linked to health status of the population (5) . Panama in 1972 received development assistance from Pan American Health Organizations, World Health Organizations, Inter-American Development Bank, Agency for International Development and private voluntary organizations . "From 1966 to 1967 , the United States alone extended financial aid to Panama amounting to $205.9 million. During the same period, the international organi- zations contributed $51.8 million for all efforts "(6). The emphasis of these assistance programs has been on the problems of population, malnutrition, rural health services, tuberculosis, malaria, and yellow fever. In 1957, there was the major health survey in Panama by Dr. Ira Falk which made recommendations about improved health services for both rural and urban populations . Many of these recommendations have beem implemented and therefore there is a positive feeling about the effectiveness of the health senrices in Panama. In the national health plan for 1962-1970, every critical problem was identified but unfortunately very few priorities were set. The emphasis on increased tourism, for example, is very much related to the availability of potable water supplies , safe sewage , available transportation and protection from communicable diseases. Yet these factors are not consid- ered in relationship to tourism. Similarly, plans for developing beef for export did not make provisions to prevent the reintroduction of foot and mouth 1138 D-46 disease if the Panama Highway is completed through Darien (7) . The three main health problems in Panama were summarized by the report: 1) maldistri- bution and poor, inappropriate utilization of basic health services,- 2) problems of food use and consumption; and 3) inadequacy of basic environmental sanitation. Two critical aspects of concern were: l) population growth, that is, the population of Panama was estimated to triple by the year 2000 and 2) the need for health education, for greater understanding in the general population. Health Conditions in the Panama Canal The health situation here could potentially mirror the rest of Panama. Indeed, it is likely that in the Canal watershed and squatter areas , tuberculosis and enteric diseases could be prevalent. Health status of the Canal area popu- lation, however, has not been thoroughly addressed in the documents available to the Panel ( 8) . The Canal Zone was thought to have acted as a barrier to transmission of disease because of the existing preventive services. If those services , such as quarantine , water supply , sewage disposal and treatment, and garbage disposal are not maintained, then certain diseases in addition to the two mentioned directly above could become rampant. For example, Aedes aegypti, the mosquito which transmits yellow fever, dengue fever, Venezuelan equine encephalitis , and f ilariasis , was found in slums outside of Colon in 1969 (9) . The mosquito breeding places were eliminated by Ministry of Health and Canal Zone officials . Malaria is especially wide- spread in Panama and Colon provinces , bordering the Canal area , and could become important in the area through migration of infected persons (especially from Darien province) (10) . 1139 D-47 It should be noted that the water supplies in Panama City and Colon City have been treated in the Canal Zone with its limited facilities. However , 100% of Panama's urban population has been supplied with water for many years, though only 54% of rural populations were supplied in 1975 (11) . It is unclear how much of the rural population in the Canal area is supplied water of adequate quality. Installation of water supplies has been supported by outside agencies with IDAAN maintenance. It is unclear how IDAAN will work with the Joint Environmental Commission and Coordinating Committee . All waste disposal projects have been in urban areas and even those need improvement. For example, "the sewers in Colon were built in 1908 and are currently undergoing a necessary reconstruction - ' (12) . There was a decline in sewage services in Panama from 87% of the urban population being served in 1970 to 78% in 1965 (13) . How services will be maintained in the Canal area also needs to be addressed in more detail. An additional factor associated with indirect effects of treaty imple- mentation include questions of nutrition and maintenance of food supplies in the area, especially with regard to population growth in the Canal area due to migration and natural rate of population increase . Panama ' s population generally suffers from an inadequate diet, it is unclear what the general situation is in the Canal area. Health Resources in the Canal Area Questions of resource availability for allocation to the Canal area remain. The availab ility of skilled manpower to take over from United States agencies ■ activities has not been addressed nor has the question of funding availability for many of the maintenance activities which may have high recurrent costs. 1140 £-48 Furthermore, the coordination of the Panama Canal Authority with other government agencies has not been discussed in detail. Although the government of Panama has stated that the responsibilities to meet the treaty obligations "have committed the country to undertake its own organized, preparatory efforts to adjust and prepare its administrative structures before the treaty goes into force" (14). For example, although the Gorgas Institute has been funded for 5 more years, it is unclear how its services will be used in the future. Thus, a clearer picture of manpower, management, and monetary resources avail- able to the Canal area would assist in evaluating what the possible environmental impacts of treaty implementation might be. Furthermore, the relationship of existing Panamanian laws to responsibilities under the treaty needs to be dis- cussed. The effectiveness of enforcing laws, especially with regard to food handling, garbage disposal, water pollution, and immunization needs to be evaluated. Further Information Evaluation of the health and sanitation impacts associated with implementa- tion of the Panama Canal Treaty requires some additional information to that presented in available documents. Although general health status information on Panama as a whole is available, specific data about the Canal Zone and watershed areas were not presented. The following list summarizes the areas of needed information: 1. Health status of Canal Zone and Watershed population - causes of mortality (including infant mortality) - causes of morbidity - prevalence of different diseases (number or fraction of popula- tion infected with different diseases) 1141 D-49 - death rates - birth rates - existence of disease vectors - nutritional status of population 2. Maintenance of health and sanitation services in Canal Zone and watershed area - coordination of Panama Canal Authority and. government agencies - role of Gorgas Insticute - enforcement of existing Panamanian legislation and need to develop new legislation Recommendations Panama is fortunate to have a highly literate population with established government and private agencies providing a variety of social services. With the Panama Canal Treaty, new resource demands will be placed on the people of Panama and their institutions. The following recommendations are suggested to assist in meeting those demands. Foremost is the need to ensure maintenance of existing health and sanitation services in the Canal Zone and watershed areas. Tourism will also benefit from such services. Such maintenance requires more managers and possibly technicians to assume responsibility for services run by American personnel. It is likely that there are personnel in Panama who are eligible for additional training in management. A major strength of U. S. Agency for International Development (AID) is in the area of training, especially in planning, management, and eval- uation. AID, under the auspices of the Panama Canal Authority, could take the lead in providing programs for Panamanians with specific emphasis on needs in the Canal area. 1142 D-50 The second major concurrent need is to know what the health status is of the different populations in the Canal area. Epidemiological and demographic surveys need to be undertaken to assist planners in meeting future health needs. This requires a coordinated effort by in-country institutions, possibly a joint effort by the Panama Canal Authority, Gorgas Institute, and Ministry of Health, and could be supported in part by AID and Pan American Health Organization. Thirdly, monitoring of migrants into the area needs to be implemented. The potential disease threats from the construction of the Pan-American Highway are great for the entire country. The Canal area may require special attention since it may attract new and possibly infected migrants. The Panama Canal Authority, in coordination with the Ministry of Health, could work on this problem, possibly with support from private, voluntary organizations who might be working with migrant populations. instructive It would be especially to review the results of the Egyptian running of the Suez Canal since 1956 to see how effectively a country can manage such efforts. Although the initial circumstances were quite different between managing Egypt then and Panama now, the successful of the Suez Canal by Egypt should indicate what is highly likely to occur in Panama. The provision of all services in the Panama Canal area requires commitment on the part of the countries involved. If the questions raised above are addressed with determination and support, Panama can ensure a continued healthy, environmentally sound implementation of the treaty. 1143 D-51 References 1. Woolley, P. 0., C. A. Perry, and R. N. Eccles. 1972. Syncrises : The Dynamics of Health: I: Panama (Washington, U.S. Department of Health Education, and Welfare) . 2. Ibid. , p. 59. 3. Ibid., p. 63. 4. Ibid. , p. 63-64. 5. Ibid. , p. 9. 6. Ibid. , p. 10. 7. Ibid. , p. 11. 8. 3arletta, N. A., G. R. Gonzalez, A. E. Zambrano , and 0. Goodin. 1978. National Development and Recovery of the Panama Canal Zone: Working Document (Panama, Ministry of Planning and Economic Policy) . Translated by Panama Canal Company; United States Department of State. 1977 Final Environmental Impact Statement for the New Panama Canal Treaties . (Washington) . 9. Woolley, et al. , op. cit,, p. 23 10. Ibid. , p. 37-38. 44-394 O - 79 - pt. 2-20 1144 D-52 11. World Health Organization. 1976. " World Health Statistics Report: Special Issue Community Water Supply and Excreta Disposal in Developing u Countries Review of Progress, vol. 29, no. 10, p. 573. 12. Woolley, et al., op. cit., p. 22. 13. World Health Organization, op. cit., p. 577. 14. Barletta, et al., op. cit., p. 136. 1145 D-53 UNITED STATES DEPARTMENT OF AGRICULTURE FOREST SERVICE SOUTHERN FOREST EXPERIMENT STATION INSTITUTE OF TROPICAL FORESTRY UNIVERSITY OF PUERTO RICO AGRICULTURAL EXPERIMENT STATION POST OFFICE BOX AQ RIO PIEDRAS, PUERTO RICO 00928 809 753-4335, 4336, 4588 1950 September 11, 1978 Mr. Peter A. Johnson Oceans Program Congress of the United States Office of Technology Assessment Washington, D.C. 20510 Dear Peter: In response to the request in your letter of August 23, 1978 I enclose herewith my list of highlights from the August 10-11 Panama Canal panel meeting. I appreciated very much the invitation and hope that the result will get the U.S. off dead center. Sincerely, FRANK H. WADSW0RTH Project Leader Enclosure cc: AD-E, SO 1146 D-54 Highlights from Panama Canal Panel, 8/10-11/78 Most of the highlights of the Office of Technical Assessment panel meeting concern matters that can better be articulated by other partic- ipants, or are clear on the tape record. Presuming that I was included primarily because of the related forest problem, I will emphasize these points. 1. Early direct and day-to-day communication with those represent- atives of the Panamanian government being appointed to deal with the environmental problems is of primary concern . Critical environmental values, long in jeopardy, are in danger of rapidly accel- erated destruction within the coming months. What is needed is much more than a routine "call me" attitude on the part of the Panama Canal Company or its successor. We saw evidence that there are some Panama- nians at least as concerned with this problem as we are. There is urgent need to field a team now (interim if need be) to assess the problems jointly and set up priorities for the Joint Commission and stopgap action until it becomes effective. 2. The protection of the Canal, including its watershed, must become fully supported from Canal tolls . There were indications that tolls are currently obligated for other purposes and "might not be available" of "would have to be increased to the detriment of traffic". Neither of these considerations can be allowed to shelve basic protection of the Canal as if it were not an integral cost item. Protection of the watershed is as direct an everyday responsibility of Canal operation as is dredging (and more so than community amenities in the zone). We were told that toll charges (now some $180 million annually) could be increased 30 percent without significant loss in traffic. The protection of the watershed is as continous and long-range a consideration as the Canal itself, and tolls, which rise with inflation are the proper and only secure source of support therefor. Protection so supported will constitute no burden to the Government of Panama when it takes over the Canal and thus should have an excellent prospect to continue indefinitely. 3. Protection of the Canal watershed requires a power base within the Government of Panama . It cannot be accomplished unilaterally by the United States. This means that such financial support as is needed for this function must be channeled from Canal tolls to an agency of the Government of Panama, making possible the training and maintenance of an effective cadre of employees with career security. The United States might assist in the development of this agency but ultimately such assistance would be ancillary to its operation. 1147 D-55 - 2 - 4. Protection of the Canal watershed means the prevention of any further deforestation and the allowing of deforested steep slopes to revegetate naturally . It need not require artificial reforestation, roads, or other forms of development. 5. Development of the Canal watershed, while potentially instru- mental in its protection, must be recognized as distinct therefrom, and need not be financed from tolls . Development is concerned with gainful employment and social services for the popu- lation of the watershed. It could involve improvement of food and forage crop production, the production of timber crops, processing of crops, marketing facilities, and other employment opportunities. The population of the watershed, if it is to be well supported, will need the benefit of all of these activities. Ideally these functions might be assigned to the same Panamanian agency which that provides protection, thus strengthening the power base and coordination of all activities within the watershed. The overall program would need international assistance, at least at the outset. 6. A rational plan for land use in the watershed is basic to its future . Classification of the lands by their capabilities (ecological preserves, soil and water conservation, timber production, pastures, food crops, urban) must precede any program to develop the watershed. A start has already been made by AID, but needs full Pana- manian participation and commitment. 7. Intensification of farming is a primary employment opportunity . The use of better crop varieties, fertilizers, soil conservation and cultivation practices should be able to increase yields several fold and thus employment per acre. Markets are not distant. Well trained agronomists will be a key to progress in this direction. 8. Sustained forage, dairy, and beef production are possible in much of the watershed . This use is proper for most of the areas that need not remain tree-covered. Again improvements in forage species, breeding stock, and other practices require technical support. 9. Much of Panama's foreseeable timber requirements might be produced from within the watershed without jeopardizing its protection . Panama's present and prospective consumption of timber products (lumber, paper products) come from softwoods rather than the native types of trees. Pinus caribaea is adapted to the poorer lands of the watershed. Its production would provide soil protection and employment, particularly in processing products for the nearly markets. If planting begins promptly and systematically Panama would have a resultant timber industry before the Canal treaties are terminated. 1148 D-56 10. Other specialty tree crops should prove adapted to parts of the watershed . Examples are citrus fruits, coffee, and cabinet woods, including native timber species. These could be tested experimentally in mixture with other forms of agriculture to determine their compatability as a supplementary source of income. 11. The Panamanian's stipulation that development must accommodate the entire present population of the Canal watershed will probably call for more than agriculture and forestry as sources of employment . In community centers light industries would have to be attracted. This may not be too difficult, since the distance to the local market is not great. Production of apparel might be one possibility. 12. The current AID loan proposal should be used to accomplish the most urgent needs, particularly watershed protection . If it can develop the needed power base and establish a going program of watershed protection and development it may play a crucial role while the Joint Commission gets under way. Nevertheless, the availability of US loan funds and of Panamanian willingness to commit itself for re- payment is too precarious a foundation for the continous protection of the Canal watershed. That function should, as soon as practical, get into the more secure Canal toll budget. 1149 D-57 The Nature Conservancy 1800 North Kent Street, Arlington, Virginia 22209 (703) 841-5300 December 8, 1978 Mr. Bennett L. Silverstein Project Director Office of Technology Assessment United States Congress Washington, D. C. 20510 Dear Ben: First, allow me to compliment you and your colleagues of OTA for the receptive and candid manner in which you conducted the project concerning environmental issues relating to the Panama Canal. I believe all the participants felt their views were sincerely sought and carefully considered. If any issues were neglected, it must be our responsibility for missing the opportunity which OTA presented. The environmental issues raised by the Ad Hoc Panel of experts and the sub-panel are well represented in the Findings of the Draft Report on the Environment of the Panama Canal and the appendices provide additional infor- mation, consensus views and areas of disagreement or uncertainty. Rather than repeat those points I will confine myself to several general, rather subjective, observations particularly concerning the Joint Commission on the Environment ( JCE) . In theory, I feel most environmentalists would like the JCE to have strong (perhaps even binding) regulatory power. In practice, this is not possible and may not even be desirable. It is much more important, in my view, that the JCE have broad jurisdiction (physically and in subject manner) than that its decisions or studies have a binding effect. The jurisdiction of the JCE under the treaty could range from "the natural environment of the Republic of Panama" in any way that it is impacted by the Treaty implementation to the narrow operational area of the Canal and even in that area only on those issues brought directly to it by both governments. Which view of jurisdiction prevails is likely to depend upon whether the JCE is viewed as attempting to improve and protect natural values in Panama or as a guise to impose particular actions on Panama. I feel the U.S. should to the extent possible abandon firm binding decisions or regulations and seek instead commissioners who act without instructions and a commission which can initiate its own studies over the whole range of relevant environmental issues which might arise anywhere within the Canal watershed. To summarize these points, I feel the jurisdiction (at least by informal agreement) should cover the Panama Canal watershed and any environmental issues arising therein. The governments should initially provide it with a 100°?, Recycled Paper 1150 D-58 Mr. Bennett L. Silverstein December 8, 1978 Page 2 broad brief to initiate, review and report on an extensive subject matter. The commissioners (a total of 6) should act independently and be of highest quality. To accomplish this, they must have recognized credentials suffi- cient to inspire confidence in their integrity, competence and objectivity. The decisions, conclusions or recommendations should be public but not binding. I concur with the view that the International Joint Commission-Canada- U.S., with modifications, is the most relevant model for the JCE. The use of advisory panels and access to gaining experts on subvension from other govern- ment agencies are particularly important. This will allow a smaller core staff for the JCE, smaller budget and greater range of expertise. Not only should the commissioners themselves not be instructed by their governments, it is equally important that loaned experts remain independent, technical people and not be "instructed" by their own agency. Furthermore, the loan of such experts and other in kind service is another way for Panama to help share support of the JCE without utilizing its scarce cash reserves. I feel there is another important model for the JCE in the U.S. Council on Environmental Quality (CEQ) , particularly in its responsibility for periodic (annual?) review of environmental aspects of the Treaty. The reporting require- ment can play a terribly important function. Neither CEQ nor the IJC have responsibility to implement recommendations of their studies, nor should the JCE. There are several issues on which I am of two minds. Concerning funding of the JCE, my initial view was to look to canal tolls particularly being aware of the financial constraints of Panama (and increasingly here at home as well). After careful thought however, I now believe that the need to find financial support that does not jeopardize the JCE's objectivity (in reality or appearance) outweighs the financial difficulty (particularly if the JCE can meet a good part of its financial needs with people loaned from other agencies and in kind services). This type of semi-transient staff will make the importance of a top caliber core staff all the more critical. The leader- ship of a knowledgeable director, an individual such as Dr. Paul Campanella for example, will be particularly important as I feel all six commissioners should be half-time. The second issue is the proper role of Smithsonian Tropical Research Institute (STRI) (and Gorgas Memorial Laboratory) in relation- ship to the JCE. STRI provides a tremendous resource of knowledge not only for the U.S. but potentially to the JCE. My initial view was that their advisory role be formalized, perhaps serving as non-voting members of the JCE. It is im- portant that knowledge exist at the time when issues are being formulated by the JCE. On the other hand, this role carries the risk that it might create at least the appearance of politics which STRI has so deftly avoided in the past. This is further complicated by the lack of any equivalent totally Panamanian institution (although STRI has a stronger bilateral character than is generally recognized) . My conclusion is that STRI should be a much utilized resource but with the relationship to be developed between the JCE and STRI staffs in the future. 1151 D-59 Mr. Bennett L. Silverstein December 8, 1978 Page 3 Finally, in visualizing the longer term goal of the JCE it seems important to abandon the all too commonly held view of environmental issues as being primarily negative in nature. The role of JCE is not to stop any particular activity but rather to try to protect and preserve existing values, to prevent needless loss, and to moderate damage if it is unavoidable. The proper role of JCE in considering environment and development issues might be based upon the definition of mediation offered by Gerald W. Cormick, Director of the Office of Environmental Mediation at the University of Washington: "Mediation is a voluntary process in which those involved in a dispute jointly explore and reconcile their differences. The mediator has no authority to impose a settlement. His or her strength lies in the ability to assist the parties in re- solving their own differences. The mediated dispute is settled when the parties themselves reach what they consider to be a workable solution." Unlike a mediator, the JCE does have, by definition, a mandate to protect the environment; however, it will operate to its full potential if it is able through fact finding, analysis of alternative courses, transfer of new techno- logies, and by maintaining a long term perspective to help the parties concerned with the Panama Canal develop environmentally sound workable solutions. In reality, to be meaningful the JCE is a way in which we in the U.S. can cooperate to help protect areas of great environmental and social value for the world but areas which are ultimately the responsibility of Panama. This is the opportunity and the challenge of the JCE. Two final observations relate to Immediate needs between now and the October implementation of the Treaties. First, if it can be done without preempting Congress, the sooner talks can begin in Panama on formation of a JCE (or an interim working committee) the better. Second, a large number of us have been greatly impressed with and compliment AID for the creative energy AID has put into struggling with the environmental issues involved with the Panama Canal Watershed project. It is no criticism of that plan to say that it will be unable to deal with the immediate invasion and continual cutting of the zone. Neither will it be able, in this time frame, to relocate the illegal squatters. As the Draft Report states, the squatters "present [Panamanian] officials with complex socio-economic issues." They also present the U.S. government (including both the U.S. Army as the present "tenant" licensee and the Canal Company) with similar issues and a special recently neglected responsibility. Unless the responsibility is forthrightly accepted by the U.S., many of the issues which should be the province of the JCE will be moot. Thank you again for your patience and the many opportunities we had to discuss these matters with you. I look forward with genuine pleasure to working with you and OTA in the future. Sincerely yours, R. Michael Wright Director and General Counsel RMW:cvj International Program 1152 APPENDIX E £_! SUMMARY OF SELECTED BRIEFINGS SUMMARY OF MEETING WITH DR. PAUL CAMPANELLA, JRB ASSOCIATES, JULY 14, 1978 Dr. Campanella has over 8 years professional experience in Panama and has worked for the Smithsonian Tropical Research Institute, the Gorgas Memorial Institute, and the U.S. Government. He was recently employed as the Environmental Officer of the Panama Canal Company. In May 1978 he participated in the AID Watershed Management Planning effort. The Canal Zone contains about 550 square miles, but the watershed that supplies the Panama Canal has about 800,000 acres. The Gatun Lake is an area about 8 percent of the total watershed. Madden Lake (Lake Alajuela) is about 1-2% of the watershed. About 52 million gallons of fresh water, with no recovery, is needed for each ship transit through the Canal. About half goes into the lockage. Based on some maps, Dr. Campanella showed the loss of forests in the watershed over the past 23 years. For example, the Chagres Watershed was almost total forest in 1952, but by 1972 about 23 percent had been de- forested, and by 1976 nearly 42 percent was destroyed. The Canal Watershed west of the Canal has been almost completely denuded of trees. This is principally due to slash-and-burn agricultural methods, but a small lumber industry adds to the problems. Panama has several very small reforestation efforts which have had little impact in the watershed. About 65 percent of the Panamanian population (1.2 million) live in the cities of Panama and Colon. About 400,000 people live in the interior of the country. Unemployment is as high as 25-35 percent in some areas of the country. Traditional shifting agriculture follows a typical pattern throughout Latin America — small-scale farmers move to the edge of the forest, slash and burn a few acres of land to plant subsistence crops and farm this area for about 2-3 years. This activity exhausts the soil fertility, and the farmers 1153 E-2 move to a new site and repeat the process. Traditionally, the land was left fallow for 5-6 years until it regained some of its natural fertility. However, there is growing pressure on the land from a large number of itinerant laborers who cannot find work in the city and from cattle ranchers. The fallow period is shortened, and in many instances cattle are grazed on the already impoverished land resulting in further destruction of the soil. Panama has recently experienced several years of low rainfall (1976- 1977) . This has resulted in a diminished level of water available for ship transits. In May 1977, the Canal dropped its draft to a historic low of 36.5 feet, and it is possible that some ship transits were lost due to the water shortage. Recently, the rainfall has increased significantly. Dr. Campanella expressed his views regarding land use in the Canal Watershed. Initially, he would ban the use of land with a slope greater than 45 percent. The rest of the land would be examined with respect to fertility, geology, fauna, current usage, etc., and classified for use according to this appraisal. Agricultural activities should no longer encroach into the existing forests. Reforestation should begin on appro- priate sites with native species in the Gatun and Chagres areas. Panama has accepted the idea of creating parks and preserves to protect the forests, and the government has passed good legislation to protect the environment. However, there is almost no enforcement of these laws, and the top level of the government seems not to have made a total commitment yet to save the remaining forests. RENARE is the Panamanian agency within the Ministry of Agriculture that is nominally responsible for preservation of the environment . No one owns any land in the Canal Zone. When the land reverts to Panama on October 1, 1979, the Government of Panama will own all but a very small area along the Canal itself. Dr. Campanella deplored the possibility of total deforestation, but felt that, even under the extreme condition, the Canal could still be operable for the next 50 years, but at much greater costs and with reduced ship transits per year. 1154 E-3 The Pipeline Road area is a biologically rich lowland tropical forest that has been the site of numerous scientific investigations and which provides habitat for about 15 rare or endangered species of animals. Although a great deal has been said about the Canal Zone as an effective barrier to North-South disease transmission (i.e., hoof and mouth disease, yellow fever), Dr. Campanella feels that this idea has been overemphasized. In addition, he felt no reason why Panama could not continue to maintain this barrier. Dr. Campanella believes that ecologically sound land management must be started to ensure the rational development of Panama's resource base. Such a program might cost as much as $5 million per year to operate. He recommended the following as good sources of information: Ira Rubinoff Bob Otto Nick Smythe Gene Morton Mike Wright Tom Love joy Petro Galindo He had no recommendations of faculty at the University of Panama. 1155 E-4 Summary of Meeting with Ira Rubinoff, Smithsonian, on 19 July 1978 Dr. Rubinoff spoke to P. Johnson, P. Adler and 3. Silverstein, on his views on environmental problems affecting the Panama Canal. tie believes there is no clear policy by the various U.S. agencies with respect to the environment in Panama. The Pipeline Road area has been designated as a reserve; it is leased by the U.S. Army. However, lots of burning of the forest is occurring there, and the U.S. Army should have prevented this. There may well be political motivations for this inaction in light of the Treaty negotiations. AID is planning about a $10 million project to reforest the waterhshed area. This project is not clearly well-thought out in terms of Panama's forest situation. It is particularly important to save the existing forest, wnich is unique in that it consistsof many species which have adapted well over the past decades. It will be very expensive to extend this type of forest; in fact, it's not really understood now to do this. N'ew species, or forestation with a single species, though better than nothing, are not raally suitable for Panama. The Smithsonian will continue to operate in Panama, with an annual budget of about $2 million. By January 1979 the forests may well be in a critical condition. Dr. Rubinoff showed some recent photographs of extensive, new inroads into the forests in the Canal Zone. He believes that the extent of the forests nas an effect on weather, in particular the rainfall, but has no hard data. 1156 E-5 tie had some ideas about Che proposed Joint Commission on the Environment. The operation should not depend on canal revenues. A well-operated Commission should cost the U.S. less than a million dollars a year. He sees a maximum of six commissioners will a small cull-time staff of four or five. There are more species of birds in Panama Chan in Che U.S. and Canada combined. Tourism for cnis alone could become substantial. There is an incredible number of plants there. Panama is an excellent and convenient place for biological research. Now there is one botanical garden and a small 1157 E-6 Summary of Telcon wich Dr. Meredith Jones, Smithsonian on 19 Sept 1978 Dr. Jones believed that the two aajor environmental problems are related to the slash-and-burn farming, and the oil refinery near Colon. (This conclusion came after we said that we were not discussing the sea-level canal or a third lock). He hoped no one was considering pumping seawater into the Canal in periods of water shortage. He recommended that an excellent contact in Panama for expertise on Marine life would be: Carlos Arellano Director-General de Recuersos Marinos Operatado 6286 Panama 5, Panama Dr. Jones seconded a suggestion by Dr. Robins (in testimony before Congress) that Panamanian ecologists snould be trained. Spanish-speaking U.S. experts might be the appropriate teachers, teaching in Panama not at a U.S. university. 1158 E-7 Summary of Meeting with Tom Constant, Panama Canal Company on 13 July 1978 Mr. Constant briefed P. Johnson, P. Adler, B. Silverstein on various aspects of the Panal Canal. He recommended our reading of testimony of John Sheffey, who chaired the Atlantic-Pacific Inter-Ocean Commission which examined, in 1970, a sea-level canal. Mr. Constant noted that a great deal of siltation takes place in the Chagres ; dredging is virtually continuous. The Culebra Cut imposes a limit on traffic, for instance no passing at night for large ships. The 500' widtn is planned to be increased to 600'. Present draft limit is 39'-6". At this time, about 3 Alaskan tankers per day traverse the Canal. At this time the Canal Company controls the ports in Panama. On October 1, 1979, the Treaty assigns the ports and the railroad to Panama. The Panama Canal Company will change to the Panama Canal Commission, and will continue to 1159 E-8 run the Canal through 1999. The Canal Zone disappears, as such, on 1 Oct. 1979. The new Commission will have a Board of Directors, the Chairman selected by the President of the U.S.; five members will be American and four will be Panamanian. The U.S. has no control over the watershed that supplies water to the Canal. There are many squatters who slash-and burn the trees and then plant crops. The forests are diminishing in size. Now there is not enough water to provide for 17.U00 ship transits/year. There are plans to dredge the Gatun Laice Channel. At this time there is no re-cycling of the water, and no ocean water is used for ship transits. There are industrial pressures in Panama to increase available water supplies for non-canal use. A water management study has been completed. Mr. Constant noted that key personnel are the pilots. Currently 229 are from the U.S., and 3 are Panamanians. They must have a Master's License and, until recently, also required a U.S. Coast Guard license. There is an apprentice program to develop Canal pilots, but very few are Panamanians. 1160 E-9 Dr. Frank. Morris, of the Canal Company , is in charge of environmental matters in the Canal Zone. There are requirements for hunting and fishing licenses in the Zone. The Canal Company has made a number of environmental assessments, including the effects of a new power transmission line, and the introduction of new fish into the lakes. The white amur is a fish that should eat aquatic weeds, and trout has been emplaced to enhance recreational fishing. Mr. Constant is not aware of any archeological study that might be underway or planned in Panama. He said that the Smithsonian Tropical Research Center will continue to function. Panama is currently conducting a census of the squatters. He recommended two ex-governors of the Canal Zone who could give a good picture of operation of the Canal: 3ill Carter and David Parker. Public health matters are under tight control now. Mr. Constant is concerned about the future. There is almost no malaria now. Hoof-and-mouth desease exists on the South American side of the Canal. He recommended, as a Panamanian who is very knowledgable in 1161 E-10 socio-economic matters, George Westerman, the Panamanian ambassador to the United Nations. The major industries in Panama are bananas and fishing (particularly shrimp). In the future, possible crops include mangos, coffee and oranges. Another item of great future potential is copper mining. For information on wildlife, he recommended we contact the Panamanian Audobon Society, in Colon. 1162 E-ll Summary of Telcon with Dr. Howard Sanders, Woods Hole on 19 Sept 1973 Dr. Sanders said chac the extensive slash/ burn farming activity in Panama may cause severe soil errosion and consequent danger to land and marine biota. He particularly expressed opposition to any pumping of seawater into existing lakes or fresh water supplies. The existing barrier to mixing of marine life afforded by the canal should not be altered. He further stated that oil pollution is a potentially great danger to the waters around Panama. 1163 E-12 Summary of Telcon with Dr. Richard Robins, U. of Miami on 19 Sept. 1973 Dr. Robins said that fresh water is a valuable resource; ic is a shame to waste it on transiting ships. He is not convinced that pumping salt water into the canal would be bad. A trade-off study would be useful, considering that the pumped seawater might help preserve the water table in the highlands. He is not terribly concerned with marine life transiting now through the canal. Marine life that abound in muddy regions are quite similar on both sides of the canal; clear water fish are different, but seem not now able to go through the canal. Dr. Robins sees no environmental crises for marine life now in Panama. He is worried by the slash/burn tactics. He believes that the present method of lightering tankers through the canal is dangerous; a pipeline across the isthmus should be safer. He recommends a training program in Panama for Panamanian scientists. 1164 E-13 businessmen, government employees, ecc. on proceccion of the environment, Spanisb.-speaK.ing U.S. scientists would be appropriate lecturers. 1165 E-14 bu.j-.iary of icetin: .vith Ai.d. aojert Dld^i anu uyntuii -■dCural i-.esourcet> ugtunse douncii, lac, -- :.e;:t. iwc .uioassauor dI.icCc is now heading a canal /.one Environuental Tasr. rorce, co.iposeu oc a number ot environmental organizations. At our i.!eetin , Alio blane enphasized the urgency ot tiie environ, icntal prooleius ot tne Panaiia ui.iai. fne prirjary neea is tor curly decisions on laau ..inna enent . Ine forests, particularly those in tiie present Canal Zone, are suujected to slasn-and-burn a riculture. The Pipeline ivoad "orebt and ftie lauden rurest reserve are in the neea for immediate and continuing protection. ..o.v is die tiae, while tne U.i>. still nas considerable influence in tiie area, for the l.b. ana Panama to cor »; lit to iaU.e oelieves strongly tliat it is in tiie u.o. interests to ^reserve/ ii.iprove tue environment ot Panama, toe need tiie Canal to be open anu operating, tne forests play an important role in the world's ecoio b y, and any ani.ial or liunan disease in Panama poses a tnreat to L.o. nealtli. It is also in our best political interests for Panama to nave a solid ana flourishing economy, wiiich in turn requires a neaitny environment. 1/1 1167 APPENDIX F BIBLIOGRAPHY F-l Appendix V beleccea bibliography 1. Department of state, "Final Environmental Impact Statement for the .sew Panama Canal Treaties", December l*/7. 2. Merchant, L.T. and lieeney, A.D.P., "Canada and the Lnited States — Principles Eor Partnership," Department of btate bulletin, August 2, l*o5, p. 1*3-208. 3. Brandes, £.M. and Chun, *., "Panama Canal Traffic and kevenue Study, iy78-2000," International research Associates, January 1*76. 4. Hulman, L.G. , "Systems Relationships for Panama Canal Water Supply Study," The Uydrologic Engineering Center Technical Paper Mo.. 26, April 1*71. 5. Lewis, D.C. and beard, L.K., "Systems Analysis of the Panama Canal Water Supply," tne hydrologic Engineering Center Technical Paper No. 27, April 1*71. u. CiDos, S.K., "The Economic Value of the Panama Canal," water Kesources Research, Vol. 14, No. 2, April 1*76, pp. lo5-16*. 7. Whitman, W.M., "Environmental Assessment of Proposal to Increase Tolls," Panama Canal Company, April 1*76. 6. Coodland, n. , "Panamanian Development and the Global Environment," Oikos 2*: 1*5-206, Copenhayen 1*77. *. Panama Canal Company, "License Application by the Instituto Kecursos niuraulicos Y i-lectrif icacion for Power Transmission Lines in the Canal Zone, LaFortuna hydroelectric Project," December 1*74. lu. Panama Canal Company, "Draft Environmental Impact Statement, the Introduction cf White Amur into Canal Zone Waters to Control Aquatic Reeds," August 1*77. 11. Ministry of Planning and Economic Policy, Republic of Panama, "national Development and Recovery of the Panama Canal Zone, forking Document," June 19 7b. 12. Wooley, P.O., Perry, C.A. and Eccles, K.K., "Syncrises. The Dynamics of uealth: I: Panama", ki£W, 1*72/ 1168 The Chairman. Dr. Challinor, we are happy to hear your testi- mony. STATEMENT OF DAVID CHALLINOR, ASSISTANT SECRETARY FOR SCIENCE, SMITHSONIAN INSTITUTION Dr. Challinor. I am glad to be here, Mr. Chairman. I have presented a prepared statement; if it is agreeable with the commit- tee I would like to highlight that statement orally. The Chairman. Yes, we will place your entire statement in the record at this point, and you may proceed. [The following was submitted for the record:] Statement by David Challinor, Assistant Secretary for Science, Smithsonian Institution Mr. Chairman and members of the subcommittee, I appreciate the opportunity to appear before you today on behalf of the Smithsonian Institution, and to delineate our interests in the pending legislation to implement the Panama Canal Treaty of 1977. A major element of the Smithsonian Institution is the Smithsonian Tropical Research Institute (STRI), which is located on the Isthmus of Panama and is the Nation's primary center for basic research in tropical biology. The Institute's goals are to conduct advance studies in the biology of tropical marine and terrestrial organisms and to increase and diffuse knowledge of their ecology, behavior, and evolution. In addition to fundamental research, STRI has a responsibility for pro- moting education and conservation in the tropics. It operates a library with the most comprehensive collection in Central America of books and journals on tropical biology, and maintains a series of field stations on both the Atlantic and Pacific coasts of the Isthmus, as well as the world-famous biological area at Barro Colorado Island. Barro Colorado Island was formed when the Chagres River was dammed in 1914 during the construction of the Panama Canal to create Gatun Lake. In 1923 a group of scientists successfully petitioned the Governor of the Canal Zone to reserve an area in the Zone for scientific research. The largest island in Gatun Lake, on which a 3,600 acre reserve and research station was established, subsequently was put under the supervision of the Institute for Research in Tropical America, a unit of the National Research Council. Barro Colorado acquired a worldwide reputation as a tropical field station, and publications about its flora and fauna made it one of the best known pieces of real estate on earth. This, in turn, made it valuable for further research, and in 1940 Congress authorized the President to establish Barro Colorado Island as the Canal Zone Biological Area, a separate agency under a board of directors that included the Secretaries of War, Agriculture, and the Interior; the Secretary of the Smithsonian Institution; the President of the National Academy of Sciences; and eminent biolo- gists. Under Reorganization Plan No. 3 of 1946 the functions for the Board of Directors of the Canal Zone Biological Area were transferred to the Smithsonian Institution. In 1977 the valuable nature of Barro Colorado Island was further recognized by both United States and Panamanian negotiators of the Panama Canal Treaty who chose to protect its future status and to increase the area available for the protec- tion of wildlife. The Smithsonian Tropical Research Institute has been designated by both governments as custodian of the Barro Colorado Island Nature Monument, and an agreement pursuant to Article VI of the 1940 Convention on Nature Protection and Wildlife Preservation in the Western Hemisphere has been signed by both nations. It is anticipated that under the terms of the Panama Canal Treaty the scientific mission of the Smithsonian Tropical Research Institute will remain unaltered. It has been guaranteed the continued use of its laboratories and offices on the main- land, and both of the governments concerned support its unique and important efforts. This was clearly established by the agreement signed on January 5, 1977, between the Minister of Health of the Republic of Panama and the Director of the Smithsonian Tropical Research Institute, and was reaffirmed by the subsequent incorporation into the Treaty of two exchanges of notes and an agreement. Implementation of the Treaty will require some adjustments by STRI, particular- ly in the areas of administration, personnel management and compensation, and 1169 protection of the extended area of the Barro Colorado Island Nature Monument. At the same time the scientific expertise available at STRI may be a valuable resource for implementation, particularly with respect to the activities of the Joint Commis- sion on the Environment and the possible feasibility study for a proposed sea-level canal or a third lane of locks. It is expected that the Barro Colorado Nature Monument will be composed of the Island itself and the surrounding peninsulas. Negotiations are currently underway between STRI, the Department of Defense, and the Republic of Panama to delineate the exact boundaries of the Monument which will encompass an area of tropical lowland forest that is an unique preserve for conservation, environmental educa- tion, and research, as well as an invaluable example of an extremely important natural environment. The inclusion in the Nature Monument of peninsulas on both the east and west banks of the canal, adjacent to Barro Colorado Island, does, in effect, provide stepping stones across the lake for organisms migrating between North and South America. The Isthmus of Panama is the bridge between North and South America where the floras and faunas of the two continents meet and mix. The environment reflects this richness and complexity, and is a desirable place to conduct research in tropical biology and to introduce students to tropical ecology. It attracts students and scien- tists from many institutions throughout the U.S. and around the world because of its ease of access and the relative economy with which a student can be brought into intimate contact with the tropical forest. It is important to understand the tropics for a variety of reasons, among which is the fact that this region contains the most rapidly growing segment of human population, and tropical peoples are now changing their environment at an unprec- edented rate. We must understand the complex ecological interactions of tropical forests if we are to mitigate man's increasing impact on these unique habitats and preserve a reservoir of genetic diversity for future generations. In addition, the tropics contain more species of animals and plants than any other region on earth. For example, there are more species of birds in Panama than in all of the United States and Canada. Indeed, most of the birds inhabiting North America in the summer are migrants from the tropics, merely using the north for nesting. The flora and fauna of Barro Colorado Island are particularly rich in species and typical habitats that used to be elsewhere in Panama. The island contains approxi- mately 1,300 species of vascular plants, and certain species of mammals and birds that are hunted elsewhere are abundant on Barro Colorado Island. There are about 465 species of land vertebrates recorded from the Island; 310 species of birds (some 200 species breed there), 65 species of mammals, 58 species of reptiles, and 32 species of amphibians. Under the Treaty and its annexes, STRI will administer the Nature Monument, and in so doing will continue to provide the fencing, posting, and security force necessary to protect the environment; maintain the trails and boat channels to allow access to the Nature Monument; manage the biological station on the Island by providing lodging, laboratory space, and logistical support for visiting scientists and naturalists; and offering environmental interpretation services for visitors. The present population of Panama is 1.88 million people. The annual growth rate is 3 percent, so that the population projection for the year 2000 may approach 3.6 million, double the present figure. In the area covered by the watershed of the canal, the growth rate is estimated at more than 5 percent, a rate that may increase as agricultural lands in other parts of the country become progressively overworked. In a recent survey of agricultural activity in the Canal Zone— and it cannot be too strongly emphasized that the Canal Zone represents only a small part of the watershed basin— it was determined that there are currently 1,053 farmers support- ing an additional 3,917 dependents. Land licenses were issued to people who origi- nally came to work on the construction of the canal. The licenses were non- transferable and non-inheritable, and the last was issued in 1924. Thus, one can surmise that most, if not all, of the lands currently worked for agriculture in the Zone are without legal bases. The task of protecting wild lands, especially the Nature Monument, from further human encroachment will continue to be a major one. The key to our custodial responsibilities for the Nature Monument and to our continuing research and educational functions is, of course, our employees. At the present time Federal positions at the Smithsonian Tropical Research Institute are part of the Canal Zone Merit System. Implementation of the Panama Canal Treaty of 1977 will merge the Canal Zone Merit System into an interim Panama Canal Employment System (PCES) under the Panama Canal Commission, 1170 the successor to the Canal Zone Government and the Panama Canal Company. The Commission and its employment system will cease to exist after the year 2000. The Institution plans to continue its scientific, educational, and conservation functions well beyond the year 2000. It is, therefore, essential that we take a long- range view and devise an employment system consistent with our continuing role in the Republic. Certainly that system must be in conformance with the outlines of the proposed implementing legislation, and based on the understanding that our mis- sion is one of conservation and research, and not of canal operation. In seeking a long-term solution that will permit the uninterrupted conduct of our research activity at STRI, consideration must also be given to its international status and to the international composition of its staff. While STRI maintains its base in Panama, research pursuits take its staff all over the tropics, and require the employment of tropical research specialists from around the world. A flexible system that will insure our ability to attract and compensate high caliber personnel and maintain a level of excellence in tropical research will, we believe, most appropriately, serve the needs of STRI and its employees now and into the next century. Another aspect of the pending legislative proposals that is of interest to the Smithsonian is the Joint Commission on the Environment. We would recommend that the Joint Commission on the Environment have three members from each Nation and that one member from each Nation be a scientist with a strong environmental background. Consideration should be given to staffing for the Commission. A full-time staff including an executive secretary, scientists, technicians, and secretarial support could provide the ability to monitor environ- mental activity within the Treaty area. In addition, the Chairman of the Joint Commission on the Environment might be invited to attend meetings of the Panama Canal Commission in order to have the earliest possible notice of proposed projects which may have an environmental impact. In addition, the Commission should be authorized to contract for environmental studies of both terrestrial and aquatic habitats and for projects related to canal improvements. It should also have the authority to appoint ad hoc scientific and engineering advisory groups when additional advice and review might be beneficial in making recommendations to both nations, and to publish freely its findings and recommendations. We believe that funding for the Joint Commission on the Environment should be derived from sources other than tolls. The possibility of arranging joint financing by the United States and the Republic of Panama would seem a useful avenue to explore. A final point, Mr. Chairman, is the matter of a possible feasibility study for a proposed sea-level canal. As you may recall we addressed this issue before the Subcommittee in June, 1978. Because we continue to have strong views on the significance of the ecological aspects of such an undertaking, we would reiterate some of the key points made last year. The ecological effects of a sea-level canal are, we believe, inevitable, and will affect the human population as well as the freshwater and marine flora and fauna. We believe that the greatest impact, however, will be on the marine environment. The ultimate evaluation of the results of mixing the waters and the biota of both oceans might only be done when all appropriate surveys have been made and species identified. The crucial point of departure, heretofore absent in reports and speculations about the effects of a sea-level canal, is a complete biological base line survey. Everything that follows— all of the natural history observations, all of the behavioral and physiological experiments, all of the predictions and speculations — must be founded upon a firm taxonomic base. We must know the ecological requirements of species in their present, normal environment. We must know how plants and animals of a given locale interact to form commu- nities. We must know which plant and animal species are hosts for which parasites, and which disease-causing organisms affect which species. We must know their life cycles and the limits under which they can survive, and finally we must compare the plants and animals of the Atlantic with those of the Pacific. Only when all of this is done, can proper assessment of the possible environmen- tal effects of a sea-level canal be made. The Smithsonian strongly urges the initiation of a biological and hydrographic survey; the analysis of the collected data and materials; the pursuit of detailed ecological studies; and the carrying out of experimental research to determine 1171 tolerances, behavioral responses, and genetic similarity of the marine biota on each side of Panama. We also believe there must be concomitant terrestrial studies of all potential canal sites, including thorough inventories of plants and animals, to evaluate the potential environmental impact of excavations. If neither the sea-level canal nor a salt water modification of the existing canal is carried out, the proposed surveys still will be valuable in explaining how two different marine biological communities have evolved during the 3-5 million years they have been separated by the isthmus. Furthermore, such practical results as the identification of new and potentially valuable seafood species may be uncovered. Any biological survey is a very slow process, and a bare minimum of at least five years must be allowed to develop data and inventories in order to make valid predictions of the ecological consequences of a sea-level canal or of major alterations to the present structure. With respect to the matter of costs, it is currently estimated that funding for the Smithsonian Tropical Research Institute will have to be increased. A request for an additional $377,000 has been included in the Smithsonian's fiscal year 1980 budget justification. Some of this additional funding will be applied to Barro Colorado Island. It may be recalled that the Act of July 2, 1940, which established the island as an independent entity, included provision for an annual appropriation of $10,000. In October 1965, the limitation was changed to $350,000 in order to permit develop- ment of its facilities. In both the 94th and 95th Congresses legislation to raise the limitation further was introduced. In the 94th Congress the Senate approved raising the amount authorized to $600,000 but no action was taken by the House. In the 95th Congress this subcommittee and its parent approved an amount of $750,000, as did the Senate, but the measure failed on a suspension vote in May, 1977. At its meeting on January 22, 1979 the Board of Regents approved draft legisla- tion to raise the limit to $750,000 and it is expected that the Smithsonian's congres- sional Regents will introduce the measure in the very near future. The continuing need for improvements on Barro Colorado Island, as well as current and anticipated increases in costs of materials and services, have brought extraordinary pressure to bear on the existing limitation. We look forward to discussing the matter further at a later date. For now, Mr. Chairman, I shall be happy to respond to any questions you and the Members of the Subcommittee may have. Dr. Challinor. I just want to outline first the basic purpose of the Smithsonian Tropical Research Institute in Panama. This is an institute consisting of about 20 scientists who are concerned with basic research in tropical biology, in studying such things as what might happen to the so-called African killer bees, which swarm north from South America. They would have to pass through the Panama area, the Isthmus, and on north, and our scientists are studying what could be done now to slow that growth or even stop it. They are also doing studies on howler monkeys, why they get yellow fever, the kinds of yellow fever they do get, and if this is a danger to man. In addition, we have various education programs for the local people in Panama dealing with the tropical forest and the necessity to conserve that very valuable resource. The facilities of the Tropi- cal Research Institute of the Smithsonian are primarily located on Barro Colorado Island, which is about 10 miles square, the largest island in Gatun Lake, and two marine facilities, one at the Pacific end of the canal, and one at the Atlantic end of the canal. In 1946, under Reorganization Plan No. 3, the former Canal Zone Biological Area was transferred to the Smithsonian. And since then the Smithsonian has come to Congress and has received ap- propriations to manage that area. In 1977, during treaty negotiations, the Smithsonian Tropical Research Institute was designated by both the U.S. and Panama- nian Governments as custodian of what is to be called the Barro 1172 Colorado Nature Monument. This was done pursuant to Article VI of the 1940 Convention on Nature Protect' m and Wildlife Preser- vation in the Western Hemisphere, which was signed during Roose- velt's administration by both countries. In addition, in January 1977 an agreement between the Ministry of Health of the Republic of Panama and the Smithsonian was signed which guarantees the Smithsonian the use of its own labs and offices throughout the Republic, plus certain details, such as the waivers of duties on the imports of scientific equipment, per- mits to do research work in the field throughout the Republic, and certain other benefits that would be necessary for us to maintain our operation there. We anticipate that the Smithsonian scientific mission will not be changed at all by the terms of the treaty, and we expect to go on doing our research long after the year 2000. Implementation of the treaty, will require some adjustment in how the Smithsonian operates its facility there. For example, we will need some changes in the administration, as we will no longer enjoy certain benefits that we had heretofore enjoyed, such as postal service, customs service, immigration assistance that we re- ceived from the U.S. Government. In addition, there will be some changes in our personnel manage- ment and compensation policies and, finally, when the Treaty is implemented, the responsibility of the Smithsonian to protect the Nature Monument, to which I have just referred, will increase the land that we will have to patrol. In addition to Barro Colorado Island, four adjacent peninsulas on the mainland will be assigned to the Smithsonian to patrol against poachers and squatters which is important to protect the watershed of the canal. We are particularly interested in the pending legislative proposal that will create, if it is approved, a Joint Commission on the Environment. This will be very important if the watershed of the canal is to be protected. We have a number of recommendations, which I have spelled out in my formal statement, but I would like to outline them here, We strongly recommend that on this Joint Commission for the Environment three members from each country be appointed, with one of those three members a scientist or someone with a strong environmental background, We also recommend that this Commission have a full-time staff and that the Chairman of this Joint Commission on the Environ- ment be invited to attend meetings of the Panama Canal Commis- sion when they are held, so that there will be notice of the deci- sions of the Panama Canal Commission as they would affect the environment. The Commission, we also suggest, might have contract authority to make environmental studies and authority to publish the find- ings of these studies, free from any impediment. And, finally, we recommend very strongly that the Commission be funded independently of toll revenue. The Smithsonian continues to be very interested in the feasibil- ity studies of the proposed sea-level canal, about which I testified before this committee previously. We feel this is a very important 1173 study to be done, and we will continue, on a very small scale, the work that we are now doing on that area. Finally, we do anticipate that the Smithsonian operation in Panama will require increased finding when the treaty is imple- mented. We have requested from our appropriations subcommittees in both the House and Senate for fiscal year 1980 $377,000— new dollars. We also would like to point out to this committee that we are seeking an increase in our existing ceiling for Barro Colorado Island. From 1946, when we were given authority to operate that area, until 1965, the ceiling was $10,000; in October 1965 it was increased to $350,000; and now, 14 years later, we find that this ceiling is causing us considerable financial problems in carrying out our responsibilities on Barro Colorado Island. We will be asking this committee for approval to increase that ceiling to $750,000. This has been approved by the Smithsonian Board of Regents, and we will be prepared to testify, when appro- priate, about why we think this is a proper ceiling for us. And that, Mr. Chairman, highlights of my testimony, The Chairman. Thank you, Doctor. I do not believe you discussed the question of the sea level canal. Dr. Challinor. I just mentioned, Mr. Chairman, that this is an area in which we would like to do a great deal more research than we are doing and, should funding be available, we are ready to go on and increase the very modest work we have been doing in this direction. The Chairman. I have been down and visited the Smithsonian over the years, and particularly back in the period when we were studying the sea level interoceanic canal, and found very extensive the work that was being done. Dr. Challinor. We have been doing this. At that time, about 6 or 7 years ago, we were able to get a partial funding from the Army Corps of Engineers on a total grant of about $100,000 that went to the National Academy of Sciences. A considerable portion of this helped fund the research that we were doing. The Chairman. On the membership of the Commission, you say one scientist from each country? Dr. Challinor. That is our recommendation; either of a scientist or of somebody with a strong background in the environment. The Chairman. You would not limit it to one, though? Dr. Challinor. Would not limit it to one. That is at least one, Mr. Chairman. The Chairman. In your testimony regarding in the Joint Com- mission on the Environment, would you explain the rationale behind proposing that funding be from sources other than tolls? Dr. Challinor. In this way, Mr. Chairman, we feel there would be less likelihood of the Joint Commission on the Environment being limited to the exact operation of the canal itself. We feel that keeping the Joint Commission on the Environment as independent as possible from the operation of the canal should insure its inde- pendence of operation. The Chairman. The Panama Canal Authority told us last Satur- day in Panama that they were going to expand Barro Colorado area by about four times. Their scientists indicated that the island 1174 was not large enough to support certain species that are in the area. Would you comment on that? Dr. Challinor, Yes, Mr. Chairman. If I may, I can point out the areas that are of concern on the adjacent map here. [At the map:] Barro Colorado Island, is located right here. There will be added to the Barro Colorado Nature Monument four adja- cent peninsulas, this large peninsula here, and three peninsulas here. One, two, three. These three peninsulas, which are attached to the mainland — in other words, they are contiguous with the area — would serve as a considerable buffer zone for the animals and birds and insects that live on Barro Colorado, and would allow the natural migrations. This is a relatively short area over here for larger animals, such as deer, who can certainly swim across, and would allow the migra- tion of animals back and forth. And this would be an important protection for the preserve on Barro Colorado, which has existed since the Chagres Dam was built and closed in 1914. The Chairman. Mr. Bauman? Mr. Bauman. Doctor, the addition of those peninsulas, is that what we were told about by the Panama Canal Authority, which is the Panamanian transition group? I think the gentleman from Michigan, Mr. Bonior, asked about the island and its status, and the status was unclear to me when the answer was given by one of the Panamanian officials, who said that there were plans to expand areas close to the island through some sort of arrangement under the Panamanian Government. Is that what you are talking about? Dr. Challinor. That is exactly what I am talking about, Mr. Bauman. I might point out that the negotiations for the exact areas of these peninsulas have not been firmly established yet. All our understanding with authorities in Panama is that they will indeed be part of the new national park, or nature monument, under the terms of the 1940 treaty. Mr. Bauman. You do not see any problem with that eventually succeeding? Dr. Challinor. We see no problem, Mr. Bauman, as far as our colleagues in Panama are concerned. They have agreed that this is an important area, particularly for the protection of the watershed on the canal and to keep the canal from silting up. Mr. Bauman. Well, I would just say I certainly want to add my voice to the support for the continuation of the work you are doing. The only concern I have is about your suggestion that the Joint Environmental Committee be financed from something other than tolls. I think a strong case can be made for the financing of your operation, as it has been in the past. But the Joint Environmental Committee has a great many other duties associated with the watershed of the canal and other environmental matters. It seems to me that, if we are going to be constant with the administration guarantee that the financing of this treaty come from tolls, it would be difficult to place that general Commission operation in a special status. 1175 Dr. Challinor. Well, as I mentioned, this was merely a sugges- tion, a recommendation on our part, to keep the Joint Environmen- tal Commission as independent an organization as possible. Mr. Bauman. Thank you. The Chairman. Mr. Carney? Mr. Carney. The agreements that the Smithsonian has with the Panamanian Government, I guess the last one is in 1940; is that correct? Dr. Challinor. Well, in 1946 the Smithsonian was given the authority to operate Barro Colorado Island. The last agreement that we have signed was with the Ministry of Health under whom the Smithsonian's research facility, I believe, would operate after the year 2000. Therefore, we sought permission from this particular ministry, and the agreement was signed with the ministry on the 5th of January, before the treaty had been signed. This was a separate agreement with the ministry to prepare ourselves for future oper- ations after the year 2000 in the canal, to get a complete under- standing of what our rights and obligations were, to assure our- selves of free access to field research facilities in the Republic of Panama, and to import scientific instruments without duty. We have similar agreements with a number of other countries already; namely, Colombia, Tunisia, and various other places where we have field stations. Mr. Carney. Is there a time frame on the agreement? Or is it indefinite, to extend past the year 2000? Dr. Challinor. The agreement we have now with the Minister of Health has 5-year renewable options, up to the year 2000. With 1 year's notice, either party legally, under the agreement, could cancel the agreement, That agreement runs, as I say, to the year 2000. We do not anticipate any problems of renewing it after that, but the existing written agreement covers just to the year 2000. Mr. Carney. Do you have any idea what the financial impact would be with the addition of the four peninsulas to the island land mass? Dr. Challinor. The main financial impact will be the added cost of patrolling that additional area. It would probably require three or four more wardens, and maybe one more outboard motorboat, which the wardens now use to patrol the island itself. Mr. Carney. Certainly there would be no need for construction or any type of capital investment in those areas, would there? Dr. Challinor. No. As a matter of policy, we would very firmly be opposed to the development of those islands, and we would plan to do everything we could to keep them as natural areas under the terms of the 1940 treaty. Mr. Carney. Your request for $750,000, would that take into consideration the expenses of the additional land? Dr. Challinor. The additional land, Mr. Carney, is separate from our ceiling authorization on Barro Colorado. That applies only to the island of Barro Colorado itself, which is the headquar- ters of the Tropical Research Institute field station there. At that field station we have 4 acres cleared with living quarters and laboratory space for the scientists who work there. The main- 1176 tenance and operation of that facility has increased to the point where $350,000, which was adequate in 1965, is now really squeez- ing us. These are such expenses as buying diesel oil for the gener- ator out there and the maintenance of the buildings, which are continually attacked by termites, as you can understand. Mr. Carney. Thank you. The Chairman. What has been the relationship between the Smithsonian and its staff with the Republic of Panama? Dr. Challinor. We have enjoyed very good relationships. We have one Panamanian Ph. D. scientist on our staff now. We have a number of undergraduate students from the University of Panama who work at the laboratories of the Smithsonian in Panama, and have, as a matter of policy, encouraged this for a very long time. I would anticipate in the next decade or more an increasing partici- pation by Panamanian scientists on the staff of the Smithsonian Tropical Institute itself. So, to date, we have enjoyed very good relations with the Repub- lic, and particularly with the scientific community, which, as you can imagine, is a rather small one, and we know most of them on a very personal, first-name basis. The Chairman. Thank you very much, Doctor. We are now ready to move to our next witness. We are very privileged today to have with us the Director of the Office of Personnel Management, Dr. Alan Campbell. As most of us know, Dr. Campbell was a distinguished and renowned political scientist before his assumption of his present post. Today, he him- self comes forward to speak for his agency and its views on treaty implementing legislation. Dr. Campbell and I were elected delegates to the New York State Constitutional Convention about 11 years ago, and we personally participated in passing out what was probably one of the finest constitutional documents in the history of man. And when it was presented to the people in a referendum, you can imagine its fate — probably the same fate that would have conferred had the Panama Canal Treaties been presented to the same forum. Dr. Campbell, we are certainly happy to have you with us today. STATEMENT OF DR. ALAN K. CAMPBELL, DIRECTOR, OFFICE OF PERSONNEL MANAGEMENT, ACCOMPANIED BY THOMAS A. TINSLEY, DEPUTY ASSOCIATE DIRECTOR Dr. Campbell. Thank you very much, Mr. Chairman. It is a pleasure to be here. I am accompanied by Mr. Tom Tinsley, who runs the Federal Retirement System, since many of the provisions in both bills relate to that retirement system. You do have a prepared statement from me, and what I would like to do, with your permission, is to have that placed in the record, and then highlight the most significant parts of the legisla- tion as it relates to employment guarantees to employees regarding retirement. And in doing that, I would like to read from the record, because it is fairly complex, and I want to make sure I get it right. The Chairman. Well, without objection, we will follow that pro- cedure. 1177 Dr. Campbell. Thank you very much, sir. [The following was received for the record:] Statement of Alan K. Campbell, Director, Office of Personnel Management Mr. Chairman and members of the subcommittee, I am happy to be here today to testify for the Office of Personnel Management on this very significant legislation. The Panama Canal Treaty of 1977 and Related Agreements were signed by representatives of the United States and Panama on September 7, 1977, subject to ratification by both Governments. The Treaty has been approved and the effective date for the exchange of instruments of ratification will be April 1, 1979. Six months later, on October 1, 1979, the Treaty will enter into force and remain in effect through December 31, 1999. Beginning October 1, 1979, the United States will carry out its responsibilities in Panama through a United States Government agency called the Panama Canal Commission. The Panama Canal Commission will replace the Panama Canal Company and the Canal Zone Government both of which will cease to exist at that time. Under the Treaty many of the activities presently performed by the United States will be transferred to the Republic of Panama and many present Federal employees will lose their Federal jobs. The Republic of Panama will undoubtedly employ some of these individuals to continue with the transferred activities especially those who are citizens of Panama. The Treaty will bring about a major transition. The United States will relinquish jurisdiction in a zone within a foreign country in which it has exercised authority since 1904. Employees who have served the Canal have done so on the assumption that they would spend their entire working lives in this employment. This may no longer be possible. Employee organizations, understandably, had great interest in Treaty negotia- tions as they affected their members. Provisions were sought in the Treaty to protect the benefits of employees affected by the changeover. The Administration agreed that such protection was justified because of the unique situation faced by these employees. Article X of the Treaty, therefore, contains provisions relating to conditions of employment with the Panama Canal Commission. Article X also requires the United States to provide an appropriate early optional retirement program and to seek special legislation to provide more liberal entitlement to, and calculation of, retirement annuities for these employees, than is currently provided by law. Both Chairman Murphy's bill, H.R. Ill, and the Administration's bill, H.R. 1716, contain very similar provisions for implementing Article X of the Treaty. It may be worthwhile at this point to recount a bit of the history of the present Panama Canal Zone employment system and our relationship to it. During the construction period and up until 1955, United States and Panamanian citizens who worked in the Canal Zone were covered by separate employment systems. U.S. citizens were paid on the U.S. wage base with a 25 percent tropical differential. They were also exempt from U.S. income tax. Non-U. S. citizens, includ- ing a large number of West Indian nationals, were paid a local prevailing wage rate. This distinction also was maintained in terms of access to housing, recreational and sanitational facilities. This system came to be known as the "gold and silver rolls" since originally U.S. citizens were paid in gold and non-U. S. citizens in silver coinage. Pursuant to a 1955 treaty between the United States and the Republic of Panama, Congress enacted Public Law 85-550 in 1958 which provided for the establishment of a Canal Zone Merit System for Federal employees of the Panama Canal Zone. This new merit system was required by Treaty and law to (a) be based solely on the merit of the employee and (b) be applied uniformly to all employees irrespective of whether they were citizens of the U.S. or the Republic of Panama. The Treaty and law continued to authorize differentials and tax allowances for U.S. citizens. The Panama Canal Treaty of 1977 continues the principle of no discrimination on the basis of nationality and allows additional remunerations for persons recruited out- side of Panama, thought this is no longer limited to U.S. nationals. Effective January 19, 1959, positions in the Canal Zone were excepted from the competitive service and placed under the new Canal Zone Merit System. The Canal Zone Merit System is a self-contained personnel system with regard to such employment matters as appointment and promotion. Nevertheless, the Office of Personnel Management (formerly, the Civil Service Commission) has the follow- ing responsibilities in connection with the Canal Zone Merit System. 1178 1. To make a periodic review of its operation for conformity with Public Law 85- 550, Executive Order 10794, and the regulations issued by the Secretary of the Army. Under this authority, the Civil Service Commission performed two compre- hensive evaluations of the Canal Zone Merit System, the first in 1969, the second in 1971. 2. To provide for the non-competitive movement of personnel between the Canal Zone and the U.S. competitive service. Accordingly, the Civil Service Commission entered into a personnel interchange agreement with the Canal Zone Government by which an employee under the Canal Zone Merit System with one year of service can move noncompetitively into the competitive service of the United States. 3. To nominate one member and an alternate to Canal Zone Board of Appeals. Canal Zone Merit System employees can appeal the classification of their jobs to the Canal Zone Board of Appeals, of which the Civil Service Commission /Office of Personnel Management member is traditionally the chairman. (However, the Board is not an instrument of the Office of Personnel Management and its decisions, while final, do not represent official decisions of this Office.) Finally, it should be noted that Canal Zone employees who are veterans have appeal rights to the Merit Systems Protection Board (formerly, to the Civil Service Commission) by virtue of other laws. Beyond these responsibilities, the relationship between the central personnel agency and the Canal Zone is generally based on requests for technical assistance and or on the central personnel agency's general responsibility for Federal person- nel matters. Both bills provide that the present Canal Zone Merit System and relative admin- istrative regulations will apply to Commission employees until such time as the new Panama Canal Employment System provided for in the bills has been established. Both bills provide for a collective bargaining system generally paralleling the labor relations program of title VII of the Civil Service Reform Act. H.R. Ill, however, would have the collective bargaining system apply to all U.S. agency employees in the Republic of Panama rather than only to Commission employees. We would defer to the views of the interested agencies and employee organizations in this matter. There does not however, appear to be any compelling reason for not applying title VII of the CSRA directly to all U.S. citizen employees in the zone except for employees of the Commission. Both bills require appropriate placement assistance for U.S. citizen employees separated or scheduled to separate during the life of the Treaty. In line with this we have developed a priority placement program for U.S. citizen employees in the Canal Zone. We believe that this program provides the maximum possible place- ment assistance to these persons while at the same time protecting the rights of other displaced employees and minimizing the restrictions to agency personnel management programs. We have issued a Federal Personnel Manual Letter which explains the program to agencies. Under the program there are two placement priority levels of employees. Priority level 1 consists of U.S. citizen employees of the Panama Canal Company, Canal Zone Government and other agencies in the Canal Zone who are involuntarily separated as a direct result of the implementation of the Panama Canal Treaties. Priority level 2 consists of those U.S. citizen employees of the Canal Zone Govern- ment and the Panama Canal Company in the Canal Zone who are not being involuntarily separated but who desire to leave the Zone. When priority level 1 employees are qualified and available for a vacancy which an agency has, the agency must select a priority level 1 employee, or not fill the job. It will not be permitted to fill the vacancy by the appointment of other applicants from either outside or inside the agency. There are exceptions where a statute, for example, requires an agency to select a former employee who is returning from military service and who is entitled to restoration rights. When priority level 2 employees are qualified and available for a vacancy which an agency has, the agency may not appoint an applicant from the outside ahead of a priority level 2 employee. However, the agency would be permitted to fill the position with one of its own employees. This differs from the consideration which priority level 1 employees receive because, as I stated above, the availability of priority level 1 employees prevents the agency from filling a vacancy with employ- ees from the outside or with its own employees. We believe that there should be this difference in placement assistance because priority level 1 employees are facing the imminent loss of their jobs, and priority level 2 employees are not. Priority level 1 and 2 employees will register for up to five occupational categories for which they qualify. They will be permitted to register for assistance in any 2 of the 10 regions 1179 of the Office of Personnel Management, or in 1 region and Washington, D.C. They will be entitled to assistance at their former grade (excluding GS-16 and above) and all other lower grades which they are willing to accept. Employees will receive assistance for 1 year but will be removed from the pro- gram sooner if they locate a continuing Federal position or decline an offer which they had indicated would be acceptable. Office of Personnel Management area offices will have the primary responsibility for the day-to-day operation of the placement program. The area offices will periodi- cally publish lists of series and grades for which Canal Zone employees are availa- ble. Agencies having vacancies in these series will be required to contact the area offices which will provide the applications of the displaced employees. The agency must select a displaced employee in accordance with the restrictions which I have described. If the agency believes that a displaced employee is not qualified for the position, it must present evidence to the area office, and only the area office will be authorized to remove a displaced employee from consideration on the basis that he does not qualify the position. In developing this program, we were very concerned that other displaced employ- ees throughout the United States not be denied consideration to which they are entitled. Therefore, when Canal Zone employees are registered for the same geo- graphic area and series as other displaced employees, the other displaced employees will receive the same degree of placement consideration as Canal Zone employees. Agencies will be referred Canal Zone and other displaced employees at the same time, and they will be permitted to select from either group. In response to Article X(10)(a) of the Treaty, and the request of the Panama Canal Company, the Office of Personnel Management authorized early optional retire- ments under Public Law 95-454 for employees of the Panama Canal Company and Canal Zone Government. This authorization extends from April 1, 1979, through September 30, 1979, and applies to all employees with at least 25 years of service at any age and to employees with 20 years of service at age 50. Employees who elect early optional retirement under this authorization will have their annuities reduced by two percent a year for each year under age 55. We had no authority to change this provision. We do not expect that many employees under age 55 will take advantage of this authority but will wait for implementing legislation to be enacted. Both H.R. Ill and H.R. 1716 contain liberal eligibility requirements for, and special computation of annuity for the retirement of Federal employees in Panama. Although these provisions are liberal we believe they are justified because of the unique circumstances and because of the need to protect the interests of the United States in Panama. To do this we must retain trained employees so that the transfer of all remaining functions to the Republic of Panama will be accomplished gradual- ly throughout the life of the Treaty without major problems or disruption of serv- ices. After months of effort, coordinated by the Army Department, and involving staff of the OPM, employees and employee organizations in Panama, as well as the General Counsel of the Canal Zone Government, we believe these provisions are required to fulfill the mandates of the Treaty and, at the same time, protect the interest of the United States. Because employees of the Panama Canal Company and the Canal Zone Government will be more adversely affected by the Treaty when those agencies are eliminated, the provisions for them are more liberal than for those employees who are employed immediately prior to April 1 or October 1, 1979, by other Executive agencies in Panama. Both bills provide that persons employed by the Panama Canal Company or the Canal Zone Government immediately before April 1, or October 1, 1979, including those transferred without a break in service to either the Panama Canal Commis- sion or another Executive agency in Panama, who are involuntarily separated, or scheduled to be separated, during the life of the Treaty, as a result of implementa- tion of the Treaty, will be entitled to an annuity if they have 20 years of Federal service, or if they are at least 48 years of age and have at least 18 years of Federal service. Additionally, during the life of the Treaty, such persons may retire volun- tarily after 23 years of service or at age 48 after 18 years of service. On the other hand, any such employee who transfers without a break in service to the new Panama Canal Commission or another Executive agency in Panama on October 1, 1979, and continues working will receive a more liberal computation of annuity (2Vjj percent of average salary) for up to 20 years of such continuous service after October 1, 1979. Such employees who are law enforcement officers or firefighters will be eligible for the regular law enforcement computation for up to 20 years if they separate after age 48 with at least 18 years of service. 1180 Additionally, if they continue to serve in Panama without a break in service after October 1, 1979, their annuities will be increased by $8 for each full month of service after that date until they have completed a total of 20 years of law enforce- ment or firefighter service. If they separate prior to attaining age 48 and 18 years of such service they will not be eligible for the 2V2 percent law enforcement formula for service prior to October 1, 1979 but their annuities when they do retire will be increased by $12 for each full month of service as a law enforcement officer or firefighter in Panama before October 1, 1979. H.R. 1716 and H.R. Ill also provide that persons employed immediately before April 1 or October 1, 1979, by an Executive agency in Panama other than the Panama Canal Company or the Canal Zone Government will be eligible, for an annuity, if involuntarily separated as a result of the Treaty after 20 years service or after attainment of age 48 and 18 years of service. Such persons will not be eligible for voluntary optional retirement at age 48 or after 23 years of service at any age. Furthermore, they will not be eligible for the special computa- tion for continued service in Panama after October 1, 1979. This is because they are employed by agencies which are not confined to Panama and which are not being abolished; therefore, the adverse effect of the Treaty will not be so great on them as on those employees of the Panama Canal Company or the Canal Zone Government. There will be no reduction in any of the foregoing annuity computations for being under age 55. As I stated before, however, we believe these provisions are required to fulfill the mandated requirements of the Treaty and to protect the interests of the United States in Panama during the life of the Treaty. With regard to the financing of the cost of these early retirement provisions, there are differences in the two bills which should be noted. The section analysis of H.R. Ill states that the requirement in section 240(a) of that bill that the Commis- sion reimburse the retirement fund for "Government contributions, is not limited to the matching contribution by the agency but would apply to all payments into the Fund by the U.S. Government on behalf of employees of the Commission, including the matching contribution and the addition to the Fund of the early retirement provisions in Chapter 3 of Title I of the bill". As we construe the intent, the Commission would be required to pay the entire cost of these early retirement provisions out of annual appropriations over the 20 years life of the Treaty. The Administration bill does not do this but, provides for automatic appropriations over a 30 year period as authorized by section 8348(f) of title 5, United States Code. This is the preferred approach. We are not convinced that the technical language of section 240(a) of H.R. Ill would accomplish the stated intent, but assuming that it would, there are certain questions which should be answered. What happens if the Commission is unable to make a payment or a number of payments because Congress fails to appropriate enough money in those years? What is the alternative? Since we would still be obligated to pay the annuities from the Civil Service Retirement Fund, whether or not we were reimbursed, such payments would add directly to the unfunded liability of the Fund since there would be no automatic appropriations to compensate for the payment. Both bills have provisions concerning Social Security and retirement benefits applicable to employees of the Commission who are not United States citizens. Such employees who transfer to the Commission without a break in service from the Panama Canal Company, the Canal Zone Government, or from another Executive agency in the Republic of Panama, will, if they were covered under the Civil Service Retirement System, continue to be covered by chapter 81 (workers compensation), 83 (retirement), 87 (life insurance), and 89 (health benefits) of title 5, United States Code. These coverages will continue until their retirement or until the termination of their employment for any other reason. Any such non-United States citizen hired, or rehired after a break in service, by the Commission after October 1, 1979, will be excluded from these coverages. Instead, they will be covered from the date of their employment under the Social Security System of the Republic of Panama. The Commission will collect and transfer the employer's and employee's contributions to the Panamanian social security system for such employees. The Treaty provides special retirement provisions under the Panamanian Social Security system for employees regardless of nationality, who work in Company/ Government activities being transferred to Panama. These provisions set up a special regime, identical in eligibility requirements, benefits and employer/employ- ee contributions to the civil Service Retirement System. These provisions assure employees in transferred activities that they will not lose retirement benefits as a result of the transfer. 1181 Any Federal employee who is separated from a covered position with the Panama Canal Company, the Canal Zone Government, or the Commission as a result of implementation of the Treaty, and who becomes employed under the Social Security System of Panama because of the transfer of a function or activity to the Republic of Panama may elect to purchase an equity under the special regime if he meets certain requirements. If the employee has served less than 5 years, he or she may elect to transfer his or her contributions to the Panamanian Social Security for the purchase of an equity equal to the amounts transferred. If the employee has served at least 5 years under the Civil Service Retirement System, is not eligible for an immediate civil service annuity and does not elect a deferred civil service annuity, he may withdraw his contributions from the Civil service Retirement System and transfer them to the Social Security System of the Republic of Panama. When all these conditions for employees with at least 5 years service are met, the United States is required by the Treaty to make a payment into the Social Security System of the Republic of Panama Equal to the amount withdrawn by the employee and contributed by the employee to the Panamanian Social Security System. Under the proposed legislation, this payment will be taken from the Civil Service Retire- ment and Disability Fund, since that Fund will have no future obligation towards these employees or their survivors. The transfer of funds was mandated bv an Agreement in Implementation of the Treaty, although the source of the fur la was not identified. There is no definite information as to the estimated impact of retirement benefit changes resulting from the Panama Canal Treaty. We have pieced together availa- ble information to derive a total picture as stated below. If our knowler^e of the facts is not complete, or these facts change, the cost figures will have to be modified. Information in 1977 had been that the average salary, including tropical differen- tials for all affected employees covered by retirement, was then $11,600 per person. We have no updated information on salaries, but allowing for the two intervening pay increases, we estimate that the current pay of employees covered by retirement to be $13,000 per person. According to the Panama Canal Company/ Government, they presently have 14,100 employees. They estimate that 5,800 positions in the Canal organization will be affected as a result of the treaty. Of these 5,800 employees, 3,200 will be trans- ferred to the Department of Defense, and 2,600 will be separated from employment by reduction in force. The reduction in force actions will be partially offset by an estimated 1,500 retirements occurring before the Treaty becomes effective October 1, 1979. Assuming that the treaty implementation legislation passes, the 1,500 employees who are expected to retire will retire under the liberalized retirement provisions of this legislation, instead of under the early optional retirement provisions which OPM has authorized for the period April 1 through September 30, 1979. Since the retirement provisions proposed by the treaty implementation legislation are more liberal than the early optional retirement provisions available under present law, an additional liability of $26 million will be generated by the retirement of these 1,500 employees. A total of 10,000 employees will be eligible for the liberalized retirement provi- sions on and after October 1, 1979. After the retirements and reductions in force take place, about 6,800 employees will continue with the Panama Canal Commis- sion. The 3,200 employees who will be transferred to the Department of Defense will also be eligible for the the liberalized retirement. Previous cost estimates made by the Civil Service Commission last year did not include the cost for these 3,200 employees and were, therfore, lower than the estimate we have today. We now estimate that the retirement liability generated by the proposed liberalized retire- ment provisions for all 10,000 employees who would benefit is $177 million. This does not include the cost for liberalized retirement based on involuntary separation as a result of Treaty implementation for present employees of Executive agencies other than the Company/Government because we have no data on numbers of such employees who might retire. There are also special provisions proposed for law enforcement officers and fire- fighters. We are told that there are 600 such individuals. The liability generated as a result of the special provisions for law enforcement officers is $2 million. The total additional liability for all of the liberalized provisions is $205 million. Under the existing retirement law, this liability would be amortized in thirty equal annual installments of $12.7 million each, paid out of general revenues by the U.S. Treasury. If the Panama Canal Commission were obligated to amortize this cost over 20 years under H.R. Ill the annual payment out of Commission appropriations would be $15.7 million. 1182 The above liabilities do not include the cost of transferring money to the Social Security System of Panama to match the amount of employee contributions which certain separated Panama Canal /Government employees who become employed by the Government of Panama may elect to have paid over to such system. It is difficult to estimate the cost of this provision before it is known for certain how many employees may be involved and how many may actually elect to make a transfer of their own contributions. The employees to be separated by reduction in force will tend to be younger employees who lack the 20 years of service generally required for early retirement. In separations of this kind, it has been our experience that the majority of separat- ing employees immediately request a refund. Accordingly, we estimate that only about 300 employees, with the required 5 or more years of service, will actually elect to transfer their retirement contributions to the Social Security System of Panama and, thereby, obligate the United States, and, under the proposed legisla- tion, the Civil Service Retirement Fund, to transfer a matching amount. Therefore, we estimate that the cost of matching retirement contributions trans- ferred to the Social Security System of Panama will not be more than $1 or $2 million. If interest were to be required to be paid on these funds, or if the actual equitable value of the benefits are transferred, as H.R. Ill may require, the cost would be substantially higher. This concludes my formal testimony on these two bills. I will be happy to try to answer any questions you may have. Dr. Campbell. Both bills before this committee require appropri- ate placement assistance for U.S. citizen employees separated or scheduled to separate during the life of the treaty. In line with this, we have developed a priority placement pro- gram for U.S. citizen employees in the Canal Zone. We believe that this program provides the maximum possible placement assistance to these persons, while at the same time protecting the rights of other displaced employees and minimizing the restrictions on agency personnel management. We have issued instructions on this matter. Under the program, there are two placement priority levels of employees. Priority 1 consists of U.S. citizen employees of the Panama Canal Company, the Canal Zone Government, and other agencies in the Canal Zone involuntarily separated as a direct result of the Panama Canal Treaties. Priority level 2 consists of those U.S. citizen employees of the Canal Zone Government and the Panama Canal Company who are not being involuntarily separated but who desire to leave the zone. When priority 1 employees are qualified and available for a vacancy, the agency must select a priority level 1 employee, or not fill the job. The agency will not be permitted to fill the vacancy by appointing other applicants from either outside or inside the agency. There are exceptions, where a statute, for example, requires an agency to select a former employee who is returning from military service and who is entitled to restoration rights. When priority level 2 employees — those who voluntarily sepa- rate — are qualified and available for a vacancy, the agency may not appoint an applicant from the outside ahead of this priority level 2 employee. However, the agency would be permitted to fill the position with one of its own employees. This differs from the consideration which priority level 1 employees receive because the availability of priority level 1 employees prevents the agency from filling a vacancy with either employees from the outside or with its own employees. 1183 We believe there should be this difference, because of the differ- ence in the two situations. Priority level 1 and 2 employees will register for up to five occupational categories for which they qualify. They will be permit- ted to register for assistance in any 2 of the 10 regions of the Office of Personnel Management, or in one region and Washington, D.C. They will be entitled to assistance at their former grade — excluding GS-16 and above — and at all other lower grades they are willing to accept. Employees will receive assistance for 1 year, but will be removed from the program sooner if they locate a continuing Federal posi- tion or decline an offer which they had indicated would be accept- able. Office of Personnel Management area offices will have the pri- mary responsibility for the day-to-day operation of the placement program. They will periodically publish lists of series and grades for which Canal Zone employees are available. Agencies having vacancies in these series will be required to contact the area of- fices, which will then provide the applications of the displaced employees. The agency must select a displaced employee in accord- ance with the restrictions which I have described. If the agency believes that a displaced employee is not qualified for the position, it must present evidence to our area office, and only that office will be authorized to remove a displaced employee from consideration on the basis that he does not qualify for the position. In developing this program, we were very concerned that other displaced Federal employees throughout the United States not be denied consideration to which they are entitled, Therefore, when Canal Zone employees are registered for the same geographic area and series as other displaced employees, the other displaced em- ployees will receive the same degree of placement consideration as Canal Zone employees. Agencies will be referred Canal Zone and other displaced employees at the same time, and will be permitted to select from either group. Turning to retirement in response to article X(10)(a) of the treaty, and the request of the Panama Canal Company, the Office of Personnel Management authorized early optional retirements under Public Law 95-454 for employees of the Panama Canal Com- pany and the Canal Zone Government. This authorization extends from April 1, 1979 through September 30, 1979, and applies to all employees with at least 25 years of service at any age, and to employees with 20 years of service at age 50. Employees who elect early optional retirement under this au- thorization will have their annuities reduced by 2 percent a year for each year under age 55. This provision is what is currently in the law, and we have no right to change it, We do not anticipate that many employees under age 55 will take advantage of this authority, but will wait for the implementing legislation which this committee is considering. Both H.R. Ill and H.R. 1716 contain liberal eligibility require- ments for, and special computation of, annuity for the retirement of Federal employees in Panama. Although these provisions are 1184 liberal, we believe they are justified because of the unique circum- stances and because of the need to protect the interests of the United States in Panama. To do this we must retain trained em- ployees, so that the transfer of all remaining functions to the Republic of Panama will be accomplished gradually throughout the life of the treaty, without major problems or disruption of services. After months of effort, coordinated by the Department of the Army and involving our staff and employee organizations in Panama, as well as the General Counsel of the Canal Zone Govern- ment, we believe these provisions are required to fulfill the man- dates of the treaty and, at the same time, protect the interest of the United States. Because employees of the Panama Canal Company and the Canal Zone Government will be more adversely affected by the treaty when those agencies are eliminated, provisions for them are more liberal than for those employees who are employed immediately prior to April 1 or October 1, 1979, by other executive agencies in Panama. Both bills provide that persons employed by the Panama Canal Company or the Canal Zone Government immediately before April 1 or October 1, 1979, including those transferred without a break in service to either the Panama Canal Commission or other executive agencies in Panama, who are involuntarily separated, or scheduled to be separated during the life of the treaty, as a result of the implementation of the treaty, will be entitled to an annuity if they have 20 years of Federal service or if they are at least 48 years of age and have at least 18 years of Federal service. Additionally, during the life of the treaty, such persons may retire voluntarily after 23 years of service or at age 48 after 18 years of service. On the other hand, any such employee who transfers without a break in service to the new Panama Canal Commission or another executive agency in Panama on October 1, 1979, and continues working, will receive a more liberal annuity — that is, 2V2 percent of average salary per year of service — for up to 20 years of such continuous service after October 1, 1979. Such employees who are law enforcement officers or firefighters will be eligible for the regular law enforcement computation for up to 20 years if they separate after age 48 with at least 18 years of service. Additionally, if they continue to serve in Panama without a break in service after October 1, 1979, their annuities will be increased by $8 for each full month of service after that date, until they have completed 20 years of law enforcement or firefighter service. If they separate before attaining age 48 and 18 years of such service, they will not be eligible for the 2V2 percent law enforce- ment formula for service prior to October 1, 1979, but their annu- ities, when they do retire, will be increased by $12 for each full month of service as a law enforcement officer or firefighter in Panama before October 1, 1979. Both bills also provide that persons employed immediately after April 1 or October 1 by an executive agency in Panama, other than the Panama Canal Company or the Canal Zone Government, will 1185 be eligible for an annuity — if involuntarily separated as a result of the treaty after 20 years service, or after attaining age 48 and 28 years of service. Such persons will not be eligible for voluntary optional retire- ment at age 48 or after 23 years of service at any age. Nor will they be eligible for the special computation for contin- ued service in Panama after October 1, 1979. This is because they are employed by agencies which are not confined to Panama and which are not being abolished. The adverse effect of the treaty will not be so great on them as on those employees of the Panama Canal Company or the Canal Zone Government. There will be no reduction in any of the foregoing annuity com- putations for being under age 55. As I have already stated, we believe these provisions are required to fulfill the mandated re- quirements of the treaty and to protect the interests of the United States in Panama during the life of the treaty. With regard to the financing of the cost of these early retirement provisions, there are differences in the two bills which we perhaps should note. The section analysis of H.R. Ill states that the requirement in section 240(a) of that bill, that the Commission reimburse the re- tirement fund for, and I quote: Government contributions, is not limited to the matching contribution of the agency but would apply to all payments into the fund by the U.S. Government on behalf of the employees of the Commission, including the matching contribution and the addition to the fund of the early retirement provisions in chapter 3 of title 1 of the bill; End of quote. As we construe the intent, the Commission would be required to pay the entire cost of these early retirement provisions out of annual appropriations over the 20-year life of the treaty. The ad- ministration bill does not do this, but provides for automatic appro- priations over a 30-year period, as authorized by section 8348(f) of title 5 of the United States Code. We think the latter is a preferred approach. We are not convinced that the technical language of section 240(a) of H.R. Ill would accomplish the stated intent, but assum- ing that it would, there are certain questions which should be answered. For example, what happens if the Commission is unable to make a payment or a number of payments because Congress fails to appropriate enough money in those years? What is the alternative? Since we would still be obligated to pay the annuities from the civil service retirement fund, whether or not we were reimbursed, such payments would add directly to the unfunded liability of the fund, since there would be no automatic appropri- ations to compensate for the payment. Both bills have provisions concerning social security and retire- ment benefits applicable to employees of the Commission who are not U.S. citizens. Such employees who tranfer to the Commission without a break in service from the Panama Canal Company and the Canal Zone Government, or from another executive agency in the Republic of Panama, will, if covered under the Civil Service Retirement System, continue to be covered by chapters 81, workers 1186 compensation, 83, retirement, 87, life insurance, and 89, health benefits, of title 5 of the United States Code. These coverages will continue until their retirement or until the termination of their employment for any reason. Any such non- U.S. citizen hired, or rehired after a break in service, by the Commission after October 1, 1979, will be excluded from these coverages. Instead, they will be covered from the date of their employment under the social security system of the Republic of Panama. The Commission will collect and transfer the employer's and employee's contributions to the Panamanian social security system for such employees. The treaty provides special retirement provisions under the Pan- amanian social security system for employees regardless of nation- ality, who work in Company/ Government activities being tran- ferred to Panama. These provisions set up a special regime, identi- cal in eligibility requirements, benefits and employer /employee contributions to the Civil Service Retirement System. These provi- sions assure that employees in transferred activities will not lose retirement benefits as a result of the transfer. Any Federal employee separated from a covered position with the Panama Canal Company, the Canal Zone Government, or the Commission as a result of the treaty, and who becomes employed under the social security system of Panama because of the transfer of a function or activity to the Republic of Panama, may elect to purchase an equity under the special regime if he meets certain requirements. If the employee has served less than 5 years, he or she may elect to tranfer his or her contributions to the Panama- nian social security for the purchase of an equity equal to the amounts transferred. If the employee has served at least 5 years under the Civil Service Retirement System, is not eligible for an immediate civil service annuity and does not elect a deferred civil service annuity, he may withdraw his contributions from the Civil Service Retire- ment System and transfer them to the federal social security system of the Republic of Panama. When all these conditions of employees with at least 5 years of service are met, the United States is required by the treaty to make a payment into the social security system of the Republic of Panama equal to the amount withdrawn by the employee and contributed by the employee to the Panamanian social security system. Under the proposed legislation, this payment will be taken from the civil service retirement and disability fund, since that fund will have no future obligation toward these employees or their survi- vors. The transfer of funds as mandated by an agreement in imple- mentation of the treaty, although the source of funds was not identified. There is no definite information as to the estimated impact of retirement benefit changes resulting from the Panama Canal Treaty. We have pieced together available information to derive as total a picture as possible. As we acquire further facts and as our picture becomes clearer, we will, of course, provide that informa- tion to the committee. 1187 Information in 1977 had been that the average salary, including tropical differentials for affected employees covered by retirement, was then $11,600 per person. We do not have updated information on salaries, but allowing for the two intervening pay increases we estimate that the current pay of employees covered by retirement to be approximately $13,000 per year per employee. According to the Panama Canal Company/ Government, they presently have 14,100 employees. They estimate that 5,800 posi- tions in the canal organization will be affected as a result of the treaty. Of these 5,800 employees, 3,200 will be transferred to the Department of Defense, and 2,600 will be separated by reduction in force. The reduction in force actions will be partially offset by an estimated 1,500 retirements occurring before the treaty becomes effective October 1, 1979. Assuming that the treaty implementation legislation passes, the 1,500 employees expected to retire will retire under the liberalized retirement provisions of this legislation, instead of under the early optional retirement provisions which will be in effect from April 1 to September 30. Since the retirement provisions proposed by the treaty imple- mentation legislation are more liberal than the early optional re- tirement provisions under present law, an additional liability of $26 million will be generated by the retirement of these 1,500 employees. A total of 10,000 employees will be eligible for the liberalized retirement provisions on and after October 1, 1979. After the re- tirements and reductions in force take place, about 6,800 employees will continue with the Panama Canal Commission. The 3,200 em- ployees transferred to the Department of Defense will also be eligi- ble for the liberalized retirement. Previous cost estimates made by the Civil Service Commission last year, when we were working on this matter, did not include the cost of these 3,200 employees and were, therefore, lower than the estimate I have today. We now estimate that the retirement liability generated by the proposed liberalized retirement provi- sions for all 10,000 employees who would benefit is $177 million. This does not include the cost for liberalized retirement based on involuntary separation as a result of treaty implementation for proper employees of executive agencies other than the Company/ Government, because we have not data on the number of such employees who might retire. We do not think it will be large. There are also special provisions proposed for law enforcement officers and firefighters. We are told that there are 600 such indi- viduals. The liability generated as a result of the special provisions for law enforcement officers is $2 million. The total additional liability for all of the liberalized provisions is $205 million. Under the existing retirement law, this liability would be amortized in 30 equal annual installments of $12.7 mil- lion each, paid out of the general revenues of the U.S. Treasury. If the Panama Canal Commission were obligated to amortize this cost over 20 years under H.R. Ill, the annual payment out of Commis- sion appropriations would be $15.7 million. The above liabilities do not include the cost of transferring money to the social security system of Panama to match the 1188 amount of employee contributions which certain separated Panama Canal Company/Government employees, who become employed by the Government of Panama, may elect to have paid over to such system. It is difficult to estimate the cost of this provision before we know how many employees may be involved and how many may actually elect to make a transfer of their own contributions. The employees to be separated by reduction in force will tend to be younger, thereby lacking 20 years of service generally required for early retirement. In separations of this kind, it has been our experience that the majority of separating employees immediately request a refund of their contributions. Accordingly, we estimate that only about 300 employees, with the required 5 years or more of service, will actually decide to transfer their retirement contri- butions to the social security system of Panama and, thereby, obligate the United States, and, under the proposed legislation, the civil service retirement fund, to transfer a matching amount. Therefore, we estimate that the cost of matching retirement contributions transferred to the social security system of Panama will not be more than $2 million. If interest were to be required to be aid on these funds, or if the actual equitable value of the benefits are transferred, as H.R. Ill may require, the cost would be substantially higher. This concludes my formal presentation on these two bills, and I apologize a bit for the detail, but both re-employment rights and retirements are somewhat complicated; and I believe it is in that kind of detail we need to know the impact of the various provisions suggested by both the treaty as well as the legislation which this committee is considering Thank you very much, Mr. Chairman. Mr. Hubbard, [presiding]. Thank you, Mr. Alan K. Campbell, Director of the Office of Personnel Management, for your excellent testimony. Before the questions begin, permit me a personal word. I regret that I am late. It was caused by a Farm Bureau breakfast, attended by 40 constitutents, who wanted to visit with me. This was their only chance. I appreciate Chairman Murphy presiding in my ab- sence. I appreciate the committee's going ahead. Permit me please, to introduce briefly five close friends of mine who are constituents from Kentucky, and if they would stand, I would appreciate it. They are: Mr. Henry Lackey, Henderson; Mr. Welby Hoover, Jamestown; Mr. Hayden Timmons of Louisville and Henderson; Ron Sheets, Louisville; and Mr. Bob Miller, Louisville. Thank you. They are the ones that enable me to be in Congress. I appreciate your permitting me just a minute to introduce them. Now, the first question, Mr. Campbell: A newspaper article which appeared not long ago indicated that the civil service retire- ment fund would transfer to the Panamanian social security system employee's and employer's contributions for certain canal employees who are going to work for the Republic of Panama. The concern is that Panama will be getting twice the share of money that would normally go over in a transfer. Would you clarify this issue for us? I realize you addressed this somewhat on page 15 of your statement. 1189 Dr. Campbell. Yes. For those employees that have over 5 years of service and thereby eligible to have their annuity transferred, the transfer would be both the employee contribution and the employer contribution; 7 percent on each side. There does remain some issue as to whether there will be trans- ferred any interest accumulation, and, as I understand it, the two pieces of legislation before us differ in that manner. Mr. Tinsley, head of our retirement system and expert on these matters, assures me that is correct. Mr. Hubbard. This was partially answered also in your excellent statement. Many of the DOD employees and their labor representa- tives in the Canal Zone are asking that the early retirement provi- sions of the implementing legislation be applied to them as well as the Panama Canal Company, Canal Zone and Government, and Panama Canal Commission employees. Why are the early retirement provisions restricted to these em- ployees? Dr. Campbell. Well, we do not see any rationale for providing special early retirement to what are essentially regular employees of executive agencies. The Defense Department has employees all around the world. They are subject to transfer and movement, and the change in Panama does not change the terms and conditions of their employment. Now, for those who may be involuntarily separated, of course, there are special retirement benefits, both for those who work with executive agencies as well as those for the various institutions involved with the zone. Also, we are permitting, under our priority 2 category, special placement help for those members of the executive agencies who wish to leave Panama. So what we are trying to create is a balance between those involuntarily affected by these conditions, and those who wish a voluntary opportunity to opt out. Mr. Hubbard. All right, thank you. We will call on the ranking minority member, Congressman Bauman. Mr. Bauman. Mr. Campbell, I do not think most Americans realize that of the 15,000 employees of the Canal Company in the zone government, about 13,000-plus are Panamanian citizens. Dr. Campbell. Yes. Mr. Bauman. This is interesting, when you hear the cries about giving back the canal to Panama and so on. But it has certainly become plain to me that one group of em- ployees, which consists mainly of Panamanian nationals, is the one that is likely to suffer most under this change. And, although I realize there are certain immigration rights given to Panamanians who work for the Canal Company for a certain period of time, have you given any thought to the problem, or has there been any estimate of cost, if the right to emigrate and all of the other rights were given on an equal basis to Panamanian citizens and Ameri- cans? Many of the Panamanians that I have talked with there in my two trips have expressed the desire to come to the United States, or to leave at some point, as the American citizens will have that right. 1190 In other words, there should be equal treatment throughout for both. Dr. Campbell. Yes. Mr. Bauman. And it is a special case that prompts that sugges- tion. Dr. Campbell. Yes. It is indeed a special case, and you identify the real problem. Many of the provisions as they relate to early out retirement and the protection of the civil service retirement system do apply to Panamanians who are U.S. citizens. However, we have not given special consideration to the issue of immigration and the guaranteeing of jobs to noncitizens. It would be very unusual for that to be done within the Federal civil service system. Mr. Bauman. Could you give us a brief outline of the differences in treatment of the U.S. citizens and the Panamanian nationals? What essential differences and rights accrue under the treaty and the bills? Dr. Campbell. In relationship to retirement, there are no differ- ences. It is a matter of what category of employee, not citizenship, that applies. I am going to ask Mr. Tinsley to check me on this, but I do not believe that we are providing employment guarantees to Panama- nians for employment by the U.S. Government in the United States in the same way that we are to U.S. citizens. Am I right about that, Tom? Mr. Tinsley. You are right. We allow them the right to emigrate by choice, with no use of the quotas, special quota status, but we do not guarantee them employment. Dr. Campbell. That is my understanding of how it now applies. In other words, the priority 1, priority 2 system that I explained applies only to U.S. citizens. Mr. Bauman. Well, I would say, Mr. Campbell, that it is a source of concern to me, because many of the Panamanian nationals — and I do not in any way denigrate the rights of the American citizens who work there, because I think they are going to be taken care of in this legislation — are of West Indian origin Dr. Campbell. Yes. Mr. Bauman [continuing]. Of third or fourth generation. They helped to build the canal. I think the figures I have seen historical- ly are about 29 Panamanians helped to build the canal, actual Panamanian citizens at the time it was built, whereas thousands of French, American, and West Indians did. Now these people who are of West Indian origins have many times been described as an ethnic subgroup, and they are in fact such a group in Panama. In some respects they are even looked down upon or discriminated against, and are at the tender mercies of the Panamanian Government. They are for instance, being forced into Panama's social security system. Many of them have expressed this desire to emigrate to the United States, but they are faced, under the terms of the bill, with no rights as to employment. Maybe you could give the committee an estimate of what the cost of an equalizing factor in this bill would be, because some of us are talking about drafting a section that would address that problem. 1191 Dr. Campbell. We will certainly examine that and provide you with data, and I will also discuss the matter you raised with the other relevant Departments, the Army and the State Department. Mr. Bauman. I thank you, Mr. Chairman. Mr. Hubbard. Congressman Bonior? Mr. Bonior. Thank you, Mr. Chairman. I have no questions. I have not had a chance to examine Mr. Campbell's statement, and if I do have questions I will submit them to Mr. Campbell for the record. Dr. Campbell. We will be pleased to respond. Mr. Hubbard. Congressman Carney? Mr. Carney. Yes. Mr. Campbell, did your agency participate in the creation of the Panama Canal Treaty? Were you involved in that at all? Dr. Campbell. Well, I am not sure that I would call it participa- tion. When the issues arose about how the employees of the affect- ed institutions were to be treated, we worked closely with the State Department and the Army. And we had discussions with repre- sentatives of employee organizations. There emerged from that an agreement among the involved agencies, and we of course were particularly involved in providing cost estimates, because the ex- pertise for that rests with our agency. Mr. Carney. And then of course you were involved in the admin- istration's bill to implement the treaty as well? Dr. Campbell. Yes. Mr. Carney. Did you have those same figures available back in 1976 when you were putting the treaty together, the liabilities 9 Dr. Campbell. We had approximate figures. We did not provide an official estimate to anyone at that time, however. Obviously there was always the difficulty of knowing how many people would take advantage of their rights, and even here we give, in a sense, the worse case; that is, the special retirement provisions being used by those eligible. At that time we were not aware of the special rights to be given to employees of executive branch agencies, other than the institu- tions of the zone. And therefore we did not have that in our total calculation, but we did have rough estimates as to the cost and they undoubtedly differed from what we have now which are better estimates, but they still remain estimates. Mr. Carney. Did you pass those estimates on to the administra- tion back in that time? Dr. Campbell. Well, it is a little hard to say what one means by the administration, since I see us as part of the administration. Mr. Carney. I am just trying to find out if it was your agencv, or the Carter administration who denied the public the knowledge of these figures when they were trying to push the treatv down the public's throat. Dr. Campbell. The figures that we had were obviously rough estimates, and they remain estimates. Mr. Carney. They must have been rough, because we were told that there would be no cost. They were extremely rough. I am just wondering if you— you know, I am* trying to pinpoint this, whether you passed it on to the administration, or it was vour agency that denied the public these figures. 1192 Dr. Campbell. The various estimates being used at that time all had to be based upon assumptions about the number of employees who would use early out, and that obviously makes a substantial difference. Furthermore, we were dealing, in one sense, with a normal situa- tion; that is a reorganization, with a reduction in force, and the law already provides for dealing with that. So the fact is that the estimates that we are providing are estimates based on assumptions of actions that employees are going to take, which may or may not turn out to be the case. But we have outside estimates now. Sort of " worst case." Mr. Carney. Then perhaps you did not make the assumptions back in 1976; would that be fair to say? Dr. Campbell. At that time it was more difficult, because we did not have as much information then as we have now. Mr. Carney. So then, under those circumstances, you assumed there would be no cost? Dr. Campbell. We did not assume that there would be any cost of any large magnitude; and we still do not think so. Mr. Carney. And then the administration knew that? Dr. Campbell. I always have a problem about the administration in this. It was certainly known Mr, Carney. So do I. Dr. Campbell [continuing]. By those of us who were involved in the matter. Mr. Carney, you said that you felt it was not a cost of great significance, is that correct? Dr. Campbell. Yes. Mr. Carney. Do you feel $205 million is a cost of great signifi- cance? Dr. Campbell. Well, if you examine the total retirement system in relation to the $205 million and the other provisions of early-out retirement for other Federal employees under statutes already in existence, when there are reductions in force, it does not seem major. For example, compared to the closing of a defense base, one is always able to calculate cost because of the size of what we are dealing with, which are very large. This is not excessively large in relationship to other kinds of reduction in force situations. Mr. Carney, OK, I can see that. I, myself, feel that $205 million in any relationship, especially when you are talking about taxpay- ers dollars, is a significant figure; but sometimes Dr. Campbell. I do not quarrel with you on that. Mr. Carney. Yes. But I feel that bureaucracy sometimes does not. Were your figures in 1976 at least around $100 million level? I mean, that is not a significant figure either, but were they at least around that level? Dr. Campbell. I do not remember. Tom, do you remember? Mr. Tinsley. I would have to check. But you have to remember, Mr. Carney, that during this period an agreement pursuant to a treaty was evolving. As a result, in our working with State and Defense and the Canal Zone people, we were furnishing a variety 1193 of estimates based upon different assumptions or different things being considered or discussed by both parties. Now, we could very well go back and determine at what point we made an estimate based upon what appeared to be, to us at that time, the final treaty agreement and so forth. At that time, yes, we did furnish estimates to both State and Defense. Mr. Carney. I would like to know exactly when you did furnish those estimates. Mr. Chairman, I would like that information as quickly as it could be supplied, because I think it is very important. For one, the credibility of your estimates now, you know, apparently they were very inaccurate in 1976, and I do not know how much credibility the American people could put on this picture today in 1979. Dr. Campbell. We will certainly check on that matter and let you have what information we have. Obviously, at that time we did not have implementing legislation, What we were doing, was deal- ing with language of the treaty, which is much broader than the later written proposal for implementing legislation. Mr. Carney. Thank you. Thank you, Mr. Chairman. [The information to be supplied follows:] Question. What prior cost estimates has the Civil Service Commission (now the Office of Personnel Management) furnished on bill? Were any estimates furnished in 1976? Answer. A review of our records show that cost estimates for liberalized retire- ment for Canal Zone employees were furnished OMB, State and Army Departments in October of 1977. This was at a time when a number of different proposals were under consideration in response to Article X (10) of the Treaty. No cost estimates were made prior to that time, and, therefore, no cost estimates were furnished anyone in 1976. At that time information from the Defense Department was that there were 12,703 covered employees of whom 3,045 would lose their jobs immediately upon entry into force and 2,352 would be transferred to other U.S. employment. We assumed that there would not be any unusual circumstances affecting the remain- ing 7,306 employees until the termination of the treaty in the year 2000 when any remaining employees would lose their jobs. One alternative at that time had proposed that employees remaining with the operation would accrue benefits at the rate of 2 Vfe percent for the next 20 years and 2 percent thereafter. It also proposed that any of the 9,658 employees could leave (voluntarily or involuntarily) after 25 years or after age 50 and 20 years with a full accrued benefit. The added liability for this provision would be $97,000,000 for those remaining and $5,000,000 for the 5,397 who would leave. The total liability of $102,000,000 would be funded in thirty annual installments of $6,300,000 each. Another alternative had suggested that the above proposal be amended to provide involuntary retirements below age 50 with 20 years of service without a reduction. The cost of the amended proposal would be $104,000,000 for those remaining and $31,000,000 for those leaving. The total liability of $135,000,000 would be funded in thirty installments of $8,400,000 each. A third alternative proposed that the above benefits be extended to anyone with 20 years of service at any age. This would add a liability of $114,000,000 for those remaining and $31,000,000 for those leaving. The total liability of $145,000,000 would be funded in thirty payments of $9,000,000 each. We were also asked what a reduction below age 50 would do to the costs. A 2 percent reduction per year below age 50 would reduce the cost of the third alterna- tive proposal by $16,000,000. Smaller savings would be effected by a reduction in the other proposals. The final proposal was further liberalized to permit retirement where someone was within 2 years of meeting the age 50 or 20 year service requirements. In February, 1978, we estimated for OMB that the unfunded liability for the final 1194 proposal would be $148-$150 million, to be amortized in 30 payments of $9.2-$9.3 million each. The costs of the final proposal as we now estimate them — $205 million to be amortized in 30 payments of $12.7 million — are higher because payroll cost has increased from $11,600 to 13,000 per employee and because the cost of the liberal- ized retirement for the 3200 employees who will be transferred to DOD was not included in our prior cost estimates. Mr. Hubbard. Many statements by the President and Secretary Vance assured the American people that this treaty would not cost the people anything that would be looked upon now as incorrect, would it not, Mr. Campbell? Dr. Campbell. Well, I do not, in this regard, pretend to be speaking for the administration, but let me simply say that the costs included here are costs that relate to provisions for dealing with employees who, in some way or another, have rights or have been harmed by particular public action. That would be true if they were employees not in Panama but any place else in the United States, because there is general legislation which provides that kind of protection. Therefore, to argue that this is additional cost has to be based upon the proposition that any actions taken which impact Federal employees add to the cost of Government in ways that are inappro- priate or should not be undertaken. My only point is that the additional costs here are related to attempting to deal with the real problem of Federal employees impacted by public policy. Mr. Hubbard. Again, thank you, Mr. Campbell. Dr. Campbell. Thank you. Mr. Hubbard. Terry Modglin, the counsel for our subcommittee, has a couple of questions for you. Mr. Modglin. Just a couple of quick ones, Mr. Chairman. Dr. Campbell, with respect to the priority placement program, who will pay the expenses of the placement of employees, for priority levels 1 and 2, for those employees who transfer from the Canal Zone to the agencies in the continental United States? Dr. Campbell. Are you talking about the expenses of running the priority system, or the cost to the employee of moving and so forth? Mr. Modglin. It would be the latter. Dr. Campbell. The latter? It will be handled by the hiring agency. And Mr. Modglin. Has there been any — go ahead, sir, I am sorry. Dr. Campbell. I was just simply going to say that in the same way that if an agency in Denver hired an employee of either another agency or their own regional office in some other part of the country, there are GSA rules and regulations about payment of moving expenses. Mr. Modglin. Has there been any discussion in the administra- tion about shifting the cost of those such transfers to the agency losing the employees, like the Panama Canal organization? Dr. Campbell. I am not aware of any such discussions. Mr. Modglin. There has been some criticism of the employee benefits package in the implementing legislation as being misdi- rected because it provides incentives for employees to leave the canal organization and at the same time provide incentive for individuals to stay with the Commission to the year 2000. Would 1195 you speak to that particular point and the criticism that has been made? Dr. Campbell. Our motivation in drawing the provisions here was twofold. One was that of fairness to employees who, through no fault of their own, were being forced to make substantial changes, and we believed that that should be recognized in terms of providing alternatives. However, more important was to encourage particularly essen- tial employees to remain in their jobs during the transition period. And we became convinced in discussion with the Pilots Association, for example, and other organized employees, that a continuing potential for retirement, a kind of safety net, was what they needed to encourage them to stay. And I would argue that the provisions here, except for those involuntarily separated, will tend to cause people to remain in their job rather than to take advantage of the retirement opportu- nity. That was our intent. Mr. Modglin. There are several references in your statement to the social security system of the Republic of Panama, and coverage by that system triggers certain noncoverage for non-U. S. citizens under various provisions in the implementing legislation. Who is covered, and what is the extent of coverage for benefits of the social security system of Panama? And if that is not available today, could we have it submitted to us? Dr. Campbell. Yes; I do not have the answer to that. If Tom does not have it, we will provide it. Mr. Tinsley. If you are referring to what does the social security system of Panama provide in the way of benefits, we will have to furnish you that information. Dr. Campbell. Yes; we do not have that. [The following material was submitted for the record:] What information does the Office of Personnel Management have on current bene- fits payable under Panamanian Social Security? Our staff has been in direct contact with the staff of the Panamanian Social Security System to plan for the special regime in that system identical in eligiblity requirements, benefits and employer/ employee contributions to the Civil Service Retirement System which the Agreement in Implementation of Article III of the Treaty requires Panama to establish for former Panama Canal Company/Canal Zone Government employees who become employed by the Republic of Panama. We have learned the following general information about Panama Social Security. The Panama Social Security program is much like the Social Security program in the United States. It provides for the population generally — including government employees — a health and maternity program, a retirement program, a disability program, and a death benefits program. Under the death benefits program, survivor annunity may be paid to dependent parents, as well as to surviving spouses and children. Benefits under Panama Social Security are financed through contributions as by employees and employers. Employees pay 1 percent of payroll for health benefits and employers pay 8 percent of payroll. Employees pay 5.75 percent of payroll for retirement, disability and death benefits and employers pay 3.55 percent of payroll. Contributions paid by an employee will be refunded if he or she separates without title to retirement annuity. Eligibility requirements for normal retirement under Panama Social Security are generally completion of 15 years of service and attainment of age 55 for women and age 60 for men. The amount of the basic monthly pay is determined by dividing the total pay of the five highest paying calendar years from January to December, whether or not they are 12 complete months, by 60 months, selected from the 15 years contributions paid prior to the date of application, or the date of retirement 1196 chosen by the employee if he or she files the application in advance. The basic monthly annuity payable is determined by taking 60 percent of the basic monthly pay and adding 1 percent of the basic monthly pay for every 12 complete months of contributions paid by the employee in excess of the first 120 months (10) years of contribution. Early retirement is available under the Panama Social Security System upon completion of 15 years of service at attaining age 50 for women and age 55 for men. The basic monthly pay and the basic monthly annuity are computed the same as for normal retirement, but the basic monthly annuity is reduced according to age at about 4 percent a year for each year early retirement is prior to normal retirement age. The maximum monthly annuity payable under Panamanian Social Security is $1,000 per month. The minimum monthly annuity payable is $90 per month. Annuity benefits under Panama Social Security are adjusted occasionally after retirement to take account of increases in the cost of living. The increases are determined by the Government of Panama and are not tied to any particular rise in the Panamanian Consumer Price Index. Mr. Hubbard. Are there any other questions? Hearing none, thank you, Alan B. Campbell. Dr. Campbell. Thank you very much, Mr. Chairman. Mr. Hubbard. Please remember the requests for information by Congressman Carney, Mr. Modglin and others. Please respond to these requests soon. Dr. Campbell. We will get it to you as soon as possible. Thank you very much. Mr. Hubbard. Thank you again for your testimony and for an- swering our questions. Our next witness is Mr. H. Miles Foy, Attorney-Advisor in the Office of Legal Counsel for the Department of Justice. Mr. Foy testified before the Committee on Merchant Marine and Fisheries in 1978 along with Assistant Attorney General John Harmon. Mr. Foy, you have some very important and interesting matters to discuss, and we are anxious to hear your testimony. One of the matters you will be discussing in your statement is U.S. authority during the transition period. Another matter which you will touch upon in response to our written questions will be the provision in implementing legislation which makes a general change in United States Code references to the Canal Zone in various related terms. A study has been prepared by the American Law Division, Con- gressional Research Service, relating to both these matters. The study, prepared by legislative attorney Christine P. Benagh is enti- tled ' 'Effects of the Panama Canal Treaties Upon Provisions of the United States Code." The committee asked the American Law Division of the Library of Congress to undertake this study because no systematic analysis of the disposition or of the validity of the various code references has been done in the executive branch prior to the presentation of draft legislation for the Senate. In other words, until this study was done, we had no clear idea of how well section 3 of House bill 111 or sections 2 and 401 of House bill 1716 would adequately protect the application of present U.S. law. I ask unanimous consent that the CRS study by Christine P. Benagh be placed in the record of these hearings. Hearing no objection, it is so ordered. [CRS study follows:] 1197 THE LIBRARY OF CONGRESS Congressional Research Service WASHINGTON, D.C. 20540 EFFECT OF THE PANAMA CANAL TREATIES UPON PROVISIONS OF THE UNITED STATES CODE 1/ After the ratification of the Panama Canal Treaty, the American Law Division of the Congressional Research Service was asked to an- alyze the impact of the treaties upon the laws of the United States current- ly in effect in the Canal Zone. This report is the response to that request. All United States Code provisions in effect at the end of the 95th Congress were identified by computer and individually analyzed. The first part of this report addresses the termination of United States juris- diction in the Isthmus of Panama. Part II briefly explains the classes of statutes effected by the Treaty and the methodology used in determining the effect that the Treaty has upon United States statutes. The final section of the report is composed of five attachments listing every statute which specifically mentions the Panama Canal, the Canal Zone, or the Canal Zone Government. These statutes are listed according to the categories explained in Part II of the report. They have been further divided by subject matter. For each statute there appears the Code citation, a brief explanation of the law, and, where appropriate, the reason for the classification. 1/ Panama Canal Treaty, September 7, 1977, Panama - United States, in New Panama Canal Treaty: Hearings Before The House Comm. on Merchant Marine and Fisheries on The Agreement in Principle with Respect to the Proposed Panama Canal Treaties of 1977 , 95th Cong., 1st Sess., 1977 [hereinafter referred to as Hearings ] . 2/ All citations are made to the Code at the end of the 95th Congress. Many of them have not yet been incorporated in the most recent official version of the Code , but where this is the case, they can be located in the United States Code Annotated (Supp. 1978) or the United States Code Congressional and Admini s trative News , 95th Cong., 2d Sess. (1978). 1198 CRS-2 I . Jurisdictional Considerations A central aspect of the Panama Canal Treaty of 1977 is the re- cognition of the complete territorial jurisdiction of Panama over the Canal, the former Canal Zone, and the operating areas and installations of the Canal Prior to this treaty, the laws governing these areas were established y by the the Canal Zone Government or by the United States in exercise of the 5/ territorial jurisdiction granted to the United States in 1936 by Panama under Article IX of the General Treaty of Friendship and Cooperation between the y United States of America and the Republic of Panama. At international law, "jurisdiction" means the capacity of a state J] to prescribe or to enforce a rule of law. Jurisdiction may be exercised under five general principles: — Territorial, based upon the place where the offense was committed; — National, based upon the nationality or national character of the offender: 3/ Panama Canal Treaty, September 7, 1977, Panama - United States, art. I, sec. 2, in Hearings , 102, supra note 1. 4/ C. Z. Code, tit. 1, § 1 (1963). 5/ Id . at § 2 . 6/ General Treaty of Friendship and Cooperation between the United States of America and the Republic of Panama, March 2, 1936, Panama - United States, art. IX, 53 Stat. 1807, 1821; T.S. No. 945. 7/ Restatement (Second) of Foreign Relations Law § 6 (1965). 1199 CRS-3 — Protective, based upon whether the national interest is injured; — Universality, based upon custody of the offender; and — Passive, based upon the nationality or national character of the victim. The Panama Canal Treaty affirms the status of Panama as territorial JJ sovereign of the Canal and surrounding areas, thus Panama has the right to restrict the activities of the United States in this area. As Chief Justice Marshall said: The jurisdiction of the nation within its own territory is necessarily exclusive and absolute. It is susceptible of no limitation not imposed by itself. Any restriction upon it, deriving validity from an external source, would imply a diminution of its sovereignty to the extent of the restriction, and an investment of that sov- ereignty to the same extent in that power which could im- pose such restriction. 10 / Under the new treaty arrangement, the jurisdictional status of the United States in the Isthmus of Panama has changed in many important 8/ Rivard v. United States, 375 F.2d 882, 885 n. 5-9 (5th Cir.), cert , den., 389 U.S. 884 (1967). 9/ Panama Canal Treaty, September 7, 1977, Panama - United States, art. I, sec. 2, in Hearings , 102, supra note 1, at 1. See generally Vermilya Brown Co. v. Connell, 335 U.S. 377 (1948); Luckenbach Steamship Co. v. United States, 280 U.S. 173 (1930); (1930); David Kaufman and Son Co. v Smith, 216 U.S. 610 (1910). 10/ The Schooner Exch . v. McFaddon, 11 U.S. (7 Cranch) 116, 136 (1812). 1200 CRS-4 respects. Generally speaking, Panama resumes plenary jurisdiction over 11/ the former Canal Zone upon entry into force of the Treaty, although the United States retains jurisdiction in criminal cases for offenses com- 12/ mitted prior to entry into force of the treaty. Among the most important areas in which the United States has been granted regulatory authority 13/ are the operation of the Canal and employment by the Panama Canal Commis- sion. Special provision has been made for a thirty month transition per- il/ iod after entry into force of the Treaty. During the transition period, the civil and criminal laws of the United States apply concurrently with those of Panama in the areas set aside for use by the United States. However, the United States courts do not have jurisdiction to hear any new private civil actions after entry into force of the Treaty. For thirty months the United States maintains primary 11/ Panama Canal Treaty, September 7, 1977, Panama - United States, art. XI, sec. 1, in Hearings , 109, supra note 1, at 1. 12 / Id. at art. XI, sec. 3, in Hearings , 110, supra note 1, at 1. 13 / Id . at art. Ill, sec. 1, in Hearings , 103, supra note 1, at 1. ]A/ Id. at art. X, sec. 1, in Hearings , 108, supra note 1, at 1. 15/ Id. at art. XI, in Hearings , 109-110, supra note 1, at 1. 16/ See Agreement in Implementation of Article III, Panama Canal Treaty, September 7, 1977, Panama - United States, Annex A, in Hear- ings, 139-144, supra note 1 , at 1 (description of these areas). 17 / Panama Canal Treaty, Sepember 7, 1977, Panama - United States, art. XI, sec. 6, in Hearing , 110, supra note 1, at 1. 1201 CRS-5 jurisdiction over United States citizen employees of the Panama Canal Commission, members of the United States armed forces, and similar personnel for (1) criminal offenses committed during the transition period in the areas set aside for use by the United States, and for (2) criminal offenses committed prior to entry into force of the 18/ Treaty in the former Canal Zone. Thus, after the end of the transition period, the United States has renounced any jurisdictional claims within the Isthmus beyond those needed to effectuate the Treaty (op- eration and defense of the Canal). It has effectively repealed the jurisdiction upon which many United States statutes were based, rais- ing the question of the continued judicial enforcement of these stat- 19/ utes . Title 1 U.S.C. section 109 (1976) states that the repeal of a statute shall not "release or extinguish any penalty, forfeiture, or liability incurred under such statute, unless the repealing Act shall so expressly provide, and such statute shall be treated as still 18 / Id. , sec. 2, in Hearings , 110, supra note 1, at 1. 19 / In order to permit the prosecution of criminal offenses which were committed prior to the Treaty and to preserve both private and governmental rights incurred prior to the Treaty, it may be wise, as a precautionary measure, to place a savings clause in the implem- enting legislation which specifically authorizes continuation of any proper action or prosecution for the enforcement of rights, penal- ties, forfeitures, or liabilities incurred under statutes the juris- diction of which was affected by the Panama Canal Treaty of 1977. 1202 CRS-6 remaining in force for the purpose of sustaining any proper action or prosecution for the enforcement of such penalty, forfeiture, or liabil- 20/ ity." However, if this specific rule of interpretation were not pre- 21/ sent the common law rule would apply: [The] repeal of a penal statue operated to expunge the act as though it had never existed. The repeal operates to terminate any prosecution which has not proceeded to a final judgment and granted immunity from indictment or prosecution under the act for of- fenses committed while the act was in operation. 22 / Under the Treaty, however, the United States has not repealed a statute , it has repealed the jurisdiction under which it prescribed and enforced laws in the Zone, since the laws prescribed under the 23/ 1936 Treaty were based upon territorial jurisdiction. "A state does not have jurisdiction to enforce a rule of law prescribed by it- un- 24/ less it had jurisdiction to prescribe the rule." Therefore, after entry into force of the Treaty the United States apparently no longer possesses the power to make or enforce laws except to the extent permitted in the Treaty. 20/ 1 U.S.C. § 109 (1976). 21/ See C. Sands, Sutherland on Statutes and Statutory Construction §23.06 (4th ed. 1972). 22/ Id. at § 23.36 (footnotes ommited). 23/ C. Z. Code, tit. 1, sec. 2 (1963). 24/ Restatement (Second) on Foreign Relations Laws §7(2) (1965). 1203 CRS-7 II: Classes of Statutes Affected A statute-by-statute, line-by-line approach was util- ized in the attachments this report as the best method by which to analyze the impact of the Panama Canal Treaty on the United States Code . Analysis of the statutes which specifically mentioned the Canal, the Canal Zone, or the Canal Zone Government, resulted in the development of five categories of impact. The first category is com- posed of statutes based upon territorial jurisdiction which will cease to be applied within the Isthmus at the end of the transition period. In second category are statutes which could continue to apply after the transition period, for example, exemption of the Panama Canal Company from the federal tort claims procedure. The Company will cease to exist upon entry into force of the treaty, but the Panama Canal Commission is 25/ to be its successor agency. As a United States agency, it would continue to be subject to United States law. Assuming that the legislative schemes upon which these statues were based are not to change, amendatory language would be needed to bring these provisions into conformity with the Treaty. Specific amendments would also be helpful in making it clear that Congress intended their continued applicability. 25 / Panama Canal Treaty, September 7, 1977, Panama - United States, art. Ill, sec. 3, in Hearings , 103, supra note 1, at 1. 1204 CRS-8 The third category is a listing of statutes which could continue to be applied, but the legislative scheme has been so disturbed by the Treaty that to suggest amendatory language would be a policy decision. For example, the appointment of cadets to the Naval Academy from resi- dents of the Zone could be changed to permit appointment of cadets from among citizens living in the Canal housing areas, but such a change is not required by the Treaty. A fourth category was established for statutes which granted au- thority, rights, or interests, which needed to be preserved, such as the evidentiary rules governing the admissability of government documents from the Zone in United States courts. At the time these documents were were written, the Zone was a United States territory. The Treaty does not affect the status of these documents, and so, the rules for their admissability should be retained. The final category lists, primarily, statutes which directly conflict with Treaty provisions. Since they have been superceded by the Treaty, deletion would be appropriate and would eliminate confusion. A word of caution is needed, however. This report has analyzed the Cod e references to the Canal and the Zone only in light of the Treaty itself. It is intended only to point out the effect of the Treaty on each provision. The issues discussed in the attachments are not merely technical corrections ; each change mentioned has an individual effect upon legislative policy. There are limitations 1205 CRS-9 upon what the United States may do by law in the Isthmus in light of the Treaty, and this report points out specific examples of these. However, each reference should be examined in light of national policy because every statutory amendment, deletion, or repeal is an expression of that policy by the Congress. Christine Benagh Legislative Attorney American Law Division January 24, 1979 1206 ATTACHMENT A SECTIONS OF THE UNITED STATES CODE WHICH WILL BECOME INAPPLICABLE WITH THE TERMINATION OF UNITED STATES TERRITORIAL JURISDICTION AT THE END OF THE TRANSITION PERIOD Code Citatio n Agriculture: 7 U.S.C. § 135 7 U.S.C. S 610 7 U.S.C §§ 615, 617 Atomic Energy: 42 U.S.C. § 2014(bb) 42 U.S.C. S2021(n) Armed Forces: 10 U.S.C. S 101(3), (10), (13) 10 U.S.C. § 269(g) 10 U.S.C. § 270(c) 10 U.S.C. S 281 10 U.S.C. $ 312 10 U.S.C. S 594(b) Subject of Citation Exclusion of the Canal Zone from insecticide regulations Authority of the President to determine policy with respect to the volume of sugar imports Rebate from taxes on sugar processing and exporting Application of the atomic energy statutes Cooperation of the Federal Government with the states with respect to atomic energy Application of laws regarding the National Guard Transfer of National Guard personnel to the Ready Reserve Training requirements for the Army National Guard Adjutant-type duties in National Guard Exemptions from militia duty Exception to limitations on the appointment of National Guard officers 1207 A- 2 Code Citation 10 U.S.C. § 672(b), (d) 10 U.S.C. S 771A 10 U.S.C. § 802(Art. 2) (11), (12) 10 U.S.C. § 1002(c) 10 U.S.C. § 3015 10 U.S.C. § 3218 10 U.S.C. S 3225 10 U.S.C. § 3259 10 U.S.C. § 3352 10 U.S.C. $ 3363 10 U.S.C. § 3364(g), (j) 10 U.S.C. § 3370(d) 10 U.S.C. S 3390(a) 10 U.S.C. S 3392 10 U.S.C. S 3500 10 U.S.C. § 3501(a), (b) 10 U.S.C. S 3845 Subject of Citation Consent of authorities to entry of National Guard to active duty Uniform of National Guard upon release from active duty Persons subject to the Uniform Code of Military Justice Exception to qualifications for reserve officers National Guard Bureau for Communication Authorized strength of active general reserve officers Strength of National Guard units Enlisted personnel transfer from National Guard to Army Reserve Officer personnel transfer from National Guard to Army Reserve Exception of Adjutant Generals to Selection Board procedure Declination of promotion by officers and promotion related to transfer Declination of promotion to colonel in Army National Guard Promotion of Army National Guard officer on active duty Appointment of adjutants as Reserve Army officers Presidential call-up of Army National Guard Time period of Presidential call-up of Army National Guard and authority to apportion from several jurisdictions Retirement of National Guard officers 44-394 O - 79 - pt. 2-24 1208 Code Citations 10 U.S.C. § 3848 10 U.S.C. § 3851 10 U.S.C. S 3852 A- 3 Subject of Citation Assignment and retirement of certain officers to Headquarters Detachment Assignment and retirement of colonels and brigadier generals with a specified number of years in grade Assignment and retirement of reserve major generals 10 U.S.C. § 8218 10 U.S.C. § 8225 10 U.S.C. S 8259 10 U.S.C. $ 8352 10 U.S.C. § 8360 10 U.S.C. S 8363 10 U.S.C. § 8381 10 U.S.C. § 8392 10 U.S.C. § 8500 10 U.S.C. § 8501 10 U.S.C. § 8845 10 U.S.C. § 8851 10 U.S.C. § 8852 Strength of Air Force Reserve general officers Air National Guard strengths Enlisted transfer from Air National Guard to Air Force Reserve Officer transfer from Air National Guard to Air Force Reserve Exception of adjutants to reserve Air Force officer promotion service Exception of adjutants from Selection Board procedure Disposition of adjutants after service Reserve grade of Air National Guard adjutants Presidential call-up of Air National Guard Time period of Presidental call-up of Air National Guard and authority to apportion from several jurisdictions Retirement of Air National Guard Adjutants Retirement of Reserve colonels and brigadier generals from Air National Guard Retirement of major generals from Air National Guard 1209 A-4 Code Citation 10 U.S.C. § 9301 37 U.S.C. § 101(2) Subject of Citation Approval of Governor for call-up of Air National Guard personnel Definition of '"possessions" includes Canal Zone for purposes of pay of the uniformed services 37 U.S.C. § 101(7) Definition of "Army National Guard" includes Canal Zone for purposes of pay of the uniformed services 37 U.S.C. § 101(9) Aviation: 49 U.S.C. § 1156 Civil Rights: 29 U.S.C. § 630(i) Claims: 22 U.S.C. S 1621(b) Communications: 47 U.S.C. § 152 Definition of "Air National Guard" includes Canal Zone for purposes of pay of the uniformed services Authority for Secretary of Transportation to provide air navigation, communications, and traffic control facilities in the Canal Zone and transfer of air-related property in the Zone to that Secretary by the Secretary of De- fense Definition of "State" includes the Zone for purposes of age discrimination Definition of "United States" includes Canal Zone for purposes of international claims settlement Exemption of Canal Zone from jurisdiction of the Federal Communications Commission 47 U.S.C. 5 153(e)(1) 47 U.S.C. § 153(g) Exemption of Canal Zone from definition of "interstate commerce" Exemption of Canal Zone from definition of "United States" for purposes of jurisdiction of Federal Communications Commission 47 U.S.C. § 330(b)(2) Exemption of the Canal Zone from prohibition against shipment of certain television receivers 1210 A-5 Code Citation Consumer Protection: 15 U.S.C. § 1231(h) Subject of Citation Definition of "United States" includes Canal Zone for automobile disclosure information 15 U.S.C. § 1391(8), (12) Definition of "United States" includes Canal Zone for motor vehicle safety standards 15 U.S.C. § 1901(16) 15 U.S.C. § 1901(18) 15 U.S.C. S 2052(10) 15 U.S.C. § 2203(7) 15 U.S.C. § 2301(15) 21 U.S.C. § 453 21 U.S.C. S 601(g) Definition of "United States" includes Canal Zone for motor vehicle information Definition of "United States district courts" includes Canal Zone court for motor vehicle information Definition of "State" for consumer product safety includes Canal Zone Definition of "State" includes Canal Zone for fire prevention and control Definition of "State" includes Canal Zone for consumer product warranties Exemption of Canal Zone from poultry inspection laws Exemption of Canal Zone from meat inspection laws Employment : 29 U.S.C. § 1002(10) Finance: 31 U.S.C § 528(c) Hazardous Substances: 15 U.S.C. § 1261 Definition of "State" includes Canal Zone for retirement security income Reference to Canal Zone as a territory or possession for purposes of mutilated Federal checks Definition of "interstate commerce" for purposes of hazardous substances control excludes the Canal Zone. 1211 Code Citation A-6 Subject of Citation Housing: 42 U.S.C. S 5402(12) Definitions of "State" and "United States district courts" includes Canal Zone for mobile home safety standards Immigration: 8 U.S.C. § 1440(a) Internal Security: 50 U.S.C. § 82 50 U.S.C. S 1514 Labor: 29 U.S.C. § 302(a)(9) 29 U.S.C. $ 402(b) Law Enforcement: 18 U.S.C. § 14(a), 18 U.S.C. S 5003(d) Naturalization through active-duty service in the armed forces during periods of military hostility if persons was in United States, Canal Zone, etc., at time of enlistment or induction. Definition of "United States" includes Canal Zone for purposes of authority of the President to take special measures to secure materiel during wartime. Definition of "United States" includes Canal Zone for purposes of chemical and biological warfare program Definition of "State" includes Canal Zone for purposes of disclosure of welfare and pension plans Definition of "State" includes Canal Zone for purposes of labor-management reporting Listing of criminal statutes, other than those which apply by their own terms, which are applicable in Canal Zone. Attorney General authorized to contract with "state" personnel, including those of the Canal Zone, for handling of convicts.. 1212 Code Citation A-7 Subject of Citation National Guard: 32 U.S.C. 5 101(4), (6) 32 U.S.C. 5 103 32 U.S.C. § 104(a), (c) 32 U.S.C. § 107(a) 32 U.S.C. § 107(b) 32 U.S.C. § 107(c) 32 U.S.C. § 304 32 U.S.C. § 314(a), (b), (d) 32 U.S.C. § 315(a), (b) 32 U.S.C. § 324(b) 32 U.S.C. § 325(a) Definition of "Army and Air National Guard" units includes Canal Zone Definition of "Army National Guard" includes Canal Zone for purposes of including staff corps within the Guard Location of National Guard units, designation by President of units and inability to displace local National Guard commander Apportionment of appropriations for National Guard includes Canal Zone Appropriation for regular air and army units on duty with Air and Army National Guard not to be from allotment of contributing jurisdictions, including Canal Zone Expenses of regular enlisted members on duty with Guard not to be taken from allotment Enlistment oath before officers of National Guard, including those in the Zone Adjutants general established in jurisdictions, including Canal Zone, and Presidential authority to appoint, and reports made as necessary Detail of Army officer and enlisted personnel to reserves by Secretary of Army Termination of appointment of National Guard officers, including those in Canal Zone Relief of Guard members, yncluding those in Canal Zone, from Guard when transferred to active duty 1213 A-8 Code Citation Subject of Citation 32 U.S.C. § 327(a) For National Guard not in Federal service, general courts-martial convened by jurisdiction, including Canal Zone. 32 U.S.C. § 331 Approval of dishonorable discharge by Governors, including Canal Zone 32 U.S.C. § 333 Execution of process upon National Guard personnel by Marshalls in jurisdictions, including Canal Zone 32 U.S.C. § 501 Training of National Gurat conducted by jurisdictions, including Canal Zone 32 U.S.C. § 503(b) Amounts of National Guard field training, including Canal Zone, taken from certain appropriations 32 U.S.C. § 504(b) Small arms competition may take place outside jurisdictional boundaries, including those of Canal Zone 32 U.S.C. 5 505 Presidential and gubernatorial direction for field exercises of National Guard units, including Canal Zone 32 U.S.C. § 702(a)-(d) Assurance of supplies to National Guard and their purchase by units, including Canal Zone 32 U.S.C. § 703 Credit for supplies issues to National Guard units, including Canal Zone, when units are returned 32 U.S.C. § 704 Relief from accountability for property of National Guard units, including Canal Zone 32 U.S.C. § 708(a), (e) Designation of National Guard officer, including on in the Zone, to be responsible for fiscal and property matters 32 U.S.C. S 710(c), (d), Procedures regarding lost or damaged (e), (f) property of the United States issued to the National Guard 1214 A-9 C ode Citations 32 U.S.C. § 711 32 U.S.C. § 712 Transportation: 45 U.S.C. § 52 Securities: 15 U.S.C. § 77b(6) 15 U.S.C. § 78c(a)(16) 15 U.S.C. §§ 80a-2(a)(39) 80a-6(a)(l) 15 U.S.C. § 80b-2(a)(19) 22 U.S.C. § 3102 Shipping: 46 U.S.C. § 224a(6),(7) 46 U.S.C. § 767 Subject of Citations Disposal of obsolete property by National Guard units Disposition of proceeds from sale of condemned stores Liability for damages to individuals on part of common carriers by railroad, including those in Canal Zone Definition of "territory" includes Canal Zone for purposes of regulation of domestic securities under the Securities Act of 1933 Definition of "United States" includes Canal Zone for purposes of regulation of domestic securities under the Securities Exchange Act of 1934 Definition of "United States" includes Canal Zone for purposes of regulation of investment companies and advisors under the Investment Company Act of 1940 Definition of "United States" includes Canal Zone for purposes of regulation of investment companies and advisors under the Investment Advisors Act of 1940 Definition of "United States" includes Canal Zone for purposes of the International Investment Survey Panama Canal Zone exempted from statute regarding ships' officers' competency certi- ficates Waters of Panama Canal exempted from statutes relating to wrongful death at sea 1215 A-10 Code Citations Miscellaneous: 42 U.S.C. § 5122 Subject of Citations Definition of "State" for purposes of disaster relief includes Canal Zone. Disaster relief to the Canal operating areas, installations, and facilities, could be granted under 42 U.S.C. § 5171, since that section authorizes assistance to Federal agencies of which it appears the Commission will be one. 1216 ATTACHMENT B SECTIONS OF THE UNITED STATES CODE WHICH SHOULD BE REVISED TEXTUALLY AFTER ENTRY INTO FORCE OF THE TREATIES IN ORDER TO CLARIFY THE CONTINUED APPLICABILITY OF THE STATUTE Ifl QUESTION AND TO REFLECT THE NEW TREATY ARRANGEMENT Code Citation Armed Forces: 10 U.S.C. § 2573 Subject of Citation and Change Transfer of excess military property to Canal Zone Government permitted when Governor certifies that property contributes to operation of the Canal CHANGE: "Canal Zone Government" to "Panama Canal Commission"; "Governor" to "Administrator"; and "Government of the Canal Zone" to "of the Panama Canal." See also Panama Canal Treaty, September 7, 1977, Panama-United States, art. XIII, sec. 2(c) [hereinafter referred to as Panama Canal Treaty] in New Panama Canal Treaty : Hearing on the Agreement in Principle to the Proposed Panama Canal Treaties of 1977 Before the House Committee on Merchant Marine and Fisheries , 111, 95th Congress, 1st Session (1977)' [hereinafter referred to as Hearings ] ; Agreement in Implementation of Article III of the Panama Canal Treaty, Panama Canal Treaty, September 7, 1977, Panama-United States, art. Ill, sec. 7 [hereinafter referred to as Agreement in Implementation of Article III] in Hearings , 124; Agreement in Implementation of Article IV of the Panama Canal Treaty, Panama Canal Treaty, September 7, 1977, Panama- United States, art. IV sec. 3, Annex A [hereinafter referred to as Agreement in Implementation of Article IV] in Hearings , 151, 164-166 (property transfer provisions) . 1217 B-2 Code Citation Communications : 47 U.S.C. § 352(a)(2) Federal Employees: 5 U.S.C. § 5102(a)(1) (vii) 5 U.S.C. § 5102(c)(12) (A), (B) 5 U.S.C. § 5316(87) Subject of Citation and Change Panama Canal Company vessels not exempt from radio requirements of U.S. vessels CHANGE: "Panama Canal Company" to "Panama Canal Commission." See also Annex: Procedures for the Cessation or Transfer of Activities Carried Out By the Panama Canal Company and the Canal Zone Government, Panama Canal Treaty, September 7, 1977, Panama- United States, sec. 3(m) [hereinafter referred to as Annex] in H earings , 113, supr a at B-l (telecommunications). Panama Canal Company excluded from definition of "agency" with respect to statutes on position classification CHANGE: "Panama Canal Company" to "Panama Canal Commission." See also Panama Canal Treaty, art Hearing X, in 108, supra at B-l (employment) Employees of United States agencies who are stationed in Canal Zone, and, upon approval of Civil Service Commission, employees of United States agencies in Panama and Canal Zone are exempted from statutes regarding position classification CHANGE: Provision should be re-written to reflect the termination of the distinction between the Canal Zone and the Republic of Panama, and to apply to United States' employees within the Canal operating areas., Governor of the Canal Zone at Level 5 of Executive Schedule for pay purposes CHANGE: "Governor of the Canal Zone" to "Administrator of the Panama Canal 1218 B-3 Code Citation 5 U.S.C. § 5342(a)(1)(G) Subject of Citation and Change Panama Canal Company excluded from definition of "agency" with respect to pay for prevailing rate employees CHANGE: "Panama Canal Company" to "Panama Canal Commission" 5 U.S.C. § 5343(a)(5) 5 U.S.C. § 5348(b) Canal Zone excluded from areas outside the United States for which the Civil Service Commission fixes schedules and rates for prevailing rate employees CHANGE: "Canal Zone" to "areas and installations of the Panama Canal" Panama Canal Company vessel employees may be paid as "prevailing rate in the maritime industry" employees CHANGE: "Panama Canal Company 1 ' to "Panama Canal Commission 5 U.S.C. § 5363(1) Limitation of pay fixed by administrative action does not impair authority, under C. Z. Code, title 2, section 121 (Supp. 1976), of Panama Canal authorities to fix pay by administrative action CHANGE: Code" "Canal Zone Code" to "Panama Canal 5 U.S.C. § 5504(a)(3)(A) Isthmian employees of the Panama Canal Company or Canal Zone Government exempt from biweekly pay period CHANGE: "Canal Zone Government or the Panama Canal Company" to "Panama Canal Commission" 5 U.S.C. § 5541(2)(xii) Employees of Panama Canal Company vessels exempt from premium pay statutes CHANGE: "Panama Canal Company" to "Panama Canal Commission" 1219 B-4 Code Citation 5 U.S.C. § 5583(b)(2) Subject of Citation and Change Accounts of employees of Canal Zone Government paid by that government 5 U. CHANGE: "Canal Zone Government" to "Panama Canal Commission" ;.C. § 5595(a)(2)(iii) Aliens employed outside the United States, District of Columbia, and the Canal Zone, exempt from severance pay statutes CHANGE: "Canal Zone" to " areas and installations of the Panama Canal" to retain employees who are aliens within the definition of "employee" for purposes of severance pay. 5 U.S.C. § 5724a(a)(3), United States' employees eligible for (4) subsistence pay for relocation when new duty station is Canal Zone 5 U.S.C. § 5921(6)(B) CHANGE: "Canal Zone" to "areas and installations of the Panama Canal" in each place it appears. Definition of "foreign area" excludes Canal Zone with respect to overseas allowances and differentials CHANGE: "Canal Zone" to "areas and installations of the Panama Canal" 5 U.S.C. § 5924(4)(B) Educational allowance for travel to assist employees includes allowance for travel of dependents of employees stationed in Canal Zone CHANGE: "Canal Zone" to "areas and installations of the Panama Canal" 5 U.S.C. S 6301(2)(iv) Excludes Isthmian employees of Panama Canal Company or Canal Zone Government from annual and sick leave statutes 1220 B-5 Code Citation Subject of Citation and Change CHANGE: "Canal Zone Government or the Panama Canal Company" to "Panama Canal Commission" 5 U.S.C. § 8146(c) President may authorize Governor of Canal Zone to waive claim in case of compensation of employee CHANGE: "Governor of the Canal Zone" to "Administrator of the Panama Canal Commission" and "Panama Canal Company" to "Panama Canal Commission" 5 U.S.C. § 8146(e) Appeal rights regarding claims of employees of Panama Canal Company and Canal Zone Government the same as those of Federal employees CHANGE: "Canal Zone Government and of the Panama Canal Company" to "Panama Canal Commission" 5 U.S.C. § 8701(a)(B) Life insurance provisions for Federal employees inapplicable to non-United States citizens or nationals with duty stations outside United States and Canal Zone CHANGE: "Panama Canal Zone" to "areas and installations of the Panama Canal" 5 U.S.C. § 8901(i), (ii) Health insurance provisions for Federal employees inapplicable to non-United States citizens or nationals with duty stations outside United States and Canal Zone CHANGE: "Panama Canal Zone" to "areas and installations of the Panama Canal' Government Property: 50 U.S.C.App. § 1740 Panama Canal Company exempt from prohibition against continued operation of vessels in commercial service of United States after cessation of hostilities 1221 B-6 Code Citation Subject of Citation and Change Internal Security: Judicial: CHANGE: "Panama Canal Company" to "Panama Canal Commission." See also Annex, sec. 4(a)(xvii), supra at B-2, in Hearings , 114, supra at B-l (commerce by United States) 50 U.S.C. § 47f(d) Definition of "United States" includes Canal Zone for purposes of reward for information regarding violations of export and import restrictions on atomic materials PROBLEM: This statute is based upon territorial jurisdiction, but the jurisdiction granted to the United States over security matters might permit operation of this provision. See Agreement in Implementation of Article III, art. XIX, supra at B-l, in Hearings , 137, supra at B-l; Agree- ment in Implementation of Article IV, art. VI, sec. 2, supra at B-l, in Hear - ings , 152, supra at B-l. The statute would have to be amended to continue its effectiveness. 18 U.S.C § 41 Canal Zone within the composition of the Fifth Circuit CHANGE: Add "areas and installations of the Panama Canal." To delete "Canal Zone" would remove pending cases from the appellate process 28 U.S.C. § 1860 United States District Court of Canal Zone constituted under C. Z. Code, title 3, 1222 J-7 Code Citation 28 U.S.C. § 2680(m) 42 U.S.C. § 1701(b)(1) Subject of Citation and Change section 1 (1963) a district court for purposes of judicial procedure statutes CHANGE: "Canal Zone Code" to "Panama Canal Code" if implementing legislation changes the name of the compilation. Panama Canal Company exempt from Federal tort claims procedure CHANGE: "Panama Canal Company" to "Panama Canal Commission" Payment of disability benefits to family of missing person may occur during missing period if family is resident of United States, including Canal Zone CHANGE: "the Canal Zone" to "areas and installations of the Panama Canal" Law Enforcement: 18 U.S.C. § 3183 Executive authority of state, etc., including Canal Zone, may demand that United States citizen be turned over from country in which United States exercises territorial jurisdiction. During the transition period many functions performed by the former Gov- ernor of the Canal Zone will be per- formed by the Administrator of the Pan- ama Canal Commission. However, the il- lustrative list of functions of the Commission makes it clear that the Com- mission is not intended to possess the authority to make extradition demand. See Annex, sec. 3, supra at B-2, in Hearings , 112-113, supra at B-l . CHANGE: Amendatory language should specify an appropriate official to carry out this function during the transition period 1223 Code Citation Subject of Citation and Change 18 U.S.C. § 4217 Authority of Canal Zone Governor to issue warrant for Federal correctional officials to bring criminal offenders back into Canal Zone custody. This does not appear to be a power which the treaty arrangement grants the Panama Canal Administrator. See Annex, sec. 3, supra at B-2, in Hearings , 112-113, supra , B-l . CHANGE: Amendatory language should specify an appropriate official to carry out this function during the transition period. Postal Service: 39 U.S.C. § 3402(a) Canal Zone Postal Service considered an armed forces post office in an overseas area CHANGE: "in the Canal Zone Postal Service" to "military post office of the United States Forces in the Republic of Panama." See also Annex, sec. 4(a)(xiv), supra at B-2, in Hearings, 114, supra at B-l; Exchange of Notes Relating to Postal Services, Panama Canal Treaty, September 7, 1977, Panama-United States in Hearings , 172. Transportation: 14 U.S.C. § 91 Control of vessels to ensure their safety in United States territorial waters extends to control by the Governor of the Canal Zone in those waters; the waters of the Canal Zone are not to be territorial waters of the United States after entry into force of the Treaty. CHANGE: Delete references to the Canal Zone and add to amendatory language to authorize the Administrator of the Panama Canal Commission to control the anchorage and movement of vessels within those areas 44-394 O - 79 - pt. 2-25 1224 B-9 Code Citation Subject of Citation and Change and installations of the Panama Canal which the United States may use under the Panama Canal Treaty. Shipping: 46 U.S.C. $ 1241(b)(1) Requirement that 50% of United States government cargo be transported on United States flag vessel does not apply to the Panama Canal Company Miscellaneous: CHANGE: "Panama Canal Company' "Panama Canal Commission" 5 U.S.C. § 305(a)(7) Panama Canal Company exempt from executive review which pertains to the identification of outstanding Federal employees. The Commission, unlike the Company, is to be a wholly owned government corporation to which this section would normally apply. However, this provision was enacted under the Classification Act of 1949 which exempted specified agencies having personnel systems not based upon title 5 of the United States Code , The Commission will continue to have an independent system, and continued exemption would be in conformity with the legislative scheme. CHANGE: "Panama Canal Company" to "Panama Canal Commission" • 31 U.S.C. § 82e Exemption of Canal Zone Government from requirements of disbursing of- ficers relating to disbursement by voucher and liability of the disbur- sing officers CHANGE: "Canal Zone Government" to "Panama Canal Commission." 1225 Code Citation 31 U.S.C. § 846 Subject of Citation and Change Definition of "wholly-owned United States government corporation" in- cludes Panama Canal Company for purposes of Congressional control of financial operations CHANGE: "Panama Canal Company" to ''Panama Canal Commission" 1226 ATTACHMENT C SECTIONS OF THE UNITED STATES CODE WHICH ARE NOT AFFECTED BY THE TERMINATION OF TERRITORIAL JURISDICTION, BUT THE LEGISLATIVE SCHEMES OF WHICH ARE DISRUPTED BY THE NEW TREATY ARRANGEMENT TO THE EXTENT THAT SUBSTITUTIONAL LANGUAGE IS NOT APPROPRIATE, THUS RAISING QUESTIONS OF THE YNTENT OF CONGRESS Code Citation Armed Forces: Subject of Citation and Policy Question 10 U.S.C. § 4342(a)(8) 10 U.S.C. § 6954(a)(8) 10 U.S.C. § 9342(a)(8) 46 U.S.C. § 1126 Annual appointment of one cadet to the United States Military Academy, the United States Naval Academy, and the United States Air Force Academy, and 2 sons of Zone residents to the United States Merchant Marine Academy, respectively, by the Canal Zone Governor. Neither the Commission nor the Administrator seems to be the appropriate official to make such an appointment, yet the Congress may wish to continue the practice of cadet appointment from the operating areas and installations of the Canal. QUESTION: To whom should such appointment power be assigned? Should the reference to "sons" in 46 U.S.C. section 1126 be changed to "children"? 10 U.S.C. § 7308 Authority of Secretary of the Navy to transfer obsolete vessels to Canal Zone. See also Agreement in Implementation of Article III of the Panama Canal Treaty, art. Ill, sec. 7, supra at B-l , in Hearings, 124, supra at B-l. QUESTION: Should transfer be allowed to the Panama Canal Commission? 50 U.S.C.App. § 541 Includes Canal Zone within those areas [continental United States, Alaska, and the Canal Zone] in which an insured, rather than a beneficiary, under the insurance provisions of the Soldiers 1227 Code Citation Subject of Citation and Policy Question and Sailors Civil Relief Act of 1940, must make written application for protection. QUESTION: Should persons in the areas and installations of the Panama Canal continue to be treated any differently from personsin foreign areas or overseas military bases? Banking: 12 U.S.C. § 1787(c)(2) Insurance on deposit of public funds includes those of Canal Zone QUESTION: Should coverage be continued or is it unnecessary for the Commission^ Federal Employees: 5 U.S.C. § 5533(d)(7)(H) Pay within the purview of C. Z. Code, title 2, section 102 (Supp. 1976) (Canal Zone teachers) exempted from dual pay restrictions QUESTION: The deletion ov 5 U.S.C. section 5533 (d)(7)(h) and the addition of 5 U.S.C. section 5533(d)(8), to read as follows: "pay received by a teacher employeed in the areas and installations of the Panama Canal." would preserve the current legislative scheme. However, the Annex to the Panama Canal Treaty prohibits the Panama Canal Commission from conducting educational services not for professional training, including schools and libraries. Annex, sec. 4(a)(xiii), supra at B-2, in Hearings , 113, supra at B-l. Those educational services offered in the areas and installations of the Panama Canal will have to operated by a department or agency other than the Sommission if they are to be operated at all. It is a question of policy whether such teachers should be excluded from the dual pay restrictions because they are employed in Panama. Health: 1228 C-3 Code Citation Subject of Citation and Policy Question 5 U.S.C § 6322 Paid leave to serve as jurors or witnesses in courts in Canal Zone 5 U.S.C. § 8335(c) QUESTION: Should leave provisions apply to persons serving in courts of Panama as well as in United States District Court of the Canal Zone? In order to continue provision for persons serving in United States district court, no change is needed since the statute ap- plies to court held in the United States, assuming that the court of the Zone will be transferred to continental United States to dispose of pending cases after the transition period. Mandatory separation of United States citizen employees of Panama Canal Company and Canal Zone Government at age 62. QUESTION: It appears that there will be a shortage of skilled workers available for the Commission. Should this provision be amended to promote personnel stability? 29 U.S.C. section 633a prohibits age dis- crimination by executive agencies inter alia. 24 U.S.C. § 196 Authority of Secretary of Health, Education, and Welfare, to transfer insane persons in Zone to St. Elizabeth's Hospital upon application of Canal Zone Governor. The successor of the Governor, the Commission Administrator, may not possess authority to make such a request for persons in the former Zone area. QUESTION: Should new authority be established to permit the transfer of insane United States citizens in the operating areas of the Canal? 1229 C-4 Code Citation Subject of Citation and Policy Question Immigration: 8 U.S.C. § 1101(a)(38) Definition of "United States" includes Canal Zone for purposes of issuing certificates persons who claim to have derived United States citizenship through a parent or other specified means. QUESTION: Should this provision be continued? 8 U.S.C. § 1403(a), (b) Persons born of United States citizen parent (s) in Canal Zone or born of United States citizen parents employed by the United States Government or the Panama Railroad Company in the Republic of Panama are United States citizens. QUESTION: Should "Canal Zone" and "Panama Railroad Company" be changed to "areas and installations of the Panama Canal" and "Panama Canal Commission", respectively, in order to extend this policy when the Canal Zone no longer exists as such? Labor: 29 U.S.C. § 213(f) Minimum wage, maximum hours, investigations, and child labor laws apply to foreign territory under United States jurisdiction including the Canal Zone. QUESTION: Should these provisions continue to be applicable to the "areas and installations of the Panama Canal"? 29 U.S.C. § 218(b) Wages of Federal employees in the Canal Zone in manual crafts set at appropriate minimum wage? QUESTION: Should this provision continue to apply? 1230 C-5 Code Citation Subject of Citation and Policy Question Shipping: 33 U.S.C. S 1321 (n) Actions by the United States to recover damage for oil spill removal may be brought in any United States district court, including that of the Canal Zone. On the one hand, the Commission has the authority to protect the environment of the Canal from oil spillage, see Annex, sec. 3(n), supra at B-2, in Hearings , 113, supra at B-l; on the other hand, the Panama Canal Treaty itself does not permit application of United States law in the former Canal Zone after the transition period. See Panama Canal Treaty, art. XI, sec. 7, supra at B-l, in Hearing s, 110, supra at B-l. QUESTION: Would it be more appropriate to authorize regulatory authority for the Commission in this and similar areas? Should the Commission, a bi-national organization, be granted authority to seek relief in United States courts in the event of a oil spill damaging United States property? Taxation: 26 U.S.C. § 6103(b)(5) Extends to the Panama Canal Zone the right to obtain income tax returns of United States persons from the Internal Revenue Service, without notifying the taxpayer or obtaining his or her consent QUESTION: Is this an appropriate power for the Panama Canal Commission to retain? 38 U.S.C. § 101(20) Definition of "State" includes Canal Zone for purposes of veterans educational assistance, dependents assistance, and burial plot allowance 1231 Code Citation C-6 Subject of Citation and Policy Question QUESTION: The term "State" occurs in the context of payment procedures for these benefits. When the Zone ceases ceases to exist, there will be no sim- iliar political subdivision through which such allocations can be made. Do special procedures need to be created for their payment? Miscellaneous: 44 U.S.C. § 906 Governor of Canal Zone to receive five copies of Congressional Record in daily and bound form. The inclusion of the Canal Zone in this provision reflects a statutory scheme under which executive officers of political subdivisions and territories and possessions of the United States receive the Record . The Commis- sion is not to be a political subdivision, Section 906 does not authorize distribu- tion to the heads of Federal agencies or corporations. QUESTION: continued' Should this provision be 1232 ATTACHMENT D SECTIONS OF THE UNITED STATES CODE WHICH APPEAR TO NEED NO CHANGE IN LIGHT OF THE PANAMA CANAL TREATY Code Citation Armed Forces: 10 U.S.C. § 9773 Banking: 12 U.S.C. S 101a Energy and Public Utilities 16 U.S.C. § 831n Subject of Citation and Reason for No Change Lists the Atlantic southeast and Caribbean areas (for training in long-range operations, especially those incident to reinforcing the defenses of the Panama Canal) among the regions which the Secretary of the Air Force shall consider in determining the sites of new air bases and depots NO CHANGE: United States responsible for defense of the Canal under new treaty . arrangement Regulates the submission of bonds by national banks, including Panama Canal bonds NO CHANGE: According to Panama Canal Com- pany sources, Panama Canal bonds are all retired, but should some be outstanding the statutes pertaining to them should continue in effect. Their status is not connected to the new treaty arrangement. TVA bonds declared to have same conditions as Panama Canal bonds NO CHANGE: This reference related to the conditions applicable to the bonds of the Tennessee Valley Authority, not to those of the Panama Canal Company. 1233 D-2 C ode Citation Federal Employees: 2 U.S.C. § 130(b)(2) Subject of Citation and Reason for No Change United States District Court for Canal Zone considered a court for purposes of statute relating to juror service by Congressional employees 5 U.S.C. § 5537(c) NO CHANGE: Although the United States District Court of the Canal Zone will not exist within the "operating areas and installations of the Panama Canal" after the transition period, the cases pending before it may well be transferred elsewhere, The court itself may be transferred to another location to hear these cases. If the court continues for these purposes, the statutes relating to its jurisdiction, venue, service of process, jury service, etc., should continue as well. United States District Court for Canal Zone included among those courts for which United States employees receive no fees for jury or witness service NO CHANGE: Although the United States District Court of Canal Zone will not exist within the "operating areas and installations of the Panama Canal" after the transition period, the cases pending before it may well be transferred elsewhere The court itself may be transferred to another location to hear these cases. If the court continues for these purposes, the statutes relating to its jurisdiction, venue, service of process, jury service, etc., should continue as well. Finance: 31 U.S.C. S 743 Panama Canal bonds to have same rights and privileges as certain other bonds NO CHANGE: Established condition of bonds some of which may be outstanding 1234 D-3 Code Citation 31 U.S.C. § 744 31 U.S.C § 745 Government Property: 24 U.S.C § 301 Subject of Citation and Reason for No Change Redemption, payment, and exemption statutes relating to Panama Canal bonds NO CHANGE: Established conditions of bonds, some of which may be outstanding Payment, interest, and exemption from taxes of Panama Canal bonds NO CHANGE: Established conditions of bonds, some of which may be outstanding Renaming of Ancon Hospital to Gorgas Hospital NO CHANGE: This provision has only historical and informational value. Immigration: 8 U.S.C. § 1151(a) 8 U.S.C. § 1406 Quota on immigration visas on aliens born in foreign country in the Western Hemisphere, or in the Canal Zone NO CHANGE: Change here is unnecessary since the persons born in the former Canal Zone after treaty effective date will still come under this statute as persons born in a Western Hemisphere country — Panama . Declares persons born in the Virgin Islands, residing in various places (including the Canal Zone) in 1932, to be United States citizens. NO CHANGE: Status already vested 1235 D-4 Code Citation Subject of Citation and Reason for No Change Judicial: 18 U.S.C. § 3241 Jurisdiction of United States District Court of CanSl Zone over offenses committed within its territorial jurisdiction NO CHANGE: This should continue for so long as court does . 18 U.S.C. § 3771, Authority of United States Supreme Court 3772 to prescribe rules of criminal procedure for United States district courts, including United States District Court for Canal Zone NO CHANGE: This should continue so long as the court does. 18 U.S.C. § 4251(d) Felony includes offense against law of the Canal Zone NO CHANGE: Commission of a felony has many ramifications, e.g., the loss of voting rights or eligibility for certain employment, Change in this statute would relieve persons who violated the laws of the Canal Zone, when the Zone existed, from these penalties. 18 U.S.C.App., Application of Rules of Criminal Procedure Fed. R. Crim. to United States District Court for Canal P. 54 Zone, except as otherwise indicated in the Canal Zone Code (This may become the Panama Canal Code.) NO CHANGE: This should continue for so long as the court does. 28 U.S.C. S 333, Application of annuity benefits to 376(q) judges of the United States District Court of the Canal Zone NO CHANGE: Transfer or abolition of the court itself should not affect the annuity benefits of its judges and their survivors . 1236 D-5 Code Citation 28 U.S.C. § 460 Subject of Citation and Reason for No Change Regulation of courts, judges, and court records. NO CHANGE: The court may continue, although not located in the Zone, and should continue to be regulated in conformity to those statutes which regulate the other district courts. Should the name of the court be changed, statutes applicable to it should be amended to reflect this. 28 U.S.C. § 526 Authority of Attorney General to investigate United States attorneys and marshals, the clerks of the United States courts (including the United States District Court of the Canal Zone), and others NO CHANGE: This power should continue for so long as the court does. 28 U.S.C. § 610 Definition of "courts" includes the United States District Court of the Canal Zone for purposes of statutes regarding the Administrative Office of the United States Courts NO CHANGE: This should continue for so long as the court does. 28 U.S.C. § 753(a) United States District Court of the Canal Zone required to appoint court reporters NO CHANGE: This should continue for so long as the court does. 28 U.S.C. § 1246(2)(b) Exclusive jurisdiction over suits against United States vested in United States district courts, including that of Canal Zone NO CHANGE: This should continue for so long as court does. 28 U.S.C. § 1252 Authority to appeal decisions of the district courts, including Canal Zone 1237 D-6 Code Citation Subject of Citation and Reason for No Change NO CHANGE: This should continue to preserve the ability to appeal decisions of that court, even should the court cease to exist. 28 U.S.C. § 1292 Authority of courts of appeals to hear appeals from interlocutory orders of the United States district courts, including that of the Canal Zone NO CHANGE: This should continue for so long as court does . 28 U.S.C. § 1294 Decisions of the United States District Court of the Canal Zone reviewable in the United States Court of Appeals for the Fifth Circuit NO CHANGE: This statute should remain intact to preserve appellate rights. 28 U.S.C. § 1404(d), Definition of "court" includes United 1406 States District Court of the Canal Zone for purposes of venue and transfer of cases NO CHANGE: This should continue for so long as court does. 28 U.S.C. § 1821 Authority for witness fees in district courts includes those of Canal Zone NO CHANGE: This should continue for so long as court does. 28 U.S.C. $ 1863 Authority for district courts of Puerto Rico and Canal Zone to create special plans for juror selection NO CHANGE: This should continue for so long as court does, although it may not be needed if the court is transferred to the United States. 1238 D-7 Code Citation Subject of Citation and Reason for No Change 28 U.S.C. § 1871 Grand and petit jurors in United States district courts for Guam and Canal Zone receive same fees as jurors in other district courts NO CHANGE: This should continue for so long as court does. 28 U.S.C. § 2901(e) Definition of "felony" includes offenses in violation of laws of Canal Zone when the violation was classified as a felony at the time and by the jurisdiction where the offense was committed for purposes of civil commitment and rehabilitation of narcotic addicts NO CHANGE: Application of this statute to those who may be considered for civil commitment and rehabilitation under it should not be affected by the new treaty arrangement. Those who were convicted of felonies in the Canal Zone, when it was under the jurisdiction of the United States, are among the class of persons to who the provisions concerning felonies were intended to apply. 28 U.S.C.App. S.Ct. 22 Fed, Filing requirements for petition for writ of certiorari include a final judgment in a district court, including that of Canal Zone NO CHANGE: This should continue for so long as court does. 28 U.S.C.App., Fed. R. Eligibility to practice before the courts of App. P. 46 appeals require admission to practice before a United States district court, including that of the Canal Zone NO CHANGE: This should continue for so long as court does. When this court ceases to exist, attention to this section may be desired if there exist attorneys admitted to practice only before the United States District Court of the Canal Zone. 1239 D-8 Code Citation Subject of Citation and Reason for No Change 28 U.S.C.App. Fed. Rule for authentication of official R. Ct. CI. 124 domestic records includes court records, including that of Canal Zone. NO CHANGE: Documents of the Canal Zone court may be offered as evidence in United States courts for years to come. 28 U.S.C.App. Fed. Rule for authentication of official R. Civ. P. 44 domestic records applies to court records, including court of Canal Zone NO CHANGE: Documents of the Canal Zone court may be offered as evidence for years to come. 28 U.S.C.App., Fed. Authentication of documents bearing seal of R. Evid. 902 Canal Zone and other jurisdictions NO CHANGE: Authentication by seal should continue since the documents of the Zone were documents of a jurisdiction of the United States when written. 28 U.S.C.App. Fed. Applicability of Rules of Evidence to United Evid. 1101 States District Court of the Canal Zone Labor: Patriotic Society: NO CHANGE: This should continue for so long as court does. 29 U.S.C.§ 216(d) Work performed in Canal Zone prior to effective date of subsection does not subject an employer to liability under minimum wage law NO CHANGE: Retention of this statute would clarify the continuation of this exemption. 36 U.S.C. § 821 Location of residence of Jesus Vazques as founder of Military Order of Purple Hearts of America NO CHANGE: This is an historical reference. 44-394 O - 79 - pi. 2-26 1240 D-9 Code Citation Subject of Citation and Reason for No Change Public Lands: 43 U.S.C. § 975 Successors of Isthmian Canal Commission may convey property used in Panama Canal construction to Alaskan railroads NO CHANGE: This is now an historical reference. Transportation: 49 U.S.C. $ 6(11), (12) Jurisdiction of Interstate Commerce Commission over interstate movement of property, including that transported through the Panama Canal NO CHANGE: Jurisdiction of the ICC over transport through the Canal is unaffected by the new treaty arrangmeent so long as the property is being transported from point to point within the United States, since the ICC has jurisdiction of interstate transport by other routes outside the territorial waters of the United States, 49 U.S.C. section 6(12). The methods of en- forcement may change, but jurisdiction would not. Shipping: 33 U.S.C. § 5 Exemption of Panama Canal from abolition of tolls on Federal canals 46 U.S.C. § 843 NO CHANGE: The statutory policy for this remains, although the Canal would not be construed as a Federal property under the new treaty arrangement. Definition of "common carrier by water in interstate commerce" for purposes of intercoastal shipping rates includes vessels going from one State to another State via the Panama Canal 1241 D-10 Code Citation Subject of Citation and Reason for No Change NO CHANGE: It does not appear that the Treaty was intended to affect the jurisdiction of the interstate commerce laws of the United States. Of course, the United States would cease to possess the police power to enforce them within the areas and installations of the Canal. Annex, sec. 4(b), supra at B-2, in Hearings , 114, supra at B-l . Voting Rights: 42 U.S.C. § 1973dd Definition of "United States" excludes Canal Zone for purposes of the voting rights of overseas citizens. NO CHANGE: Because of this exclusion, American citizens resident in the Zone before the Treaty were entitled to make use of these procedures. There seems to be no reason why implementation of the Treaty would require a change in this section. Its retention appears fully consistent with the policy behind the Act, i.e., establishing a procedure for American citizens overseas to exercise their voting rights. Miscellaneous: 5 U.S.C.App., Canal Zone Biological Area transferred to Reorganization Plan to Smithsonian Institution No. 3 of 1946, § 801 NO CHANGE: The custodianship of the Smithsonian Institution over certain research areas is to continue. See Agreement Pursuant to Article VI of the Convention on Nature Protection and Wildlife Preservation in the Western Hemisphere, Panama Canal Treaty, September 7, 1977, Panama-United States, in Hearings , 177-178, supra at B-l; Exchange of Notes Relating to Scientific Activities in Panama of the Smithsonian Tropical Research Institute, Panama Canal Treaty, September 7, 1977, Panama-United 1242 D-ll C ode Citation Subject of Citation and Reason for No Change States, in Hearings , 183-184, supr a at B-2; Exchange of Notes Relating to Custodianship of the Barro Colorado Native Monument by the Smithsonian Tropical Research Institute, Panama Canal Treaty, September 7, 1977, Panama- United States, in Hearings , 185-186, supra at B-l . 22 U.S. C. § 278 Authorization for land for Gorgas Memorial Laboratory in 1933 NO CHANGE: This is an historical reference. See Exchange of Notes Relating to the Gorgas Memorial Institute of Tropical and Preventive Medicine, Incorporated, and to the Gorgas Memorial Laboratory, Panama Canal Treaty, September 7, 1977, Panama- United States, in Hearings , 181, supra at B-l. 33 U.S.C. 8 1222(d) Panama Canal exempted from statutes regarding ports and waterways safety NO CHANGE: There is no reason to change this exemption. The Treaty permits the United States to establish naviga- tional rules through the Commission. See Panama Canal Treaty, art. Ill, sec. 3(c), supra at B-l, in Hearings , supra at B-l. The Panama Canal Company already has the authority to do so under C. Z. Code, title 2, section 1331 (1963). 1243 ATTACHMENT E SECTIONS OF THE UNITED STATES CODE WHICH BEAR CONSIDERATION FOR DELETION AFTER TERMINATION OF THE TRANSITION PERIOD Code Citation Subject of Citation and Problem Armed Forces: 18 U.S.C. § 702 Unauthorized wearing of armed forces uniform of public health services uni- form in areas of United States juris- diction or in the Canal Zone PROBLEM: Deletion of "or in the Canal Zone" would make it clear that this provision is not intended to remain in effect in those former Canal Zone areas which do not become military installa- tions or other areas in which such a prohibition might enforceable. Aviation: 49 U.S.C. § 1508 Prohibition of navigation of foreign aircraft over the United States, including the Canal Zone Banking: 12 U.S.C. § 611 PROBLEM: This inclusion of the Zone or the areas and installations of the Canal after the termination of the transition period would be a violation of Panama's sovereignty. See Panama Canal Treaty, art. I, sec. 2, supra at B-l, in Hearings, 102, supra at B-l Use of depositories by Secretary of Treasury for fiscal agents in Panama or Canal Zone PROBLEM: If the reference to "Panama Canal Zone" were not deleted, the status of banking institutions in the area 1244 E-2 Code Citation Subject of Citation and Problem could be confused. A note in the Code indicates that the reference to the Phillipines was dropped when those islands were given their independence. Deletion of the reference to the Zone would be consistent with past practice. 12 U.S.C. § 1748(g) Insurance of mortgages by the armed services PROBLEM: If "Canal Zone" were to be read as "areas and installations" then the procedures regarding armed services housing might be confusing. 12 U.S.C. § 1752(5), (8) Definitions of "State credit union" and "branch" include those in Canal Zone. PROBLEM: According to Panama Canal Com- pany sources, the Federal credit unions in the Zone have applied for Panamanian charters. Deletion of these references would eliminate confusion. 12 U.S.C. § 1771(a), Statutes regarding conversion from (b)(1) Federal to State credit unions and from State to Federal credit unions applicable to credit unions in the Zone PROBLEM: Id. 12 U.S.C. § 1772 Applicability of Federal law to Federal credit unions, including those in Zone PROBLEM: Id. 12 U.S.C. § 1781 Insurance of accounts of Federal credit union members PROBLEM: According to Panama Canal Company sources, the Federal credit unions have applied for Panamanian charters. Deletion of this reference would prevent confusion. 1245 E-3 Code Citation Civil Rights: 42 U.S.C. § 2000e(i) Claims: 42 U.S.C. § 1651(a)(2) (3) Communications: 47 U.S.C. § 38 Subject of Citation and Problem Definition of "State" includes the Zone for purposes of employment discrimination PROBLEM: Application of this provision would seem inconsistent with Article X of the Treaty which states a policy of preference for Panamanian applicants for Commission employment. See Panama Canal Treaty, art. X, supra at B-l , in Hearings , 108, supra at B-l. Provisions of the Longshoremen's and Harbor Workers Compensation Act appl" to injury or death of employee s" U.i "td States bases outside the United Staccs, including Canal Zone bases and public works. PROBLEM: Employees of bases in the areas available for use of the United States would be eligible for such assistance under section 1651(a)(1) "at any military, air, or naval base acquired after January 1, 1940, by the United States from any foreign government." Deletion of the reference to the Zone would eliminate confusion regarding whether it was intended to remain applicable. Definition of "United States" includes the Canal Zone for purposes of landing and operating cables PROBLEM: This provision directly conflicts with the restriction of telecommunications by the United States to the operating areas of the Canal and to defense facilities. See Agreement in Implementation of Article III, art. X, sec. 1, supra at B-l, in Hearings , 1246 E-4 Code Citation Subject of Citation and Problem 130, supra at B-l; Agreement in Imple- mentation of Article IV, art. IX, sec. 1, supra at B-l, in Hearings , 154, supra at B-l. This provision should be deleted in recognition of that sovereignty since a direct conflict exists. 47 U.S.C. § 153(e)(2) Definition of "interstate communication" includes transmission to or from the Canal Zone to the United States PROBLEM: See id. 47 U.S.C. § 328 Representation of Canal Zone in international radio matters by Secretary of State PROBLEM: See id. Under the new treaty arrangement any communication with the International Telecommunications Union regarding the subject matter of the agreements is to be effected exclusively by Panama. Agreement in Implementation of Article III, art. X, sec. 8, supra at B-l, in Hearings , 131, supra at B-l; Agreement in Implementation of art. IV, art. IX, sec. 8, supra at B-l, in Hear - ings , 155, supra at B-l. 47 U.S.C. § 606(c) Presidential authority to suspend radio regulations in areas under United States jurisdiction, including Canal Zone . PROBLEM: See explanation of problem, 47 U.S.C. § 38, supra , E-4. Since radio regulations are not by their own authority applicable in the Canal operating areas (such ap- plication must be agreed to by Panama, with whom the sovereign power over com- munications rests), the Presidential authority to change such regulations is of no consequence unless such regu- lations do apply by mutual agreement, thus, since this provision directly conflicts with Treaty provisions it could be deleted. 1247 E-5 Code Citation Subject of Citation and Problem Note that the purpose of the section is to authorize the President to use, control, and/or close radio facili- ties which might be useful to an enemy for navigational purposes. The President has powers in this area deriving from United States authority over United States employees and from United States authority to defend the Canal, so that Presidential authority to regulate communications continues although based upon the Treaty and related agreements rather than this statute. Education: 20 U.S.C. §§ 403(a), Definition of "State" includes Canal Zone 588(A) for various purposes of the National Defense Education Act, except for purposes of sections 442 and 482 of that Act (state allotments) PROBLEM: It would appear from the Treaty documents that the Panama Canal Commission is not intended to operate schools. The Annex , for example, specifically includes among functions not to be carried out by the Panama Canal Commission "educational services not for professional training, including schools and libraries. . . ." Annex, sec. 4(a)(xiii), supra at B-2 , in Hearings , 113, supra at B-l . It appears that United States schools presently operating in the Zone either will become schools subject to Panamanian law or will be transferred to such agencies as the Department of Defense. See Agreement in Implementation of Article IV, art. XI, sec. 1, supra at B-l, in Hearings , 155, supra at B-l. Deletion would insure that there is no questions as to the inapplicability of these programs in the former Zone. To the extent that former United States schools in the Canal area are converted 1248 E-6 Code Citation Subject of Citation and Problem to Department of Defense overseas dependent schools, assistance for the purposes of strengthening academic instruction and guidance counseling programs might continue under 20 U.S.C. section 588(B). Federal Employees: 5 U.S.C. § 6323(c)(2)(B) Reserves who are Federal employees to be paid by the government when on active military duty in various United States areas, including Canal Zone Finance: PROBLEM: When the Canal Zone ceases to exist, it would be confusing to retain a reference to service there which different- iates it from service in other foreign areas 31 U.S.C. § 7255(c)(7) Canal Zone Retirement and Disability Fund one of Government trust funds required to transfer funds every June PROBLEM: According to Panama Canal Company sources, this fund has not been utilized for some time; deletion would seem to be in order. Foreign Relations: 19 U.S.C. § 126 Importation statutes applicable to Canal Zone PROBLEM: This directly conflicts with the new treaty arrangement. See Agreement in Implementation of Article III, art. XVI, supra at B-l , in Hearings , 135, supra at B-l. 19 U.S.C. § 172 Exclusion of Canal Zone from statutes governing protection of United States producers through International Trade Commission 1249 E-7 Code Citation Subject of Citation and Problem 19 U.S.C. § 1482(f) PROBLEM: This directly conflicts with the import provisions of the new treaty arrange- ment. See Annex, sec. 4(a)(xv), supra at B-2, in Hearings , 114, supra at B-l. Merchandise invoices from Canal Zone to United States customs area certified by appropriate customs officer PROBLEM: Id. 22 U.S.C. § 2778(d) Arms export control statutes apply to Canal Zone Government Contracts: 41 U.S.C § 10c 50 U.S.C. § 82(a) PROBLEM: This authority is not provided the United States under the new treaty, and should be deleted since it conflicts with Article II of the Treaty Concerning Permanent Neutrality and Operation of the Panama Canal. See Treaty Concerning Permanent Neutrality and Operation of the Panama Canal, Panama Canal Treaty, Septem- ber 7, 1977, Panama-United States Jherein- after referred to as Neutrality Treaty] , in Hearings , 117, supra at B-l. Definitions of United States "public work" and "public building" include those in Zone for purposes of Buy America provisions PROBLEM: This provision would directly conflict with the preferences for Panamanian contractors in the Treaty. See Agreement in Implementation of Article III, art. XI, supra at B-l, in Hearings , 131, supra at B-l; Agreement in Implementa- tion of Article IV, art. VIII, supra at B-l in Hearings , 154, supra at B-l. Definition of "United States" includes the Canal Zone for purposes of procurement of vessels during wartime. 1250 E-8 Code Citation Subject of Citation and Problem PROBLEM: This provision is based upon territorial jurisdiction. It could violate the preference sections of the treaties. See id. . Hazardous Substances: 15 U.S.C. § 2602(13) Definition of "State" includes Canal Zone for purposes of Toxic Substances Control Act. PROBLEM: Termination of territorial jurisdiction would not end enforcement the Panama Canal Commission by virtue of this provision against employees of of employment. Under the Treaty, however, environmental protection is intended to be a matter for joint United States-Panaman- ian cooperation. See Panama Canal Treaty, art. VI, supra at B-l , in Hearing s, 105-106, supra at B-l . Health: 42 U.S.C. § 298b(2) Definition of "State" includes Canal Zone for purposes of Federal assistance to nurses training. PROBLEM: This provision is in direct conflict with the prohibitions against the Commission carrying out educational functions other than professional train- ing. See Annex, sec. 4(a)(xiii), supra at B-2, in Hearings , 113, supra at B-l. The intent of the Treaty appears to limit such assistance to training which will be utilized by the Commission, and section 4(a)(xii) of the Annex prohibits the Commission from participating in health care. See id.. 1251 E-9 Code Citation Immigration: 8 U.S.C § 1101(a)(9) 8 U.S.C. § 1185(d) Subject of Citation and Problem Definition of "consular officer in the Canal Zone" means an officer appointed by the Governor to issue visas PROBLEM: This provision is in direct conflict with the Treaty's prohibitions against immigration regulation by the Commission. See Annex, sec. 4(a)(xv), supra at B-2, in Hearings , 114, supra at B-l. Definition of "United States" includes Canal Zone for purposes of travel control during national emergency PROBLEM: See id. Internal Security: 22 U.S.C. § 619 (iv) 50 U.S.C. § 782(9), (10) Registration of foreign propagandists applica- ble in Canal Zone. PROBLEM: United States jurisdiction over security matters is restricted to crimes of treason or sabotage against the United States, espionage or a violation of any law relating to official secrets or secrets involving the defense of the United States. See Agreement in Implementation of Article III, art. XIX, sec. 2, s upra at B-l, in Hearings , 137, supra at B-l; Agreement in Implementation of Article IV, art. VI, sec. 2, s upra at B-l, in Hearings , 152, supra at B-l. Definitions of "United States" and "commerce" include Canal Zone for purposes of controlling subversive activity. PROBLEM: See id.. 1252 E-10 Code Citation Subject of Citation and Problem 50 U.S.C. §§ 852, 858 Persons who received espionage training through employment with Canal Zone Government exempted from registration requirements for persons trained in foreign espionage and registration requirements for persons with foreign espionage training PROBLEM: See id . . 50 U.S.C. App. § 18 Application of Trading with the Enemy Act to the Canal Zone PROBLEM: The essence of the Neutrality Treaty is that Canal shall be permanently neutral. Any statute, such as this one, which could interfere with transit based upon the destination of a vessel or its cargo would contravene this principle. See Neutrality Treaty, art. I and II, supra at E-7, in Hearings , 117, supra at B-l Judicial: 16 U.S.C. S 951(e) Definition of United States waters include those of Canal Zone for purposes of International Tuna Convention PROBLEM: Under the new treaty arrangement, the United States has only limited use rights in the waters of the Canal. Negotiations with the International Tuna Convention are not within those limited use rights. Since negotiations with foreign nations are one of the hallmarks of sovereignty, it would seem that deletion of this section would remove a source of future irritation. 28 U.S.C. § 569 Authority of United States marshalls to execute all lawful writs, includes marshalls of Canal Zone PROBLEM: This is direct conflict with the new treaty arrangement which prohibits the maintenance of police by the United States after termination of the transition Code Citation Labor: 1253 Subject of Citation and Problem E-ll period. See Annex, sec. 4(b)(i), supra at B-2, in Hearings , 114, supra at B-l . 29 U.S.C. § 217 Authority of United States district courts, including those of the Zone, to restrain violations of the minimum wage laws PROBLEM: Since the United States District Courts for the Canal may continue for sometime, while the jurisdiction under which restraining orders could be issued will terminate with the end of the transition period, deletion would eliminate confusion. 29 U.S.C. § 653(a) Provisions of the Occupational Health and Safety Act apply to work places in the Canal Zone PROBLEM: After the termination of the transition period, there will be no jurisdiction on which to base enforcement of this provision against a private employer. Since the Commission is to be a Federal agency, it should be exempt from these provisions as are other Federal agencies, 29 U.S.C. § 652 (5). National Guard: 32 U.S.C. § 109(a) (b), (c) No troops, except those authorized by a jurisdiction, including Canal Zone, are allowed in that jurisdiction during peacetime, but nothing prohibits constabulary forces or other forces PROBLEM: The armed forces of the United States may not be present in the former Canal Zone except for the specific purposes of the Panama Canal Treaty and as the two nations agree. See Agreement in Implementation of Article IV, art. XIII, sec. 1, supra at B-l, in Hearings , 157, supra at B-l . Code Citation Parks and Wildlife Protection: 1254 Subject of Citation and Problem E-12 16 U.S.C. § 1362(3) (14) Postal Service: 39 U.S.C. § 403(a) 39 U.S.C. § 3401(b) Definitions of "district courts" and "United States" includes Canal Zone for purposes of marine mammal protection. PROBLEM: This directly conflicts with treaty provisions making environmental protection a subject of United States- Panamanian cooperation. See Panama Canal Treaty, art. VI, supra at B-l, in Hearings , 105-106, supra at B-l. United States Postal Service is authorized to operate "except as provided in the Canal Zone Code" PROBLEM: Operation of postal services by the Commission is specifically prohibited under the new treaty arrangement . See Annex, sec. 4(a)(xiv), supra at B-2, in Hearings , 114, supra at B-l. Canal Zone included among those areas which may be a point of embarkation or debarkation for mail to United States forces overseas 39 U.S.C. § 3402(a), (b) PROBLEM: See id.. Department of Defense reimburses Canal Zone Postal Service for handling armed forces mail PROBLEM: See id.. 39 U.S.C. § 3682 Canal Zone listed as possession of the United States for purposes of size and weight limitation on postal packages PROBLEM: See id.. 1255 E-13 Code Citation Subject of Citation and Problem Shipping: 15 U.S.C. § 31 Vessels engaged in United States trade prohibited from Panama Canal transit if owners in violation of antitrust laws 46 U.S.C. § 170 PROBLEM: This statute grants specific authority to interfere with Canal transit to enforce laws of the United States. The termination of territorial jurisdiction will prevent the enforcement of this statute in the former Zone and in the Canal operating areas, however, it may be appropriate to delete statutory reference which seem to impinge upon Panamanian sovereignty. Definition of "vessel" does not include those of Panama Canal Zone for purposes of carriage of dangerous and explosive substances PROBLEM: Since the authority of the United States to regulate navigation in the Canal is specifically addressed in the treaty documents, it may be appropriate to delete statutory references to the Canal to avoid conflicting United States law and regulation which might not conform to the treaties. 50 U.S.C. § 191 Authority of Governor of Canal Zone, with approval of President, to regulate vessels in territorial waters of United States during national emergency PROBLEM: The Panama Canal Treaty recognizes Panama's territorial sovereignty over the Canal waters. It may be appropriate to delete statutory references which seem to impinge upon that sovereignty. See art. I, sec. 2, supra at B-l , in Hearings , 102, supra at B-l. Although the United States has certain defense obligations under the 44-394 O - 79 - pt. 2-27 1256 E-14 Code Citation 50 U.S.C. § 195 Subject of Citation and Problem Treaty for the Permanent Neutrality and Operation of the Panama Canal which could permit regulation of the movement of vessels in the Canal, the authority for these is based upon the treaty itself not statute or territorial claims. Definition of "United States" includes Canal Zone for purposes of seizure of vessels in United States waters during times of national emergency 50 U.S.C. § 196 PROBLEM: The Panama Canal Treaty recognizes Panama's territorial sovereignty over the Canal waters. It may be appropriate to delete statutory references which seem to impinge upon that sovereignty. See art. I, sec. 2, supra at B-l , in Hearings 102, supra at B-l. Authority of Secretary of Commerce to procure vessels lying idle in waters in United States jurisdiction, including Canal Zone. PROBLEM: The Panama Canal Treaty recognizes Panama's territorial sovereignty over the Canal waters. It may be appropriate to delete statutory references which seem to impinge upon that sovereignty. See art. I, sec. 2, supra at B-l, in Hearings , 102, supra at B-l . Taxation: 26 U.S.C § 7651(4) Describes the Canal Zone as a possessions of the United States for purposes of tax liability and collection PROBLEM: Although thise provision would become inapplicable with the termination of territorial jurisdiction, deletion would clarify the rights and liabilities of persons in the former Zone and areas and installations of the Canal for tax purposes. 1257 E-15 Code Citation Transportation: 49 U.S.C. § 781 Miscellaneous: 11 U.S.C. § 456 18 U.S.C. § 1821 20 U.S.C. § 79 Subject of Citation and Problem Unlawful use of vessels to carry contraband includes prohibition of carriage through, to, or from the Canal Zone PROBLEM: See explanation of problem, U.S.C. §31, supra at E-13. 15 Definition of "United States" includes Canal Zone for purposes of restrictions on port embarkation and debarkation during period of declared neutrality PROBLEM: This provision is in direct conflict with the Annex. See Sec. 4(a)(xv), supra at B-2 , in Hearings , 114, supra at B-l. Penalty for transportation in interstate mails, including to and from Canal Zone, of dentures manufactured by unlicensed organizations PROBLEM: This provision is in direct conflict with the Annex. See Sec. 4(a)(xiv), supra at B-2, in Hearings , 114, supra at B-l. President is authorized to set aside within Canal Zone the Barro Colorado Island which shall be left in its natural state except in time of national emergency PROBLEM: This provision is in direct conflict with the new treaty arrangement. See Agreement Pursuant to Article VI of the Convention on Nature Protection and Wildlife Preservation in the Western Hemis- phere, supra , at D-10, in Hearings , 177-178, supra at B-l; Exchange of Notes Relating to Custodianship of the Barro Colorado Native Monument by the Smithsonian Tropical Re- search Institute, supra at D-ll, in Hearings , 185-186, supra at B-l. 1258 E-16 Code Citation Subject of Citation and Problem 22 U.S.C. § 408a Definition of "United States" includes Canal Zone for purposes of passports, illegal exportation of war materials, detention and expulsion of vessels PROBLEM: This provision is in direct conflict with the new treaty arrangement See Neutrality Treaty, art. I and II, supra at E-8, in Hearings , 117, supra at B-l; Annex, sec. 4(a) (xv), supra at B-2, in Hearings, 114, supra at B-l. 22 U.S.C. § 701(c) Definition of "United States" includes Canal Zone for purposes of relations with courts of the armed forces of friendly foreign countries PROBLEM: Relations of this type will be superceded by a status of forces agreement with Panama. Since relations with foreign countries are an important incident to sovereignty, recognition of that sovereignty would make deletion appropriate . 22 U.S.C. § 2621 Officials in Canal Zone Government are subject to provisions of law regulating acceptance of foreign decorations PROBLEM: This application does not appear appropriate for the members of a bi-national commission, which would be the case if substitutional language were used. 1259 Mr. Hubbard. I also wish to ask unanimous consent that another study prepared for the subcommittee be placed in the record. This is a study of those provisions of Panamanian law which will relate to the canal operating area and canal employees and therefore affect the canal in that way. The are important to the execution of the Panama Canal Treaty and could interrelate with various provi- sions of the laws adopted by the United States. For example, we have asked for an outline of the provisions of Panamanian law on licensing, because Panama will be licensing the U.S. nonprofit organizations that now operate in the Canal Zone. We have asked that an outline of court procedures in Panama be presented, because one annex of one of the implement- ing agreements guarantees certain rights to U.S. employee's inde- pendence in criminal cases in the Panamanian court. Is there any objection to this being entered into the record? Hearing none, that study is placed in the record at this point. [Study submitted for the record follows:] U.S. House of Representatives, Committee on Merchant Marine and Fisheries, Washington, D.C., December 7, 1978. Mr. Rubens Medina, Chief, Hispanic Law Division, Library of Congress, Washington, DC. Dear Mr. Medina: The 1977 Panama Canal Treaty requires both generally and in many specific areas that there be very close cooperation between the United States and Panama in connection with the operation and defense of the Panama Canal. In order to write in the 96th Congress the best possible legislation to implement the Panama Canal treaties, the Committee on Merchant Marine and Fisheries should be knowledgeable of the Panamanian law, regulations, etc. that apply in those areas in which cooperation and coordination of the two countries is required. Accordingly, the Committee requests that the Hispanic Law Division provide a summary of various substantive provisions of Panamanian law in those areas inte- gral to the new treaty relationship. Additionally, the Committee requests that responses be provided to specific questions listed under the general areas for which summaries are requested. The subjects in which the Committee has interest, and specific questions related thereto, are listed in order of priority. 1. General summary of the Panamanian law-making process 2. Panama Canal Authority a. What institutions of the Government of Panama would be responsible for the nomination and/or confirmation of members of the Panama Canal Commission? (Paragraph 3, Article III, Panama Canal Treaty). Is there any indication of whether there will be any such process for Commission members in the Government of Panama? b. What is or will be the relationship of various Panamanian Government institu- tions to the Panama Canal Consultative Committee? The Joint Commission on the Environment? 3. Environmental and Wildlife Protection Enclosed is a list of environmental laws and regulations now in force in the Canal Zone. What Panamanian laws parallel those laws now in effect in the Zone? What is the substance of this law? 4- Criminal Law a. How do the rights guaranteed by the Constitution and laws of Panama compare with the personal and civil rights contained in Chapter 3, title 1, Canal Zone Code? b. What provisions of Panamanian law will allow the Government of Panama to lend cooperation for enforcement of regulations of the Commission and rules of the Panama Canal Commission for "passage of vessels through the canal and other rules with respect to navigation and maritime matters?" Through what channels or by what mechanism would coordination be effected? (Paragraph 2, Article III, Panama Canal Treaty) 1260 c. In the Panamanian court system, how does the standing of the accused in law differ from such standing in the U.S. court system? d. What law now exists in Panama to effectuate the coordination that will be necessary in the area of criminal jurisdiction during the 30-month transition period? e. Special treatment exists in the treaty's Article III implementing agreement for the commission of crimes in Panama by U.S. citizen employees and dependents. Five crimes are set out in Article XIX of this implementing agreement as crimes with respect to which Panama need not hand accused citizens over to the U.S. One of these five crimes listed is "crimes against the security of the Panamanian state." In Panama, what are considered crimes against the security of the state? What are the penalties for these offenses? Do the definitions of crimes make any delineation between Panamanian and non-Panamanian citizens? f. Has any mechanism been established in Panamanian law for implementing the double jeopardy provision of paragraph 8 of Article XIX of the Agreement in Implementation of Article III of the Panama Canal Treaty? 5. Provision of Public Services a. What is the process for the appropriation and expenditure of those funds dedicated to the public services that are provided by the Government of Panama? (Article III, paragraph 5, Panama Canal Treaty) Is the process one which is sufficiently in the public domain to allow public examination of the sums expended? b. Various provisions in the Panama Canal Treaty and related agreements will cause the Panama Canal Commission to utilize utilities and services available in Panama. For utilities, what are the basic rate-setting procedures and structure in Panama, and what kinds of costs are recovered through rates? (e.g., paragraph 4, Article X of agreement implementing Article III) 6. Land Use and Zoning Licensing of land within the canal area is discussed in Article IV of the Agree- ment Implementing the treaty's Article III. What are the qualifications, restrictions and conditions which apply to land licensing by Panama? 7. Defense Which institution exercises legal authority over the National Guard of Panama? What is the nature of the authority? What powers are exercised by the Commander of the National Guard forces as compared to the President? Are any special powers designated for the commander of the canal's Panamanian defense force? b. Paragraph 10, Article IX of the Panama Canal Treaty states that Panama and the U.S. will cooperate to guarantee the security of the Panama Canal Commission. What laws has Panama enacted in this respect? 8. Labor Law a. Several provisions of the treaty (including paragraphs 3(d) and 4, Article X) concern transmission of information on licensing of professional personnel in Panama. What is the procedure for obtaining a license for a professional or craft skill in Panama? b. What are the basic requirements for Panamanian licenses, permits or classifica- tions for driving, vessel operation, air piloting, amateur radio operation, etc.? Arti- cle XIV of the agreement implementing Article III of the treaty makes renewal of such licenses subject to Panamanian law and regulations. c. What are the major rights and benefits enjoyed and the major "contractual" obligations of employees of the Panamanian Government? d. Contractors working for the Panama Canal Commission are subject to the laws and regulations of Panama except as otherwise indicated in the treaty arrangement (Article XI of agreement implementing Article III of the treaty) What specific laws and regulations of Panama apply to contractors? What is the nature of the insurance cited in paragraph 7 of Article XVIII of the agreement implementing Article III of the treaty? 10. Social Security System What does the present Panamanian law provide as to unemployment compensa- tion and benefits for those who are severed or retired from government employ- ment? What indication is there that such law will apply to former employees of the Panama Canal Commission? 1261 11. Rights of Ownership Under the new treaty arrangement, Panama will obtain title to housing now owned by the Panama Canal Company. Some U.S. citizen canal employees have expressed a desire to purchase the housing in which they now live. Are there currently provisions of Panamanian law providing for the sale of government-owned housing to private citizens? If any such programs exist, what are the qualifications for eligibility? What nationality restrictions exist? 12. Admiralty Panama will assume some jurisdiction over legal cases involving admiralty ques- tions under the new treaty arrangement. What are the bases and what are the principles or any more specific provisions of admiralty law which may exist? 13. Nonprofit Institutions a. What are the major provisions of law that apply to nonprofit institutions in Panama? Is the nonprofit concept similar or identical to that applied in the U.S.? b. According to the terms of the treaty (paragraph 5 of Article III), the cost of purchase of land for nonprofit institutions "will be nominal in accordance with the prevailing practice in the rest of the territory of the Republic of Panama." What are the rules that currently apply in Panama? The Committee is dispatching with this letter a batch of documents which may be useful in writing the summaries and responses requested. Additionally, we have asked the State Department to provide the Committee and the Hispanic Law Division with any information the U.S. Embassy in Panama may have with respect to Panamanian legislation to implement the treaties. It is clear that some of the specific items requested will not be available until Panama enacts legislation on particular subjects. For whatever material is not now available, we request that the Hispanic Law Division summarize the new applicable Panamanian law as soon as it becomes available. Since hearings on implementation of the new canal treaties will probably com- mence in early February, we request that all or as many as possible of the responses be provided to the Committee not later than January 15. Please consider the order in which the issues are set out as a priority of listing of the issues. The Committee has no objection to specialized response to its questions, so that each individual issue, as soon as it has been prepared by the Hispanic Law Division, may become immediately available. Please coordinate as necessary with Mr. Terry Modglin or Miss Molly Dominick of the Panama Canal Subcommittee staff (telephone: 225-8186). Thank you for your cooperation. Sincerely, John M. Murphy, Chairman. Library of Congress Response to Questions Posed by Mr. Murphy in Letter of December 7, 1978 Panama Canal Treaty— Panamanian Related and Implementing Legislation* I. GENERAL SUMMARY OF THE PANAMANIAN LAW-MAKING PROCESS A. The legislative body Under the Constitution of Panama ' the legislative power is exercised through the National Assembly of Representatives of Corregimientos (National Assembly) and the National Legislative Council (art. 129). 1. The National Assembly.— The National Assembly meets annually in its own right, without previous convocation, in the capital of the Republic, from October 11 until November 11 in each of the 6 years of the term for which its members are elected (art. 131). It may hold regular and special sessions. Regular sessions are held during the period specified above; special sessions are held in compliance with the provisions of article 142 of the Constitution and those called by the Executive to deal with specific matters for a specific period (art. 132). • Prepared by Armando E. Gonzalez, Assistant to the Chief, and Rubens Medina, Chief, Hispanic Law Division, Library of Congress. 1 Constitucion Politica de Panama of October 11, 1972 (Gaceta Oficial [CO.], Oct. 24, 1972), as amended by Acts 1 and 2 of the National Assembly of Oct. 5 and 25, 1978, respectively (CO., Nov. 16, 1978). 1262 The National Assembly must approve, with or without modifications, or disap- prove the amendments to the Constitution submitted to it by the National Legisla- tive Council. Amendments must be ratified subsequently by the National Assembly that takes office in the following term (art. 140). The legislative functions of the National Assembly consist of enacting laws for the following purposes — To approve or reject international treaties signed by the Executive; To declare war and empower the Executive to negotiate peace; To approve or reject amendments to the political division of the national territory proposed by the Cabinet Council; To grant amnesty for the commission of political crimes; and To issue its internal regulations (art. 141). Accusations or charges against the president and vice president of the Republic, magistrates of the Supreme Court, the attorney general, the commander in chief of the National Guard, and the solicitor general are within the competence of a judicial commission composed of the officers of the National Assembly and three representatives from each province and one from the district of San Bias, elected by the full assembly. If there are grounds therefor, the judicial commission shall try them for acts in violation of the Constitution and laws committed in the perform- ance of their duties. The law shall establish the procedures to be followed and the penalties to be imposed (art. 142). The laws to be enacted by the National Assembly shall be proposed by the Special Committee of the Assembly or by the Cabinet Council. Enactment requires approval in a single debate and vote by absolute majority of the members of the Assembly. Laws must be promulgated within 6 working days following their enactment and take effect from the time of their promulgation, unless the law itself provides that it shall become effective on some other date (art. 145). It should be noted that the provisions of article 144, section 4 of the Constitution prohibit the National Assem- bly from delegating any of its functions. 2. The National Legislative Council. — This council is composed of the following: (a) the president of the National Assembly, who presides, or in his absence the vice president of that body; (b) four municipal representatives from each province and one each from the districts of San Bias and Puerto Obaldia, for a period of 2 years; (c) two provincial representatives and one for each locality or political division created by law in the Indian zones (art. 146). The president and vice president of the Republic, the Supreme Court, the attorney general, the solicitor general, the Elec- tion Court (in election matters and by authorization of the Cabinet Council), and the ministers of State have legislative initiative before the National Assembly. They all have the right to a voice in the National Legislative Council. The Council shall appoint a counseling commission, composed of as many members as it deems neces- sary, which is entitled to a voice in the Council's debates. Its functions and grounds for dismissal shall be determined by its internal regulations, and their salaries shall appear in the budget (art. 147). Except for those laws that must be enacted by the National Assembly, the National Legislative Council enacts the laws that are necessary for the purposes of the State and in the exercise of the Government's functions as stated in the Constitution, especially the following — To enact, put into effect, amend or repeal the national codes; To determine the number and titles of the ministries of State and assign their functions; To limit and regulate the awarding of vacant lands; To decide upon the use of national property for public purposes; To decide upon the transfer of movable and immovable national property; To determine the number and titles of state corporations requiring an autono- mous or semiautonomous status and to assign their functions; To establish taxes, assessments, revenues and official monopolies; To create administrative departments with internal autonomy, interminister- ial agencies and technical councils; To establish and organize public services; To determine the standard, weight, value, form, type and denomination of the national currency; and To issue its internal regulations (art. 148). The National Legislative Council may not — Enact laws in violation of the text and spirit of the Constitution; Charge to the public treasury indemnifications that have not been previously declared by the courts, or issue scholarships, pensions or bonuses that have not been accorded pursuant to the existing general laws; or 1263 Decree the banishment or persecution of natural or juristic persons (art. 149). In addition to the persons mentioned in article 147 of the Constitution, the members of the National Legistative Council may propose legislation. The provin- cial coordinating councils may also do so through their respective vice presidents or through the president of the National Assembly (art. 150). Proposed laws are approved in two debates in public sessions held on different days, by absolute majority of the members of the National Legislative Council, after the required consulation with the provincial coordinating councils and the national sectors that may be affected by the proposed law (art. 151). In order to better fulfill its functions, the National Legislative Council may request oral or written reports from the public servants directly connected with the object of the proposed law, as well as their attendance at the sessions, when it is deemed necessary to illustrate the debates (art. 152). After the proposed law is approved, it is sent to the Executive. If the latter sanctions it, he then orders its promulgation as law; if he does not, he returns it will his objections to the National Legislative Council. The Executive has 30 working days to return any approved proposed law with his objections. If he does not return it after this term, he cannot leave it without his sanction and promulgation. If the Executive does not fulfill his obligations of sanctioning and promulgating the laws as provided above, they shall be sanctioned and promulgated by the president of the National Assembly. The objections by the Executive to the proposed laws shall be governed by the following rules: (a) A proposed law vetoed in its entirety by the Executive shall return to the National Legislative Council for a second debate. If it was vetoed only in part, it shall return to the Council for a first debate to consider the objections raised. (b) To overrule the Executive, a vote of no less than two-thirds of the members of the National Legislative Council is required, otherwise the proposed law shall be rejected. If the Executive's objections are rejected, he may: (a) Sanction and other the promulgation of the approved law as approved by the National Legislative Council; and (b) Submit the proposed law approved by the National Legislative Council to the National Assembly for discussion, approval or rejection. Approval by the National Assembly requires a favorable vote by the absolute majority, in which case the Executive shall proceed immediately to have it sanctioned and promulgated. If the Executive vetoes a projected law because he considers it impossible to enforce and the National Legislative Council, by a two-thirds majority, insists on its adoption as a law, the Executive shall forward it to the Supreme Court for its decision concerning the law's enforceablity. The Court's decision declaring the law enforceable binds the Executive to have it sanctioned and promulgated (art. 153). Laws are enforceable as of the date of their promulgation, except when provided to the contrary therein (art. 153B). B. The Executive Under the Consitution of Panama, the Executive is constituted by two citizens, the president of the Republic and the vice president of the Republic, requiring the support of the ministers of the Cabinet (art. 155). In each particular case, the president or vice president exercises his functions as representative of the Executive (art. 156). The president shall be elected by direct popular suffrage for a term of 6 years. The vice president shall be elected together with the president, in the same manner and for the same term. He replaces the president during his absence, pursuant to provisions of the Constitution (art. 157). Following are some of the powers exercised by the president of the Republic alone: To take measures for the National Assembly to meet on the day prescribed in the Constitution or in the decree calling a special session; To conduct foreign relations and enter into international treaties and agree- ments, which shall be submitted to the National Assembly for consideration; To freely appoint and dismiss the cabinet ministers; and To obey and enforce compliance with the laws and promulgate those enacted by the National Legislative Council (art. 163). The president of the Republic, together with the cooperation of the respective minister, the Cabinet Council or the National Assembly, has the power to enact regulations for laws that require them for better enforcement, without deviating from the letter or spirit thereof (art. 164). The vice president of the Republic has, among others, the power to attend the sessions of the Cabinet Council, with voice and vote (art. 165). 1264 The president and vice president of the Republic may delegate their powers to other public officials or entities, as prescribed by law (art. 166). Except for those acts that may be exercised by them alone, the acts of the president and vice president do not have validity unless countersigned by the respective minister of State, who assumes responsibility for the act. Orders and resolutions issued by a minister on the instructions of the president or vice president are obligatory and may be invalidated only by the president or vice president, provided they are not contrary to the Constitution or the law (art. 167). C. The Cabinet Council The Cabinet Council consists of the meeting of the ministers of State and the vice president of the Republic under the direction of the president or acting president of the Republic (art. 179). Its functions include the following: To approve decrees issued by the president concerning the suspension and restoration of guarantees, with the Council members and the commander in chief of the National Guard being responsible; To request written or oral reports from public officials and entities as neces- sary in relation to the matters it must consider (art. 180); To dictate the economic policy, and in particular to approve the budgets of revenues and expenditures and of public investment by the central government, the autonomous and semiautonomous entities and the state corporations; To approve supplementary or extraordinary credits related to these budgets; and To approve and amend customs duties (art. 181). D. The General Council of State The General Council of State is formed by the president of the Republic, who presides, meeting with the vice president of the Republic, the ministers of State, the general directors of autonomous and semiautonomous entities, the commander in chief of the National Guard, the comptroller general, the attorney general, the solicitor general, the president and board of directors of the National Assembly, and the presidents of the Supreme Court and the Election Tribunal (art. 181). Its basic function is to act as an advisory and coordinating body on matters submitted to it by the president of the Republic. E. Different Kinds of Laws; Their Hierarchical Status 2 Constitucibn (Constitution). — Constitutional prevalence over all othe legislative instruments is derived from the constitutional provision establishing that the Su- preme Court shall decide all cases concerning the constitutionality of laws, decrees, accords, resolutions, and other acts. The court's decisions are final and published in the office gazette. Tratado Internacional (International Treaty). — The president of the Republic is entrusted with the power to negotiate treaties and agreements with foreign powers. However, these instruments also require submission to and approval by the repre- sentatives' Assembly for enactment and enforcement. The Assembly may not intro- duce amendments to treaties; it functions are confined to their approval or disap- proval. Approval is accomplished by means of a law enacted by the Assembly. There are special treaty provisions for the Panama Canal, its adjacent zones, their protection, and the construction of a third set of locks. Treaties and agreements on these matters require submission to and acceptance by a national plebiscite. 3 There are not specific provisions in the charter regarding the hierarchy of inter- national instruments. Nevertheless, a Panamanian scholar stated that although treaties and agreements are laws in the formal sense, in fact they have a special status. They may not be repealed in Panama by subsequent ordinary statutes or by new constitutions, even if the charter or the laws contain provisions contradicting the text of the treaty. 4 Ley (Law). — The exercise of legislative power is entrusted to the National Assem- bly or to the National [Legislative] Council. The former has very restricted legisla- tive powers, while the latter has broader responsibilities, including the enactment of all laws necessary for the fulfillment of the objectives of the state. Decreto (Decree). — The functions assigned to the Panamanian executive power are entrusted to a president and a vice-president of the republic. They are supported by 2 This section, except for the final paragraph, is excerpted from the following work not yet published: R. Medina and C. Medina-Quiroga, Nomenclature and Hierarchy: Basic Latin Ameri- can Legal Sources (Washington, D.C., Library of Congress [1979]). 3 Constitution, art. 274. 4 C.A. Quinteros, Derecho Constitucional 529 (vol. 1) (San Jose, Costa Rica, Libreria Litografia e Imprenta Antonio Lehmann, 1967). 1265 the cabinet ministers who must countersign all the executive issuances for legal validity. Under certain circumstances, the support of the National Legislative Coun- cil is prescribed for executive legislative issuances. The cabinet ministers provide the required support individually or as a body called the Cabinet Council. The most important legislative function of the president is to issue regulations for the implementation of certain laws. These regulations must strictly conform to their legislative source. The official gazettes indicate that regulations are passed by means of a decree. They are ordinarily signed by the president of the republic and the corresponding minister of the cabinet. Occasionally, executive issuances are entitled executive decrees. Nevertheless, no appreciable differences were found between a decree and an executive decree. This may suggest that both are being used interchangeably. Concerning their rank, decrees are subordinate to laws and must therefore con- form to them; compliance is entrusted to the Supreme Court which may annul decrees issued in violation of the constitution and the laws. The comptroller general is responsible for compliance when decrees concern public funds or property. Publication of these instruments is required in the official gazette. Resolution (Resolution). — This instrument is also an executive issuance which may bear such headings as resolucion de gabinete (cabinet resolution), resolucion ejecutiva (executive resolution), and resolucion ministerial (ministerial resolution). They are all subordinate to the laws and the constitution. Cabinet resolutions originate within the Cabinet Council, an executive body con- sisting of the cabinet ministers and the vice president, which is headed by the president of the republic. Some of the functions entrusted to the Cabinet Council are performed by means of these issuances. In this regard, some of the Council's responsibilities are to approve the appointment of the justices of the Supreme Court by the president of the republic, to approve or reject government loans and the transfer of state property, and to support or oppose presidential decisions concern- ing suspension of constitutional guarantees. Executive resolutions are issued by the president of the republic with the support of one or more of the corresponding individual ministers of the cabinet. The content of executive resolutions found in several issues of the official gazette revealed that these instruments are used to control administrative matters. Ministerial resolutions are issued by individual ministers of the cabinet upon instructions from either the president or the vice president of the republic. Instruments bearing the simple heading Resolution have also been published in the official gazette. These instruments appear to be no different from executive resolutions in both content and format. No reference was found in the Panamanian legal literature available concerning the authority relationship between these resolutions and the decrees described in the preceding section. The pertinent constitutional passage suggests, however, that the president may invalidate a resolution at his own discretion when it violates either a law or the constitution. The publication requirement is complied with by its insertion in the official gazette. Case Law. — The principle of stare decisis as it is known in common law countries has a different meaning under the laws of Panama. Thus, under the provisions of article 3 of Law 86 of July 1, 1941: 5 The purpose of the recourse of cassation is to uniform the national jurisprudence; therefore, three uniform decisions by the Supreme Court constituted as court of cassation on the same legal issue constitute probable doctrine that may be applica- ble by other judges in similar cases. This does not affect the right of the Supreme Court to change its doctrine in that same issue should it believe the previous decisions have been erroneous. II. PANAMA CANAL AUTHORITY A. What institutions of the Government of Panama would be responsible for the nomination and/or confirmation of members of the Panama Canal Commission? Is there any indication of whether there will be any such process for Commission members in the Government of Panama? Concerning this question, the recently approved Panama Canal Treaty provides as follows: Article III. * * * 3) Pursuant to the foregoing concession of rights, the United States of America shall, in accordance with the terms of this treaty and the provisions of the laws of the United States of America, carry out its responsibilities by means of a United States government agency to be designated the Panama Canal In J. Fabregas P. and R. E. Fabregas F., Codigo Judicial 546 (Panama City, 1961). 1266 Commission which shall be constituted in conformity with the laws of the United States of America. (a) The Panama Canal Commission shall be directed by a Board of Directors composed of nine members, five of whom shall be nationals of the United States of America, and four of whom shall be Panamanian nationals proposed by the Repub- lic of Panama for appointment to such positions by the United States of America in a timely manner. In accordance with this provision, it should be noted that the Panama Canal Commission is a United States government agency constituted in conformity with the laws of this country. Four of its directors shall be "Panamanian nationals proposed by the Republic of Panama for appointment to such positions by the United States of Amercia in a timely manner." Consequently, the rights of Panama are limited to the proposal of four Panamanian nationals to the United States of America. The language of this provision seems to indicate that confirmation of the appointed officials will be made pursuant to what may be provided under the laws of the United States. Concerning the responsible proposing institution under the laws of Panama, the text of the treaty is silent. This notwithstanding, it appears that this power is vested in the president of Panama. Thus, the Constitution provides: Art. 164. The following powers shall be exercised by the President of the Republic with the cooperation of the respective Minister, the Cabinet Council or the National Legislative Council, as appropriate: ******* 8. To appoint, with the cooperation of the respective Minister and in accordance with the provisions of Title XII [of the Constitution], persons who are to hold offices or positions, appointment to which does not fall within the competence of any other public official or entity. The President of the Republic may delegate his power of appointment to other officials as provided by law. [Note: Title XII of the Constitution governs public employees in general, which under the provisions of article 258 are defined as "persons appointed temporarily or permanently to positions in the executive, legislative or judicial branches, the municipalities and autonomous and semiautonomous entities; and in general those who receive remuneration from the State."] B. What is or will be the relationship of various Panamanian Government institu- tions to the Panama Canal Consultative Committee? The Joint Commission on the Environment? The Panama Canal Treaty provides as follows concerning this question: Article III. * * * 7. The Republic of Panama and the United States of America shall establish a Panama Canal Consultative Committee.* * * This Committee shall advise the Republic of Panama and the United States of America on matters of policy affecting the operation of the Canal. In view of both Parties' special interest in the continuity and efficiency of the operations of the Canal in the future, the Committee shall advise on matters such as general tolls policy, employment and training policies to increase the participation of Panamanian nationals in the oper- ation of the Canal, and international policies on matters concerning the Canal. The Committee's recommendations shall be transmitted to the two governments which shall give them full consideration in the formulation of such policy decisions. Article VI. 1. The Republic of Panama and the United States of America commit themselves to implement this treaty in a manner consistent with the protection of the natural environment of the Republic of Panama.* * * A Joint Commission on the Environment shall be established with equal represen- tation from the Republic of Panama and the United States of America, which shall periodically review the implementation of this treaty and shall recommend to the two governments, as appropriate, measures to avoid or, should this not be possible, to mitigate the adverse environmental impacts that might result from their respec- tive actions pursuant to the treaty. According to the above mentioned provisions, then, the role of the Panama Canal Consultative Committee, in general, is that of "advising the Republic of Panama and the United States of America on matters of policy affecting the operations of the Canal." The role of the Joint Commission on the Environment, charged with the periodic review of the implementation of the treaty, is that of "recommending to the two governments, as appropriate, measures to avoid or, should this not be possible, to mitigate the adverse environmental impacts that might result from their respec- tive actions to the treaty." 1267 In its implementation of the provisions of the Panama Canal Treaty, the Republic of Panama enacted Law 66 of September 19, 1978, 6 creating the Panama Canal Authority, an autonomous government agency. With regard to this inquiry, the following provisions of this law seem pertinent: Art. 2. The principal objectives of the Authority are: (a) To coordinate with the competent authorities and entities the adoption and implementation of measures to exercise the rights and carry out the responsibilities of the Nation under the Panama Canal Treaty of 1977 and its related agreements (hereinafter referred to as the Treaty). ******* (d) To participate in the Panama Canal Commission created by the Treaty. Art. 3. In order to carry out its responsibilities, the Authority shall have the following particular functions: (a) To provide advisory services, technical assistance and administrative support to the Executive branch in the establishment of policies and the adoption of meas- ures or regulatins bearing on implementation of the Treaty through planning, coordination, administration and execution of plans, programs and activities; (b) To serve as means of communication and liaison between national and United States agencies in the implementation of the Treaty. ****** ^ (i) To order, pursuant to the policy established by the Executive, the actions to be followed and the votes to be cast by the Panamanian representatives on the Board of Directors of the Panama Canal Commission, the [Panama Canal] Consultative Committee and its subcommittees, the Joint Commission on the Environment, the Coordinating Commission and its subcommittees, the Combined Board and the Joint Committee and its subcommittees, established by the Treaty; (j) To receive reports from the Panamanian representatives [accredited] before the agencies mentioned in the preceding paragraph, evaluate them and present its recommendations to the Executive at the proper time. Art 7. The Panama Canal Authority shall be directed and administered by an Executive Committee and by a general director and a deputy general director and it shall have the administrative units necessary to carry out its responsibilities. Art. 10. The following are the functions and powers of the Executive Committee: ******* 6. To determine the policy concerning the participation of the Panamanian mem- bers to the Board of Directors of the Panama Canal Commission, the [Panama Canal] Consultative Committee and its subcommittees, the Joint Commission on the Environment and the Coordinating Committee and its subcommittees, as well as to provide them with the pertinent instructions to be followed. In view of the above, it appears that the Panama Canal Authority will be the Panamanian government agency in charge of acting as liaison between the Panama- nian government agencies and the Panama Canal Consultative Committee and the Joint Commission on the Environment. III. ENVIRONMENTAL AND WILDLIFE PROTECTION According to the Index to Latin American Legislation, prepared in this Division, the Republic of Panama has enacted more than 30 statutes dealing directly or indirectly with the subject of environmental and wildlife protection since 1950. In addition, the Constitution of 1972, presently in force, contains the following related provisions: Art. 228. Concessions for the exploitation of the soil, subsoil and forests and for the utilization of waters, means of communication or transportation and other public service enterprises, shall be based on the social welfare and the public interest. Art. 255. The law shall regulate hunting, fishing and the exploitation of forests, to ensure their renewal and the continuation of their benefits. The more important enactments on this topic may be subdivided and described as follows. A. Forestry legislation. Decree Law 39 of September 29, 1966, 7 basically provides that the protection, conservation, improvement and further growth of forest resources are declared obligatory, and for this purpose the exploitation and rational management of the nation's woods and forests, as well as those other renewable resources included in 6 G.O.,Sept. 22, 1978. 7 Gaceta Official IG.O.l, Oct. 26, 1966. 1268 this system by the decree law, are declared to be of public interest and subject to the standards established in the respective regulations. The following are declared to be of national interest and to be fundamental objectives of the State — To protect, conserve, increase, renew and exploit rationally the forestry wealth and resources of the country; To incorporate into the national economy those lands that are not suitable for agriculture or cattle raising but that can support vegetation; To prevent and control soil erosion; To regulate and protect hydrographic basins and water resources in order to better exploit them; To promote reforestation projects with a view toward establishing wooded areas for the protection of crops, and the protection and beautification of roadways, sanitary works, and recreation and tourism areas; To promote, in cooperation with the highway services, the construction of all types of permanent or temporary roads integrated into the national road system which will permit economic access to forest zones for exploitation; To conserve and increase the natural resources for hunting and river and lake fishing in order to obtain the maximum social benefit from these activities; To promote the creation of forestry associations and cooperatives; To promote the location, development and improvement of rationally con- ceived forestry industries, utilizing forestry raw materials to the utmost; and To study, research and disseminate information concerning the nature of forests and their products. Forest lands are defined as those which because of their agrological capacity possess a capability to be used for production of lumber and other forestry products, due to the beneficial implications or the protection of water systems and soils, or to their esthetic and recreational value. They are classified into two groups: (1) those destined for production, that is, those which when properly used provide an annual or periodic income, and (2) those used for the prevention of erosion for the following purposes — To regulate water systems; To protect the soil and agricultural crops, cattle enterprises, roads, river shores, brooks, lakes, islands, canals and reservoirs; To prevent such phenomena as erosion, avalanches and floods; and To provide habitat and protect species of the flora and fauna whose existence is declared necessary. An additional category of land, called special lands, consists of those that for scenic, scientific, historic, touristic or recreational reasons are located on state lands or on lands which the state later may acquire for such purposes. This Decree Law 39 also governs proceedings for concessions for the exploitation of forests; thus, plowing, clearing, burning and pasturing are prohibited without the authorization of the Forest Service, an agency responsible under the law for carry- ing out the provisions of the forestry legislation. Provisions concerning prevention of and fighting forest fires and control of plagues and diseases are also found in this law. In addition to the State, individuals are also obliged to contribute in one form or another to the prevention and control of fires and plagues affecting vegetation. Articles 1625 through 1635 of the Administrative Code, approved by Law 1 of August 22, 1916, also contain provisions on the clearing of land for agricultural purposes, felling of fruit trees and medicine-producing shrubs, setting fire to fields of straw, savanna, woods or stubble that belong to a community, all of which require the issuance of a permit by the appropriate authority. Decree Law 39 of 1966 also contains references to the relationship that the Forest Service should maintain with the Agrarian Reform Commission, so that the Com- mission takes into account in its plans and work projects the protection and conser- vation of water and soil, providing consistency among the agricultural, livestock and forestry plans in those places where agrarian reform work is to be undertaken. The exploitation of forests may only be allowed after an inventory and work plan have been approved by the Forest Service and for a period of up to 5 years; however, extensions may be granted for 2 additional years when reasons of force majeure or of economics so justify. The Forest Service is charged with the control of all exploitations and production related to forestry. On this basis the agents of the Forest Service have access to area under exploitation, to extraction routes, lumber yards and other installations. Final- ly, this law contains a list of fines to be imposed for the violation of its provisions. 1269 B. Water legislation Of like importance to the above mentioned Decree Law 39 of 1966 is Decree Law 35 of September 22, 1966, 8 which issues the regulations concerning the use of water and creates the National Water Commission. Territorial seas, lakes and rivers, ground water, hot springs and atmospheric (rain) waters found within the territorial limits of Panama are considered to be state-owned and for public use, and therefore may not be privately appropriated. All matters concerning waters are of public use or service, those that are used in municipal service or for agricultural, cattle raising, industrial, communications or other type of activity. Among the functions vested in the National Water Commission are the follow- ing- Planning and programming of everything concerning the appropriation, use, conservation and control of waters; Promotion of irrigation projects; Preparing and maintaining an inventory of the country's water; Preventing and controlling the pollution of river and maritime waters; and Establishing measures for the protection of hydrographic basins. The exploitation of water resources can be made only by means of a concession for a profitable use, which is considered to be that use which is beneficial to both the concessionaire and the social interest. Users are obliged to maintain waters in an unpolluted state, and if danger of pollution should arise they must take the necessary corrective measures. C. Fishing laws The Fiscal Code approved by Law 8 of January 27, 1956, 9 articles 285 through 297, contains certain provisions concerning fishing that may be applicable to this in- quiry: (a) Licensing is required for commerical or industrial fishing; (b) Fishing intended for sale for immediate consumption throughout Panama is reserved to Panamanian nationals; (c) Fishing through the use of dynamite or any other explosive or through use of poisonous substances, as well as systems that interfere with navigation or the use of docks and ports, is prohibited; (d) Fishing for mother-of-pearl shells is subject to a special regulation concerning the system by which it is carried out and concerning the license required. Only diving is permitted for this type of fishing, either scuba diving or by mechanical apparatus, and the use of dredges, scrapers or similar apparatus is expressly prohib- ited. Likewise mechanical diving equipment is not permitted in waters of less than 9 fathoms at the lowest tide; (e) The capture of common turtles of less than 50 centimeters in length and of tortoiseshell turtles of less than 25 centimeters in length is prohibited. Additional regulations on fishing are found within Decree Law 17 of July 9, 1959, 10 which classified fishing as follows: (a) Subsistence fishing, that is, fishing whose primary purpose is food for the fisherman's family and neighbors, if this provides wages equivalent to that of a farmer. Such fishing is not done for sport, and is done with a casting net, harpoon or fishing line with no more than three hooks; (b) Commerical fishing, that is, when its purpose is to provide the national market with fresh and dried fish; (c) Industrial fishing, for export or for industrial processing; id) Scientific fishing, for purposes of research and study; (e) Sport fishing, that is, done for recreation or exercise without any other purpose than the activity itself. No alien not domiciled in Panama may be issued a fishing license to fish for shrimp, pearls or mother-of-pearl. The Ministry of Commerce and Industry is charged with the regulation and control of fishing through the Department of Fish and Related Industries and the National Fishing Laboratory, which are created by this law within the Ministry of Commerce and Industry. The law also creates the National Fishing Commission as an advisory agency. The following constitute gener- al and special prohibitions concerning fishing- No use of explosives; No use of explosive substances or those poisonous to aquatic life, domestic animals or humans; 8 GO., Oct. 14, 1966. 9 CO., June 29, 1956. 10 No official date of publication is available. 1270 No methods that pollute the waters, changing their quality for human use, for domestic animals or for irrigation; No methods that interfere with navigation, use of ports and docks, passages in rivers, and other public ways; No practices that upset the natural laws; and No act of unnecessary cruelty toward aquatic animals. Additional statutes on fishing are the following: (1) Law 33 of January 30, 1961, n establishing economic measures for regulating and protecting fishing in Panamanian waters, and especially the taking and process- ing of shrimp; (2) Decree 49 of March 12, 1965, 12 containing additional regulations on fishing; (3) Decree 162 of June 6, 1966, 13 regulating shrimp fishing; (4) Law 5 of January 17, 1967, 14 establishing economic measures for carrying out research to direct and protect fishing in Panamanian waters and regulating the issuance of fishing and sailing permits as well as the inspection of fishing vessels; (5) Decree 13 of January 17, 1967, 15 prohibiting shrimping vessels over 20 gross tons that do not have a fishing license or have not submitted a request for renewal thereof and prohibiting the sale of marine products caught by them; (6) Decree 50 of July 19, 1972, 16 providing that only those ships built in shipyards established in Panamanian territory may engage in shrimping in Panamanian jurisdictional waters; (7) Decree 127 of July 28, 1964, 17 governing tuna fishing, provides that in order to engage in such fishing in Panamanian jurisdictional waters the owners of foreign vessels must secure a license issued by the Ministry of Commerce and Industry, or a license to fish issued by the Department of Fish and Related Industries, and, in such cases, a navigation permit issued by the Ministry of Finance and Treasury. The tune fishing permit is valid only during the tuna fishing season between September 1 and August 30 of the following year, and it gives the right to fish for tuna in both of the coastal territories of Panama; (8) Decree 202 of October 14, 1965, 18 prohibiting the catching of any marine species within an area of 12 miles from the coast; (9) Decree 168 of July 20, 1966, 19 containing regulations for the installation of fish meal plants and on the fishing of anchovy and herring for which a license is required, and listing the number of boats permitted to engage in these activities. D. Other legislation Other enactments that should be mentioned in the context of environmental and wildlife protection are as follows: (1) Law 66 of November 10, 1947, 20 which approved the Health Code; (2) Law 22 of September 28, 1950, 21 which concerns development and exploitation of natural resources; (3) Law 3 of January 14, 1957, 22 which contains additional measures to protect natural resources; (4) Decree 71 of February 26, 1964, 23 which regulates the location of industries that endanger public health; (5) Decree Law 15 of May 18, 1967, 24 which contains provisions concerning infec- tious and contagious diseases of animals; (6) Decree 384 of December 11, 1967, 25 on the manufacture, handling, warehousing, trafficking and use of poisons and pesticides used in agricultural work; (7) Decree 1 of January 15, 1 969, 26 creating the Ministry of Health; (8) Decree 51 of November 20, 1968, 27 creating the Office for the Study of an lnteroceanic Canal; "CO., Mar. 9, 1961. ,2 G.O., Mar. 22, 1965. ,3 G.O., Aug. 1, 1966. "G.O., Jan. 19, 1967. 15 G.O., Mar. 21, 1967. 16 Official text not available. 17 G.O., Aug. 28, 1964. ,8 G.O., Oct. 22. 1965. 19 G.O., July 24, 1966. 20 G.O., Dec. 6, 1947. 21 GO., Oct. 9, 1950. 22 GO., Feb. 16, 1957. 23 G.O., Apr. 3, 1964. 24 CO., May 30, 1967. 25 G.O., Dec. 21, 1967. 26 G.O., Feb. 4, 1969, 2 ' GO, Dec. 16, 1968. 1271 (9) Decree 401 of December 29, 1979, 28 which creates health committees in several communities of the country; (10) Decree 10 of January 27, 1972, 29 approving the Convention for the protection of flora and fauna and the natural scenic beauty of the Americas, signed in Panama on December 16, 1965; (11) Law 17 of October 23, 1975, 30 approving the International Agreement on Civil Liability for damages caused by the contamination of sea waters by hydrocarbons, and its appendix, signed in Brussels on November 29, 1969; (12) Law 2 of October 25, 1975, 31 approving the amendments to the 1954 Interna- tional Agreement to prevent the contamination of sea waters by hydrocarbons, adopted by Resolution A-175 of October 21, 1969; and (13) Law 14 of October 28, 1977, 32 approving the Convention on international trade of endangered species of the wild flora and fauna, signed in Washington on March 3, 1973. IV. CRIMINAL LAW A. How do the rights guaranteed by the Constitution and laws of Panama compare with the personal and civil rights contained in Chapter 3, Title 1, Canal Zone Code? Fundamentally, the personal and civil rights contained in Chapter 3, Title 1 of the Canal Zone Code are found among the provisions of Title III, Chapter I of the Constitution of Panama of 1972, presently in force. A copy of these provisions, contained in articles 17 throught 50, is enclosed. Of special interest are the provi- sions contained in article 50, authorizing the suspension of constitutional rights in whole or in part in the event of foreign war or domestic disturbance threatening the peace or public order. Article 197 of the Constitution established trial by jury; however, it also provides that a law shall determine the cases to be decided by this system. Under the provisions of the Judicial Code approved by Law 61 of September 30, 1946 33 in matters concerning criminal justice, trial by jury is only exceptional. The courts involved in criminal cases are as follows: in exceptional cases, the National Assembly and the Supreme Court; in ordinary cases, the Superior Judge of the Republic, the circuit judges and the municipal judges, as the case may be (Judicial Code, art. 1987). The parties involved are: (1) the accuser, that is, the person who brings charges against another. The accuser is a party to the case and is obliged to furnish the corresponding evidence to the court (art. 1993); (2) the denouncer, that is, the one who reports the commission of a criminal act to the the public authority, without making himself or herself a party to the proceedings or incurring in any obligation concerning the furnishing of evidence (art. 2007); (3) the Government attorney, in charge of prosecuting, ex officio, any criminal act (art. 2010); (4) the accused, that is, the person who has been indicted and is subject to the criminal proceedings (art. 2012); and (5) the defender, that is, the person in charge of defending the accused or indicted party (art. 2015). Under the laws of Panama, an indicted person is entitled to the appointment of a defender; should he or she not be able to afford one, the court shall appoint a defender, ex officio (art. 2016). A criminal case is subject, in the first place, to investigation by the court (su- mario). Thus, the courts are empowered to investigate the accused, to examine witnesses and expert witnesses, and to confront the accused or indicted person with witnesses or accusers (arts. 2063 through 2090). The accused or indicted person is also entitled, if her or she meets certain requirements, to be free on bail before trial (art. 2099). If there are no reasons to prosecute the charges, the case may be dismissed (sobreseimiento) (arts. 2146 through 2150). If the case goes to trail, the accused or indicted person is entitled to propose evidence, examine and cross- examine witnesses, furnish documents, and in general offer whatever evidence that may exonerate him or her (arts. 2151 through 2178). The court, after hearing the case, issues its written verdict, and if the accused or indicted is found guilty, imposes the corresponding sentence, in the same act (art. 2217). Sentences issued in 28 CO., Jan. 26, 1971. 29 G.O., Feb. 8, 1972. 30 G.O., Jan. 29, 1976. 3, G.O., Jan. 17, 1977. 32 CO., Jan. 27, 1978. 33 Gaceta Official [CO.], Oct. 2, 1946. 44-394 O - 79 - pt. 2-28 1272 criminal cases may be appealed at a superior court, and eventually may reach the Supreme Court in cassation. 34 Exceptionally, Law 115 of March 26, 1943, 35 authorizes in certain cases the inter- vention of a jury in criminal trials. Among those are the following — Crimes that may have been committed by" the secretaries of the ministries of State, the consuls of the Republic, circuit government attorneys (fiscales), chief administrators of post offices, inspectors of ports, and officials having command and jurisdiction in the provinces; Crimes committed at any time by persons who, at the time of the investiga- tion of the case, hold any of the posts mentioned above; Contentious administrative proceedings where the nation or the municipal- ities are a party; Expropriation proceedings; Cases where nullity of judgments issued by the courts in first instance are tried; Crimes of treason; and Crimes of homicide and against the safety of the means of transportation and communication. The accused in all these cases in entitled to waive his or her rights to trial by jury (art.l). Substantive criminal law is found within the Criminal Code, enacted by Law 6 of November 17, 1922, 36 although some provisions have been amended by the enactment of subsequent statutes. B. What provisions of Panamanian law will allow the Government of Panama to lend cooperation for enforcement of regulations of the Commission and rules of the Panama Canal Commission for "passage of vessels through the canal and other rules with respect to navigation and maritime matters?" Through what channels or by what mechanism would coordination be effected? (Paragraph 2, article III, Panama Canal Treaty) Under the provisions of Law 66 of September 19, 1978 37 the Republic of Panama established a government agency known as the Panama Canal Authority. Article 2 of this law provides: Art. 2. The principal objectives of the Authority are: (a) To coordinate with the competent authorities and entities the adoption and implementation of measures to exercise the rights and carry out the responsibilities of the Nation under the Panama Canal Treaty of 1977 and its related agreements. ******* (g) To study the problems of maintaining and operating the existing lock-type canal and its remaining lifetime as an efficient and profitable interoceanic water- way. Art. 3. In order to carry out its responsibilities, the Authority shall have the following particular functions: (a) To provide advisory services, technical assistance and administrative support to the Executive branch in the establishment of policies and the adoption of meas- ures or regulations bearing on implementation of the Treaty through planning, coordination, administration, and execution of plans, programs, and activities; (b) To serve as means of communication and liaison between Panamanian and United States agencies in the implementation of the Treaty. ******* The language of these provisions seems to indicate that the Panama Canal Au- thority is empowered to coordinate with the Government of Panama the necessary cooperation for the enforcement of the regulations of the Commission and rules of the Panama Canal Commission for passage of vessels through the canal and other rules with respect to navigation and maritime matters. C. In the Panamanian court system, how does the standing of the accused in law differ from such standing in the U.S. court system? In general, under section IVA above, we have examined the civil rights that Panamanians have under the current Constitution. Special attention is called to the provisions contained in article 32 of the Constitution (copy enclosed), authorizing certain persons to impose penalties without prior trial and within the specific terms of the law. "Judicial Code, arts. 2225 through 2233, and Law 86 of July 1, 1941, on Cassation (G.O., July 18, 1941), arts. 41 through 49. 35 G.O., Apr. 3, 1943. 36 G.O., Dec. 8, 1922. 37 CO., Sept. 22, 1978. 1273 The right to habeas corpus is acknowledged by article 22 of the Constitution and is further regulated by Law 46 of November 24, 1956. 38 Neither the Constitution nor the Judicial Code contain any specific provision as to the presumed innocence of the accused prior to conviction or acquittal. D. What law now exists in Panama to effectuate the coordination that will be necessary in the area of criminal jurisdiction during the 30-month transition period? In view of what has been stated in section IVB above, we presume that the Panama Canal Authority is the agency in charge of coordinating whatever will be necessary in the area of criminal jurisdiction during the 30-month transition period provided in the agreements. E. Special treatment exists in the treaty's Article HI implementing agreement for the commission of crimes in Panama by U.S. citizen employees and dependents. Five crimes are set out in Article XIX of this implementing agreement as crimes with respect to which Panama need not hand accused citizens over to the U.S. One of these five crimes listed is "crimes against the security of the Panamanian state. " In Panama, what are considered crimes against the security of the state? What are the penalties for these offenses? Do the definitions of crimes make any delineation between Panamanian and non-Panamanian citizens? No special statute has been located governing so-called "crimes against the secu- rity of the Panamanian state." Nevertheless, they appear to be included under the provisions of Title I, Book II of the Criminal Code, approved by Law 6 of 1922, articles 98 through 108, entitled "Crimes against the Fatherland." The crimes therein defined and the penalties to be imposed are the following: Art. 98. Anyone responsible for an act having as its object to subject the Republic wholly or in part to a foreign power, to impair its independence or to weaken its unity shall be penalized by imprisonment for 20 years. Art. 99. A Panamanian who takes up arms against Panama shall be penalized by imprisonment for 5 to 10 years. If the guilty person has lost his or her nationality before committing the crime, the penalty shall be imprisonment for 8 months to 5 years. Art. 100. Anyone engaging in intelligence with a foreign government or its agents for the purpose of producing hostilities or war against Panama, or aiding military operations of another nation against it, or performing any other act leading to these goals, shall incur imprisonment for 6 to 13 years, and if the criminal act or acts have had the result intended by the author thereof, the penalty shall be imprison- ment for 20 years. Art. 101. Anyone who reveals political, diplomatic or military secrets concerning the security of the nation, whether by communicating or publishing documents, reports, sketches, plans or other [secrets] relevant to military material, fortifications or operations, or by making them known in some other way, shall incur imprison- ment or confinement for 8 months to 2 years and a fine of 300 to 500 balboas. The penalty shall be imprisonment or confinement for 2 to 4 years with a fine of 500 to 600 balboas if the secrets are revealed to a foreign nation or its agents. If the nations to which the secrets were revealed, either directly or through its agents, is at war with Panama, or if the revelation gives rise to a disturbance of friendly relations with another nation, the imprisonment or confinement shall be for 4 to 10 years and the fine, 800 balboas. The penalty shall be increased by one-third if the guilty party possessed the sketches, plans or documents or had knowledge of the secrets by virtue of his or her status as a public official, or if violence or fraud were used to obtain the data or knowledge of the secrets. The persons who obtain the data or secrets referred to in this article shall incur the same penalties assigned here, according to each case. Art. 102. If the secrets referred to in the previous articles are divulged or the sketches, plans or documents made known through the carelessness or negligence of the officials entrusted with their custody, or of those who know such secrets, the guilty persons shall be penalized by confinement for 2 months to 1 year and a fine to 100 to 300 balboas. Art. 103. Anyone who without legal authority, draws plans of fortifications, ships, roads or military works of any kind, or who for that purpose, clandestinely or by fraud, enters places where entrance by the public is prohibited by military authori- ty, shall incur imprisonment or confinement for 4 to 20 months and a fine of 20 to 200 balboas. 'CO., Dec. 6, 1956. 1274 The sole act of clandestinely entering these places shall be penalized by confine- ment for 1 to 6 months. Art. 104. Anyone entrusted by the Government of Panama with negotiating matters of state with a foreign government who betrays his or her mandate in a manner which prejudices public interests shall incur imprisonment or confinement for 2 to 8 years. Art. 105. The penalties assigned in articles 100 and following shall also be applied when the crime is committed in prejudice of a foreign nation with which Panama is allied or has ties of defensive and offensive solidarity during a war. Art. 106. Anyone who, by means of entrapment or other hostile acts not approved by the government carried out within the territory of the Republic or abroad, exposes the Republic to danger of war, shall incur inprisonment for 2 to 7 years; if war results, the imprisonment shall be for 10 to 15 years. If the acts included in the preceding paragraph only expose the Republic or its inhabitants to reprisals or only disturb friendly relations between the Panamanian government and a foreign government, the penalty shall be imprisonment for 2 to 20 months. Art. 107. Any Panamanian or alien residing in Panama who, in time of war, directly or indirectly supplies the enemy or its agents with provisions or other means which could be used in prejudice of Panama, shall incur imprisonment for 1 to 4 years and a fine of 200 to 1000 balboas. Art. 108. Anyone who despises, snatches, destroys or tears in a public place or in a publicly accessible place the national flag or any other emblem that symbolizes the Republic, shall be penalized with imprisonment of from 2 months to 1 year. With the exception of what is provided in article 99 with regard to Panamanians, the above provisions do not make differentiation between Panamanians and aliens. Furthermore, the Constitution of Panama of 1972 provides: Art. 15. Panamanian nationals as well as aliens who are within the territory of the Republic are subject to the Constitution and the laws. An additional provision is found in the Consitution of Panama which subjects aliens to a treatment other than that to which nationals are entitled, for reasons of work, health, morality, public security, and the national economy; however, the wording of this provision sems to indicate that this kind of special treatment does not extend to the field of criminal law. It provides: Art. 20. Panamanians and aliens are equal before the law, but for reasons of work, health, morality, public security, and the national economy, the law may subject to special conditions or deny the exercise of specific activities to aliens in general Likewise, the law or the authorities may, as the case may be, take measures that affect exclusively the nationals of specific countries in the event of war or in accordance with public treaties. F. Has any mechanism been established in Panamanian law for implementing the double jeopardy provision of paragraph 8 of article XIX of the Agreement in Implementation of Article III of the Panama Canal Treaty? No special legal mechanism has been located under the laws of Panama for implementing the double jeopardy provision of paragraph 8 of article XIX of the Agreement in Implementation of Article III of the Panama Canal Treaty. Perhaps, as mentioned above in section IVD, any conflicts that may arise on this ground will be submitted for the proper coordination and implementation to the Panama Canal Authority, which, under the provisions of article 3b of Law 66 of 1978, has the following functions, among others: ****♦*♦ (b) To serve as a means of communication and liaison between Panamanian and United States agencies in the implementation of the Treaty. However, it may also be argued that since this provision is part of the Agreement in Implementation of Article III of the Panama Canal Treaty, it is considered as the law of the land in Panama and as such, if an accused United States citizen employ- ee or dependent has been tried in accordance with the provisions of that Article by the authorities of the United States or by the authorities of the Republic of Panama and has been acquitted, or has been convicted and is serving or has served sentence or has been pardoned, and is tried again for the same offense within the territory of the Republic of Panama, he or she may allege this provision of the Agreement as his or her defense, and the courts, theoretically at least, must accept it and dismiss the charges brought against that person. 1275 Constitution of Panama 1972 title iii.— individual and social rights and duties Chapter I. — Fundamental Guarantees Article 17. — The authorities of the Republic are instituted for the purpose of protecting all nationals in their lives, honor and property, wherever they may be, and aliens who are under its jurisdiction; of ensuring the effectivess of individual and social rights and duties; and of observing and enforcing the Constitution and the laws. Article 18. — Private persons are responsible to the authorities only for violation of the Constitution or the law. Public officials are responsible for the same reasons, and also for exceeding their authority or for dereliction in the performance of their duties. Article 19. — There shall be no personal privileges or distinctions or discrimination because of race, birth, social class, sex, religion or political ideas. Article 20. — Panamanians and aliens are equal before the law, but for reasons of work, health, morality, public security and the national economy, the law may subject to special conditions or deny the exercise of specific activities to aliens in general. Likewise, the law or the authorities may, as the case may be, take meas- ures that affect exclusively the nationals of specific countries in the event of war or in accordance with public treaties. Article 21. — No one may be deprived of his liberty, except by virtue of a written order of a competent authority issued in accordance with legal formalities and for a reason previously defined by law. Those executing such orders are obliged to give a copy thereof to the interested person, if he requests it. An offender surprised flagrante delicto may be apprehended by any person and must be delivered immediately to the authorities. No one may be detained for more than twenty-four hours without being placed at the disposal of the competent authority. Public officials who violate this precept shall be punished by the loss of their employment, without prejudice to other penalties established by law for this purpose. There shall be no imprisonment, detention or arrest for debts or purely civil obligations. Article 22. — Any individual detained on grounds outside the cases or without the formalities prescribed by this Constitution or the laws, shall be placed at liberty on his own request or that of any other person through the remedy of habeas corpus, which may be sought by means of summary judicial proceeding immediately after the detention and without regard to the applicable penalty. Article 23. — The State may not extradite its nationals nor may it extradite aliens who are sought for political offenses. Article 2%. — No one is compelled to testify in a criminal, correctional or police proceeding against himself, or against his spouse, or against any relative within the fourth degree of consanguinity or the second degree of affinity. Article 25. — The domicile and residence are inviolable. No one may enter them without the consent of the owner, except by written order of a competent authority for specific purposes, or to assist the victims of a crime or disaster. Labor, social welfare and health officials may, after prior notice, make visits or inspections of homes or working premises for the purpose of ensuring the obser- vance of social and public health laws. Article 26— Every person may travel freely through the national territory and change domicile or residence without restrictions other than those which the traffic, fiscal, health, and immigration laws or regulations may prescribe. Article 27. — The prison system is based on principles of security, rehabilitation and social protection. The application of measures injurious to the physical, mental or moral integrity of prisoners is prohibited. Provision shall be made for the training of prisoners in trades which will enable them to reenter society as useful members. Prisoners who are minors shall be subject to a special system of custody, protec- tion and education Article 28— Correspondence and other private documents are inviolable, and may not be seized or examined except by order of a competent authority for specific purposes, in accordance with legal formalities. In all cases secrecy shall be main- tained with respect to matters extraneous to the object of the seizure or examina- tion. Private telephone communications also are inviolable and may not be intercepted. The examination of documents shall always take place in the presence of the 1276 interested person or of a member of his family, or if they are absent, before two honorable residents of the same place. Article 29. — There is no penalty of death, expatriation, or confiscation of property. Article 30. — Only those acts shall be punished which have been declared punish- able by law antedating their perpetration and precisely applicable to the imputed act. Article 31. — No one shall be tried except by competent authority and in accord- ance with legal formalities, nor more than once for the same penal, police or disciplinary offense. Article 32. — The following may impose penalties without previous trial and within the specific terms of the law: 1. Public officials exercising authority and jurisdiction, who may impose fines or arrest upon anyone who insults them or who is in contempt of their authority in connection with the discharge of their duties or by reason of their performance thereof; 2. Chiefs of the Public Forces, who may impose the penalty of arrest upon their subordinates in order to suppress an insurrection or mutiny or for an infraction of discipline; and 3. Captains of vessels or aircraft, who have the power when away from port to suppress as insurrection or mutiny or to maintain order on board, and to detain temporarily any actual or presumed offend- er. Article 33. — In case of manifest violation of a constitutional or legal provision, to the detriment of any person, the order of a superior does not relieve the agent who executes it from liability. Exception is made of members of the Public Forces when they are in active service, in which case the responsibility rests with the superior in rank who gives the order. Article 34- — The profession of all religions is free, as is the practice of all forms of worship, without any limitation other than respect for Christian morality and public order. It is recognized that the Catholic religion is that of the majority of Panamanians. Article 35. — Religious organizations have legal capacity and they manage and administer their property within the limits prescribed by law, the same as other juridical persons. Article 36. — Every person may freely express his opinion orally, in writing or by any other means, without subjection to prior censorship. However, legal liability shall be incurred when by any of these means the reputation or honor of persons is assailed or when social security or public order is attacked. Article 37. — All inhabitants of the Republic have the right to assemble peacefully and without arms for lawful purposes. Outdoor demonstrations or meetings are not subject to permission. Only a previous notice to the local administrative authorities, twenty-four hours in advance, is required when they are to take place. The authorities may take police measures to prevent or restrain abuses in the exercise of this right, whenever the form in which it is exercised causes or may cause disruption of traffic, breach of the peach, or violation of the rights of third parties. Article 38. — The formation of companies, associations and foundations that are not contrary to morals or to the legal order is permitted. They may obtain recogni- tion as juridical persons. The capacity, recognition and regulation of companies and other juridical persons shall be determined by Panamanian law. Article 39. — Every person is free to practice any profession or trade, subject to such regulations as the law may establish with respect to qualifications, morality, social welfare and social security, professional affiliation, public health, unionization and compulsory dues. No tax or assessment shall be imposed on the practice of the liberal professions, trades, and arts. Article 40.— Every person has the right to present respectful petitions and com- plaints to public officials, for reasons of social or private interest, and to obtain a prompt decision. An official to whom a petition, inquiry or complaint is presented must decide it within a period of thirty days. The law shall establish the penalties that apply to violations of this provision. Article 41-— (As amended by Acts Nos. 1 and 2 of October 5 and 25 of 1978, respectively. Gaceta Oficial. November 16, 1978). The Ministers of religious faith, in addition to the functions inherent to their mission may only exercise those public posts related to social assistance, education or scientific investigation. Article 42. — Laws do not have retroactive effect, except those of public order and of social interest when express provision is made therein. In criminal matters, a law 1277 favorable to the accused always has priority and retroactivity, even though the judgment may have become final. Article 43.— Private property acquired in accordance with law by natural or juridical persons is guaranteed. Article 44.— Private property implies obligations on the part of its owner by reason of the social function which it must fulfill. For reasons of public utility or of social interest as defined by law, there may be expropriation pursuant to special judgment and with compensation. Article 45— When the application of a law enacted for reasons of public utility or social interest results in a conflict between private rights and the need recognized by the law itself, the private interest must yield to the public or social interest. Article 46.— In the event of war, serious disturbance of the public order, or urgent social interest, requiring prompt action, the Executive may decree the expropriation or seizure of private property. If the return of the seized object is feasible, the seizure shall be only for the duration of the circumstances that gave rise to it. The State is responsible for all expropriations that the Executive thus carries out and for the losses and damage caused by the seizure, and shall pay the amount thereof as soon as the reason for the expropriaton or seizure ends. Article 47.— No one is obliged to pay a tax or duty which has not been te' Uy established and the collection of which is not made in the manner prescribed the Article 48.— Every author, artist and inventor enjoys the exclusive ownership of his work or invention during the time and in the manner prescribe* by law. Article 49.— Every person against whom a public official shall issue o -cute a mandatory order or an injunction violating the rights and guarantees established by this Constitution shall have the right to have the order revoked upon his own petition or that of any other person. Protection of the Constitutional guarantees to which this Article refers shall be sought through summary proceeding and shall be within the jurisdiction of the courts of law. Article 50.— In the event of foreign war or domestic disturbance threatening the peace of public order, all or part of the Republic may be declared to be in a state of siege, and the effects of Articles 21, 22, 25, 26, 28, 36, 37 and 43 of this Constitution may be temporarily suspended, wholly or in part. V. PROVISION OF PUBLIC SERVICES A. What is the process for the appropriation and expenditure of those funds dedicated to the public services that are provided by the Government of Panama? (Article III, paragraph 5, Panama Canal Treaty) Concerning public finances, the Constitution of Panama of 1972, as amended, provides: Article 235. — No public expenditure may be made that has not been authorized in accordance with the Constitution. Likewise, no item may be transferred to an object not included in the respective budget. Article 236. — All receipts and disbursements of public funds must be included and authorized in the respective budget of revenue and expenditures. No revenues shall be collected through taxes unless established by law and no expenditures shall be paid unless included in the budget. Article 237. — When it is necessary to make an expenditure for which insufficient funds or no funds have been voted, a supplemental or extraordinary appropriation may be granted to the respective ministry, autonomous or semiautonomous entity or state corporation. For this purpose, the National Legislative Council shall request an opinion from the Controller General of the Republic as to the practicability and suitability of said appropriation. Article 238. — The execution or repair of national works, purchases made from state funds, funds of its autonomous or semiautonomous entities or of the munici- palities, and the sale or lease of property belonging thereto, shall be effected by public bidding except in the cases specified by law. The law shall establish measures to ensure in all bidding the maximum benefit to the State and full justice in the award. Article 239. — There shall be an independent state agency known as the Office of the Controller General of the Republic. It shall be directed by a public official known as the Controller General, assisted by a deputy controller. They shall be appointed for a term concurrent with that of the President of the Republic, during which they may be suspended or removed only by the Supreme Court of Justice on 1278 grounds defined by law. Their appointment shall be effective on the first of January following each presidential election. The qualifications to be controller or deputy controller of the Republic are: to be a Panamanian citizen by birth, to have reached 35 years of age, and not to have been convicted of an offense against the public order. Article 240. — The functions of the Office of the Controller General, in addition to those prescribed by law pursuant to the preceding article, are the following: 1. To maintain the national accounts, including those of the internal and external debit; 2. To supervise, regulate and control all acts of management of funds and other public property, so that they will be executed correctly and as provided by law. The Office of the Controller General shall determine the cases in which it shall exercise both prior and subsequent control over the management of funds, and cases in which it shall exercise only the latter; 3. To examine, audit and close the accounts of public officials, persons or entities that administer, manage or safeguard funds or other public property. Matters pertaining to criminal responsibility are within the competence of the ordinary courts; 4. To conduct inspections and investigations in order to determine the regularity or irregularity of operations affecting public assets, and, if appropriate, to present the corresponding denouncements; 5. To request reports from public officials on the fiscal management of national, provincial, municipal, autonomous or semiautonomous entities; 6. To devise and promote the adoption of measures necessary to provide credits for public entities; 7. To request a declaration of unconstitutionality or illegality of laws and other acts in violation of the Constitution or the law which affect public assets; 8. To establish the accounting procedures of the public entities mentioned in section 5 of this article; 9. To report to the Executive on the financial condition of the public administra- tion, and to submit opinions on the feasibility or desirability of granting supplemen- tal or extraordinary appropriations; 10. To direct and compile the national statistics; 11. To appoint the employees of its departments, in accordance with the Constitu- tion and the law; 12. To present annual reports on its activities to the Executive and the National Assembly; and 13. To audit the accounts of financial officers and employees when complaints are made as to alleged irregularities in such accounts. The basic law governing whatever pertains to public financial matters is Law 8 of January 27, 1956, 1 known as the Fiscal Code of the Republic. Concerning appropri- ation and expenditure of funds for public services, this code provides: Article 1118. — The Budget of Expenditures shall be divided into whatever sections may be necessary. Article 1119. — The expenditures that must be made for the service of the public debt, those concerning loans, unforeseeable expenses, the shares and assistance that the State must pay to autonomous institutions, and other expenditures of a similar nature shall be included in the section on various expenditures (gastos varios). The chapters shall represent the several units of their respective organizations, and with regard to the section on various expenditures, it shall include the several units therein included. The articles shall represent the individual purposes and objects of the expendi- tures for which appropriations are needed. The chapters shall be consecutively numbered with Roman numerals. The articles shall be marked in Arabic numerals. Article 1121. — The amount authorized in each article of expenditure included in the budget must be exclusively applied to that determined object as it appears in the text of the article, and that amount cannot be exceeded, except if it is amended by additional credits authorized under Chapter VII of this title [of the Fiscal Code]. Finally, concerning supervision of the National Treasury, the code provides: Article 1164— The Office of the Controller General of the Republic shall carry out its missions of supervising, regulating, watching and controlling the movement of the public treasures as well as of examining, checking, revising and intervening in the public accounts, pursuant to what is provided in the Constitution and in the organic law [of the Controller General]. G.O., June 29, 1956. 1279 B. Various provisions in the Panama Canal Treaty and related agreements will cause the Panama Canal Commission to utilize utilities and services available in Panama. For utilities, what are the basic rate-setting procedures and structure in Panama, and what kind of costs are recovered through rates? (e.g., paragraph 4, Article X of agreement implementing Article III) Two constitutional provisions related to public utilities must be considered when dealing with this question: Article 2W.—Vne majority of the capital of public utility enterprises operating in the country must be Panamanian, with the exceptions permitted and defined by law. Article 245. — The State shall create public utility enterprises through autonomous or semiautonomous entities or by other suitable means. In the same manner, it shall assume ownership, by expropriation and indemnification, of public utility enterprises belonging to private persons, when authorized by law and necessary for the collective welfare. This Library does not have detailed information about the basic rate-setting procedures and structure in Panama related to public services. This notwithstand- ing, Decree 20 of December 30, 1976, which may be used as a guideline, approved the new electric rates, including certain increases, to be charged by the Instituto de Recursos Hidraulicos y Electrification (IRHE) (Institute of Hydraulic and Electric Resources). The decree approved the establishment of five different basic tariffs for those areas served by the utility and a provisional tariff for the areas of Chiriqui and the Central Provinces of the country. Tariff 1, for instance, which the decree calls Tariff 11-P, is applicable only to residential properties as of January 1, 1977, throughout the country, except for the province of Chiriqui, where it entered into force on September 1, 1977. The current to be furnished by the utility is to be alternate single phase current of 60 hertz, and a voltage of 120 or 120/240 or 120/ 208 volts, depending on the kind of service. In certain instances three-phase current may be furnished. The charges authorized by the decree are as follows: Charge (in balboas) First 10 kilowatt/hours or less B 1.10 Each additional kilowatt/ hour up to an additional 30 kilowatt/ hours .10 Each kilowatt/hour for the next additonal 30 kilowatt/ hours .085 Each kilowatt/ hour for the next additonal 50 kilowatt/ hours .065 Each kilowatt/hour for the next additonal 300 kilowatt/hours .055 Each kilowatt/hour for the next additonal 600 kilowatt/hours .06 Each kilowatt/hour in excess of 1,000 kilowatt/hours .07 The minimum charge is B 1.10. The decree also authorized changes in the tariff due to variations in the cost of fuel. Adjustments shall be made on a monthly base, in multiples of .001 balboas per kilowatt/hour, as a result of the application of the following arithmetic operation: Barrels of fuel consumed divided by Invoice cost equals (P— 11.00). Where P is the average cost in balboas for a 42-gallon barrel of fuel used in the production of electricity in all the IRHE plants during the 4-month period prior to the invoicing period. "Barrels of fuel consumed" and "invoice cost" are, respectively, the average of those items during the 4-month period prior to the invoicing period. The same type of adjustment described above was authorized for the other four tariffs approved by this decree. VI. LAND USE AND ZONING Licensing of land within the canal area is discussed in Article IV of the Agree- ment Implementing the treaty's Article III. What are the qualifications, restrictions and conditions which apply to land licensing by Panama? The Constitution of Panama of 1972 contains certain provisions regarding the law on property which may be pertinent to this inquiry: Article 4 3.— Private property acquired in accordance with the law by natural or juristic persons is guaranteed. Article 44 .—Private property implies obligations on the part of its owner by reason of the social function which it must fulfill. For reasons of public utility or social interest, defined by law, there may be expropriation pursuant to special judgment and with compensation. Article 45. — When the application of a law enacted for reasons of public utility or social interest results in a conflict between private rights and the need recognized by the law itself, the private interest must yield to the public or social interest. Article 46. — In the event of war, serious disturbance of the public order, or urgent social interest requiring prompt action, the Executive may decree the expropriation or seizure of private property. 1280 The Civil Code of Panama contains some general provisions on this topic, which evidently are subject to the more limited interpretation on property rights as accorded by the present Constitution. The code provides: * Article 337. — Property is the right to enjoy and dispose of a thing with no limitations other than those established by the law. The owner [of a thing] has the right to recover it from a possessor. Expropriation proceedings are governed by the provisions of law 114 of March 17, 1943. 2 No further provisions concerning licensing of land under Panamanian laws have been located. VII. DEFENSE A. Which institution exercises legal authority over the National Guard of Panama? What is the nature of the authority? What powers are exercised by the Commander of the National Guard forces as compared to the President? Are any special powers designated for the commander of the canal's Panamanian defense force? With regard to the National Guard of Panama, the Constitution of 1972 contains the following provision: Article 269. — The national defense and public security shall be the responsibility of an institution called the National Guard. Its functioning and salary scale shall be regulated by law. Law 44 of December 23, 1953, 1 created the National Guard of Panama. Pertinent provisions of this law state: Article 1. — The National Guard is hereby created. Therefore, as of the time of enforcement of the present law, the National Police Corps shall bear this [new] name which shall also be understood to appear in every law, decree or regulation of any kind where the name of the National Police Corps appears. Article 2. — The following are the functions of the National Guard: 1. To keep public order; 2. To protect natural persons and property; 3. To prevent [the commis- sion of] crimes and other violations of the law and to persecute and capture those who violate the law. Article 3. — The President of the Republic is the Supreme Chief of the National Guard. His orders shall be transmitted through the Ministry of Government and Justice. The law also provides that for the purposes of the services rendered by the National Guard, the Republic is divided into zones, which in turn are subdivided into provincial sections. Zones are under the command of a major and sections under that of a captain (art. 5). The capital of the Republic which is in the first zone is subject also to the police activities of the Guard (art. 7). Of particular interest to this inquiry appear to be the following provisions: Article 17. — The jeering, insulting or verbal abuse of any member of the National Guard in uniform shall be penalized, after the act has been duly proved, with non- commutable arrest from 5 to 35 days, notwithstanding the criminal responsibility [incurred by the offender], if any. Article 18. — Anyone who is required to go to the National Guard headquarters, to the office of the mayor or to that of the Corregidor, or to any other public office, and refuses to obey [that request], or while in transit resists reaching his or her destina- tion, shall be penalized with non-commutable arrest of up to 40 days, notwithstand- ing the liability his or her refusal may have caused. The same penalty shall be imposed upon anyone who collectively or individually opposes the arrest of a person. Finally, it must be mentioned that article 277 of the Constitution of Panama of 1972 granted to General Omar Torrijos Herrera, Commander in Chief of the Nation- al Guard, recognition as Maximum or Supreme Leader of the Panamanian Revolu- tion, and as such he was authorized to exercise the following powers for a period of 6 years: To coordinate all work of the public administration; to freely appoint and remove the ministers of state and members of the Legislative Commission; to appoint the controller general and deputy controller general of the Republic, the general directors of autonomous and semiautonomous entities, and the magistrate of the Electoral Court to be appointed by the Executive, as provided in the Constitu- tion and the law; to appoint the chiefs and officers of the public forces in accordance with the Constitution, the law and the Military Register; to appoint with the approval of the Cabinet Council the magistrates of the Supreme Court, the attorney 1 Approved by Law 2 of Aug. 22, 1916, G.O., Aug. 22, 1916, and in force as of Oct. 1, 1917 (Decree 95 of June 1, 1917, G.O., June 4, 1917). 2 G.O., Mar. 29, 1943. 1 G.O., Dec. 24, 1953. 1281 general of the Republic, the solicitor general and their alternates; to approve the execution of contracts and the negotiation of loans; and to direct foreign relations. General Torrijos was further empowered to attend meetings of the Cabinet Coun- cil and the National Legislative Council with voice and vote and to participate with voice in the deliberations of the National Assembly of Municipal Representatives, the provincial coordinating councils and the community boards. Since the Constitu- tion of 1972 took force on October 11, 1972, these extraordinary powers vested in General Torrijos apparently have lapsed (art. 272). We have no record that these powers have been extended. B. Paragraph 10, Article IX of the treaty states that Panama and the United States will cooperate to guarantee the security of the Panama Canal Commission. What laws has Panama enacted in this respect? No special statutory provisions specifically directed by Panama to guarantee the security of the Panama Canal Commission have been located since the date of approval of the Panama Canal Treaty. VUI. LABOR LAW A. Several provisions of the treaty (including paragraphs 3(d) and 4, Article X) concern transmission of information on licensing of professional personnel in Panama. What is the procedure for obtaining a license for a professional or craft skill in Panama? With regard to academic and professional degrees, the Constitution of Panama provides as follows: Article 39. — Every person is free to practice any profession or trade, subject to such regulations as the law may establish with respect to qualifications, morality, social welfare and social security, professional affiliation, public health, unionization and compulsory dues. No tax or assessment shall be imposed on the practice of the liberal professions, trades and arts. Article 93. — Only academic and professional degrees issued by the State or author- ized by it in accordance with law are recognized. The official University of the Republic shall supervise the officially approved universities to guarantee the de- grees they issue, and shall revalidate those of foreign universities in the cases prescribed by law. In general, in order to qualify for the practice of a profession a university degree issued by a national university is required. In some cases foreign university degrees are acknowledged in the country after revalidation; in other cases foreigners are allowed to practice their profession on the basis of reciprocity. Information concern- ing some of the more important professions for which statutory material has been located follows. 1. Attorney. — Under the provisions of Law 54 of May 27, 1941, 1 in order to practice the legal profession a certification as to the applicant's qualification shall be issued by the Supreme Court (art. 1). The Court shall issue a certificate in the following cases: (a) To Panamanians holding a degree in law from the National University, from the former National School of Law (Facultad de Derecho Nacional), or from any acknowledged educational center issuing officially acknowledged degrees; (b) To Panamanians who were graduated from a foreign university who have attended the prescribed courses and passed the corresponding examination; (c) To those persons who prove that they are qualified to hold the posts of magistrate or associate judge of the Supreme Court, of magistrate or associate judge of the Superior Tribunals of the judicial district, of attorney general of the nation, of government attorney in a judicial district or of judge or government attorney of a judicial circuit; (d) To those citizens of the United States of America duly authorized to practice law in the Canal Zone, provided that in that Zone the practice of the legal profes- sion is authorized to persons duly certified by the Supreme Court of the Republic; (e) To Panamanians who, at the time of enforcement of this law, have registered in the Ministry of Education the degree or diploma of Licenciado en Derecho issued by an accredited foreign institution, in addition to a degree of secondary education or from a university; (f) To those Panamanians by birth who are duly authorized to practice law in the Canal Zone, and to the holders of the degree of Licenciado en Derecho y Ciencias Sociales issued by the Free University of Panama, prior to the enforcement of this law, and duly registered in the Ministry of Education prior to the enforcement of this law; G.O., June 2, 1941. 1282 (g) Panamanians who, by virtue of the provisions of the final paragraph of article 166 of the Constitution in force in 1941, are qualified to hold the post of magistrate of the Supreme Court. In addition, the Supreme Court shall issue a qualification certificate to those who at the time of enforcement of this law held the posts of secretary, minister or undersecretary of State or to those who have held such post for more than 4 consecutive years, to those who held the post of secretary to the governor for more than 10 consecutive years, and to the secretaries of the National Assembly who have worked more than 4 years in a circuit court in positions not lower than that of official mayor and who, in addition, have performed the functions of a notary public (art. 3). Law 51 of November 24, 1961, 2 amended the above law so that the Supreme Court would thenceforth issue the corresponding certification only to the applicants men- tioned in items a and b above, and to those who, under the provisions of article 166, final paragraph of the Constitution in force at the time of the enactment of the law, qualified for the post of magistrate of the Supreme Court. 2. Physician.— Cabinet Decree 196 of June 24, 1970, 3 governs the practice of the medical profession in Panama. The following qualifications are established by law: (a) To be Panamanian; (b) To hold a medical degree issued by a national university or by a foreign university duly acknowledged and certified; (c) To have fulfilled the first year of rotatory internship in any of the hospitals listed in the law. If internship was done in a foreign hospital, it shall be duly acknowledged in Panama; and (d) To have fulfilled and been approved in the second year of internship some- where in the interior of the Republic. 3. Journalist. — This profession is regulated pursuant to the provisions of Law 57 of September 19, 1978. 4 To practice this profession, the following is required: (a) the corresponding degree in communications issued by a national university or by a foreign university. In the latter case, the degree must be revalidated in Panama; or (b) the practice of the profession, prior to the enforcement of this law, for no less than 5 years; or (c) to have had, at the time of this law's enforcement, 3 continuous years of practicing this profession and to continue to work until the term of 5 years is met. Revalidation in Panama shall not be required in those cases where it is not necessary according to international treaties or agreements. 4. Public Accountant. — Law 57 of September 1, 1978, 5 regulates the practice of this profession in Panama. Such practice requires a license that is issued to those meeting the following requirements: (a) To be a Panamanian citizen; (b) To have a university degree with specialization in accounting issued by the University of Panama or other university institutions acknowledged by the State, or by foreign university institutions acknowledged by the University of Panama; (c) To be not subject to criminal proceedings for crimes committed against the public faith or against property; and (d) Not to have been convicted of a crime against the public faith or against property during the 5 years preceding the date of application for license. 5. Laboratory Technician. Law 74 of September 19, 1978, 6 governs the practice of this profession. The following persons qualify to practice as laboratory technicians: (a) Those who have the degree of Licenciado en Biologia with specialization in medical technology, issued by the University of Panama or by an equivalent nation- al or foreign university; (b) Those who, at the time of the enactment of this law, have legally practiced in a clinic laboratory; and (c) Those who have proved to be duly qualified before the Technical Laboratory Board (Junta Tecnica de Laboratoristas) and who have legally practiced this profes- sion until the time of enforcement of this law. As of the time of enforcement of this law, in order to obtain an appointment as laboratory technician, the following is required: (a) to be Panamanian; (b) to have a certification issued by the Technical Laboratory Board; and (c) to have a license to the free exercise of the profession issued by the Technical Council of Health. 2 CO., Nov. 30, 1961. 3 G.O., July 3, 1970. « CO., Sept. 27, 1978. 5 CO., Sept. 28, 1978. 8 CO., Oct. 9, 1978. 1283 6. Architect, engineer and land surveyor.— These professions are governed by Law 15 of January 26, 1959, as amended by Law 53 of February 4, 1963. 7 Regulations are found in Decree 257 of September 3, 1965. 8 Other than the requirement of a university degree and a license to practice, no further information is now available regarding the practice of these professions. B. What are the basic requirements for Panamanian licenses, permits or classifi- cations for driving, vessel operation, air piloting, amateur radio operation, etc.? Article XIV of the agreement implementing Article III of the treaty makes renewal of such licenses subject to Panamanian law and regulations. 1. Drivers' licenses. — The issuance of drivers' licenses is governed by the provi- sions of Decree 275 of August 21, 1969. 9 Although no additional information is available as to the types of licenses, in general the General Traffic Office is the Government agency in charge of issuing drivers' licenses. To qualify for such li- censes an applicant must be at least 18 years of age and of good conduct, as shown by a certificate issued by the National Department of investigations; must prove his or her ability to drive a car; and must have committed no serious traffic violation which would disqualify him or her. If these requirements are met a driver's license is issued to be effective for a period of 4 years, after which it must be renewed. 2. Vessel operation. — No information is available in this office regarding statutory material governing the technical requirements for the operation of vessels. Of particular interest to this inquiry is the provision contained in article 266 of the Labor Code, 10 which provides that Panamanian vessels doing international service must have a crew composed of no less than 10 percent Panamanian nationals or foreigners married to Panamanians or having children of Panamanian mothers, provided such foreigners are domiciled in Panama. 3. Air pilots.The Panamanian Air Code contains general provisions of the techni- cal requirements to license air pilots. 11 The Civil Aeronautics Administration issues and revalidates licenses and certificates of ability pursuant to what is provided in regulations issued by the Executive (not now available in this office). The Civil Aeronautics Administration may recognize or revalidate licenses and certificates issued in a foreign country by competent authorities, provided the requirements under which they were issued or declared valid are at least equal to the minimum standards required by Panamanian regulations for the issuance of such a license or certification, and provided that the country in question will recognize and revalidate similar licenses issued in Panama. The crew and other technical flight personnel in the service of any domestic aviation enterprise and of commercial and transport aircraft registered in Panama must be of Panamanian nationality. However, air- lines may utilize the services of foreign technicians until technically qualified Panamanian personnel can be trained, which must be done within a period of 1 year. For aerial work such as crop dusting, field-hopping flights and the like, the executive branch may issue provisional permits to foreign pilots who come to the country to perform such work temporarily, provided no Panamanian personnel are available for such services. 4. Amateur radio operation. Decree 469 of February 20, 1950, 12 regulates in Panama the operation of amateur radio stations. Article 4 of this decree provides that licenses shall be issued solely to Panamanian nationals; nevertheless, in special cases they may be issued to foreigners residing in the country while under contract with the Government or if reciprocity with their respective countries exists. There are three kinds of licenses: Class A, Class B and Class C. Class A. The following requirement must be met in order to obtain a Class A radio license: (a) to be at least 18 years of age; (b) to be capable of transmitting and receiving Morse coded messages at the rate of ten words per minute: (c) to show ability concerning the operation, functions and repair of transmitting equipment; and (d) to know the national and international regulations concerning amateur radio. This license authorizes its holder to operate telegraphy or telephony amateur radio bands of up to 1000 watts. Class B.— The requirements mentioned above under a, b and d must be met, and in addition the applicant must prove his or her ability to operate the transmitting equipment. This license authorizes its holder to operate telegraphy or telephony amateur radio bands of up to 35 watts. 7 CO., Feb. 6, 1963. 8 G.O., Nov. 19, 1965. 9 CO., Sept. 2, 1969. 10 Approved by Cabinet Decree 252 of Dec. 30, 1971, G.O., Feb. 18, 1972 11 Approved by Decree Law 19 of Aug. 8, 1963, CO., Sept. 18, 1963. 12 CO., Feb. 28, 1950. 1284 Class C. — Applicants must prove their ability to operate the transmitting equip- ment and that they know the national and international regulations on amateur radio. This license empowers its holder to operate telephony in the 160, 80 and 40 meter bands, with a maximum power of 100 watts. Class A and class B licenses are valid for a 3-year period, and this term is extendable. Class C licenses are valid only for an unextendable period of 1 year. Licenses for the operation of broadcasting stations are valid for an extendable period of 2 years. C. What are the major rights and benefits enjoyed and the major "contractual" obligations of employees of the Panamanian Government? With regard to Government employees, the Constitution of Panama provides as follows: Article 261. — The rights and duties of public employees, as well as the principles governing appointment, promotion, suspension, transfer, dismissal, separation and retirement, shall be established by law. Appointments of career personnel shall be based on the merit system. Public employees are obligated to personally discharge their functions, to which they shall dedicate their maximum capabilities and for which they shall receive a fair remuneration. Article 262. — Public employees may not receive two or more salaries paid by the State, except in special cases determined by law, nor may they hold positions with simultaneous work periods. The pensions of public employees shall be based on actuarial studies and reason- able budgetary allocations. Employees of the Panamanian Government are subject to the provisions of Law 4 on the Civil Service of January 13, 1961. 13 Basic provisions of this law applicable to this inquiry state: Article 45. — The following are the rights of those employees having adminstrative career status: (a) Stability in the performance of their duties. Career employees may be removed only by a given cause determined by law and by means of the proceedings estab- lished in said law and the regulations issued for that effect; (b) The right to promotion to posts of higher rank and salary after [the employ- ee's] efficiency and merits are duly proved; (c) The right to a just salary that allows him or her decent living conditions in accordance with the functions he or she performs; (d) The right to rest. The employee shall enjoy annual paid vacations and sick leave, maternity leave and leave to take courses and further training, as provided in the law and the regulations. Article 46. — The following constitute the obligations of the employees of the [Government] offices incorporated into the Civil Service: (a) To respect and loyally obey the Constitution, the law, the regulations and other provisions dealing with their work; (b) To attend their work punctually, in accordance with their working hours and with the official time of their respective offices; (c) To perform their work in a regular manner and with the dedication that the nature of that work requires; (d) To obey the orders and instructions given them by their superiors and to perform the additional work assigned by them, in accordance with the needs and priorities of the service; (e) To show dignity in the performance of their duties, and to have a private conduct that does not offend the public order and morality and diminish the prestige of the institution. No specific provision concerning "contractual" obligations of Government employ- ees are found in the law. D. Contractors working for the Panama Canal Commission are subject to the laws and regulations of Panama Except as otherwise indicated in the treaty (Article XI of agreement implementing Article III of the treaty). What specific laws and regula- tions of Panama apply to contractors? What is the nature of the insurance cited in paragraph 7 of Article XVIII of the agreement implementing Article III of the treaty? Contractors, as such, are not governed by any special Panamanian law; they are bound by the same laws that bind any employer. Articles 59 through 74 of the Constitution of Panama (enclosed) contain the basic constitutional provisions on "G.O., Feb. 28, 1961. 1285 matters concerning labor law in that country to which contractors are bound. In addition, the provisions of the Labor Code must also be complied with. 14 The Labor Code, in force since April 2, 1972, contains 1067 articles, divided into chapters, titles and books. Among the major topics covered by the code are the following: Individual relations between the worker and the employer; General regulations on protection of labor rights; Placement of workers; Working hours, right to vaca- tions, regulations of the labor contract, and regulations on protection of workers; Right to work of women and minors; Rights and obligations of employers and workers; Salary and its regulations; Protection of inventions; Changes in the labor contract; Termination of labor contracts; Regulations concerning domestic, ambula- tory and field workers; Work in transportation companies; Work at sea and in navigable ways; Work in coastal navigation and in fishing enterprises; Apprentice- ship; Work health and liability in matters concerning occupational hazards; Reem- ployment of workers; Right to unionize; Regulations on unions; Regulations on labor bargaining; Right to strike and illegal strikes; and Labor procedures, appeals and nullities. Additional statutory material in general pertinent to this inquiry are the follow- ing: 1. Decree 536 of December 13, 1965, 15 concerning revision of wages by either the employer or the employees; 2. Decree 562 of September 13, 1966, 16 concerning enforcement of the regulations on minimum wages; and 3. Decree 53 of November 1, 1971, 17 fixing the minimum wage in different loca- tions. No special statutory material or regulations have been located with regard to the nature of the insurance cited in paragraph 7 of Article XVIII of the agreement implementing Article III of the treaty. A reading of this provision seems to indicate that the insurance shall cover the civil liabilities that may be incurred in the territory of the Republic of Panama as a result of acts or omissions done or occurring in the performance of official duty by the employees of contractors or subcontractors. We have not yet received any standards for such insurance, which, in compliance with this provision, must be established by the Coordinating Committee, nor have we received any regulations to this effect issued by the Panamanian Government. Constitution of Panama, 1972 Chapter III.— Labor Article 59.— Work is a right and a duty of the individual. The State is obliged to devise economic policies to promote full employment, and to ensure to every worker the conditions necessary for a decent existence. Article 60. — Every worker in the service of the State or of public or private enterprises or of private individuals is guaranteed a minimum wage or salary. Employees of the enterprises determined by law shall participate in the profits thereof, in accordance with the economic conditions of the country. Article 61.— The law shall establish the method of periodically adjusting the minimum wage or salary, in order to meet the ordinary needs of the worker's family and to improve its standard of living, in accordance with the particular conditions of each region and each economic activity. It may also determine the method of fixing minimum salaries or wage by profession or trade. For work by the job or piece, it is obligatory that the minimum wage for a working day be assured. The minimum of any wage or salary is unattachable except for obligations of support in the manner prescribed by law. The working tools of workers are likewise unattachable. Article 62.— An equal wage or salary shall always be paid for equal work under identical conditions, regardless of the person who performs it, without distinction as to sex, nationality, age, race, social class, or political or religious ideas. Article 63.— The right of union organization is recognized for employers, employ- ees and professionals of all classes for the purposes of their economic and social activity. 14 Supra note 10. 15 CO., Mar. 28, 1966. 16 CO., Oct. 24, 1966. 17 GO., Nov. 1, 1971. 1286 The Executive shall have an unextendable period of thirty days to approve or deny the registration of a union. The law shall regulate all matters pertaining to Executive recognition of unions. The registration shall determine the legal personality of the union. The Executive may dissolve a union only when it deviates permanently from its purposes and a competent court so declares in a final judgment. The boards of directors of such associations shall be composed exclusively of Panamanians. Article 64- — The right to strike is recognized. The law shall regulate its exercise and may subject it to special restrictions in those public services that it may designate. Article 65. — The maximum working day is eight hours, and the working week may be up to forty-eight hours. The maximum duration for night work shall not be more than seven hours. Overtime shall be remunerated with extra payment. The maximum working day may be reduced to six hours for those over fourteen and less than eighteen years of age. All work is forbidden for those under fourteen, and night work is forbidden for those under sixteen, except in cases specified by law. The employment of persons under fourteen years of age as domestic servants and work by minors and women in unhealthful occupations are likewise prohibited. In addition to weekly rest, every worker shall be entitled to paid vacations. The law may prescribe the paid weekly rest in accordance with the economic and social conditions of the country and the benefit of the workers. Article 66. — All provisions that imply a waiver, diminution, modification or relin- quishment of any right recognized in favor of the worker are void, and consequently do not bind the contracting parties even though stated in a labor agreement or in any other pact. The law shall regulate all matters pertaining to labor contracts. Article 67. — The maternity of working women is protected. A woman who is pregnant may not be separated from public or private employment for this cause. During a minimum of six weeks preceding childbirth and eight weeks thereafter she is entitled to compulsory rest with the same remuneration as she was paid while working, and shall retain her employement and all rights provided in her contract. Upon resumption of work by the mother she may not be discharged for one year, except in special cases prescribed by law, which also shall regulate the special working conditions of pregnant women. Article 68. — The contracting of foreign workers which may worsen the working conditions or living standards of national workers is prohibited. The law shall regulate the contracting of foreign managers, administrative and executive direc- tors, technicians and professionals for public and private services, in all cases ensuring the rights of Panamanians and in accordance with the national interest. Article 69. — No worker may be discharged without just cause and without the formalities prescribed by law. The law shall specify the justifiable causes for dis- charge, special exceptions and the corresponding indemnification. Article 70. — The State or the private firm shall provide free occupational training for workers. The law shall regulate the manner in which this service is provided. Article 71. — Trade union training is established. It shall be imparted exclusively by the State and by Panamanian trade union organizations. Article 72. — All controversies that originate between capital and labor shall be submitted to the labor jurisdiction, which shall be exercised in the manner pre- scribed by law. Article 73. — The law shall regulate relations between capital and labor, placing them on a basis of social justice and providing special state protection for workers. Article 74. — The rights and guarantees established in this chapter shall be consid- ered as minimums in favor of workers. X. SOCIAL SECURITY SYSTEM What does the present Panamanian law provide as to unemployment compensa- tion and benefits for those who are severed or retired from government employ- ment? What indication is there that such law will apply to former employees of the Panama Canal Commission? The basic law governing social security is Law 134 of April 27, 1943, 1 Under article 2(a) of this law, government, provincial and municipal employees as well as those of autonomous or semiautonomous entities are compulsorily included under its provisions. There is a voluntary social security system for self-employed workers and others no longer covered by the compulsory system. The law provides the following basic benefits: G.O., May 14, 1943. 1287 1. Temporary incapacity. — If as the result of a labor accident or occupational disease the worker is temporarily incapacitated for work and therefore does not receive wages, so long as he or she has not been declared permanently incapacitated the worker has a right to a daily cash subsidy in an amount equal to his or her wages during the first 2 months, from the first day of incapacity, and to 50 percent of that same wage until, according to medical opinion, the worker is able to return to work or it is stated that the treatment provided no longer is advisable. 2. Permanent incapacity. — The degrees of permanent incapacity are determined according to the evaluation table for incapacity of each type of injury, taking into account such factors as age, habitual occupation and effects the injury may have on the worker's obtaining future employment. 3. Illness. — In cases of illness social security provides for medical, surgical, dental and pharmaceutical attention and hospitalization as well as a subsidy for temporary disability if the illness results in incapacity for work. Such benefits are provided for insured members who have paid at least two monthly quotas during the 4 months preceding the application for benefits. This also includes the spouse and children under 6 years of age. A woman with whom a deceased worker had lived for 5 or more years also may qualify. 4. Maternity. — An insured female worker who has met the prescribed require- ments is entitled to a subsidy for maternity during the 6 weeks preceding and 8 weeks following childbirth. 5. Disability and old age. — The pension payable for disability or old age consists of 50 percent of the monthly wages plus the equivalent of 1 percent of the basic monthly wages for every 12 months of quotas that an insured member has contrib- uted in excess of the first 120 months of quotas. The pension is increased by 10 balboas when a male pensioner has a spouse and when a female pensioner has a spouse who is incapacitated, and 5 balboas for each child under 14 years of age (or 18 years of age if a student) or of any age if incapacitated. But in no case shall the total paid in these categories be more than 50 balboas monthly. 6. Death benefit. — When a labor accident or occupational disease causes the death of the insured, the persons indicated below have a right to a pension: (a) Widows: a life pension equivalent to 25 percent of the wages of the deceased. If she is the only beneficiary or if she is an invalid, the pension increases to 30 percent; (b) Children: pension up to 18 years of age, or for life if they are invalids, as follows: 15 percent of the wages of the deceased if there is only one minor child, 25 percent if there are two, 35 percent if there are three and 40 percent if there are four or more; (c) Mother: a pension equivalent to 20 percent of wages for 10 years, or 30 percent of such wages if there are no surviving children; (d) Father: a pension equivalent to 20 percent of wages for 10 years if he is an invalid or at least 60 years of age; (e) Other benefits: a pension equivalent to 10 percent of wages for a 6-year period for each ascendant or collateral relative up to the third degree inclusive who is over 60 years of age or incapacitated, and who was economically dependent upon the insured, provided that the total of the pensions herein mentioned does not exceed 30 percent of the worker's wages. The total amount of pensions set out above may not exceed 75 percent of the wages of the deceased worker. A widow's pension ceases if she remarries or lives with a man as his wife. A fixed amount is paid by social security for funeral expenses. A minimum of 50 balboas is fixed for disability and old age pensions and a maximum of 500 balboas for disability, old age and survivor's pensions. No additional benefits are found in this law. Furthermore, the sources available in this office do not reveal whether express indications exist under Panamanian law concerning the future applicability of the provisions of the law on social security to employees of the Panama Canal Commission. XI. RIGHTS OF OWNERSHIP Under the new treary arrangement, Panama will obtain title to housing now owned by the Panama Canal Company. Some U.S. citizen canal employees have expressed a desire to purchase the housing in which they now live. Are there currently provisions of Panamanian law providing for the sale of government-owned housing to private citizens? If any such programs exist, what are the qualifications for eligibility? What nationality restrictions exist? At the present time, with the exception of what is provided in article VI, para- graphs 4 and 5 of the agreement on implementation of article III of the Panama Canal Treaty, we do not know of the existence of any implementing law or regula- 44-394 O - 79 - pt. 2-29 1288 tion instituted by the Panamanian government for the sale of government-owned housing to private citizens. However, in the event that Panama obtains title to housing now owned by the Panama Canal Company and that some U.S. citizen canal employees wish to purchase the houses in which they now live, the following provisions of the Fiscal Code may be applicable: 1 Article 23. — The Executive may sell, pursuant to the rules [provided] in this Title, personal and real property owned by the State which in his judgment are not necessary for public services, provided that the value of said property does not exceed 5,000 balboas. The sale of personal or real property valued in excess of 5,000 balboas shall require the authorization of the legislative body. If the authorization does not state the manner in which [said property] is to be transferred, the provisions of this Title shall apply. Article 25. — In the cases of sales or leases of national property, the value of the property or the price of the lease shall be determined by expert [evaluation] pursu- ant to the rules set in article 17 of this Code. Under the provisions of article 29 of the Fiscal Code public bidding is required for sales contracts executed by the State where the property involved exceeds the value of 1,000 balboas. According to article 17 of the Code, the evaluation of the property must be undertaken by three experts. Concerning restrictions or limitations to the sale of state real property to foreign- ers in general, the provisions of article 250 of the Panamanian Constitution must be observed. It provides: Article 250. — Foreign natural or juristic persons and national juristic persons having full or partial foreign capital may not acquire ownership of national or private lands situated less than 10 kilometers from the borders. Island territory may be transferred only for specific purposes of national develop- ment and under the following conditions: 1. When it is not classified as a strategic area or reserved for government programs; 2. When it is declared to be a special development area and legislation has been enacted for its development, provided that the national security is guaranteed. The alienation of island territory does not affect state ownership of goods for public use. In the preceding cases, legitimately acquired rights existing at the time this Constitution becomes effective [i.e., October 11, 1972] shall be respected, but the property in question may be expropriated at any time upon payment of adequate compensation. XII. ADMIRALTY Panama will assume some jurisdiction over legal cases involving admiralty ques- tions under the new treaty arrangement. What are the bases and what are the principles or any more specific provisions of admiralty law which may exist? The principal features of maritime law and shipping regulations in Panama are covered by the provisions of articles 1077 through 1553 (Book II) of the Commercial Code of that country. 2 These provisions govern, basically, ownership and transfer of vessels, priority of liens thereon, liabilities of owners and captains, rights and obligations of officers and crew, maritime contracts, bills of lading, marine insur- ance, average, collision and shipwrecks. Rules and regulations concerning registration of vessels in Panama are covered by the following: (1) Law 8 of January 12, 1925; 3 (2) Law 54 of December 11, 1926; 4 (3) Decree 40 of March 24. 1954; 5 (4) Cabinet Decree 45 of Februarv 14, 1969: 6 (5) Law 11 of January 25, 1973; 7 (6) Decree 95 of September 12, 1974; 8 (7) Law 5 of February 25, 1975; 9 (8) Law 49 of August 8, 1975; 10 and (9) Laws 39, 40, 50, 63 and 64 of 1976. n The maritime laws of Panama are generally framed on the old European mari- time laws, but are very favorable to steamship companies. No fixed schedule of wages or food is provided; Lloyd's and other ship surveyor certificates, including 1 Approved by Law 8 of Jan. 27, 1956, CO., June 29, 1956. 2 Adopted by Law 2 of Aug. 22, 1916, CO., Aug. 22, 1916. 3 G.O., Jan. 23, 1925. 4 G.O., Dec. 18, 1926. 5 G.O., Dec. 2, 1954. 6 G.O., Mar. 3, 1969. 7 G.O., Feb. 7, 1973. 8 G.O., Sept. 23, 1974. 9 G.O., Mar. 17, 1975. 10 G.O„ Sept. 3, 1975. "No official citations are now available. 1289 official annual inspection certificates, are accepted by the Government. Registration fee is US $1 per net registered ton for the first 100,000 tons with minimum of US $250; 50 cents per net registered ton for vessels of 100,000 to 500,000 tons; and 20 cents per net registered ton for vessels over 500,000 tons. This tariff applies to fleets of vessels to be registered under one owner or under several corporations controlled by one financial group, in which event registration shall be paid over total tonnage of fleet plus US $20 for a temporary navigation patent and US $25 for a permanent one. Inspection fee is US $300 for up to 5,000 gross tons and US $500 above that amount. Annual tax is 10 cents per net registered ton. Ship mortgages are acknowledged as liens on the vessels. Registration fee is 11 cents per net registered ton of vessel with a maximum limit of U.S. $550. Under the provisions of the Labor Code, 12 10 percent of the crew must be Panama- nians or foreigners domiciled in Panama having Panamanian spouses or Panama- nian children. Title deeds to vessels must be recorded in the Mercantile Registry, the fee set at 22 cents per net registered ton. Under the provisions of article 708(e) of the Fiscal Code, 13 revenues arising from international maritime commerce by national merchant vessels legally registered in Panama are declared tax exempt, even if the contracts were executed in the coun- try. Cases on admiralty are adjudicated in ordinary courts; however, contrary to what occurs in common-law jurisdictions, the decisions of the courts do not constitute binding precedent to third parties unless three similar decisions issued by the court of cassation over the same legal issue exist. 14 This would constitute what in Hispan- ic jurisdictions is known as jurisprudencia, which in turn may be overruled by the enactment of a new law. XIII. NONPROFIT INSTITUTIONS A. What are the major provisions of law that apply to nonprofit institutions in Panama? Is the nonprofit concept similar or identical to that applied in the U.S.? The concept of nonprofit institutions in Panamanian law is briefly acknowledged within the country's Civil Code. 15 Provisions pertinent to this inquiry state: Article 64- — The following are juristic persons: ******* (2) The churches, religious congregations, communities or associations. ******* (5) Nonprofit associations of private interest duly acknowledged by the executive power. Article 66. — Churches, religious communities, congregations or associations shall be governed by their respective charters (canones), constitutions or rules. However, in order for them to enjoy juristic personality, they must be acknowledged by the executive power, who shall make such acknowledgment with no other limitation than that concerning respect to Christian morality and the public order; and pro- vided that their principles, precepts and practices are not contrary to the Constitu- tion or the laws of the Republic. Article 69. — The legal capacity of the associations referred to in paragraphs 5 and 6 of article 64 [of this code] shall be governed by their bylaws, provided they have been approved by the executive power. Consequently, in view of these provisions, the acknowledgment by the executive power of the existence of churches, religious communities, congregations or associ- ations as well as of duly organized nonprofit associations of private interest, is essential for the legal functioning of these organizations in Panama. Article 708(c) of the Fiscal Code states that churches of any form of worship, seminaries and religious or welfare associations are expressly excepted from pay- ment of taxes when the revenues they obtain are directly related to the religion or to welfare. 16 B. According to the terms of the treaty (paragraph 5 of article III) [sic], the cost of purchase of land for nonprofit institutions "will be nominal in accordance with the prevailing practice in the rest of the territory of the Republic of Panama." What are the rules that currently apply in Panama? The provisions contained in article IX, paragraph 5 of the Panama Canal Treaty, which are apparently of concern here, state: 12 Adopted by Cabinet Decree 252 of Dec. 30, 1971, CO., Feb. 18, 1972 13 Enacted by Law 8 of Jan. 27, 1956, CO., June 29, 1956. 14 As provided under art. 3 of Law 86 of July 1, 1941, CO., July 18, 1941 15 Approved by Law 2 of Aug. 22, 1916, CO., Sept. 7, 1916 [Reprint]. ,6 Enacted by Law 8 of Jan. 27, 1956, CO., June 29, 1956. 1290 With respect to buildings and other improvements to real property located in areas of the former Canal Zone to which the aforesaid licensing procedure is not applicable, or may cease to be applicable during the lifetime or upon termination of this Treaty, the owners may continue to use the land upon which their property is located, subject to the payment of a reasonable charge to the Republic of Panama. Should the Republic of Panama decide to sell such land, the owners of the buildings or other improvements located thereon shall be offered a first option to purchase such land at a reasonable cost. In the case of non-profit enterprises, such as churches and fraternal organizations, the cost of purchase will be nominal in accord- ance with the prevailing practice in the rest of the territory of the Republic of Panama [emphasis added]. The transfer of property that belongs to the Panamanian nation is governed by provisions contained in the Fiscal Code. Under its article 23 the Executive may sell, pursuant to the rules provided in the corresponding title of the Code, personal and real property owned by the State which in his judgment is not necessary for public services, provided the value of the property does not exceed 5,000 balboas. For the sale of property which exceeds that value, authorization of the legislative branch of the Government is required. Article 25 of the Code provides that the value of the property or the value of the lease shall be determined by evaluation by three experts according to the rules set under article 17 of the Code. Furthermore, under article 250 of the Constitution of Panama, foreign natural or juristic persons and national juristic persons having foreign capital in whole or in part may not acquire ownership of national or private lands situated less than 10 kilometers from the borders. Additional restrictions are provided in that article regarding island terri- tories. In view of the above, it is difficult to conciliate the provisions of article IX, paragraph 5 of the Panama Canal Treaty that "the cost of purchase will be nominal * * * " with those of the Constitution and the Fiscal Code quoted above. Neverthe- less, a solution to this apparent conflict may be offered by article 58(7) of the Fiscal Code which states: Article 58. — A bidding shall not be necessary for the following contracts: ******* (7) Those which, because of the nature of the act, as authorized by a special law, shall not require bidding. In other words, perhaps through the enactment of special or private laws where the conditions of the transaction appear, a nominal or token cost of purchase may be stipulated. The property located within the zones determined in article 250 of the Constitution would remain, of course, beyond the possibility of being included within the provisions of any public or private law. Mr. Hubbard. With these studies now in the record, Mr. Foy, we will hear your testimony. Thank you for being with us. STATEMENT OF H. MILES FOY, ATTORNEY-ADVISOR, OFFICE OF LEGAL COUNSEL, DEPARTMENT OF JUSTICE. Mr. Foy. Thank you, Mr. Chairman. I have prepared a written statement discussing five questions. The first concerns the constitutionality of the Panamanian par- ticipation on the Panama Canal Commission. The second, the effect of the treaty on the Federal income tax liability of U.S. citizens in the Canal Zone. The third, the extent of U.S. authority during the transition period. The fourth, the legal consequences of a failure to enact imple- menting legislation. And the fifth, the constitutionality of payments to Panama by the Commission in the absence of appropriations for such pay- ments. With the committee's permission, I will not read this statement, but will submit it for inclusion in the record, and make comments on it. 1291 Mr. Hubbard. No objection. Thank you. [The following was submitted for the record:] Statement of H. Miles Foy, Attorney- Adviser, Office of Legal Counsel, Department of Justice Mr. Chairman: I want to thank the committee for inviting the Department of Justice to participate in these hearings. You have asked us to comment on ten specific questions involving legal aspects of the proposed implementing legislation and the Panama Canal Treaty itself. In these prepared remarks I will focus on five of these questions: (1) the constitutionality of Panamanian participation on the Panama Canal Commission, (2) the effect of the treaty on the federal income tax liability of U.S. citizens in the Canal Zone, (3) the extent of U.S. authority during the transition period, (4) the legal consequences of a failure to enact implementing legislation, and (5) the constitutionality of payments to Panama by the Panama Canal Commission in the absence of "appropriations" for such payments. CONSTITUTIONAL QUESTIONS SURROUNDING PANAMANIAN PARTICIPATION ON THE PANAMA CANAL COMMISSION As you know, Panama will assume administrative and legislative jurisdiction over the Canal Zone on October 1, 1979, but Panama will not assume full responsibility for managing the canal itself until the end of the century. Until then, the United States will manage the canal through a new agency called Panama Canal Commis- sion. The treaty establishes a framework for an orderly transition to full Panamanian control by the year 2000. It provides that Panamanians will participate in the management and operation of the canal from the outset. The intent is that by the end of the century Panamanian policy-makers, managers, and employees will be in place and will be fully prepared to assume the responsibilities that will devolve upon Panama when the treaty terminates. Panamanian participation will take a number of different forms. The treaty and the ancillary agreements provide that Panamanians will participate on bilateral committees, that the Panama Canal Commission will employ Panamanians "at all levels," that until 1990 the Deputy Administrator of the Commission will be a Panamanian proposed by Panama for appointment to that position by the United States, and that after 1990 the Administrator of the Commission will be a Panama- nian proposed and appointed in the same way. Finally, and more significantly, the treaty provides that four of the nine members of the governing board of the Commission will be Panamanians proposed by Panama for appointment to the board by the United States and subject during their tenure to removal at the request of Panama. The provisions regulating the selection, appointment and removal of the Panama- nian board members have given rise to several constitutional questions. The basic question is whether these provisions comport with the clauses of Article II of the Constitution that regulate the appointment and removal of "Officers of the United States." Does Article II allow us to establish an arrangement under which candi- dates for appointment to public office will be proposed by a foreign nation (Panama)? Can "Officers of the United States" be subject to removal at the request of a foreign nation? Can foreigners (Panamanians) be Officers of the United States? These questions are based on an assumption — the assumption that the Panama- nian board members will indeed be "Officers of the United States" in the Article II sense. I want to examine that assumption. Unless the treaty itself, the Constitution, or some other law makes these Panamanians "Officers of the United States" or requires us to regard them as such, we need not test the manner of their selection or removal against the requirements of Article II. The treaty provides that the Panama Canal Commission will exercise the powers that devolve upon the United States under the treaty. Whenever they concur with the American majority, the Panamanian minority on the board will participate in the exercise of those powers; but the manifest intention of the treaty is that they will represent, not the interests of the United States, but the interests of Panama. They will of course be bound by the treaty, which is a law of the United States, but their function will be to represent the views of a foreign nation, our partner in this joint enterprise. Are these Panamanians "Officers of the United States" in the Article II sense? The Supreme Court has not given us a precise definition of that constitutional phrase. We know that "Officers of the United States" are persons engaged "in the administration and enforcement of public law," see Buckley v. Valeo, A'Z-k U.S. 1, 141 1292 (1975); but in the reported cases we find little guidance beyond that general pro- nouncement. The safest course is to examine Article II itself. It contains no actual definition, but it sheds light on the question by implication. For example, it provides that "civil Officers of the United States" will be subject to removal from office on impeachment for, and conviction of, "treason." Because a person cannot commit "treason" unless he "owes allegiance" to the sovereign against whom the treason is committed, see Young v. U.S., 97 U.S. 39 (1877), Article II appears to contemplate that Officers of the United States will be persons who "owe allegiance" to the United States under our law. I should add that one does not have to be a citizen of the United States in order to "owe allegiance" to the United States in this sense; but the basic point still holds. Article II appears to contemplate that Officers of the United States will be persons whose basic loyalty is to this country and whose basic objective in the performance of their duties is to advance the interests of this country. I return to the question at hand. Does this treaty contemplate that the Panama- nian board members will be "Officers of the United States" in the constitutional sense? We think it does not. Their primary allegiance will be to Panama, and their function under the treaty will be to represent Panamanian interests during the transition to full Panamanian control. This brings us to the nub of the matter. The real question here is whether this treaty can give a voice in the control of the canal to persons who are not "Officers of the United States" in the constitutional sense. The answer to that question is yes. As implemented by the legislation establishing the Commission (enacted pursuant to Congress' undoubted power under Article IV), this treaty can transfer control over the Panama Canal to Panamanians. Indeed, the treaty itself is sufficient. That issue, or an issue very much like it, was resolved last Spring by the Court of Appeals for the District of Columbia Circuit in Edwards v. Carter (opinion filed April 17, 1978). There the Court of Appeals held that the disposition of our interests in the Canal Zone is a proper subject for negotiation between this Nation and Panama, that this subject is therefore within the treaty power, and that our interest may therefore be transferred to Panama by treaty. This decision was supported by the history of the treaty cause, by treaty practice, and by the weight of scholarly authority. If the Constitution permits us to give control of the Panama Canal to Panama- nians, we think there can be no substantial constitutional question that control can be transferred as contemplated by this treaty — that is, by first giving Panama a voice, but not a controlling voice, in the operation of the canal, by employing Panamanians in increasing numbers to do the actual work involved in the operation of the canal, and then by transferring full control to Panama at the end of the century. I will conclude this discussion by emphasizing the point I have just made. If the United States entered into a treaty with, say, Canada, providing that the Secretary of Defense would be a Canadian proposed by Canada and subject to removal at the request of Canada, the constitutional problem with that arrangement would be fundamental. Control over the Department of Defense cannot be transferred to a foreign power by treaty or by any other law. That control must be exercised by an individual who owes allegiance to the United States and is subject to the full administrative power of the United States; and in constitutional terms this means that he must be an "Officer of the United States" in the sense contemplated by Article II. Control over the Panama Canal, however, can be constitutionally trans- ferred to Panama. That is the critical point. Control over the Panama Canal can be placed in the hands of Panamanians who are not Officers of the United States in the constitutional sense, and this is what the Panama Canal Treaty is designed ultimately to do. I have two final points. First, the preceding analysis should not be taken to suggest that the Administrator and Deputy Administrator of the Commission are on the same legal footing as the Panamanian Board members. They are fully subject to U.S. control and are responsible to us. Second, the approaches taken in the Adminis- tration's bill and in Chairman Murphy's bill differ on the question of the mode of appointment of the board members. The Administration's bill provides that they will be appointed by the President. Chairman Murphy's bill provides that they will be appointed by the President with the advice and consent of the Senate. For the reasons I have just given, neither of these modes of appointment presents a consti- tutional problem with respect to the Panamanian members; but I should add that to the extent that the advice and consent requirement seems to suggest that the Panamanian members must answer to us in their opinions and policies, this ar- rangement seems inconsistent with the theory upon which the treaty is based. Our 1293 remedy is to exercise control through the American majority. I note that on this point both the Administration's bill and Chairman Murphy's bill provide explicitly that the board can take no action in the absence of an American majority. EFFECT OF THE TREATY ON THE FEDERAL INCOME TAX LIABILITY OF U.S. CITIZENS IN THE CANAL ZONE. Article XV, paragraph 2, of the Agreement in Implementation of Article III of Panama Canal Treaty contains the following provision: "United States citizen employees and dependents shall be exempted from any taxes, fees, or other charges on income received as a result of their work or the [Panama Canal] Commission. Similarly, they shall be exempted from payment of taxes, fees, or other charges on income derived from sources outside the Republic of Panama." One question that has arisen in the past few months is whether this provision provides these employees and dependents with an exemption from income taxation by the United States. The answer to that question, in our view, is clearly no. There are three reasons for this conclusion, and I will discuss them briefly below. First, the pre-ratification history of the treaty and the ancillary agreements demonstrates that the United States and Panama simply did not intend to create such an exemption. We have been informed by the Legal Adviser of the Department of State that it is clear from the still classified negotiating history of the treaties that both sides understood that employees of the Commission who were citizens of the United States would be exempt from income taxation by Panama but would continue to be subject to income taxation by the United States. Moreover, that understanding was brought to the attention of the Senate while the Panama Canal treaty and the Neutrality Treaty were pending before the Senate. The view ex- pressed by the Department of State at that time was that the parties had intended to exempt United States citizens from Panamanian taxation of income received by them as a result of their work in Panama or income received by them from sources outside Panama. This was the view adopted by the Senate Committee on Foreign Relations, and it is the view that should guide our interpretation of the implement- ing agreement. Secondly, if this agreement were construed to create an exemption from income taxation by the United States, it would be in conflict with statutes of the United States contained in the Internal Revenue Code. But this agreement has not itself received the approval of the Senate under the treaty clause. For that reason alone, even if one were to assume arguendo that the parties intended to create an exemp- tion from U.S. taxation, there is substantial doubt that their agreement could be given effect as a matter of domestic law in the face of the conflicting statute. Finally, the very nature of the agreement is inconsistent with the argument that the parties must have intended to provide these employees and dependents with an exemption from income taxation by the United States. The agreement is analogous to a status of forces agreement. Its purpose is to protect U.S. personnel stationed abroad from foreign requirements that may conflict with requirements imposed upon them by the United States. Agreements of this kind frequently exempt U.S. Personnel from foreign taxation, foreign licensing requirements, and the like. But it would be wholly inconsistent with their essential nature if they were construed to extinquish, not only foreign duties, but duties owed to the United States. We do not construe this agreement in that way. EXTENT OF U.S. AUTHORITY DURING TRANSITION PERIOD Under the original treaty of 1903 the United States obtained the right to exercise plenary administrative and legislative jurisdiction over the Canal Zone just as if the United States were sovereign over the Zone. The new treaty will establish a new relationship. The Canal Zone itself will disappear, and Panama will ultimately resume full administrative and legislative jurisdiction over the territory lying within the Zone. Just as the treaty makes provision for an orderly transition to full Panamanian conrol oyer the operations of the canal itself, it makes provision for an orderly resumption by Panama of full municipal authority over day-to-day affairs within the former Zone. That transition will occur in the following way: Panama will assume plenary jurisdiction throughout the former Zone when the treaty enters into force— that is to say, on October 1, 1979, but the United States will retain jurisdiction in certain cases. For what purposes will the United States retain jurisdiction? The treaty provides that (1) the United States will retain the right to exercise jurisdiction in criminal cases for any offenses committed prior to the entry of the treaty into force against the laws of the United States applicable in 1294 the Canal Zone; (2) with respect to U.S. citizen employees of the Panama Canal Commission and their dependents, the United States will retain the right to exercise primary criminal jurisdiction over offenses committed within the areas and installa- tions reserved for our use after the entry of the treaty into force and before the close of the 30-month transition period; (3) with respect to civil cases, the Unted States will retain jurisdiciton to dispose of any civil cases actually pending when the treaty enters into force; and (4) to enable the United States to exercise these powers, the courts of the United States will remain in operation for the full 30-month period; the United States will retain the right to amend its laws and regulations for the purposes of exercising its transitional authority; and if there are any cases still pending at the end of the transition period, the two countries will enter into appropriate agreements regarding the disposition of those cases. To the extent that the continued operation of U.S. law during the transition period will require the exercise of executive or legislative as opposed to judicial authority, that authority, under the Administration's bill, will be vested in the Panama Canal Commission as a successor to the Canal Zone Government. Under Chairman Murphy's bill that authority would be vested in the President. I should add that otherwise the approaches taken in the implementing legislation on this issue are substantially the same, although Chairman Murphy's bill contains a potentially useful savings clause making it clear that U.S. law will remain in effect to the extent not inconsistent with the treaty for the purpose of enabling the U.S. to exercise the jurisdiction reserved by it under the treaty during the transition period. I want to say a word about what happens at the end of the transition period. First, members of the United States Armed Forces and members of the civilian component and their dependents will be subject to a status of forces agreement, the Agreement in Implementation of Article IV of the Panama Canal Treaty. United States citizen employees of the Panama Canal Commission and their dependents will be subject to a somewhat analogous agreement, the Agreement in Implementa- tion of Article III of the Panama Canal Treaty. Second, as I have already suggested, the judicial power of the United States in the Canal Zone, as well as the executive and legislative powers associated with municipal government in the Canal Zone, would go out of existence altogether at the end of the transition period. Any pending cases would be disposed of by agreement. Any U.S. prisoners presently incarcerated in the Canal Zone jails would be transferred prior to the entry of the treaty into force to facilities in the United States to complete their terms. Under a recently negotiated prisoner exchange agreement, which will be submitted to the Senate for approval, Panamanian prisoners or third country nationals in former Canal Zone jails could elect to complete their sentences in Panamanian jails if Panama agreed, or otherwise they would be transferred to U.S. prisons. FAILURE TO ENACT IMPLEMENTING LEGISLATION You have asked us to comment on legal effect of a failure to enact implementing legislation. That question is an interesting one from a legal standpoint, but it is so complex — the potential legal consequences of a failure to enact implementing legis- lation are so various — that I feel I must address the issue in general terms. A treaty is not simply an international obligation of the United States. It is a law of the United States. Whenever it purports to be operative without the aid of implementing legislation, it is operative as positive law. It is binding as law on the Officers of the United States, and it is equal in dignity to an act of Congress. When it enters into force, it repeals or supercedes prior treaties, statutes or regulations that are inconsistent with it. Many, perhaps most, of the provisions of the Panama Canal Treaty are self- executing; and when the treaty enters into force on October 1, 1979, these provisions will become part of our law. This will happen whether or not implementing legisla- tion is enacted. These provisions will be binding on Officers of the United States. They will supplement existing law. They succeed or supplant existing treaties, statutes or regulations that are inconsistent with them. Now for good reason, the treaty makers did not attempt to deal with all of the matters that must be dealt with if the objectives of this treaty are to be achieved in an orderly fashion. That is why implementing legislation is required. In the absence of implementing legislation, the treaty will go into effect. It will operate on our law, changing it; and yet the treaty will not leave us with a complete legal structure for the conduct of our affairs in the former Canal Zone. The Officers of the United States would be obligated to discharge whatever duties would devolve upon them under this incomplete body of law, and they would be entitled to exercise whatever 1295 authority this body of law would confer. But they would be dealing with an imper- fect legal structure. We simply cannot forecast what the results would be. If our basic policy interest is to ensure that the Canal will be operated in an orderly and efficient fashion and to protect the personal interests of the U.S. citizens who are employed in the Zone or draw their livelihood from the operation of the Canal, the results would surely be undesirable, whatever form they might take. DIRECT PAYMENTS TO PANAMA ABSENT "APPROPRIATIONS" When Assistant Attorney General John harmon testified before this committee last year, he addressed, at the committee's request, the question whether the var- ious payments to Panama contemplated by the treaty could be made in the absence of an act of Congress authorizing them to be made. His conclusion, in essence, was that public money, i.e., money collected for the use of the United States, see 31 U.S.C. 484, cannot be paid out to satisfy treaty obligation except pursuant to legislation enacted by Congress. In reaching this conclusion, he relied upon Article I, section 9 of the Constitution, which provides that "no money shall be drawn from the treasury but in consequence of appropriations made by law," upon the special constitutional status of the House of Representatives in fiscal matters, and upon treaty practice. That opinion is still the opinion of the Office of Legal Counsel. Now the committee has asked how "direct payments to Panama by the Panama Canal Commission under Article XIII of the Treaty" would "relate to Article I, section 8, cl. 9" of the Constitution "without enactment of appropriations." The Canal Treaty deals with payments to the Republic of Panama in Article III, section 5 and Article XIII, section 4. Article III, section 5, provides that the Panama Canal Commission shall pay the Republic of Panama $10,000,000 per annum in order to reimburse it in providing certain public services to the Commission. The Adminis- tration contemplates that this annuity will be financed out of Canal revenues. Similarly, Article XIII, section 4 provides that the Republic of Panama shall receive from the Panama Commission certain additional payments "to be paid out of Canal operating revenues." As I have said, we envision that the Article III payments will be made out of Canal revenues, but this would not alter the application of the rule I have de- scribed. Those revenues, or that portion of them, will be received by the Canal Commission subject to applicable law, and the corresponding payments will there- fore have to be made pursuant to legislation. Lawyers might argue over some elements of the additional payments required by Article XIII, but in my opinion the same conclusion would obtain with respect to some of them, and perhaps with respect to all of them. I should add that we have reviewed H.R. 1716 and H.R. Ill, and we think that both of them comport with constitutional requirements on this point. Previous witnesses have already testified about the distinctions between the two proposals with respect to fiscal matters. Basically, Chairman Murphy's proposal would make the Panama Canal Commission an appropriated funds agency, whereas the Admin- istration's proposal would treat the Commission as a government corporation whose fiscal activities would be regulated in accordance with the Government Corporation Control Act. With respect to the question of payments to Panama, both of these arrangements would satisfy constitutional requirements, because both would require the payments to be made pursuant to legislation, the one through the traditional process of "authorization" and "appropriation," and the other through the more streamlined procedure involving the submission and approval of an annual corpo- rate budget. We defer to other agencies as to which of these forms is preferable. Mr. Chairman, this includes my prepared remarks. If you or the Members of the Committee have questions, I will be pleased to try to answer them. Mr. Foy. Perhaps the most interesting legal question that the committee asked us to review was the question of the constitution- ality of Panamanian participation on the Panama Canal Commis- sion. Now, that participation takes a number of forms. Basically, with respect to the Governing Board of the Commission, which will be composed of nine members, Panama has, under the treaty, a right to propose for appointment by the United States four mem- bers. Panama also has the right to remove those members. In addition in the first instance, the Deputy Administrator of the Commission will be a Panamanian proposed by Panama for ap- 1296 pointment to that position by the United States, and after the year 1990, the Administrator of the Commission will be a Panamanian proposed and appointed in the same way. Now, the constitutional question basically is whether this partici- pation by a foreign government in the management and control of the Panama Canal Commission is permitted by the provisions of the Constitution that govern the administration of executive func- tions. That question brings us into article II of the Constitution, and it involves more or less technical, mechanical questions regard- ing the constitutional rules governing the appointment and remov- al of officers of the United States. Now, without engaging in an extended discussion of the rather intricate law of appointment and removal, I want to make three points which for me go to the heart of this constitutional question. First, it would be alarming if the Constitution could be construed to permit the President and the Senate or the Congress, through legislation, to turn over the general administration of our Govern- ment to foreign nations. If a statute or if a treaty provided, for example, that the Attorney General would be someone proposed by a foreign nation, subject to removal by a foreign nation, there would be a fundamental constitutional problem with that arrange- ment. At the same time, we must recognize that from the very earliest days of the Republic, the President and the Senate, through the treaty power, as well as the Congress, through legisla- tion, have authorized and supported arrangements between this country and other countries under which foreigners — people who are not working for us — are given a voice in affairs that affect our vital interests. Today, for example, we have scores of organizations that are established or authorized under our treaties or our laws that give foreign officials a voice in vital affairs. We can start with the United Nations and proceed to the International Monetary Fund and other organizations. In 1958 we terminated an arrangement under which an international lighthouse was maintained through cooperation with foreign governments. In other words, there is a wide range of international organizations and treaty regimes that provide for cooperative relationships between this nation and others. So the constitutional question regarding foreign participation in such arrangements is not answered simply by noting the presence of foreign participation. What you must do is look to the substance of the arrangement, the function of the organization, and deter- mine whether that function is one in which, under the Constitu- tion, foreigners may have a voice. That brings me to the second point. The basic function of the Panama Canal Commission and the treaty regime, under the Panama Canal Treaty, is to transfer control of the Panama Canal to Panama. Is this something that or Government is constitutionally entitled to do? The answer is clearly yes. Congress, with its undoubted powers under article 4 of the Constitution, as well as the President and the Senate under the treaty clause, can transfer control of the Panama Canal to Panama. 1297 Thus the question before us is simply one of means — does this treaty use a constitutionally acceptable means of transferring that control. And I think you can refine that question further. The basic issue is whether the Constitution permits us to transfer control by de- grees, as contemplated in this treaty, or whether, on the other hand, it requires us to transfer control all at once. As my statement indicates, the Department of Justice thinks that the answer to that question is this: The Constitution permits us to transfer control over the canal by degrees through the ar- rangement established under the treaty. My last point is simply this. In applying the Constitution in the field of international affairs, the courts have long followed a rule of self-restraint; and I think that rule was perhaps best expressed recently by Mr. Justice Stevens in the case involving the right of Congress to legislate concerning foreigners who are living in the United States with respect to their entitlement to welfare pay- ments. Mr. Justice Stevens said that in the field of foreign affairs, any rule "of constitutional law" — I am quoting here — "that would inhibit flexibility of the political branches of the Government to respond to changing world conditions should be adopted with the greatest caution." In other words, the posture of the court is that in the field of international affairs, the Constitution was designed to leave the political branches — Congress and the executive — free to deal with foreign relations on a flexible basis. We think that rule applies here, and we think that the arrange- ment established by the treaty for the composition of the Commis- sion is constitutional for that reason. The next question I would like to comment on is one that is not discussed in my prepared statement, but was part of my assign- ment for today. Basically it's the question of the effect of the approach taken in both H.R. Ill and H.R. 1716 with respect to the general amendment to the Panama Canal Code and the provisions of the United States Code that relate to the Panama Canal Zone. I think there are two concerns here. The first concern is that the implementing legislation should maintain existing law in effect to the extent necessary to enable this country to exercise its powers and to discharge its obligations under the treaty, as provided in the treaty. The second concern is basically one of legislative policy. Not only should the transfer of control to Panama be efficient in an oper- ational sense; it should be legally efficient. In dealing with our own law and changing it to conform to the requirements of the treaty, we should attempt to fashion the implementing legislation in such a way as to minimize litigation, reduce the number of legal ques- tions that will inevitably arise. I wish the Office of Legal Counsel had some light to shed on this subject, but we can offer you only the most conventional wisdom. The approach taken in both bills is basically this: both bills amend the existing law by substituting the Panama Canal Commis- sion for the Panama Canal Company and government, amend the existing law by replacing the Panama Canal Zone, as it is referred 1298 to in existing law, with the areas and installations that are re- served for our use under the Panama Canal Treaty. The theory is that that sort of amendment will maintain existing law in effect to the greatest extent possible consistent with the treaty and will permit us to reserve the larger question of perma- nent amendment. Undoubtedly, simply as a housekeeping matter, additional changes will have to be made to clean up the current Code, to take provisions out that are obsolescent, to modify provi- sions that no longer work as they are intended to work. The point is that those questions can be addressed after we have had some experience in operating under the new treaty regime. I think this is the philosophy of both bills, and it seems a reasonable one. Now, that's all I have, Mr. Chairman. I would be happy to answer questions. Mr. Hubbard. Thank you, H. Miles Foy, of the Justice Depart- ment. What are the consequences of your assertion that Panamanian board members of the Commission are not officers of the United States in the constitutional sense? Mr. Foy. The constitutional consequence of that assertion is that the manner of their appointment and removal is not governed by article 2 of the Constitution which governs the appointment and removal of officers of the United States. I should add, however, that the assertion that these board mem- bers are not officers of the United States in the constitutional sense does not mean that they are not bound by the treaty, that they are somehow free agents. Their legal status, in terms of the duties that they will perform on the Commission, is much the same as that of the American members. The constitutional point is simply that they will be persons acting on behalf of Panama not the United States. Mr. Hubbard. Many of the statutes provide that ' 'officers of the United States" are those that make a significant contribution to policy decisions of an agency. Would not the Panamanian board members fall under these statutes? Mr. Foy. They would fall under that general statutory language. Mr. Hubbard. You state on page 4 of your statement that offi- cers of the United States may not have to be citizens, but they do have to be persons who "owe allegiance" to the United States. Did you know Dr. Wayne Bray recounts in his book, "The Common Law Zone in Panama", that the first chief justice of the supreme court of the Canal Zone was Dr. Facundo Mutis Duran, who was a Panamanian citizen who had been twice Governor of Panama and a justice of the Supreme Court of Panama while it was under Colombian rule. Quote from page 85 of Dr. Bray's book, footnote 53: The following exchange took place during the hearings before the Senate Commit- tee on Inter-Oceanic Canals in 1906: "Mr. McGoon. The chief justice is Mutis Duran. "Senator Morgan. Is he a citizen of the United States? "Mr. McGoon. He is not. "Senator Morgan. How did it ever happen, Judge McGoon, that a man who is not a citizen of the United States became eligible to be the chief justice of the supreme court of any territory in this Union? 1299 Mr. McGoon answered: "It was based on the precedent of Chief Justice Aribano of the Philippines. Three out of seven judges of the Philippine supreme court are not citizens of the United States. In Puerto Rico the same thing took place." Then Senator Morgan said: "That precedent aside, do you know of any law of the United States which authorizes the employment of a foreigner, a non-citizen of the United States, as the chief justice of any judicial court anywhere in the Union?" Mr. McGoon replied: "I do not know that it is especially provided for, but I do not think that there is anything which prohibits it." Senate Document No. 401, 59th Congress, 2d Session, page 706. Now, it may be that Dr. Duran's appointment was partially due to the fact that the Civil Code of Panama applied in the Canal Zone from 1904 up to the time of the creation of the Canal Zone in 1934. Is it not also the case, in writing qualifications for creation of various officers, legislation has stipulated that the individual offi- cer be a U.S. citizen, almost presuming that he may not be such unless so required? Mr. Foy. I think that's correct, Mr. Chairman. In fact, the old common law rule always was that one of the fundamental qualifi- cations for office under a sovereignty was, if not citizenship, then at least allegiance. And that is one of the reasons that these Panamanian members are not officers of the United States. The point, I think, is that if you accept that proposition you reach the central question: Do they have to be? Does the Constitu- tion require them to be? And the answer, we think, is no. The Constitution permits us to transfer control to Panamanians, and that is what in effect we are doing by establishing this Commission. Mr. Hubbard. In the second issue which you discuss in your testimony, the effect of the treaty on income tax liability, you place great weight on the preratification history of the treaty. I want to place equal weight on the treaty history with respect to the issue of the constitutionality of the board of the Commission. The issue which I raise again is whether your assertion that the Panamanian board members are not "officers of the United States" in the constitutional sense ought to restrict the legislative authori- ty of the Congress. In 1977, in hearings before this subcommittee, the Department of State responded— quoting from page 14 of the printed hearings: "This authority" — meaning legislative authori- ty— "would include legislating the means for establishing toll rates, the conduct of relations with our employees, budget and accounting practices, et cetera. The Commission"— and I emphasize— "and all its officers and employees will be fully subject to such legislation." This statement would seem to lead us to the conclusion that provisions of the legislation can serve to affect the Panamanian Board members. Is this the case? Mr. Foy. I am sorry, Mr. Chairman, I am not familiar enough with the context of the statement you just read to comment on the substance of it. If I take your meaning, I think the answer is that all of these board members are subject to the laws governing the Commission. The Panamanian members are subject to it just as the American members are. I should add that this treaty is also a law of Panama, so that the people who will be representing Panama- nian interests will be acting under our law and under Panamanian law. In this instance these two bodies of law are the same thing, 1300 that is to say, the treaty. And the members of the Commission will be bound by it. Mr. Hubbard. OK, thank you. I would like to refer to your statement where, on page 9, you conclude that any income tax exclusion provision of the implementing agreements could not take effect as domestic law where it conflicts with statutes that now apply. Am I correct that this would be the case with any provision of the implementing agreement? Mr. Foy. With any provision of the implementing agreement? Mr. Hubbard. Yes. Mr. Foy. I assume that that would be the case, but I can't give you a horseback opinion on that. I will discuss the question of the legal effect of the implementing agreements generally, if that would be responsive to your question. Mr. Hubbard. Is it correct that domestic law would prevail over implementing agreements? Mr. Foy. I think as a general proposition that would be the case where there is an inconsistency between domestic statute and the implementing agreement. Mr. Hubbard. Two more questions. Would you explain to us something more about the prisoner exchange agreement between the United States and Panama? Before you respond to that question, for the benefit of our com- mittee members and the record of these hearings, I would like to ask unanimous consent that the executive agreement between the United States and Panama on prisoner exchange, as well as the executive agreements on cemetery removal and aviation facilities, be placed in the record at this point. Is there any objection? Hearing none, it is so ordered. [The following was received for the record:] Treaty Between the United States of America and the Republic of Panama on the Execution of Penal Sentences Whereas: The United States of American and the Republic of Panama, agreeding on the necessity of mutual cooperation in combatting crime insofar as the effects of such crime extend beyond their borders and with the purpose of assuring the better administration of justice through adequate procedures that facilitate the social rehabilitation of prisoners, Whereas: Paragraph 11 of Article IX, of the Panama Canal Treaty of September 7, 1977 (The Panama Canal Treaty), provides that "The Parties shall conclude an agreement whereby nationals of either State, who are sentenced by the courts of the other State, and who are not domiciled therein, may elect to serve their sentences in their State of nationality", Consequently, they have agreed to enter into a Treaty on the Execution of Penal Sentences in the following terms: article i (1) Sentences imposed by a court of the Republic of Panama on nationals of the United States of America may be served in penal institutions of the United States of American or under the supervision of its authorities in accordance with the provisions of this Treaty. (2) Sentences imposed by a court of the United States of American, or a state thereof, on nationals of the Republic of Panama may be served in penal institutions of the Republic of Panama or under the supervision of its authorities in accordance with the provisions of this Treaty. 1301 ARTICLE II For the purposes of this Treaty: (1) "Transferring State" means the Party from which the offender is to be trans- ferred. (2) "Receiving State" means the Party to which the offender is to be transferred. (3) "Offender" means a national of either Party who has been sentenced by the courts of the other Party. (4) "Category I Offender" means a person who has been convicted and who is (a) a United States citizen employee or his dependent, or (b) a member of the United States Forces or his dependents, or (c) a member of the civilian component or his dependent. The terms "United States citizen employee," "dependent," "United States Forces," and "member of the civilian component" as used in this subpara- graph have the meaning given to them in Article I of the Agreement in Implemen- tation of Article III of the Panama Canal Treaty and Article I of the Agreement in Implementation of Article IV of the Panama Canal Treaty. (5) "Category II Offender" means all other offenders who are nationals of either the United States of America or the Republic of Panama. ARTICLE III This Treaty shall apply only under the following conditions: (1) That the offense for which the Offender was convicted and sentenced is one which would be punishable in the Receiving State; provided, however, that this condition shall not be interpreted so as to require that the offense described in the laws of both States be identical in those matters which do not affect the nature of the crime. (2) That the Offender be a national of the Receiving State. (3) That the Offender has not been sentenced to the death penalty nor convicted of a purely military offense. (4) Except for Category I Offenders, that at least six months of the Offender's sentence remain to be served at the time of petition to transfer. (5) That the sentence be final, i.e., that any appeal procedures have been complet- ed, and that there be no collateral or extraordinary remedies pending at the time of invoking the provisions ot this Treaty. (6) That the Offender's express consent, or the consent of a legal representative in the case of a minor, to transfer has been given voluntarily and with full knowledge of the legal consequences thereof. That before the transfer, the Transferring State shall afford an opportunity to the Receiving State to verify through an officer designated by the laws of the Receiving State that the Offender's consent to the transfer has been given voluntarily. The express consent of the Offender shall be required in all cases. ARTICLE IV The Parties will designate authorities to perform the functions provided in this Treaty. ARTICLE V (1) Each transfer of American Offenders shall be requested in writing by the Embassy of the United States of American in the Republic of Panama to the Ministry of Foreign Affairs. As to a Category I Offender, submission of such a petition shall depend solely on such Offender notifying the Embassy of the United States of American of his or her preliminary decision to elect to transfer under the Treaty. (2) Each transfer of Panamanian Offenders shall be requested in writing by the Embassy of the Republic of Panama in the United States of American to the Department of State. (3) As to Category II Offenders, if the Transferring State considers the request to transfer the Offender appropriate, the Transferring State will communicate its approval of such request to the Receiving State so that, once internal arragnements have been completed, the transfer of the Offender may be effected. (4) As to eligible Category I Offenders, no finding of the appropriateness of such consenting Offenders' transfer by the Transferring State shall be required. Once internal arrangements have been completed, their transfers shall be effected. (5) Delivery of an Offender by the authorities of the Transferring State to those of the Receiving State shall occur at a place agreed upon by both Parties. The Receiv- ing State will be responsible for the custody and transport of the Offender from the Transferring State. 1302 (6) In making decisions concerning the requests for or approval of the transfer of a Category II Offender under paragraphs 1-3 of this Article and with the objective that the transfer should contribute positively to his social rehabilitation, the au- thorities of each Party will consider, among other factors, the seriousness of the crime, previous criminal record, if any, health status and the ties that the Offender may have with society of the Transferring State and the Receiving State. (7) In cases where a Panamanian national has been sentenced by a state of the United States of American, the approval of such an Offender's transfer pursuant to paragraph 3 of this Article shall be required from both the appropriate state authority and the federal authority. (8) The Transferring State shall furnish to the Receiving State a certified copy of the sentence or judgment relating to the Offender. When the Receiving State considers such information insufficient, it may request, at its expense, copies of principal portions of the trial record or such additional information as it deems necessary. The Transferring State shall grant such request to the extent permissible under its laws. (9) When the Transferring State does not approve, for whatever reason, the transfer of a Category II Offender, it shall communicate this decision to the Receiv- ing State without delay. (10) The Receiving State shall not be entitled to any reimbursement for the expenses incurred by it in the transfer of an Offender or the completion of his sentence. ARTICLE VI (1) An Offender delivered for execution of sentence under this Treaty may not again be detained, tried or sentenced in the Receiving State for the same offense for which the sentence was imposed by the Transferring State. (2) Except as otherwise provided in this Treaty, the completion of a transferred Offender's sentence shall be carried out according to the laws and procedures of the Receiving State, including the application of any provisions for reduction of the term of confinement by parole or conditional release. (3) Each Party may request reports indicating the status of confinement of all Offenders transferred under this Treaty, including in particular the parole or re- lease of an Offender. Either Party may, at any time, request a special report on the status of the execution of an individual sentence. ARTICLE VII The Transferring State shall retain exclusive jurisdiction regarding the sentences imposed and any procedures that provide for revision or modification of the sen- tences pronounced by its courts. The Transferring State also shall retain the power to pardon or grant amnesty or clemency to an Offender. The Receiving State, upon being inforned of any decision in this regard, will put such measures into effect. ARTICLE VIII (1) This Treaty shall also be applicable to persons subject to supervision or other measures under the laws of one of the Parties relating to youthful Offenders. The Parties shall, in accordance with their laws, agree on the kind of treatment to be accorded such persons upon transfer. Consent for the transfer of such persons shall be obtained from a legally authorized representative. (2) Nothing in this Treaty shall be interpreted to limit the ability which the Parties may have, independent of the present Treaty, to grant or accept the transfer of youthful or other Offenders. ARTICLE IX By arrangement between the Parties for specific cases, persons accused of a crime who have been duly determined by competent authorities of the Transferring State to be suffering from a mental aberration or mental illness, and for such reason are declared incompetent to stand trial, may be transferred to the country of which they are nationals so that they may be cared for in special institutions. ARTICLE X Notwithstanding any other provision of this Treaty, or any law of either Party, prior to the termination of the Transition Period established by Article XI of the Panama Canal Treaty, all offenders incarcerated in the areas and installations made available for the use of the United States of America by the Republic of Panama, who are not nationals of either country, shall be permitted, subject to the 1303 approval of both Parties, to elect to serve the remainder of their sentences in penal institutions of the Republic of Panama. ARTICLE XI If either Party enters into an agreement for the execution of penal sentences with any other State, the other Party shall cooperate in facilitating the transit through its territory of Offenders being transferred pursuant to such agreement. The Party intending to make such a transfer will give advance notice to the other Party of such transfer. ARTICLE XII In order to carry out the purposes of this Treaty, each Party shall take the necessary measures and shall establish adequate administrative procedures so that a sentence imposed by a Transferring State will have legal effect in the Receiving State. ARTICLE XIII (1) This Treaty shall be subject to ratification and shall enter into force on the date on which the instruments of ratification are exchanged. The exchange of instruments of ratification shall take place at Washington. (2) This Treaty shall remain in force as follows: (a) With respect to "Category I Offenders," until noon, Panama time, December 31, 1999; and (b) With respect to "Category II Offenders," for a period of five years from the date of exchange of instruments of ratification of this Treaty, and shall be automati- cally renewed for additional periods of five years, unless one of the Parties notifies the other Party in writing of its intent to terminate it at least six months before the expiration of the inital five year period or of any extension thereof. DONE in duplicate, in the English and Spanish languages, both texts being equally authentic, at Panama, this 11th day of January, 1979. For the United States of America: Ambler H. Moss, Jr., Ambassador Extraordinary and Plenipotentiary. For the Republic of Panama: Carlos Alfredo Lopez-Guevara, Ambassador Extraordinary and Plenipotentiary. Agreement Between the United States of America and the Republic of Panama Relative to the use of Plots of Land Located in the Republic of Panama for Maintaining a Permanent Cemetery The United States of America and the Republic of Panama, desiring to strengthen their ties of friendship, have agreed upon the following as regards the establishment of a cementery at Corozal: article i 1. Without prejudice to the provisions of the Agreement in Implementation of Article IV of the Panama Canal Treaty, signed in Washington September 7, 1977, the Republic of Panama grants to the United States of America the exclusive use of the areas identified and described in the maps which constitute Annexes A and B to this Agreement, hereinafter referred to as "the Areas". 2. The United States of America will use the Areas exclusively to maintain a cemetery. 3. The rights which the Republic of Panama hereby confers upon the United States of America are effective upon the date of entry into force of this Agreement and thereafter, and, moreover, are without taxation or the imposition of fees or costs. 4. The Republic of Panama likewise grants to the United States of America free access to the Areas for the use set forth in this Agreement. article II 1. The United States of America will use the Areas exclusively for the purposes of the Agreement in Implementation of Article IV of the Panama Canal Treaty of 1977, during the life of that Agreement, and for the purpose set forth in Article I of this Agreement. In carrying out these purposes the United States of America may 44-394 O - 79 - pt. 2-30 1304 bury United States citizens or their dependents, erect headstones and boundary walls, take such measures to beautify and maintain the Areas as it deems appropri- ate, build a commemorative monument and construct roads, buildings (including two residences) and the utilities needed to maintain this cemetery. 2. The flags of the United States of America and the Republic of Panama shall be displayed in the Areas in the manner prescribed by Article VII of the Panama Canal Treaty of 1977. 3. The Republic of Panama will provide the United States of America with uninhibited access to those utilities necessary for the operation and maintenance by the United States of America of the Areas. Upon request of the United States of America, the Republic of Panama will insure that there is made available to the United States of America those utilities necessary for the operation and mainte- nance by the United States of America of the Areas. The terms and conditions of use, prices, rates and tariffs, as well as priorities, shall not be unfavorable in relation to those applicable to the most favored private user. 4. The Republic of Panama will insure that the Areas remain free from private or public easements or other encumbrances that might hinder their use by the United States of America for the purposes of this Agreement. 5. The Republic of Panama will further the preservation of the dignity and esthetic character of the cemeterial site which shall be maintained in the Areas, prohibiting unsightly or inappropriate structures or activities in the vicinity of the Areas. 6. The United States of America will not allow any third party to use the Areas or any part of them. Moreover, it is agreed that should the Areas or any portion thereof cease to be used for the purposes set forth in Article I of this Agreement, the use of such land shall revert to the exclusive use of the Republic of Panama. ARTICLE III 1. The United States of America may bury or exhume bodies of United States citizens and their dependents within the Areas, and may transport them to or from the Areas. For purposes of this Agreement, "United States citizens and their de- pendents" shall be comprised of the following categories of persons: (a) Persons to whom the United States of America is authorized to provide medical services in accordance with the Panama Canal Treaty and related agree- ments; (b) Members of the Armed Forces of the United States of America on active duty, to the extent authorized by applicable United States laws and regulations; (c) Persons who, prior to the entry into force of this Agreement, have reserved plots in the Areas; and (d) Persons having close relatives buried in the Areas. 2. It is understood that after noon, Panama time, December 31, 1999, interment of the remains of persons shall take place only with the mutual consent of the appropriate authorities of the United States of America and of the Republic of Panama. Both Parties shall give sympathetic consideration to requests for the interment of the remains of individuals when the remains of close relatives of such individuals are interred in the Areas. 3. The United States of America will take all necessary measures to prevent the operations authorized by this Article from endangering public health. 4. With respect to the movement through Panamanian territory of bodies to be buried in the Areas or removed from them, the United States of America shall not be subject to the laws, regulations or administrative authority of the Republic of Panama concerning movement of bodies. 5. All such burials, disinterments and movements of bodies shall be exempted from all Panamanian taxes. ARTICLE IV 1. All expenses incurred in carrying out the provisions of Articles II and III shall be borne by the United States of America. 2. Nationals of the United States of America designated by the United States of America to carry out the purposes of this Agreement and their dependents, shall be treated as members of the civilian component and dependents in accordance with the Agreement in Implementation of Article IV of the Panama Canal Treaty of 1977 for all purposes during the life of that Agreement. Thereafter, such nationals and their dependents shall be treated as members and dependents of members of the administrative and technical staff of the Embassy of the United States of America in the Republic of Panama. 1305 3. All supplies, materials and equipment or other removable property utilized by the United States of America in carrying out the provisions of this Agreement, whether procured in Panama or imported, and the Areas, including all non-remov- able improvements thereon that have been made or shall be made, shall be exempt from all forms of taxation, direct or indirect. The United States of America shall have the same exemption in all undertakings and services which it may order or contract for, in carrying out the purposes of this Agreement. It is understood, however, that this exemption does not mean that the Republic of Panama is obliged to reimburse taxes collected by it prior to the purchase of goods or services on the Panamanian market by the American Battle Monuments Commission or its succes- sor. ARTICLE V The terms, conditions and prerequisites for employment of Panamanian nationals by the United States of America under this Agreement shall conform with the general principles of the labor laws of the Republic of Panama. ARTICLE VI 1. The United States of America hereby designates the American Battle Monu- ments Commission as the agency to carry out the terms of this Agreement and will inform the Republic of Panama of any successor agency. 2. The American Battle Monuments Commission or its successor shall be exempt from the jurisdiction of the Republic of Panama. 3. Any differences of interpretation which may arise with respect to this Agree- ment shall be resolved by the Parties through diplomatic channels. ARTICLE VII This Agreement shall enter into force on the same date that the Panama Canal Treaty of 1977 and the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal enter into force, or on the date on which the Republic of Panama notifies the United States of America that its Constitutional requirements have been fulfilled, whichever is later. Signed at Panama, Republic of Panama, this 11th day of January, 1979, in the English and Spanish languages, both texts being equally authentic. For the United States of America: Ambler H. Moss, Jr., Ambassador Extraordinary and Plenipotentiary. For the Republic of Panama: Carlos Alfredo Lopez-Guevara, Ambassador Extraordinary and Plenipotentiary. Agreement Between the United States of America and the Republic of Panama Concerning Air Traffic Control and Related Services The Governments of the United States of America and the Republic of Panama, in order to establish appropriate procedures to provide certain air traffic control and related services in those areas designated by the International Civil Aviation Organization (ICAO) and described in the ICAO Caribbean/South American Region- al Air Navigation Plan, Document No. 8733, as the Panama Flight Information Region (FIR), and in order to conclude a definitive arrangement on this subject to supersede the Exchange of Notes of April 5 and 10, 1950, in accordance with the Exchange of Notes Relating to Air Traffic Control Service, dated September 7, 1977, have agreed to the following: article i.-definitions The terms listed below, as used in this Agreement, are defined as follows: A. FAA— The Federal Aviation Administration, Department of Transportation, United States of America. B. DAC— The Department of Civil Aviation, Government of the Republic of Panama. C. ICAO— The International Civil Aviation Organization. D. Panama FIR— The Panama Flight Information Region, a geographical area including the Isthmus of Panama and certain oceanic areas on either side of the Isthmus, the complete description of which is contained in the ICAO Caribbean/ South American Regional Air Navigation Plan, Document No. 8733. 1306 E. FAA Employees and Dependents — 1. Employees — Citizens of the United States of America to whom United States passports have been issued, who are employed by the FAA, and assigned to perform FAA functions and duties in Panama. This includes personnel on temporary duty and crew members of FAA aircraft who are in transit or visiting on official busi- ness. 2. Dependents — The spouses and children of FAA employees and other relatives who depend upon them for their subsistence and who habitually live with them under the same roof. F. Designated Representatives — The representative designated by each Govern- ment pursuant to Article V of this Agreement. ARTICLE II— OBLIGATIONS OF THE UNITED STATES OF AMERICA At the request of the Republic of Panama, the Government of the United States of America undertakes by this Agreement to provide, through the Federal Aviation Administration, the air traffic control, communications, systems maintenance, and related services defined herein for the Panama FIR until such time as Panama shall assume responsibility for the provision of such services in accordance with this Agreement, and undertakes also to provide to the Republic of Panama such assist- ance as may be mutually agreed to faciliatate the development of the capability of the Republic of Panama to reassume the various responsibilities. ARTICLE III.— OBLIGATIONS OF THE REPUBLIC OF PANAMA The Government of the Republic of Panama, in conformity with its acceptance of responsibility for providing aviation services within the Panama FIR and the corre- sponding obligation to provide a coordinated system of air traffic control and related services as fully described in the ICAO Regional Air Navigation Plan, grants to the FAA, for the duration of this Agreement, the rights herein described until it develops the capabilities required for it to assume full responsibility for the services described in Article IV. ARTICLE IV.— SERVICES TO BE PROVIDED A. The United States agrees to provide temporarily the air traffic control, commu- nications, systems maintenance, and related services set forth below until the re- sponsibility for providing such service is reassumed by the Republic of Panama in accordance with the following schedule: 1. Within two years of the effective date of this Agreement, the Republic of Panama shall assume all operational and associated maintenance functions of the International Flight Service Station (IFSS), including maintenance of air-to-ground communications equipment associated with the operation of IFSS. 2. Within four years of the effective date of this Agreement, the Republic of Panama shall assume all operational and maintenance functions of the Center and Terminal Radar Approach Control (CERAP), except maintenance of the associated radar equipment. 3. Within five years of the effective date of this Agreement, the Republic of Panama shall assume all maintenance functions associated with the radar equip- ment serving the CERAP and all other operational and/or maintenance functions not previously accounted for. 4. The time periods established herein can be reduced by agreement between the FAA and the DAC. B. To accomplish the provisions of paragraph A of this Article, it is further agreed that with 30 days of entry into force of this Agreement, the designated representa- tives shall jointly develop a detailed Transition Plan consistent with this Agree- ment. C. It is also agreed that with 90 days of entry into force of this Agreement, the designated representatives shall develop and submit to their respective Govern- ments appropriate changes to propose for inclusion in the ICAO Regional Air Navigation Plan, Document No. 8733. These shall include specific recommended changes to the existing aeronautical fixed circuits and routing guide which reflect the diminishing role of the United States. D. The Parties agree to establish a system whereby the FAA may, if deemed mutually convenient or desirable by the two Parties, assign certain employees of the FAA, for a limited period of time, to assist in the operation or the maintenance function of activities reassumed by the Republic of Panama pursuant to this Article. The salaries and related costs of providing such persons to furnish this assistance shall be reimbursed to the United States by the Republic of Panama. 1307 E. The FAA shall assist the DAC in establishing the capability required for the Republic of Panama to assume the responsibility of providing the services identified in paragraph A of this Article. To this end, the FAA shall, to the extent possible, provide, partially on a cost reimbursable basis, training programs for the develop- ment of DAC personnel skills. To the maximum extent feasible, the FAA shall provide training in Panama. It is agreed that emphasis shall be placed on training and development of DAC specialists rather than employing Panamanian citizens as FAA employees, and that FAA personnel shall be replaced with qualified DAC personnel as the latter become available. The FAA and DAC shall agree in the transition plan on the distribution between them of the costs involved in training the Panamanian personnel. F. The Parties agree that, due to its specialized technical capabilities, the FAA may, if deemed desirable by both Parties, provide ancillary aeronautical services. ARTICLE V.— DESIGNATED REPRESENTATIVES Each Party shall designate a representative to facilitate implementation of this Agreement. The designated representative of the United States of America shall be an employee of the FAA, and the designated representative of the Republic of Panama shall be an employee of the DAC. Each Party shall communicate to the other the name of its designated representative. ARTICLE VI.— USE OF AREAS AND FACILITIES A. The Republic of Panama grants the FAA the right to use the operational and housing areas listed in paragraph B of this Article to provide the services described in Article IV and for the housing of personnel, subject to the following terms and conditions, except as otherwise provided in paragraph B of this Article: 1. The areas listed herein shall periodically be reviewed and revised to reflect and required changes acceptable to the Parties. 2. The FAA may at any time modify installations located within FAA operational or housing areas to insure the continuation of adequate operational facilities and housing to fulfill the purpose of this Agreement. However, the FAA will make no changes in installations which affect the airway structure within Panama without advance consultations between the FAA and the DAC. 3. The FAA may at any time dispose of in the Republic of Panama under conditions agreed upon by the two Parties, or remove from the Republic of Panama, all equipment, installations, material, supplies or other removable property of the United States Government brought into, acquired or constructed in the Republic of Panama by or for the FAA. Disposition of such property shall be in accordance with applicable United States law. The Government of the United States will not remove from the Republic of Panama any such equipment, installations, material, supplies or other property the removal of which would affect the quality of service the Republic of Panama will be able to provide. Property left by the FAA in operational areas 60 days after the date that this Agreement terminates shall, unless otherwise agreed by the two Parties, become the property of the Republic of Panama. 4. The Republic of Panama agrees to provide police, fire protection, street mainte- nance, street lighting, street cleaning, traffic management and garbage collection to FAA personnel and their dependents and to FAA operating and housing areas. FAA shall have responsibility for control of access to its operational areas. To control those operational areas and to afford added personal security in its housing areas, the FAA shall have the right to hire guard personnel. The designated representa- tives may agree on such regulations relating to control of access as are consistent with the purposes of this Agreement. 5. The Republic of Panama agrees to provide without charge those sites the FAA and the DAC deem necessary for air navigation aids or other air traffic control and communications equipment. 6. In connection with FAA use of operational or housing areas or otherwise, the Republic of Panama authorizes the FAA to establish and use communications networks and radio electronic installations, together with their associated radio and navigational aid frequencies, to carry out the provisions of Article IV of this Agree- ment. B. 1. The following housing and operations areas are subject to this Agreement: (a) CERAP building and grounds (FAA Headquarters Building No. 0611), located on Albrook Field. The FAA is authorized to continue to provide space to the Federal Highway Administration, United States Department of Transportation, in the CERAP Building for the duration of this Agreement. 1308 (b) Ancon Hill communications facility, identified in the area subject to separate bilateral agreement in Attachment 5 to Annex "A" to the "Agreement in Imple- mentation of Article IV of the Panama Canal Treaty." (c) Perico Island radar facility, identified as an area subject to separate bilateral agreement in Attachment 1 to Annex "A" to the "Agreement in Implementation of Article III of the Panama Canal Treaty." (d) France Field navigation facility (VOR and TACAN). (e) The part of Cardenas Village, identified as the area subject to separate bilater- al agreement in Attachment 26 to Annex "A" to the "Agreement in Implementation of Article III of the Panama Canal Treaty." These housing units shall be available for the use of the FAA in housing its employees and employees of the Federal Highway Administration of the Department of Transportation for as long as neces- sary during the term of this Agreement. At such time as the FAA no longer requires certain housing units in the area, the excess units may be made available to the Panama Canal Commission for housing United States citizen employees of the Commission under the regime established in Article VI of the same Agreement. 2. The Republic of Panama grants to the FAA for the duration of this Agreement the continued right of use of the Taboga Island air navigation facility, grounds, and support facilities currently operated in the Republic of Panama. ARTICLE VII.— SERVICES AND INSTALLATIONS A. The Republic of Panama agrees that the FAA, its employees and contractors and their dependents, may be authorized by the United States Forces and/or by the Panama Canal Commission to use for the purposes of this Agreement property, installations, housing facilities and services established or located in the Republic of Panama pursuant to the "Agreement in Implementation of Article III of the Repub- lic of Panama Treaty" and the "Agreement in Implementation of Article IV of the Republic of Panama Treaty" as may be agreed between the FAA and the United States Forces and/or the Panama Canal Commission. B. The Republic of Panama authorizes the FAA to continue to use accessory facilities such as pipelines, communications, sanitation services and utilities which seve the FAA operational or housing areas and are installed outside such areas. The two Parties shall agree, through their designated representatives, upon procedures to govern appropriate use, access, maintenance and repair of such accessory facili- ties. C. The FAA and its employees and their dependents may use the public services such as sewerage, water, telephone, electricity, and public installations belonging to or regulated by the Republic of Panama subject to terms and conditions of use not less favorable than those accorded the most favored customer on a commercial basis. D. The Republic of Panama agrees to insure the maintenance and repair of routes of access to FAA operational and housing areas or installations, in all cases where responsibility for such maintenance is not that of the United States Forces or the Panama Canal Commission. The Republic of Panama agrees that the FAA may use contractors or obtain such services as are available from the United States Forces or the Panama Canal Commission, as necessary, to assure continuous access to FAA operational and housing areas. ARTICLE VIII.— CONTRACTORS AND CONTRACTORS' PERSONNEL The two Parties agree to the provisions regarding contractors and contractors' personnel set forth in Annex A to this Agreement. ARTICLE IX— CLAIMS The two Parties agree to the provisions regarding the disposition of claims set forth in Annex B to this Agreement. ARTICLE X.-PRIVILEGES AND IMMUNITIES A. Regarding entry and departure of FAA personnel from the territory of the Republic of Panama, exercise of criminal jurisdiction, taxation, including customs and import duties and customs inspection, licensing, registration and movement of official and personal motor vehicles, and the general legal status under the laws of the Republic of Panama of the FAA, its employees and their dependents, the Republic of Panama shall accord to FAA and to its employees and their dependents the same status as that accorded to the Embassy of the United States and to staff personnel of the Embassy and its operations, except as otherwise provided in this Agreement. The FAA shall conform to such practices as have been established by the Embassy and apply to the Embassy and other agencies of the United States 1309 Government affiliated or related to it which are located or operate in the Republic of Panama, except insofar as explicitly otherwise provided by this Agreement. B. Vessels and aircraft operated by or for the FAA, when in the performance of official duties, may move freely through Panamanian airspace and waters, without the obligation or payment of taxes, tolls, landing or pier charges, or other charges by the Republic of Panama, and without any other impediment. Such vessels and aircraft shall be exempt from customs inspection or other inspections. When the same carry freight, crews or passengers who are not entitled to the exemptions provided for in this Agreement, prior notice shall be given to the appropriate Panamanian authorities. Both Parties shall adopt procedures to insure that the laws and regulations of the Republic of Panama are not violated. C. In exceptional cases as required for the proper performance of services pro- vided by the FAA, FAA employees may enter and depart the territory of the Republic of Panama upon presentation of personal identification and a duly com- pleted Panamanian entry or exit card. FAA employees and dependents assigned for full tours of service in the Republic of Panama, however, shall conform to the practices regarding possession of passports and issuance of Panamanian visas estab- lished for staff personnel of the Embassy of the United States and of other United States Government agencies affiliated with it operating in the Republic of Par na. D. FAA employees and their dependents shall be exempted from any 000,000 tons. Thus the total traffic on the oceangoing portion of the Missis- sippi River System in 1975 was kj7 million tons, which is equivalent to two-thirds (2/3) of the total U. S. in- land waterborne commerce. In 1977, the value of the trade on the lower Mississippi was $22 billion. In 1977, there were 1^,000 oceangoing vessels and over 100,000 barges moving on waterways through the New Orleans Area. The total value of all foreign trade in the lower Mississippi is $22 billion (export and import). 1465 The estimated $30 billion worth of agricultural commodities and products exported during the fiscal year ending June 30, 1977, is a tribute to the energy, sales ability and traditional trading spirit of the American agricultural community. Exports provide markets for nearly 60 per cent of the U. S. annual wheat crop; 55 per cent of the rice; half of the soybeans; more than one-third of the cotton and tobacco; and one-fourth of the feed grains we produce About one-fifth of 1975 farm cash receipts resulted from agricultural exports. Production from nearly one out of every three harvested acres is sold abroad. Be- cause of balance of payment requirements, U . S. land de- voted to export crops and livestock is increasing by millions of acres annually. The vast network of support and service companies and organizations that link American farms to consumers beyond our borders benefits from exports. Businesses that include agricultural machinery and chemicals manu- facturers; the packaging and container industries; the transportation system; international banks; forwarders; brokers; and the small army of marketers, promotion specialists; and commercial representatives who travel the world probing for new or expanding markets for American farm products, all benefit from exports. Every 1466 additional billion dollars realized from an export sale generates 50,000 additional jobs at home.* Movement of a substantial portion of the total annual agricultural exports to world markets occurs via ports on the Gulf of Mexico. It is strongly recommended that the Congress not pass any implementing legislation without inclusion of the specific safeguards that I and other members of our port group here today recommend. These amendments are needed so there will not be an adverse economic impact on American shipping and the American consumer. We strongly feel that our foreign trade, balance of payments and Gulf and Atlantic regional economies cannot stand, with- out major adverse impacts to the national interest, the possibility of large uncontrolled increases in tolls for the Panama Canal after passage of the implementing legis- lation. I appreciate very much having had the opportunity to present the views of the Gulf Ports Association, Inc. and the Port of New Orleans to the Subcommittee today. Thank you. *Source; Food and Agricultural Export Directory, USDA Foreign Agricultural Service, May 1976. 3 Enclosures 10 1467 HIGHLIGHTS OF LEGISLATION TO IMPLEMENT THE PANAMA CANAL TREATY OF 1977 CONG. MURPHY'S BILL H.R. III Supervis e Board of Panama Ca- nal Coir.Tussion composed of 9 members: 5 U.S. nationals and 4 Pan. nat. appointed by U.S. (Pan. nat. proposed by R/Pan.) 111.3(a). positions reversed. Pan. nat. propo- sed by R/Pan. 111.3(c). Consultative Committee advises gov. of U.S. and Pan. on policy matters, including general tolls policy. Composed of equal no. of high-level rep. of U.S. and Pan. 111.7. Treaty provides no procedure for Congressional oversight of appoint- ments to Commission or of actions or policies of Comm. Board to manage affairs of Pan. Canal Comm. appointed per treaty HI. 3., by Pres. of U.S. and serving at his pleasure. May be officer or employee of U.S. Sec. 205. Quorum is majority of Bd. mem- bers of which maj. present are U.S. nat. Sec. 206. Adm . and Pep . Adm . appointed by Pres. and serve at his pleasure. Sec. 207. (Subject to Treaty re Pan. nat.) Board appointed by Pres. with ad- vice and consent of Senate, serving at pleasure of Pres. Sec. of De- fense (or his designated rep.) is member and directs Bd. No other member may be employee or offi- cial of U.S. or Pan. Sec. 102. Quorum same as Adm. Bill. Sec. Adm ., Pep . Adm. and Chief Engi- neer appointed by Pres. with ad- vice and consent of Sen. The Adm. serves at pleasure of Pres. Sec. 103, 104. (Subject to Treaty re Pan. nat.) Consultati Comm. has 5 U.S. Consultative Comm . U.S. rep. ignated by Pres. and participation rep. and 5 Pan. rep. Of the U.S. coordinated by Sec. of State. Sec. rep: 2 appointed by Pres. pro tern. 101. of Senate; 2 appointed by Speaker of House of Rep; 1 appointed by Pres. of U.S. The 2 rep. from Sen- ate and House respectively shall not be of same political party. Members serve at pleasure of ap- pointing officer. Sec. 105. Congr . oversight : Appointments subject to advice and consent of Sen. Congr. appointments to Con- sultative Comm. Proposed actions of Cons. Comm. submitted in writing to Pres. and thence to Con- gress. Either House of Congress may disapprove proposed action by Cons. Comm. Sec. 105. Board members appointed or re- appointed by Pres. for 4-year terms, with advice and consent of Senate, and serve at pleasure of Pres. At least 2 of the 5 U.S. members shall be from the Atlan- tic or Gulf areas, one engaged in the management or operation of an American flag steamship line and the other in a major import or export business depending on the Pan. Canal as a principal transportation route. Cons . Comm . Murphy's Bill. No procedure for Cong Congr . Murphy ight - support Cong. Also- Permanent Neutrality Treaty III. 1(c) -tolls shall be just, reason- able and equitable. Long Understanding : "Paragraph 1(c) of Article III of the Treaty shall be construed as requiring, be- fore any adjustment in tolls for use of the Canal, that the effects of any such toll adjustment on the trade patterns of the two Parties shall be given full consideration, including consideration of the fol- lowing factors: (1) the costs of operating and maintaining the Pan- ama Canal; (2) the competitive position of the use of the Canal in relation to other means of trans- portation; (3) the interest of both Parties in maintaining their domes- tic fleets; (4) the impact of such an adjustment on the various geogra- phical areas of each of the two Parties; and (5) the interest of both Parties in maximizing their inter- national commerce. The United States and the Republic of Panama shall cooperate in exchanging in- formation necessary for the consi- deration of such factors." Tolls prescribed by Pan. Canal Comm. (Treaty - Consultative Comm. advises on tolls.) upon 3 months' notice in Fed. Reg. and public hearing. Subject to and upon approval of U.S. Pres. Sec. 230. Interim toll adjustment by Pan. Canal Co. subject to 3 mo. notice, if time permits, and public hearing. Sec. 231. Changes in tolls require advance publication and public hearing. Analysis showing basis and justifi- cation for changes shall be publi- shed also. Changes are submitted to Pres. for him to approve, dis- approve or modify. Subject to judi- cial review. Sec. 413. Interim toll adjusment by Pan. Canal Co. subject to essentially same procedures as above. Sec. phy's Bill. Additionally, for tolls after public hearing, re- port to Congr. committees showing economic justification and detailed consideration of factors enumera- ted in Long Understanding . Tolls increases may not exceed (approximately 11%) in any given 12-mo. period (after interim toll adjustment) unless necessary to pay fixed annuity to Pan.-Treaty XIII. 4(b). All increases require ad- vance notice, publication of basis and economic justification, detail- ed consideration per Long Under- standing, public hearing and report to Congr. committees. Interim toll adjustment by Pan. Canal Co. or Pan. Canal Comm. to cover first year of operation after effective date of Treaty, limited to 27% of tolls in effect on 1/1/79. 1468 SERVICE DETAILS. Lykes To Offer 4 Sailings Monthly From West Coast To Far East; Call Most Ports Between Japan & Singapore Vessels also to provide link between Hawaii and Far East; one group of ships to be routed to Japan, Korea, Taiwan, Hong Kong and Philippines; other group serving Southeast Asia area; headquarters In San Francisco; another office at Seattle; Michael D. Shea to be VP, West Coast Division. The new Lykes Lines trans-Pacific service, scheduled to begin in the next 30 days from West Coast ports, will offer two sailings covering the route to Japan, Korea, Taiwan, Hong Kong and the Philippines, and two sailings on the route to Singapore, Malaysia, Indonesia and other Southeast Asian ports. Ships in these services will also provide service between Hawaii and Far East ports, Lykes announced Although Lykes' ships have been operating in the Pacific and Far East since 1925, they previously had sailed only from New Orleans and other U.S. ports on the Gulf of Mexico. To provide for its first regularly scheduled West Coast service to the Far East, the company is assigning eight ships to the trade routes and expanding existing Lykes offices in San Francisco and Long Beach, California. "Our West Coast headquarters will be in San Francisco, and we wiD open a new office in Seattle," said Joseph T. Lykes, Jr., chairman of the steamship company, now a subsidiary of LTV Corporation "We estimate we will require approximately 120 people to staff these offices, and we expect to employ residents of the West Coast wherever possible." Of the eight ships to operate on the new routes, Lykes said, five will be of the Pacer or Clipper Class from the current operating fleet. The other three are the former States Line roll-on/roll-off cargo carriers, one of which will be purchased and two others chartered from the U.S. Maritime Administration. Soucy-St. George & Co. marine surveyors and consultants international Cargo Cw Bureau. Inc. National Cargo Buraau. Inc. Post Off lea Boi 16993 Prion* 354-2442 Jacksonville, Florid. 32216 42 AMERICAN SHIPPER: FEBRUARY 1979 Cash for the purchase of the additional ship for the Lykes fleet will come from funds already on deposit in Lykes' construction fund, the company said. "Deployment of five ships from the Lykes fleet will in no way impair the Lykes services from Gulf and Great Lakes ports," Lykes said. Staff. Michael D. Shea, who has been on assignment in Hong Kong since 1977 as Far East Director of Lykes' operations in the Pacific, returns to the United States to head up the new West Coast organization as vice president of Lykes' West Coast Division. He is a graduate of the U.S. Merchant Marine Academy and was assigned to Lykes fleet operations for five years before going to Hong Kong in 1970 as assistant operations manager. In 1973 he was named district managei ct 'ieDr" ,,c office of Lykes, and in 1975 was transferred to Antwerp as deputy director for Continental Europe and the United Kingdom. A. W. Hietala, now serving as assistant vice president of marketing in New Orleans, will replace Shea in Hong Kong as vice president of Lykes Lines Agency, a wholly-owned subsidiary of Lykes Bros. Steamship Company. He is a graduate of Colombia University and joined the Lykes staff in 1956. In 1958 he was assigned to duties in Genoa, Italy; transferred to Liverpool in 1961 and returned to Genoa in 1964. In 1967 he was named director of Lykes' Mediterranean Area He returned to the U.S. in 1974 as assistant vice president of Lykes' East Gulf Division in Mobile, and transferred to his New Orleans marketing assignment in 1977. Lykes Names On Ships. The Ro/Ro ships assigned to the new service are the S/S Arizona, which will be renamed the Lipscomb Lykes; the S/S Maine, to be renamed the Tyson Lykes, and the S/S Nevada, to be renamed the Charles Lykes. The Arizona will be purchased by Lykes and the Maine and Nevada will be chartered for a period of 15 years. The Ro/Ro ships are 684 feet in length and have a beam of 102 feet. Their deadweight is 19,543 long tons and they have a cargo capacity of 1,900,000 cu. ft. Their maximum shaft horsepower of 37,000 provides them with a design speed of 23 knots. Cargo Capability. Each of the vessels has a 24-ft wide stem ramp which permits cargo to be driven aboard under its own power. General cargo and containers are rolled aboard by using shipboard mobile equipment. Loading is fast and continuous Cargo may also be loaded in two hatches by cranes. Each vessel accommodates 12 passengers. Lykes has 13 Pacer and 12 Clipper Class ships in its presently operating fleet of 41 vessels A combination of these will round out the eight ship fleet serving the new Lykes trade route. The Pacers are combination container and breakbulk ships. They are 592 ft long with a beam of 69 ft , a deadweight of 14,286 tons and have 783,711 cu. ft. of cargo space as well as deep tanks for 1,078 tons of liquid cargo. Some of the Pacers also have 16,362 cu. ft. of reefer space. They also have accommodations for 12 passengers. The Clippers are highly-automated ships with heavy-lift capability of 88 tons. Two of this class can handle heavy lifts of 176 tons with their own gear. They are 540 ft. in length and have a beam of 76 ft. and a deadweight of 14,662 tons. Their total cargo capacity is 749,326 cu. ft. Liquid cargo tanks are also available Each will accommodate four passengers. The entire Lykes fleet provides container capability and the company has long-standing experience transporting extraordinary heavy lifts and oversize cargo from Gulf ports. In addition to the new West Coast-Far East services, Lykes also maintains trade routes between U.S. Gulf ports and the Far East, the West Coast of South America, South and East Africa, the Mediterranean and Black Sea, and the United Kingdom and North Europe; between U.S. South Atlantic ports and the Mediterranean and Black Sea, and between the Great Lakes and the Mediterranean, Black Sea, Middle East and South America. Lykes To Serve Central America Lykes Lines will begin a direct monthly cargo service from U.S. Gulf ports to the West Coast of Central America in February. The S/S Elizabeth Lykes will be the first ship on berth in the U.S. Gulf. Loading ports will be Houston, Galveston, Freeport, Pensacola, and New Orleans. Discharge ports will be the Nicaraguan port of Corinto and the port of Acajutla in El Salvador. The ship will then proceed to ports in the Far East. Ships operating in this trade will also call at ports in Guatemala, Honduras and Costa Rica on an inducement basis. 1469 M/S Nedlloyd Rotterdam loading roll-on/ roll-off cargo over its angled stern ramp on its maiden voyage out of New Orleans to the Mideast last month. Nedlloyd Expands U.S. Gulf/Mideast Ro/Ro Services Nedlloyd Lines inaugurated an expanded service to the Mideast in December with the maiden voyage of the Ro/Ro ship M/S Nedlloyd Rotterdam from New Orleans. The Rotterdam's Mideast ports of call include Jedda on the Red Sea; Dubai, Damman, Kuwait, and Bandar-Shapour on the Arabian/Persian Gulf The vessels in this new class of Ro/Ro ships joining the Nedlloyd fleet, have an overall length of 695 ft., an extreme breadth of 105 ft. and tonnage of 25,000 dwt. They have a maximum service speed of 20 knots. Designed as three-deck Ro/Ro ships, they transport containers, trailers, rolling stock and heavy equipment. Vessels have eight-lane quarter stern ramps and the ship's on-board handling equipment includes fork lift trucks and tractors to reduce tum-around time. It can be completely unloaded in approximately six hours. The Rotterdam will be joined on the U.S. run in March by the M/S Nedlloyd Rochester. With the addition of the new Ro/Ro vessels and three new multi- purpose carriers (MPC) to the Nedlloyd fleet, the company's cargo capacity on its U .S. /Middle East run will have increased by more than 150$. e. alien brown international, inc. customhouse brokers/freight forwarders IU«mi)» M ITVlCe IN THt IOUTX The company will have a total of four new MPC vessels joining its fleet this year. They include the M/S Nedlloyd Bahrain, Baltimore, Bankok, and Barcelona, the first three of which will be assigned to U.S. /Middle East routes. The new ships will be among the largest multi-purpose vessels afloat; each equipped with twin cranes, derricks and heavy lift gear with a capacity of 225 tons. This fleet expansion will permit one Ro/Ro sailing per month and one MPC sailing per month. "Our fleet moderni- zation program is but a part of the total picture changes we have made," J. Van Baarle, President of Nedlloyd, Inc., said. "Nedlloyd, with its major agents, Strachan Shipping Co., in the Gulf, and Lavino Shipping Co., in the North Atlantic," he stated, "are expanding our respective staffs in order to provide more personalized service." Nedlloyd, Inc., a wholly owned subsidiary of the Nedlloyd Group, is North American general agents for Nedlloyd Lines, Rottedam. Nedlloyd, Inc. recently completed a major reorganization to streamline its service to the shipping public. The Rotterdam based parent, Nedlloyd Lines also reorganized and expanded its staffs throughout the Middle East. New offices, staffed by personnel from Holland, have been opened in Saudi Arabia, The Emirates, in Iran, and in other countries. Mlnl-brldge. Effective January 27, Nedlloyd Lines began offering West Coast shippers a mini-land bridge service to the Middle East. Utilizing railheads at Los Angeles, Oakland, Portland, Richmond and Seattle, cargo will be loaded at the port of Houston for Jeddah, Dubai, Damman, Kuwait and Bandar Shahpour N.Y.K. LINE JAPAN *****" aORIDA Monthly Express Service JACKSONVILLE • MIAMI PORT EVERGLADES • TAMPA MO J I • KOBE • NAGOYA SHIMIZU • YOKOHAMA SOUTHEASTERN MARITIME COMPANY JACKSONVILLE (904) 353-8201 TWX: 810-827-5360 2701 Talleyrand Avenue P.O. Box 1604 Jacksonville, Fla. 32201 MIAMI (305) 374-2834 Teletype: 51S687 1107 Chamber of Commerce Building 141 Third Avenue NE Miami, Fie. 33132 RLUTTE, GREEN & CO. OF TAMPA Pfc^ne at-0a01 Dock: 22»-1*5f 315 Metfeon Street. Temp*. We, AMERICAN SHIPPER: FEBRUARY 1979 43 1470 ECONOMIC IMPACT OF WATERBORNE SHIPMENTS VIA PANAMA CANAL The Atlantic and Gulf Coast Ports of the United States handle approxi- mately 66.5 million long tons annually which are routed through the Panama Canal. The potential loss of income and employment within the hinterlands of these ports, due to diversion of cargo flows, is estimated to total $4.7 billion representing 110,838 jobs annually. 1 Nearly sixty percent of the impact will be felt among the ports of the Gulf Coast which handle nearly 40.0 million long tons annually while the North Atlantic and South Atlantic Coasts account for 37.3 and 3.1 percent respectively. The annual tonnages, direct and total dollar input ; and employment impact figures are presented by U.S. Coastal range as shown be- low. WATERBORNE SHIPMENTS VIA PANAMA CANAL ECONOMIC IMPACT SUMMARY BY U.S. COASTAL RANGE NORTH SOUTH GULF IMPACT MEASURE TOTAL ATLANTIC ATLANTIC COAST Long Tons (1,000) 66,503 24,780 2,075 39,648 Direct Impact ($ millions) 2,926 1,090 91 1,745 Total Impact ($ millions) 4,682 1,745 146 2,791 Employment (Persons) 110,838 41,295 3,456 66,079 Percent 100.0 37.3 3.1 59.6 ^Based on economic impact per ton figures developed by the New York/New Jersey Ports authority under contract with MARAD. Mr. Hubbard. And now, Mr. Prior? Mr. Prior. I would like to sbmit my written testimony for the record. [The following was received for the record:] Statement for Panama Canal Subcommittee, House Committee on Merchant Marine and Fisheries, on Behalf of the South Atlantic and Caribbean Ports Association by W. Don Welch, South Carolina Ports Authority Thank you, Mr. Chairman. I am here today on behalf of the South Atlantic and Caribbean Ports Association. The Association represents major public and private terminals from North Carolina south, including the public ports authorities in North Carolina, South Carolina, Georgia, the Atlantic Coast of Florida, and the Virgin Islands. The ports in the South Atlantic range approach the question of the Panama Canal Treaty Implementation from a unique perspective. Our ports serve an area which has for generations lagged behind the rest of the nation in industrial develop- ment. Per capita income, employment opportunities, and educational levels still stand considerably behind other regions. Our region is made up of economically developing states, striving to improve the opportunities available to their citizens. Port developments by the public ports authorities in the South Atlantic states have been part of the overall economic improvement strategy for the region. Port 1471 facilities, funded by public capital, have been seen as major attractors of industrial investments. For example, in South Carolina, more than $6.3 billion has been invested in new or expanded industry since 1970. A substantial portion of this has been "reverse investment" by foreign-based firms engaged in manufacturing linked to international trade and using our ports. As a result, South Carolina while it ranks very low in the total capital invested in manufacturing, holds seventh place nationally in the total number of plants built with "reverse investment" capital. In recent years, ports in the South Atlantic have generally concentrated their investments in facilities to handle containerized cargoes. This decision recognized the exceptional manner in which containerization serves high value commodities associated with manufacturing. Investment in containerization pays high returns in terms of the impacts of the regional economy, South Carolina has invested over $92 million in its ports, more than one-third in container facilities. An additional $58.5 million is in process now, almost all for containerization. The results of this invest- ment on our state have been charted by economists at the University of South Carolina in a study just completed. This study identifies more than 42,000 jobs linked to port activities and port associated manufacturing. The statewide dollar value of this port impact is set at $1.3 billion. It is important to emphasize that throughout the South Atlantic range these capital investments in ports come from the state and local governments with no federal assistance. Yet the federal govern- ment is one of the principal beneficiaries. For example, it carries out of Charleston more than $120 million annually in customs receipts. Outside the maritime community, little of the discussion on the Panama Canal Treaty has recognized that America transcontinental rail system presents a compet- itive transit mode to the canal, especially for containerized cargoes. The land-bridge, mini-bridge and the developing micro-bridge routings could compete with the canal both in cost and transit speed; generally the mini-bridge routings, which are priced at the all-water rate, are competitive even now. Theoretically, this potential compe- tition could be expected to create an economic force that would keep canal tolls from reaching outrageous levels. However, if forces other than cost factors are allowed to dominate the toll setting decisions, tolls could reach a point where they seriously discourage the flow of traffic. For many commodities, the canal could quickly become just as dead as if it had been closed by an act of war. At what point would that occur. The Port of Los Angeles has produced an economic analysis that supports Dr. Brandes' findings. Their study forecasts that substantial increases in tolls could produce a dramatic shift in trade patterns. Without a very detailed study, it is impossible to say with assurance which ports would gain or lose from this shift. But it is widely accepted in the port industry that the diversion of traffic would precipitously change the relationship between ports, leading to unemployment, under-utilized facilities and inability to pay off indebted- ness. Our statistics show that 500 of the 1,400 ships calling annually at our Ports Authority facilities in Charleston transit the canal. These ships carry close to 25 percent of the tonnage moving through our Charleston facilities. Thus the business moving through the canal would account for approximately 1,200 jobs in local port industry. Similar levels of involvement exist in the other South Atlantic ports. In this light, the Long Understanding to the Treaty takes on heightened impor- tance. The Understanding provides a basis for assuring that toll adjustments under the treaty give full consideration to the effects on the trade patterns of both the United States and Panama. This would include consideration of the relation of the canal to other means of transportation, such as the land-bridge. In addition, it would provide for an evaluation of the impacts of toll increases on various geograph- ical areas of both nations. To keep faith with the Long Understanding, the Implementation Legislation must contain provisions like those in Congressman Murphy's bill requiring advance publi- cation and public hearings on toll changes. During the debate on ratification of the treaty, advocates frequently forecast that the treaty would not result in outrageous or crippling toll increases. Advocates often cited a maximum figure of 30 percent. For this reason, Congress should take the opportunity of this Implementation Legislation to establish a reasonable limit of 27 percent of the tolls in effect on January 1 of this year as the interim toll adjust- ment, with an annual limit thereafter of 11 percent under normal circumstances. The most important element in this Implementation Legislation concerns Con- gressional oversight of the organizations that make decisions on the canal. For too long, the economic impacts of changes in the status of the canal have taken second or third place to other elements of the national interest. The Bill proposed by the Administration would assure continuation of that practice by which agency bureau- 1472 crats alone make up the United States representation on the Panama Canal Com- mission. Congressman Murphy's bill which makes the Secretary of Defense, or his designee, the only United States official on the Commission would help to solve this problem. It is also absolutely necessary to provide, as H.R. Ill does, for Senate confirmation of Commission members. The provision for Senate confirmation will help to assure that adjustments in tolls take into consideration impacts on interna- tional commerce. We also believe that U.S. Commissioners should also include representatives of users of the canal, along the lines proposed by Mr. Haar on behalf of the Gulf and Atlantic ports. The advocates of the Panama Canal Treaty advanced it on the grounds that our nation's foreign policy must be open and compassionate. But the most compassion- ate thing a government can do for its own people is assure each person the opportunity for a worthwhile and productive job. In the South Atlantic region we have made international commerce a major supplier of jobs. In the Implementation Legislation, Congress has the opportunity to keep faith with the citizens in our region, and elsewhere, whose jobs depend on the trade moving through the Panama Canal. To accomplish this, we need, at the very least, protection from unreasonable toll increases, Congressional oversight of Canal operations, and Senate confirmation of Commission members. Mr. Prior. I am here today on behalf of the South Atlantic and Caribbean Ports Association. This association represents the major public and private terminals from North Carolina south, including the public ports authorities in North Carolina, South Carolina, Georgia, the Atlantic coast of Florida, and the Virgin Islands. The ports in the South Atlantic range approach the Panama Canal Treaty implementation discussion from a unique perspective. Our ports serve an area which has for generations lagged behind the rest of the Nation in industrial development. Per capita income, employment opportunities, and educational levels still stand considerably behind other regions. Our region is made up of economically developing States striving to improve the opportunities available to their citizens. The port developments by the public ports authority in our area have been part of the overall economic development strategy and improvement effort for our region. Those efforts have been very successful. For example, in South Carolina more than $6.3 billion has been invested in new or expanded industry since 1970. A substantial portion of this has been reverse investment by foreign- based firms dependent on our ports for their commerce. And as a result, South Carolina, while it ranks very low in the Nation in terms of total capital invested in manufacturing holds seventh place nationally in reverse investment capital in manufac- turing. In recent years, the ports in the South Atlantic have tended to concentrate their investments in facilities to handle containerized cargoes. The reason for that, containerization tends to serve most effectively the high value commodities associated with manufactur- ing. Right now we have $58.5 million in construction projects going on at our port, almost all for containerization. The impact of this activity is very high in our State. A recent study by the University of South Carolina showed it had a dollar value of $1.3 billion and has identified 42,000 jobs linked to port activities and port associated manufacturing. It is important to note that these impacts come almost entirely from local public investment by States or municipalities. The Fed- eral Government has put very little into it. Yet the Federal Gov- 1473 ernment is one of the principal beneficiaries. It carries out of Charleston more than $120 million annually in customs receipts. I will not go into some of the discussions already presented to you about the impacts of canal cargo increases, total increases on the movement through the canal. But I should say it is very widely accepted in the port industry that substantial diversions of traffic would occur, especially in containerized cargo. This would produce precipitous changes in the relationships between ports, lead to unemployment, underutilized facilities, and inability to pay off public indebtedness. Moving the containerized cargoes out of the canal would have the effect of leaving the lower value cargoes, the ones that are least able to pay, to pay the higher tolls. In our area, for example, construction has recently begun on a $400 million aluminum proc- essing plant which is designed and dependent on the canal for movement of 400,000 tons of alumina each year. It would have no alternative but to pay the high tolls. In our area, statistics show 500 of 1,400 ships calling on our facilities move through the canal. These ships carry close to 25 percent of the tonnage moving through Charleston facilities. Twelve hundred jobs are directly re- lated here. Similar levels of involvement exist in other South At- lantic ports. To keep faith with the Long understanding to the treaty, the implementation legislation must contain provisions like those in Congressman Murphy's bill requiring advance publication and public hearings on toll charges. During the debate on the ratification of the treaty, advocates forecast that the treaty would not result in outrageous or crippling toll increases. They cited a maximum figure of 30 percent. The totals must be kept within that line. The most important element, however, in the implementation legislation concerns congressional oversight of the organizations that make decisions on the canal. For too long, the economic im- pacts of changes in the status of the canal have taken second or third place to other elements of the national interest. The bill proposed by the administration would assure continuation of that practice by which agency bureaucrats alone make up the U.S. representation on the Panama Canal Commission. It is absolutely necessary to provide, as H.R. Ill does, for Senate confirmation of Commission members. This provision will assure that the adjustments in tolls will take into consideration impacts on international commerce. The advocates of the Panama Canal Treaty advanced it on the grounds that our Nation's foreign policy must be open and compas- sionate. But we must assure each person the opportunity for a worthwhile and productive job. In the South Atlantic region we have made international commerce a major supplier of jobs. In the implementation legislation, Congress has the opportunity to keep faith with the citizens in our region and all throughout the United States whose jobs depend on the trade moving through the Panama Canal. To accomplish this we need, at the very least, protection from unreasonable toll increases, congressional oversight of canal operations, and Senate confirmation of Commission members. And I hope the legislation you adopt will address these concerns. 1474 Thank you for the opportunity. Mr. Hubbard. Thank you very much Gregory Prior, assistant executive, Port of Charleston. Mr. Hubbard. Mr. Lidinsky? Mr. Lidinsky. Yes, sir. I want to thank Congresswoman Mikulski for her excellent intro- duction and Congressman Bauman for his continued interest and support. As the Congresswoman said, our organization represents the major public and private port authorities and terminal opera- tors from Maine to Virginia to include the world ports of Boston, New York, Philadelphia, Baltimore, and Norfolk, and numerous other smaller ports. With me today is Mr. G. Fred DiBono, Jr., president, Philadel- phia Port Corporations, and William Hughes, Esq., associate city solicitor from Baltimore City, representing our mayor, William Donald Schaefer. The Panama Canal Committee was formed by special resolution at the NAPA semiannual meeting in December 1978. The member- ship felt it imperative that Congress be aware of the potential impact of the implementing legislation on the North Atlantic port range. However, we want to stress at the outset that our concerns are not regional. It is in the general national interest for the canal to remain a viable mechanism for the movement of domestic and foreign commerce. Since the treaties have been ratified, we recognize that the United States has certain legal and moral commitments to Panama, but we also feel vessel owner confidence in future use of the canal must be maintained. To that end we have joined with interested ports from Minnesota to Texas, in a Great Lakes-Atlan- tic-Gulf coalition and we are pleased to inform you that organiza- tions such as the International Longshoremen's Association, AFL- CIO, and the Great Lakes Terminals Association fully support our position, while others such as the Council of North Atlantic Ship- ping Associations — CONASA — and the Japanese Shipowners Asso- ciation endorse our general goals. We have analyzed the two major pieces of Panama Canal imple- menting legislation — H R. 1716, which was introduced on behalf of the administration, and H.R. Ill, sponsored by Congressman John M. Murphy of New York and other members of the Merchant Marine and Fisheries Committee. Particular attention was given to chapters 1 and 2, title II of H.R. 1716 and Chapters 1 and 10, title I of H.R. 111. Our analysis leads us to support H.R. Ill, because that bill better fulfills our treaty commitments and yet provides for contin- ued user confidence in the canal. We do believe, however, that certain amendments in Commission selection procedures, tolls, and congressional oversight areas are necessary: Furthermore, we oppose section 412(b), which will require the recovery of interest and amortization of past capital improvements. My testimony will focus on proposed amendments to H.R. Ill and H.R. 1716, and simultaneously respond to questions 3, 4, and 5 posed by the committee. These questions request comment regard- ing: 1475 Our suggestions as to the type of tolls structure that will be appropriate under the regime to be established in the Canal Treaty implementing legislation; Our views as to the merits of the provisions in H.R. Ill and H.R. 1716 relating to procedures for tolls adjustments and changes in measurement rules; and How should the concerns of the ports and the maritime interests of the United States be reflected in the decisionmaking structure for canal matters? Attached to this testimony is a compendium of materials which is relevant to our interest in this area. I would request it be made part of the record. [The following material was submitted for the record:] 1476 APPENDIX A FEDERAL MARITIME COMMISSION WASHINGTON. D.C. 20573 May 8, 1978 TAR-F:34-IRCM Richard A. Lidinsky, Jr., Assistant Director of Transportation Maryland Department of Transportation The World Trade Center Baltimore Baltimore, Maryland 21202 Dear Mr. Lidinsky: my o 9 ^b This is in response to your letter of March 29, 1978, pertaining to your preparation of an analysis and possible amendments relative to the implementing legislation for the Panama Canal Treaties. In order to assist you in establishing an average figure covering rate increases for canal tolls we have compiled the following statistics. The currency surcharge average adjustment increases for the period 1977 to current 1978 was 4.2 percent. The average percent of bunker surcharge amounts established during the period January 1, 1977, to the present time is approximately three percent. The average general rate increases covering all conferences and rate agreements amount to 13.6 percent. The Commission in the past has expressed its views relative to increased canal tolls by stating that if it is determined that valid operating expense factors justify the charges, it would not interpose any objection to an increase. Further, the Commission is very cognizant of the fact that technological changes have developed in international transport services which competes landbridge with the all-sea services via the Panama Canal. Various shipping lines, as you are aware, have filed joint tariffs with the Commission which contain through intermodal rates that utilize rail and truck service over the United States. Any increased expenses, which are applied via the all-water route through the Canal, might cause a diversion of cargo to the mini-bridge/landbridge service. This, of course, could effect the overall cargo that would move through the Port of Baltimore. The Commission is maintaining a continual sur- veillance over this problem as it effects all United States ports that handle Panama Canal cargo. 1477 It is hoped that the above information and comments will be beneficial to you. If we can be of any further assistance, please let us know. Sincerely yours, Edward F. Hawkins, Chief Office of Tariffs & Intermodalism Bureau of Compliance 1478 IMPORT FAR EAST MINI BRIDGE AND ALL WATER GENERAL CARGO TONNAGE (IN SHORT TONS) EASTBOUND CARGO IN BOND IN SHORT TONS • CUSTOMS DISTRICT NEW YORK PHILADELPHIA BALTIMORE HAMPTON ROADS 4 PORT TOTAL 1977 281,238 57,479 74,424 50,198 463,339 1976 175,046 42,404 46,877 34,181 298,508 1975 100,523 22,775 21,521 18,828 163,647 PERCENTAGE CHANGE 1977/1976 PERCENTAGE CHANGE 1977/1975 +60.7 +179.8 +35.6 + 58.8 +46.9 +152.4 +245.8 +166.6 +55.2 +183.1 ALL WATER CUSTOMS DISTRICT NEW YORK 1977 1,244,605 1976 1,308,103 1975 518,273 IMP01JT GENERAL.CARGO * PHILADELPHIA BALTIMORE HAMPTON ROADS 4 PORT TOTAL 184,596 275,717 53,694 1,758,612 162,365 270,432 66,5b7 1,807,487 150,994 213,254 67,722 1,350,243 1977 1976 1975 PERCENT OF EASTBOUND CARGO TO TOTAL GENERAL CARGO 22.6 31.1 27.0 93.5 13.4 26.1 17.3 51.3 10.9 15.1 10. 1 27.8 26.3 16.5 12.1 * TOTAL CARGO LESS BULK COMMODITIES, WOOD PRODUCTS, IRON AND STEEL PRODUCTS, AND TRANSPORTATION EQUIPMENT FROM JAPAN - Prepared by Delaware River Port Authority, 1978 1479 Fundamental changes now taking place in the distribution pattern of waterborne liner cargo will have a major effect on the future develop- ment of each United States port. Liner cargo, as opposed to tramp, irregular or tanker services, places a much greater demand upon all port services and, by the same token, contributes more to the prosperity of the port. Liner exports consist predominantly of manufactured or processed products and materials. The largest single source for these products in the Western Hemisphere is the great "Heartland" of the North American continent — an area consisting of the North Central states of the U.S. and the province of Ontario in Canada. This is the area whose entry ports have been changing and will continue to change. The entire trade to and from this area is subject to diversion and rapid changes of distribution pattern. The area is highly reactive to new methods. improved service, lower costs and more efficient methods of transport and distribution. Imports for process- ing and fabrication to be used in manu- facturing will have the same distribu- tion pattern as the exports. Imports for consumption will be distributed more on the basis of regional income levels. Imports for the Heartland will be drawn to the same services and facilities developed to attract the exports. Summary of changes From 1970 to 1977, the ports of the North Atlantic, Culf and the Great Lakes lost 6.8 million long tons of liner cargo. During the same period the Pacific ports gained nearly 4 million long tons. The ports of the South Atlantic gained 623,000 long tons. Stated percentagewise, the loss of the North Atlantic, Gulf and Great Lakes ports amounted to 2 1 .5 percent of their total 1970 liner cargo while the Pacific ports increased their liner cargo traffic by nearly 54 percent. The trade from South Atlantic ports increased nearly 16 percent. This constitutes a drastic change in the pat- tern of distribution for liner cargo and indicates that strong forces are at work. There are several forces at work to cause these changes. The tirst ot these involves basic demographic changes. A major shitt in population has been taking place for some time More factories are opening Jtiu\ expanding in the South Central and Pacific areas than in the Middle West and North East regions, it this were the sole Liner cargo changing patterns JOHN R. IMMER determinant, however, the Gulf and South Atlantic ports should have had the greatest increase during this period. This did not happen because of another factor. The Gulf ports de- layed too long in setting up the port structures required for containerization and it will take some doing to catch up. Perhaps the most important single force in causing these changes has been the impact of the railroads. Piggyback is most efficient at greater distances, thus its growth minimizes the negative aspect of distance and makes the far-distant port more competitive with the nearer port. Shorter distances tend to be served more by truck than by rail, hence increasing labor costs caus- ing immediate . truck rate increases which favor the distant port over the nearer port in the long run. A part of this picture is the aggressiveness of the Western and Canadian railroads and the shambles of the railroads con- necting the Middle West with the North Atlantic and Gulf ports. There is a correlation between the success of the Southern and Family Railways and the growth of traffic through the South Atlantic ports. Changes in the Great Lakes traffic have been due to the fact that shipping companies have begun to realize that it takes longer to go from Mon- treal to Chicago than it does from Halifax to Liverpool. This reduces the round trips per year and the total ton- nage a ship can transport per year. Work Saving International showed in l°o2 that liner cargo could be car- J I // L John R. Immer is president of Work Saving International, management consultants of Washington, D.C. and chairman of the board of Caribe Trailer Systems, Inc. He is the author of "Container Services of the Atlantic" and other books on cargo handling and in- dustrial management. ried more cheaply by rail from Chicago to Halifax than it could be carried by water. This study resulted in the development of Halifax as a container port and the formation of the Dart Containerline. The character of the total services of a port has facilitated or stimulated changes in the traffic patterns. In the past, traffic patterns have tended to remain rigid. Strikes and arbitrary labor conditions encourage companies to try new routes, new ports and new shipping services. Once tried, some- 'times they like the new route better and a permanent traffic change has occurred. Such conditions have hurt Boston and New York particularly and do not seem likely to change. Im- provement in container handling and processing through the port is more likely to occur in Southern and West- ern ports which will cause the trend toward those ports to continue. Changes in exports The regional changes in the volume of exports of liner cargo from 1970 to 1977 are summarized in Table I. This table is based upon the specific tonnage figures for each major port as shown in Table III. Total liner ex- ports declined for the period from 28.875.000 long tons to 25.19P.000 long tons, a decrease of 3.676.000 AMERICAN SEAPORT: December 1978 11 44-394 O - 79 - pt. 2 1480 ; tons or 12.7 percent. The North intic. Gulf and Great Likes regions tost 4.8 million long tons and the Pacific ports increased their output by 2.0 million tons. North Atlantic. Between l c »70 and 1977 the North Atlantic ports lost nearly 20 percent of their total export liner cargo. This was a loss of 1.6 million long tons. The greatest loser was New York City which found its share of the total export pie reduced from 14.4 percent to f"3.2 percent. With the exception ot Newport News the other ports retained or slightly in- creased their share of the tr.it tic. Most of New York City's loss was probably to the western or to the Canadian ports with a small amount southward. South Atlantic. The South Atlantic ports increased their share by 22 per- cent. Total liner exports increased from 2.1 18.000 long tons to 2.586.000 long tons, an increase of 4oS,000 long tons. This increase could have been due almost entirely to the growth of in- dustries in the South Central and South Atlantic states with a small amount diverted from the more northern ports. Gulf Ports. The Gulf ports suffered the greatest loss of any region. Their liner exports in 1970 of 8.653,000 long tons dropped to 5,915.000 long tons in 1977, a loss of 2.741.000 long tons or 31.6 percent. By far the great- est part of this loss is believed to have resulted from the diversion of manu- factured cargo from the Heartland to the West Coast. The loss was also caused by the failure of the Gulf ports to provide adequate cranes and equip- ment for the increased use of van size containers. Also, a lack of pro- motional effort, on the level of the West Coast and Canadian ports and railroads, contributed to the scale of the loss. South Pacific. The South Pacific ports had the greatest increase in liner ex- ports. Their liner exports increased from 2,844,000 long tons in 1°70 to 4.282,000 long tons in N77. an in-, crease of 1.438,000 long tons or 50 percent. Although there was some increase in local manufactures during this period, the greatest part of the increased trade is believed to have come from the North Central states. North Pacific. The North Pacific ports had the same percentage of increase in liner exports from l l >70 to l<977 as the Region I North Atlantic South Atlantic Cult Port. Smith Pacific North Pacific Crcal Lakes Change in 1,000 Long Tons % Change in Change in % of Volume Total -1.645 - 19.3 - 2.3 + 468 + 22.1 +3.0 - 2.738 -31.6 -6.5 + 1.438 + 50.1 +7.2 + 492 + 49.6 + 2 5 - 470 -63.9 -1.5 Source: Tabic HI TABLE III U.S. WATERBORNE EXPORTS - LINER CARGO -",;' I Bnrr.il. ot Iht G..S..S. SA 705 (1.000 Long Tom) 1 Region Percent Percent Percent 1 of of of Total § Port 1970 Total 1974 Total 1977 NORTH ATLANTIC I Boston 110 .4 149 .5 118 .5 New York City 4.168 14.4 4,860 17.3 3.319 13.2 It Philadelphia 670 2.3 879 3.1 S39 2.1 || Baltimore 1.639 5.7 1,828 6.5 1.529 6.1 1| Norfolk 1,278 4.4 1.249 4.4 1.060 4.2 § % Newport News 472 1.6 211 .8 127 .5 1 TOTAL * 8,337 28.9% 9,176 32.6% 6.692 26.6% ^ SOUTH ATLANTIC B | Wilmington. N.C. 85 .3 110 .4 165 .7 | Moorehead City, N.C. 167 .6 78 .3 83 .3 1| Charleston 402 1.4 709 2.5 807 3.2 I Savannah 932 3.2 997 3.5 903 3.6 f§ H Jacksonville 238 .8 162 .6 234 ■9 1 Miami 210 .7 338 1.2 296 i.2 k San )uan 84 .3 174 .6 98 .4 §1 TOTAL 2,118 7.3% 2,568 9.1% 2.586 10.3% § GULF PORTS 1 Tampa 1,007 3.5 285 1.0 289 1.1 11 Mobile 654 2.3 525 1.9 313 1.2 1 New Orleans 3.632 12.6 3.477 12.4 2.681 10.6 1 Port Arthur 163 .1 182 .6 136 .5 m Beaumont 380 1.3 189 .7 36 . i 1 Houston 2.088 7.2 1.859 6.6 1.990 7.9 i Galveston 729 2.5 593 2.1 470 1.9 § TOTAL 8.653 30.0% 7,m 25.3% 5,915 23.5% If SOUTH PACIFIC H San Diego 138 .5 157 .6 10 — i H Los Angeles 996 3.4 1.187 4.2 1.294 5.1 j| 1 Long Beach 405 1.4 974 3.5 1.055 4.2 | U San Francisco 593 2.1 795 2.8 362 1.4 | | Oakland 621 2.2 953 3.4 1.549 6.1 1 & Alameda 91 .3 41 .1 12 — 1 TOTAL 2.844 9.8% 4.107 14.6% 4,282 17.0% 1 NORTH PACIFIC i Portland 556 1.9 516 1.8 526 -•• i Seattle 435 1.5 709 2.5 957 i.S 1 TOTAL 991 3.4% 1.225 4.3% 1.483 5.9 % i .GREAT LAKES i Milwaukee 198 .7 94 .3 129 .5 | Polroit 111 .4 33 .1 32 .1 | Chicago 427 1.5 130 .5 105 •4 | TOTAL 736 2.5% 257 .9% 266 1.0% $i TOTAL ABOVE PORTS 23.P-9 24.443 21.224 i TOTAL U.S.A. PORTS 2"».»75 28. 1 1 3 25.I** Listed Ports % of U.S. 82.0% 80.5 % 84.2% 1 < x - x . sx < „ - *■ i ^^^SsSfir'Sc^-ssaagj^s^ 12 AMERICAN SEAPORT: December 1978 1481 ■ - mz&mw- s : ■; ■ ' ..■:;■* « ■ :«*><« mmm m -n- > : ms - s^&m™- «gs? •*; MBit JJ REGIONAL CHANGES IN VOLUME OF LINER IMPORTS 1970-1977 i Region Change in 1.000 Long Tons Change in Volume Change in %of 1 Total 1 North Atlantic g South Atljntic f Gulf Ports f South Pacific 1 North Pacific ICrcJt Lakes - 1.011 + 155 - 123 + 1.-W5 + 53° - 732 - 10.3 + 8.6 - 4.1 + 52.5 + 7O.0 -70.1 -5.2 I + .6 ;« 1 + - 7 i - 3 5 Source Tabic IV. TABLE IV >■■ mmmmm^i U.S. WATERBORNE IMPORTS -LINER CARGO 8ic.ii. i>/ the Ctmui. SA i05 1 1.000 LrngTm ; Region Percent of Percent of Percent 1 of Port 1970 Total 1974 Total 1977 Total I | NORTH ATLANTIC Boston 505 2.4 340 1.5 270 1.3 i New York City 6.350 30.2 6.392 28.5 5.740 27.0 | i Philadelphia 1.203 5.7 932 4.2 600 ill H Baltimore 1.180 5.6 1.786 8.0 1.253 Norfolk 536 2.5 802 3.6 892 Newport News 44 .2 44 .2 53 M TOTAL 9,818 46.6% 10.2^6 45.9% 8.808 g SOUTH ATLANTIC §;j Wilmington. N.C. 236 1.1 208 .9 240 1.1 § MooreheadCity, N.C. 17 .1 218 1.0 2 — $ s| Charleston 346 1.6 422 1.9 463 2.2 I Savannah 370 1.8 586 2.6 564 2.6 & Jacksonville 252 1.2 272 1.2 206 10 | jp Miami 169 .8 280 1.2 254 1.2 p San Juan 413 2.0 307 1.4 229 1.1 % TOTAL 1,803 8.6% 2.293 10.2% 1.958 9.2 •• i | GULF PORTS ft 11 Tampa 195 .9 177 .8 62 j 1 Mobile 288 1.4 453 2.0 167 8 1 i New Orleans 1.461 6.9 1.656 7.4 1.495 1.0 1 Port Arthur 5 _ 1 _ 19 1 *l Beaumont 13 .1 1 — 16 i 1 Houston 974 4.6 1.670 7.4 1.017 Galveston 101 .5 177 .8 138 • 6 1 TOTAL 3.037 14.4% 4.135 18.4% 2.914 13.7% § SOUTH PACIFIC 1 San Diego 51 .2 25 .1 6 _ 1 Los Angeles 1.243 5.9 1.371 6.1 1.730 8.1 1 Long Beach 5c>6 2.7 923 4.1 1.304 6.4 I 16 If jo § San Francisco 580 28 400 1.8 348 Oakland 2°5 14 555 2.5 853 Alameda 112 .5 115 .5 41 2 1 TOTAL 2.847 13.5% 3.389 15.1% 4.342 20 4 '" NORTH PACIFIC I Portland 218 10 243 11 153 .7 fl Seattle 45o 20 o25 2.8 1.0o3 5.0 1 TOTAL C-77 30- 808 J.O'I 1.210 ^ GREAT LAKES Milwaukee 116 .6 > 2 1 }7 k Detroit 450 2.2 97 .4 102 s Chicago 4oO 2 2 131 173 8 1 TOTAL 1 044 5.01 2o0 1.21 312 1 SI I TOTAL ABOVE PORTS I* 2:0 21241 \».^0 : >s i 1 TOTAL U.S.A. PORTS :i ivi 22 445 21. 2^4 t 1 Listed Ports ". of U.S. o; 4 - 040 •. ■an ■ South P.icific ports. Their l°?0 liner exports increased from °»>I,000 to 1.483,000 long tons in 1^77, an in- crease of 4°2.000 long tons or 50 per- cent. Practically all ol this increase is believed to have come from the North Central states, traffic which formerly went south or east or through Great Lakes ports. Changes in imports The regional changes in the volume of imports of liner cargo from I°70 to 1977 are summarized in Table II. This table is based upon the tonnage from the various major ports shown in Table IV. Total liner imports remained about the same during this period However, there was a considerable change in the share of the various regions. This change, for the most part, followed the pattern for exports. .North Atlantic. Between 1970 and 1977 the North Atlantic ports lost 10 percent of their import liner cargo. Im- ports declined from 9.818.000 long tons to 8,808,000 long tons, a loss of 1.010.000 long tons. New York City declined by 10 percent but Phila- delphia dropped to one half of its 1970 rate. Baltimore and Norfolk managed to increase their import liner cargo slightly. South Atlantic. During this period. the South Atlantic ports increased their liner imports by 8.6 percent, in- creasing from 1,803,000 long tons in 1970 to 1,958,000 long tons in 1977. Charleston, Savannah and Miami in- creased their imports while Jackson- ville and San Juan fell behind. This increase for the region was in line with the growth of income for the region for the period. Gulf Ports. The Gulf ports had only a small loss in imports, about 4 percent, compared to its loss of exports for the period of 31.6 percent. Perhaps this was due to the fact that in 1970. im- ports were only 35 percent of the level of its exports so there was less to lose. This may also be due to the possibility that imports for the North Central area historically came through North Atlantic or Great Lakes ports. Hence the diversion of traffic would have been more to Canadian and Pacific ports. South Pacific. Liner imports through South Pacilic ports increased nearly 1.5 million long tons, from 2.847.000 long tons to 4.342.000 long tons tor an increase of 52.5 percent. As total n'li/i/nifi/ I'll 4'' AMERICAN SEAPORT: December 1978 13 1482 SEA-LEVEL CANAL STUDIES HEARINGS BEFORE THE SUBCOMMITTEE ON THE PANAMA CANAL OF THE COMMITTEE ON MERCHANT MARINE AND FISHERIES HOUSE OF REPRESENTATIVES NINETY-FIFTH CONGRESS SECOND SESSION ON H.R. 10087 A BILL TO PROVIDE FOR AN UPDATING OF THE REPORT OF THE ATLANTIC-PACIFIC IXTEROCEANIC CAXAL STUDY COMMISSION H.R. 13176 A RILL TO PROVIDE FOR AN UPDATING OF THE REPORT OF THE ATLANTIC-PACIFIC IXTEROCEANIC CANAL STUDY COM- MISSION AND FOR THE ESTABLISHMENT OF A JOINT UNITED STATES-PANAMA SEA-LEVEL CAXAL STUDY COMMISSION, AND FOR OTHER PURPOSES JUNE 21, 27, 28, 1078 Serial No. 95-51 Printed for the use of the Committee on Merchant Marine and Fisheries 1483 Panama Canal Revenues Millions of dollars 170 1970 1972 1974 1976 Fiscal Yaara Source aMaroceanic Canal Studio. - 1970 and Panama Canal Co. 1978 1980 Panama Canal Tonnage Ton» of cargo, tin millions SOURCE: INTEROCEANIC CANAL STUDIES ^ -1970 and the PANAMA CANAL COMPANY . SOURCE; kn«roc«nc Csnsl Stud*a • 1970 and Panama I Panama Cnnal Transits Number of Transits, (in thousands) 20 19 18 17 16 15 14 13 , ^ ****' ,N^ *& t ^.-* 191 >*°£ >" ^* ^*-» »^^ (- .-»-"' ACTU AL TRAI VSfTS ^"^ \ \ \ .'. 1970 1972 1974 1976 1978 Fiscal Year* SOUOCX hl»roo»«T»c Can* Studa* • 1970 sod Prwm Can* Compwry. 1980 1484 w OS W H ft Eh ■ r-| Eh E< ft <* O S En h Eh Eh O U 2 ft Q h a a o o J Eh vovommOOror^-cn^o nH onHr^OcNi-H 0^n^mdON(DO>* CO <* C^ O rH ro H VO «tf xD H CN H CN r- in I s * ro (N CO CN C^ G> H <^ ro f- in H o ^f > ID 03 O O ^ co in cm t> H vo tDO^N'tO^lOO'it vDCNOOrousorord'^'O hO^HiOOffiidlOfn 10 CO a> lo (Ft rH rH ID r» ^r en r- CT> i> r-i r- CO CO CN o CO o rH o cn cr> ■sT ID rn CO o in co in vo vd oo *$ CO o O I s - (N (N H ^ (Nini-drOKDO^CriOvO t^Lnvx»mininrtcordi-i WO^CMiNnrgOroa)^ HCl>lOlOOO(NfOH O^DCNiniHCTir^CN«H/C0 (N Eh r^ CO •H in 00 h » C CO CO ^r 4-> T3 cr> er. a a iH V£) E O •> * tC K o co B in in o u to •T r- CO E IN rH X o p -p •H *» r» Eh •H -H < >h ■P •. ^ H iH U-i fH ""^ in Cm < *w h «3 u r» O Eh 2 Ch M-H r^ *— » •H O DO flj ^ -P CTi CO «H •H < H c H c «M «W CO Q) cn-p (0 «0 «M to Eh H tr> V-i co fH M 4-> u to o « > TJ to fO -P to Eh U •H O H ■HUW< 4-> Eh ■P c^ a h X U <1> •H £HU£ (0 Dt P fH CO u •H 10 ft -P P. X! •H n Eh 2 C Sh Pm P. fl CO •C •H 4J .G EH M -HO) 73 a P. 10 4-> W Eh S C (D 2 c c iH Xl a\ s ic 3 W H 0) £ ai •H a) •H r^ en < 00 D tf ■P U -P • H •—' TJ C ^r •H in r- SS P. CO id to •H «. iH «. 4J g £ -p c IH Q) (0 u CQ P. o 2 C o CO O CQ CO co CM fH 00 CM CO r- CN *» iH in o ID *r (N rH rH I s " CO in V C XI £ •H O ■P > fO •H S o O >i CO V-i 10 < to •H c > to 13 O < •H Vh < Q) Cm IS O O CO c o •H CO •H > •H a 0) E <* •h r~ 4J\ •h cr» VH (N (0\ S "H 1 Si S •\or">(Nini-n*y^r-- ictc 03 d Oir h co t vo «? © co cm r» nnaiNinoi in k* Cu -< fN r- 0(NOTOOOOC«TO(NVOeO\0«TrMOO. a o X C E .-< = f- 4J 10 O 1-1 1- C K PS 0^4 C o > o c u p z 0) O D o £ U T» < *J 1(1^-. w •a • o> w £ >K E 3-1 C > 10 o o c a> n e- p. a 0) io x: io •O ft. +J G) -U in M <0 X u H S u v c o 10 1 H E-. - o wc j: ■U C U Eh wac»i o c CO 3-0 £-< B K C 10 C C & 1 U-H A> 0> -H u > O -1 — < A (0 10 01 c u> au CO C3 C E < 0) -H M £ u > O 01 s -u u f^ro^j'0'-4C^oo\ONrvi— in v tf> vo vi OOMOOHntN VMINlflNOlOnM roof^cninrsip* *r cr> ^ \c c^ \© ^* o T(NVDOorMfMef\ovDrM^r^-tp»ooov£) OTTinr-fNCTvr-ien ^onoomo .-h r^ .-i tt cm en n oo MMneo ino\o\ lOTOVOff V»OC0 .-i in *r in I « O >. TJ 0J 10 £t >. OJ u a tj -h m E -a s -u O tH tJ^'H E N 01 4J E O-H C 0~* *H -U U E-H C «1F- 0) -1 10 C 3 (0 k< 0)UE -u E .E kl C 01 ki JJ *> -H -H k< «H C u. a c io o E J ki .e k. >« ■u a s ■ E O C) 2 • > < XI JC » . ■U O \C moicttiNi 10 0) o >,. *j c t *j io a 4J C C ki • tesoo •h io J a. . at v u u u o 3 0) SZ is an ao a c -c 10 c U • H C -h o C S) (0 ' -H c C 3 (7> S T> •* Oh a C -h C r. r. jz c o (0 -i t. S U K = £-< 10 3 "3 < 1493 Mr. Lidinsky. The North Atlantic and Far East trade accounts for one-third of canal traffic and revenue The economic impact of the canal on major North Atlantic ports is over $1 billion and nearly 40,000 jobs. Since the early 1970's this trade has been eroded by alternate land modes of service to shippers and consumers who previously exclusively used our ports. This is our primary concern and Chair- man Murphy articulated this concern when during the hearings last year on the sea-level canal study he stated that cargoes nor- mally flowing to the east and gulf coasts are, and will continue to be, very susceptible to the sensitivity of tolls due to the alterna- tives such as landbridge. Therefore, one can imagine our reaction when the Department of Commerce witness testified this past Feb- ruary 15 that they expect a toll increase of 44.4 percent. A recent article in the Harvard Law Review by William G. Hamlin, Jr., addresses our concern over the possibility of massive toll increases which could ultimately, in Mr. Hamlin's words: " * * * be to the detriment of United States consumers." As the author notes: "the Treaties deal with tolls in a relatively cursory fashion." This is of course odd, or perhaps revealing, since tolls and their revenues must provide the basis of healthy fiscal canal oper- ation for the next 21 years. Yet, this also seems to mirror the attitude of the administration on this issue. Last year during the ratification debate, east coast ports and others were assured by the State Department that any toll increases would not be harmful; moreover, they would have a negligible impact on overall shipping costs. Yet no supporting study or analysis was supplied to substantiate these claims. This nonchalant attitude on the part of the State Department has been further reflected in recent congressional correspondence in which suggestions for rate guidelines are dismissed as unnecessary. It was to be expected that in administration testimony supporting H.R. 1716, that toll stability and port concerns would be glossed over. In 50 pages of State Department testimony, only two passing refer- ences are made to canal toll problems. Obviously, the State Depart- ment does not consider these matters important. Yet this position is inconsistent with the inflationary guidelines so vigorously ap- plied by the administration in other areas. [See unanswered letter to Alfred Kahn from NAPA Panama Canal Committee, Jan. 29, 1979, appendix B.] Clearly, since H.R. 1716 addresses none of our primary concerns, we cannot support it. In light of the above, we turn to the Con- gress, particularly the House of Representatives, which was denied a role in the Canal Treaty ratification process last year. Prior to this time there was general recognition that both Houses of the Congress have an inherent and ongoing role in all phases of canal operation, as per the Panama Canal Co. v. Canal Line, Inc., 356 U.S. 309, 319 (1958). Adhering to that belief, the ports now seek your assistance, guidance, and direction in solving our problems with this legislation. Although our specific amendments to the administration and Murphy bills are attached— appendix C— of my statement they can be summarized as follows: 1494 (a) After allowing a substantial initial toll increase of no larger than 27 percent, an 11 percent per annum inflation ceiling on rate increases would then take effect, and could only be dispensed with by necessity to conform with the per annum Panamanian pay- ments provisions in article XIII (4)(b) of the treaty. These amendments to sections 412 and 414 of H.R. Ill and sections 231 and 232 of H.R. 1716, are our most important amend- ments. We are aware that many economists are fearful of rate ceilings or stated percentage limitations, feeling that the regulated entity will automatically seek the specified limit CONASA feels a 5-percent per annum limitation is needed. We do not share that fear for we assume that the new Commission will act in a fiscally responsible manner and that this amendment will be not only be a guideline to them, and an assurance to users that tolls will remain as stable as possible, going for long periods without any increase. We fully recognize and accept the fact that canal users and not the American taxpayer should bear the burden of canal operation. Our toll ceiling amendment will not deter that obligation. As an exam- ple of how the ceiling would work, let us assume the Commission would seek an increase of less than 11 percent. This increase request would not be automatic. Procedures for justification which I will outline in the oversight amendment would have to be fol- lowed to meet treaty obligations. The same procedures would have to be followed for an increase greater than 11 percent, but such an increase could only be sought to meet the treaty requirement of article XIII(4)(b)— the fixed annuity of $10 million. The toll ceiling limitation could be adjusted by Congress upward in the future if it were being continually surpassed to meet the obligations of treaty article XIII(4)(b), or reduced in the case that future toll increases proved minimal. (b) Insure that the House of Representatives retain a role in canal oversight through the year 2000. These amendments to sec- tion 413 of H.R. Ill and sections 230 of H.R. 1716 achieve that goal in two steps; the first step is to insure that the toll increase mechanisms in H.R. 1716 are amended to be generally similar to the procedures in section 413 of H.R. Ill; we then propose the second step of insuring that once such toll increase procedures are initiated, the need for the increase be analyzed and justified in light of the specific language of the "Long Understanding' ' to the treaty, the only port protective language in the documents. Any toll increase request would be reviewed by the appropriate commit- tees of the House and Senate. This review will allow the Congress a specific oversight role in the fiscal operations/toll increase area for the next two decades. (c) Make recommendations regarding the composition of the new Panama Canal Commission by continuing the tradition of private sector representation, with the exception of the Secretary of De- fense, serving on the Commission. Amendments to section 102 of H.R. Ill and section 205 of H.R. 1716 provide that private sector representation from the most dependent areas of our country on the canal — the Atlantic and Gulf States — as well as qualified per- sons from the American Merchant Marine and import/export fields, will have a chance to serve on the Commission. The adminis- tration bill is totally unacceptable in looking to high Federal offi- 1495 cials for Commission service and not providing Senate confirmation for these appointees. H.R. Ill does provide for the potential of private sector representation, confirmation of these appointees, yet has the necessary presence and direction of the Secretary of De- fense on the Commission. We also feel that stated successive 4-year terms would allow the development of expertise by Commission members, but would not tie a President's hands in making changes. We offer such a provision and agree with H.R. Ill that the Com- mission be a governmental entity, as well as the arrangement in section 105 of H.R. Ill for the consultative committee. The at- tached chart will simply illustrate the present differences in the Murphy and administration bills, with our amendments in the last column. [The material was included in the statement of Mr. Haar.] In conclusion, we feel that our amendments are consistent with the spirit and language of the treaty and are fair and reasonable. They can form the basis of amendments which would not only improve the final bill you approve, but enhance financial self- sufficiency of the canal under the terms of the treaty. Finally, our amendments would also protect a substantial and important part of our Nation in the implementing legislation, and thereby be in the national interest. We thank you Mr. Chairman, for this opportunity to testify. We offer our full resources and assistance to the committee to help assure satisfactory resolution of these important issues. Mr. Hubbard. Thank you, Mr. Lidinsky. We are now under a second bell on a quorum call in the House of Representatives. But we have 9 minutes to go. I would recom- mend we recess for 1 hour and come back at 1:30, and we should be able to complete today's hearing within about 45 minutes, an hour at the most. There are not many of us to ask you a lot of questions. And we have but two more, perhaps three more witnesses after we hear Mr. Brandes. Sorry about that. You were the only one not introduced, and you are the only one outstanding now. We will hear you at 1:30. Mr. Treen. Mr. Brandes, do you intend to summarize your state- ment? Mr. Hubbard. Can you come back at 1:30? Mr. Brandes. Yes, sir My statement is only IV2 minutes long. Mr. Treen. Mr. Chairman, are we going to ask questions of this panel before the other witnesses? Mr. Hubbard. Let us do that, yes. Mr. Treen. Good. I do have a number of questions I want to ask them. Mr. Hubbard. See you at 1:30. [Whereupon, at 12:35 p.m., the subcommittee recessed to recon- vene at 1:30 p.m., the same day.] AFTERNOON SESSION Mr. Hubbard. The Subcommittee on Panama Canal will now resume, recess being over. 44-394 O - 79 - pt. 2-42 1496 We will go ahead now and ask Mr. Brandes' president of Interna- tional Research Associates, to give us your statement, please. Mr. Brandes. Thank you, Mr. Chairman. My name is Ely M. Brandes, and I reside at 554 Madison Way, Palo Alto, Calif. I am an economist and president of International Research Associates, a small economic research company, also of Palo Alto. For the past 15 years I have been an economic consultant to the Panama Canal Company on the subject of tolls and revenues and I have authored more than 20 studies on that subject. Most of my work has been related to the question of the sensitivity of canal traffic to toll increases, of how much traffic might be lost if tolls were increased. When I first began to look at this question, some 15 years ago, the prevailing public wisdom was that canal tolls could be in- creased by 300 percent or more with no visible traffic losses, be- cause the only obvious alternative for ships was to go around the Horn. But this supposedly obvious view of alternatives turns out to be totally erroneous. In order to understand the question of how sensitive Panama Canal traffic is to change in tolls, one must first realize that such sensitivity is not uniform for all ships. Instead, total canal traffic is composed of some 70 to 100 commodity-route segments, which are groups of ships that carry the same commodities and travel the same route. Bulk carriers which carry grains from gulf ports to the Far East are one such commodity-route segment. Others include banana boats which carry bananas from Ecuador to the east coast of the United States, tankers which carry crude oil from Alaska to the gulf, container ships which carry manufactured goods from Japan to the east coast or bulk carriers which move coal from Virginia to the Far East and so on. Now the sensitivity of these and other canal movements to toll increases varies greatly depending upon the alternatives available to the buyers and sellers involved and the cost of these alterna- tives. For grain shipments to the Far East a partial alternative is to move the grain by rail to the west coast and ship it from there. An alternative to banana shipments from Ecuador is to shift to purchases from Caribbean areas and from Mexico; for shipment of containerized cargo from the Far East to the east coast of the United States the alternative is to ship the containers to the west coast and from there move them by rail to the various destination points in the east. This is the well-known minibridge movement. There are many, many other alternatives for these and other traf- fic segments and practically none of them involves a trip around the Horn. Now until 1974, when the Panama Canal Company instituted the first toll increase in its history, the debate about the sensitivity of traffic to toll increases was academic. But after the toll increases of 1974 and 1976, which in the aggregate amounted to nearly a 50- percent increase, we had a chance to examine the various theories, and we found that toll increases of 50 percent or less did result in some traffic losses. Specifically, we discovered that shipments of containerized cargo between the Far Fast and Europe, shipments of coal from Virginia to Japan and, most important, shipments of 1497 container cargo, which consists mostly of manufactured goods, be- tween the Far East and the United States were affected by the toll increases of 1974 and 1976. A large portion of container movement between Europe and the Far East was shifted to the Suez Canal; some coal exports from the United States are now being shipped in larger vessels via the Cape of Good Hope, and minibridge ship- ments via U.S. west coast ports have greatly reduced the number of container ships which operate between the Far East and the United States via the Panama Canal. Part of the above losses would probably have occurred without the toll increases. But the toll increases undoubtedly made these losses larger. In spite of these losses, total Panama Canal traffic has still shown some gains in the last 2 years, primarily because new traffic segments have added substantially to total revenues. Among them are the well-known Alaska oil shipments and the resumption of grain shipments to the People's Republic of China. However, in the long run, the Panama Canal cannot always count on being fortu- nate enough to have new traffic offset losses in existing traffic. Traffic losses due to toll increases represent a substantial danger to the economic lifespan of the canal. As you know, the operation of, the canal involves a substantial fixed cost which, like all busi- ness operations, will be affected by the continued impact of infla- tion. Once a situation is reached where traffic losses due to toll increases are larger than the normal traffic growth of the other segments, the Panana Canal will then be in danger of losing its ability to be economically self-supporting. Its future then may well be to join the rank of congressional dependents, a la Amtrak, which must appear here annually, hat in hand, to beg for their sustenance. Having spent a good part of my professional career on the sub- ject of the Panama Canal, I would like to do what I can do to prevent this from happening. It is for this reason that I decided to testify before this committee. Unwarranted toll increases, and the traffic losses which these engender, also could have detrimental effects on ports on the gulf coast and on the Atlantic coast and on their economies. Colonel Haar, Mr. Lidinsky, and Mr. Prior, who are with me, are from these areas and their local knowledge makes them much more qualified to discuss the regional impacts of toll increases. I want to concentrate my remarks on the relationship between toll increases and the economic viability of the Panama Canal. Last year in January my associate, Mr. Randall Chun, and I completed a study entitled "Panama Canal Traffic and Revenue Study 1978-2000" indicating the contents of which are well known to some members of this committee and to the staff. In this study we tried to assess the revenue potential of the Panama Canal for the next 22 years. Among its many findings and conclusions there were some new estimates concerning the sensitivity of canal traffic to further toll increases. I would like to present these complex findings in a simplified and summary form. We found, first of all, that in response to toll increases of up to 50-percent, traffic losses would be relatively modest and amount to no more than 12 percent in terms of tonnage. The 50-percent 1498 higher tolls would easily offset the 12 percent loss in traffic and the canal would gain in total revenue. With toll increases of more than 50 percent, however, we found that traffic losses, in terms of tonnage, become quite substantial and that the revenue gains that can be achieved by going beyond a 50-percent toll rate increase are quite minimal. These traffic losses become so substantial in the case of toll rate increases of more than 100-percent, that a 150-percent toll rate increase for instance would actually yield less total revenue for the Panama Canal than a 50-percent increase in toll rates. During the last 2 weeks I have reviewed the findings of our 1978 study in the light of the most recent events and I have come to the conclusion that our estimates are still generally valid. If anything, the sensitivity of some movements has increased during the past year. And among the movements which I would regard as the most sensitive are the movements of containerized cargo — mostly manu- factured goods — between the Far East and the east and gulf coasts of the United States. As I said earlier, much of this movement has already been diverted to west coast ports with connecting rail transportation to the east, and more may be diverted in the future. While such diversions are obviously less serious than a total loss of trade, there is no question but that Atlantic and gulf coast ports are being affected by these losses. It is my understanding that in the near future the Panama Canal Company will recommend a toll increase which is necessary for the implementation of the Panama Canal Treaty and that this toll increase may be as high as 35 percent, depending upon the financial requirements that may be imposed upon the Panama Canal Commission. If an initial toll increase of such magnitude were put into effect, much of the margin of relatively safe toll increases will have disappeared. Thereafter even small toll in- creases may precipitate large traffic losses. How can we prevent the economic decline of the Panama Canal and its possible loss of financial independence and at the same time prevent economic losses on our gulf and Atlantic coasts? I believe this can be done by creating conditions that will keep future toll increases to an absolute minimum. I am not an expert on drafting legislation and I will therefore refrain from suggesting or endorsing any specific provisions which might achieve this overall goal. However, I believe that my back- ground qualifies me sufficiently to recommend certain objectives in this area; and it is my conviction that if the Congress can succeed in translating these general objectives into specific and effective language, we will have gone a long way toward assuring the finan- cial viability of the new Panama Canal Commission. The first objective should be to create in the new Panama Canal Commission a trim, efficient, business-like organization which is conscious of the need to maintain an economically viable enter- prise. As you know, the Panama Canal Company was, and is, a unique organizational creature, combining both governmental and business functions under one roof. I believe that the Company performed its complex task admirably; but I also believe that the Company never was a model for trim, low-cost operation. I would hope that the new Commission, which will not be burdened with 1499 governmental functions, can be organized along more economical lines than the present Company, and that the implementing legis- lation and subsequent budgetary reviews by Congress would insure such a course of development. The second objective which I advocate is that no extraordinary financial obligations be imposed on the Panama Canal Commission which would require toll increases beyond that needed by the Panama Canal Treaty itself. It has been proposed that the Panama Canal Commission be required to pay interest on its original invest- ment of about $320 million and perhaps even amortize that invest- ment in the 21 years remaining under the treaty. I am opposed to such a requirement on two grounds. First, such payments would require an additional toll increase, beyond the needs of the treaty itself. Second, as an economist, I am opposed to the principle that public works projects must justify their creation by an ability to pay continued interest on the original investment and even pay back the investment. If such a requirement were imposed on all public works projects, very few would ever be built. The third and last objective which I advocate is that every re- quest for a toll rate increase by the Panama Canal Commission be subjected to a searching public review. I believe that the need for such public review is now well understood by all concerned and I hope that the final language in the bill will reflect this. Last year I testified at the hearings held by the Senate Foreign Relations Committee on the Panama Canal Treaties. At that time I said that no one can predict whether the canal can continue on a financially self-supporting basis for the remainder of this century. I would make the same statement today. However this inability to predict the future precisely should certainly not prevent us from doing what we can to extend the economic lifespan of the canal and maintain its financial independence for as long as we can. I believe we would be remiss if we failed to do so. I thank you, sir. Mr. Hubbard. Thank you, Mr. Brandes. I ask unanimous consent to have report on the subject of the financial viability of the Panama Canal Commission as prepared for this subcommittee by the Congressional Budget Office entered into the record. Mr. Treen. No objection. Mr. Hubbard. Hearing no objection, it is so ordered. [The following was received for the record:] 1500 (M CONGRESSIONAL BUDGET OFFICE Alice M. Rlvlin U.S. CONGRESS Director WASHINGTON, D.C. 20S15 December 19, 1978 The Honorable Robert L. Leggett Acting Chairman Panama Canal Subcommittee Committee on Merchant Marine and Fisheries U.S. House of Representatives Washington, D.C. 20515 Dear Mr. Chairman: On January k, 1978, the late Ralph H. Metcalfe, Chairman of the Panama Canal Subcommittee, requested the Congressional Budget Office to examine the effects of the new treaty on Panama Canal traffic and toll levels to assist the subcommittee in its consideration of the implementing legislation of the new treaty. To augment its own resources, the Congressional Budget Office, after reviewing competing bids, let a contract to the Maritime Studies Group of Temple, Barker, and Sloane, Inc. (TBS), of Wellesley Hills, Massachusetts. The executive summary and final report from TBS have already been provided to the Subcommittee staff. Based on the major studies currently available to CBO, it appears that the traffic presently transiting the Canal is relatively price inelastic to toll rate increases in the 25 to 40 percent range. An increase of this magnitude should be sufficient to cover the expenses of the new Canal Commission in the short term, with periodic toll rate increases necessary in future years to offset increased costs due to inflation. Barring some unforeseeable events, the Commission should remain self-sustaining and require no appropriations to support Canal operations. The attached document provides in detail the methodology employed, and the basis for the revenue and expense projections. Sincerely, CQ.%R^ Alice M. Rivlin Director Attachment Attachment 1501 Report of the Congressional Budget Office on a Study of Panama Canal Tolls and Traffic Levels Background of Study On January 4, 1978, the Panama Canal Subcommittee asked the Congressional Budget Office to examine the effects of the new treaty on Panama Canal traffic and toll levels. This information would assist the Subcommittee in determining: (1) What increase in tolls would be needed to meet new obliga- tions arising from the treaty; (2) What effect the increase in tolls would have on the volume of traffic presently transiting the Canal; (3) At what level the increase in tolls would make Canal transit economically unfeasible for shippers; and (4) The approximate amount of appropriations necessary to mee responsibilities to the Republic of Panama if traffic transiting the Canal is not of sufficient magnitude to meet the new obligations. Because of the limited time then available, it was decided that the best basis for the necessary analysis would be two recently completed studies of Panama Canal finances and traffic. Those two studies were: Assessment of the Financial Impact of the Proposed Canal Treaty prepared by American Management Systems, Inc., (AMS), on January 26, 1978, for the Senate Armed Services Committee; and Panama Canal Traffic and Revenue S tudy, 1978-2000 , prepared by International Research Associates (IRA) on January 1978, for the Panama Canal Company and the U. S. Department of State. After reviewing competing bids, the Congressional Budget Office let out a contract to the maritime studies group of Temple, Barker, <5c Sloane, Inc. (TBS), of Wellesley Hills, Massachusetts, a firm with substantial experience in preparing similar studies for a variety of clients. TBS was directed to review and critique previous studies (with emphasis on the two mentioned above), and on the basis of that review and the firm's expertise in the maritime field, to perform an analysis of the sensitivity of traffic through the canal to toll rate increases. It was further decided that, due to the uncertainty regarding passage and final language of the proposed treaty, the TBS study would concentrate on traffic sensitivity to toll rate increases 1502 of 25 percent and k percent, by individual commodity. This would allow for developing a range of revenue estimates over time and highlighting those commodities most sensitive to toll rate increases. In addition, TBS was to consider existing and projected trends in the use of the rail land bridge, tankers by size for different commodities, alternative sources for both origin and end-point shipping, and product substitution. Traffic Projections As a basis for its analysis, TBS reviewed existing forecasts of Panama Canal traffic and defined high, low and most likely projections of Canal traffic through the year 2000, assuming current toll rates increased through- out the study period consistent with general inflation. (See Table 1.) The high forecast, AMS-Padelford and Gibbs, J7 is an aggregate traffic forecast, projecting a 3.64 percent annual growth rate, somewhat below the rate of world trade due to reduced competitiveness of the Panama Canal. The low forecast, AMS-CACI, 2/ a disaggregate forecast in which newly developing traffic is not included, projects a 1 percent annual growth rate, based on the assumption of no Alaskan oil flows and a high rate of diversion by coal shippers to large dry bulk and combination carriers. TBS developed a most likely traffic projection, based on independent analysis of the IRA traffic projection, which is a disaggregated, commodity- specific forecast. A major tool for review of the IRA estimate was the Maritime Administration's Cargo Forecast Model, which is a trade forecast model that considers supply and demand factors, and is based on economic and industrial models that explicitly recognize the U. S. balance of pay- ments, growth patterns of major trade partners, exchange rates, strikes, tariff and non-tariff barriers to trade. Based on this model and TBS review, it was found that the IRA forecast provides a generally realistic projection of Panama Canal traffic. The difference between the IRA forecast and the TBS most likely forecast is the projected volume of Alaskan crude oil movements through the Panama Canal. These differences are depicted by Table 2. The TBS study, which is based on more recent information than the IRA report, projects a higher near-term utilization of the Canal and the phasing out of Alaska crude oil shipments through the Canal by the year 2000. TBS projections assume a 1982 date for operational start of the SOHIO pipeline and a steady, regular growth of West Coast consumption of Alaskan oil. 1/ Padelford, D. and S. Gibbs (1975), Maritime Commerce and the Future of the Panama Canal , Cambridge, Maryland. Connell Mari- time Press, Inc. 2/ CACI (1977), U. S. National Security Interests in the Panama Canal; Projections Over Time, Arlington, Virginia, CACI, Inc. 1503 Table 1 PANAMA CANAL TRAFFIC HIGH - MOST LIKELY -- LOW SCENARIOS 1970 High - PadelforcTEc Gibbs 2 TBS Most Likely' 1980 1980 2000 Year Hich Scenario forecast utilizes TBS study for 1979-1985 projection. TBS study based upon IRA forecast. Adjusted for Alaskan crude oil and new cargos. Low Scenario forecast- Forecast Values ( mllllrmt cf lonq lontl 1990 2000 1979 1930 1985 High TBS Most Likoly 153 153 156 156 1C6 166 196 166 281 185 1 Low 136 131 137 155 1504 TABLE 2 ALASKAN CRUDE OIL MOVEMENTS VIA PANAMA CANAL • (millions of long tons) 35-, 25- 20^ r 35 -20 Revised by TBS 1975 Trans-Alaska Southern Alaska Less: West Coast ConsumDtion SOHIO Pipeline Via Panama Canal -1 — 1980 r 1985 Year -J 1990 Rev sed Alas kan Oi 1 Forecast -10 - 5 1995 2000 (million bbl/day) 1978 1979 1980 1981 1982 1985 1990 2000 1.200 .150 ,730 ,670 1.200 .150 .710 1.200 .150 700 1.2C0 .150 1.500 .150 .750 .500 1.600 .150 ,800 ,500 1.500 .150 1.000 .500 .250 1.600 .150 1.250 .500 Sources: 1973-1982, Assessment of Alaskan Crude Oi' Deoartment or Cotr^erce, jrfice or Poncy ana Plans 1985-2CC0 T3S projections. Distribution, U.S. May 3, 1978. 1505 Sensitivity of Traffic to Rate Increases For some types of traffic, a certain toll increase will have sufficient impact on total transportation costs to cause shippers to use a different route or a different mode, or to shift origin or destination so as not to use the Canal, or not to ship at all. As a result, an increase in rates does not generate a proportional increase in toll revenues. Based on an analysis of the various commodities moving through the Canal, the IRA study projected that a 25 percent rate increase would result in a 4.4 percent traffic loss by 1990, and therefore produce a revenue increase of only 20 percent. IRA estimated that a 40 percent toll increase would result in a traffic loss of 8.8 percent by 1990, thereby causing revenues to rise by only 28 percent. TBS also performed a commodity-by- commodity review, but projects lower overall traffic losses and higher revenues for rate increases of 25 to 40 percent. (See Table 3 below.) TABLE 3 Impact by 1990 of a rate increase in 1980 25% toll increase 40% toll increase IRA TBS 4.4% loss in traffic 20% increase in revenue 8.8% loss in traffic 28% increase in revenue 1.3% loss in traffic 23% increase in revenue 2.1% loss in traffic 37% increase in revenue TBS estimates a traffic loss of slightly more than 1 percent for a 25 percent toll increase, and of about 2 percent for a 40 percent rate increase. The primary reason for these estimating differences is the differing assessment of the economics and attractiveness of the principal shipping alternatives. Table 4 shows the ten major commodities that constitute 85 percent of total traffic diversion and 89 percent of total revenue loss projected by IRA by the year 1990, assuming a 40 percent toll rate increase. These are ranked in descending order of revenue loss. The TBS conclusion as to the extent of likely diversion for each of these commodities is shown in Table 5, with a brief explanation in the final column. The TBS analysis indicates that the only commodities that may be sensitive to toll rate increases in the relevant range and for which economically viable alterna- tives exist are iron ore, petroleum products, bananas and sugar. 1506 ►J z H o c C c C o Q o O •u ♦J o u > IN >> >! o >> O >> >< O O "«I "ij 41 a. ai CL 01 41 a. CL <•- > O— , c c C c C »— C r- o o o ■cz o o O j= 3 0) O m VI C 41 < k k k 5 2 i- X S 01 4) o 41 41 CO > > > k > u > > !- S- 3 3 a a O <-l a o a O u c B o o O O o o o o o o z z Z <_l z z c-> <_) 01 ■o c 01 a •U > <*- o o cc »* »« X M X X X M >« Ml V« >« m T CTi CO CO LTJ !•> CM CT> O «l O-D 00 O •- 1. -J ie a. ■*-> -C k "22! a u T3 •*- ai <•- ■M <0 >*- U i- O «JH x X *« »* X >* M X »< Ml M »4 o\ ^3 CTN CM LO U3 LT) o CO O «l OT5 CM V. k 0) oa.*J -C k I/I< 01 Q 41 CL O ZC ■o o o 4> a. a X "O o c a en c K3 (U O > 41 41 CL a *z CTl > > C C > C C ■o «— fO 13 13 (0 41 o 01 CI 4) Lwl LU LU t»- o "3 en 31 O 41 -3 U "3 k k >> =» u > 'J o a. a> k a k L. 3 3 > -a 41 4> ■o TT 41 ■a 25 •a ai 31 e -a O cn -3 a a E k k o k E. L. «J 13 13 C_ ■a Q. o_ a — ■». — >». a. 41 41 41 41 01 41 2 41 2 41 41 41 41 41 < 3 < 5 < 5 < < 41 3 < t— 0) >, o — ..I 4-> 3 o — ■a u C t— -o o 1 o ^3 2: HI = i o 41 O 5 S U k B B «-> k o 3 O- O k ■a C U O ►" 5 L. — ■1 1 3 EL •0 0J •a •a u 4) 5 s - k 3J C o vl k 0) ■o c s_ L. 41 B _■ n c 3 n C ■O 41 O cri «-> o n 3 41 O k 3 o o u LJ <-> CO < a. <_> iyi to 1507 — 41 ■— 4) <-» S- IQ *J -p- O ■<-> < C ** 41 Q.<-> ^ E — — n s- , 4) — w W > 4-> ■— C 41 C O 41 >•- .* — 4) — 3 — "OCT A4-> — — 4) 1. i/> uu o s- i_ i_ ~ o o c — OS- O 3 «-> 3 — C 41 OU CI 1. £ «1 E o ) .o = = n « — — c c i. ia I. •-• 1508 Despite these differing estimates, the overriding conclusion of both the TBS and IRA studies is that Panama Canal traffic is relatively insensitive to a toll rate increase of up to 40 percent, and that such an increase, if necessary, would not result in a substantial traffic loss. Canal tolls are a relatively minor part of the overall shipping cost and of the total cost of the commodities transiting the Canal. In many cases, an alternative to Canal transit is not feasible. Where there is an alternative, the Canal is in most cases still economically competitive, even with a rate increase in the range of 25 to 40 percent. Projected Financial Results The new Panamal Canal Treaty ends the arrangements under which the United States has operated the Panama Canal for the past 75 years. The United States is required to abolish the Panama Canal Company and the Canal Zone Government, and to transfer major support activities to the Republic of Panama or the U. S. Department of Defense. Significantly larger treaty payments to the Republic of Panama are required. Also, to exercise the grant of specific powers to operate and maintain the Canal, a new Panama Canal Commission is to be formed under U. S. law. The United States is required, upon termination of the Treaty, to turn over the Canal in operating condition free of liens and debts, except as the two parties may otherwise agree. The new Treaty payments include a payment under Article III, Section 5 for public services to be provided to the Canal operating and housing areas retained by the United States. Under Article XIII, Section 4, the United States is required to pay out of the revenues of the Canal Commission an amount computed at the rate of 30 cents per Panama Canal (PC) ton for each vessel transiting the Canal for which tolls are charged; a fixed annuity of $10 million; and contingency payments of up to $10 million per year from any operating surplus. An estimate of the increase in tolls needed to meet the new obligations of the Commission requires a projection of the cost of operating the new Commission and the treaty payments to the Republic of Panama. CDO has projected these costs through 1984, based on the following assumptions: (1) The Commission will be a government corporation, patterned after the Panama Canal Company; (2) The corporation will use accrual accounting; (3) The interest payment to the U. S. Treasury is foregone; 1509 (4) Capital investment will be made from cash generated by depreciation and a capital reserve included on the toll base; (5) The fixed fee, toll fee, and payment for services in Article III, Section 6 will be an expense of the corporation and included on the toll base; (6) The Article XIII, Section 4(c) contingency payment is not an expense of the Commission; and (7) The costs of the Commission will increase due to inflation tied to the inflation in the U. S. economy. Table 6 shows the projected financial results of the Canal operation, assuming a 25 percent one-time rate increase, followed by small annual increases as necessary. Estimated traffic volume is derived from the TBS baseline projection, adjusted for the TBS estimate of the effects of the rate increase. Under these assumptions, a twenty-five percent increase generates sufficient revenues to cover costs through 1982. Periodic toll rate increases will be needed thereafter to cover the increased costs of operation due to inflation. If the non-toll revenues are increased to recover inflation, then toll rates would not need to keep pace with inflation, because growth in canal traffic will provide some increase in revenues. As a result, rate increases of less than 2 percent would be necessary in 1983 and 1984. Application of the IRA elasticity and baseline traffic estimates would change the results somewhat, but not drastically. A 27 percent rate increase would be necessary to break even in 1980, with approximately 2 percent increases each year through 1984 to keep pace with increasing costs. The major uncertainty in these projections is on the revenue side. Traffic in any one year may deviate from the long-term trend as a result of short-term fluctuations in trade patterns or total volume of traffic. With or without a Treaty, a substantial downturn in world trade, resulting, for example, from a world-wide recession, would seriously affect the financial results of Canal operations during the downturn. If any surplus generated in years of greater than expected traffic is paid to the Republic of Panama in the Article XIII, Section 4c contingency payment, then larger rate increases than those discussed above would be needed to finance operations during a temporary downturn in traffic. The cost projections, on the other hand, are relatively insensitive to traffic volume, but would be affected marginally by variations in the rate of 1510 TABLE 6 Projected Financial Results V/ith a One-Time Twenty-five Percent Toll Increase and Small Annual Increases Beginning in 1983 (by fiscal years, in millions of dollars) 1980 1981 1982 1983 1984 Operating Expenses 1/ Capital Reserve 2/ Transition cost 37" Fixed Annuity Reimbursement for services 4/ Toll fee 5/ Total Costs Non-Toll Revenue 6/ Toll Revenue 7/ Total Revenue Surplus or (Deficit) Expenses 232 247 255 265 282 6 6 7 7 8 8 4 6 3 - 10 10 10 10 10 10 10 10 13 13 49 50 50 51 51 316 327 1 337 Revenues 349 364 67 73 76 81 88 255 258 261 268 276 322 331 337 349 364 6 4 Assumed Toll-Rate Increase 25.0% — 1.6% 1.9% 10 1511 NOTES TO TABLE 6 U Expenses were based on estimates prepared by the Panama Canal Company (released January 31, 1978) and inflated using economic assumptions associated with the 1979 Second Concurrent Resolution on the Budget. They include depreciation, which was not inflated but which contains an estimate of depreciation from new capital invest- ment occurring during the projection period. It is assumed that costs in any year are fixed over the relevant range of traffic levels. 2/ A five-year capital plan was not available to CBO. A capital investment program was estimated by projecting the new program level for fiscal year 1979 through the five years. The five-year total of $152 million is close to the $153 million five-year total for Canal Company projects discussed in the 1978 hearings before the House Appropriations Subcommittee on Transportation and Related Agen- cies. For each year, total estimated depreciation is subtracted from the estimated capital program cost to derive the amount to be recovered through a capital reserve charge. 3/ Transition costs were based on estimates prepared by the Panama Canal Company on January 31, 1978. Those estimates assumed a fiscal year 1979 implementation. Nearly 80 percent of the cost shown for 1980 is for separation and relocation, which may be incurred and expensed in fiscal year 1979. Hj The payment for services was assumed to be increased after the first three-year period due to inflation. 5/ Toll fee payments were interpolated from TBS traffic estimates assuming a one-time 25 percent toll increase and 30 cents per ton payment. 6/ Non-toll revenue was based on estimates by the Panama Canal Company, assuming that all cost increases due to inflation are passed through in higher charges. 7/ Toll revenue was calculated using a traffic base interpolated from TBS estimates, assuming a 25 percent rate increase. The traffic base in long tons was converted to revenue using IRA assumptions that a PC ton is equivalent to 1.05 long tons and that 86 percent of traffic is laden. 11 44-394 O - 79 - ot. 2 - 43 1512 inflation. As a result, changes of 1 to 2 percent in the forecast inflation rate would primarily be reflected in small changes in the timing and amount of the annual rate adjustments necessary after the large, one-time increase. Reservation 6 of the resolution of ratification of the new treaty requires the Commission to reimburse the U. S. Treasury for the interest cost of the funds or other assets directly invested in the Commission by the Government of the United States. However, the proper base for calculating an interest payment for the new Commission is unclear. Currently, the interest-bearing contributed capital is approximately $319 million and the interest rate charged is the average interest paid on government bonds. On November 30, 1978, the average interest rate on bonds was 6.7 percent and rising. At that rate, the interest payable would be over $21 million. The interest-bearing contributed capital was calculated in the last reorganiza- tion of the Canal enterprise in the early 1950s and is considerably less than the current investment of the United States in the Canal Company, which totals $512 million as of September 30, 1977. In the past, the Canal Company received credit for assets transferred from the Company. Ap- proximately $92 million of the $319 million will be transferred to other U. S. agencies or the Republic of Panama. Table 7 below shows the impact on toll rates if a $21 million interest payment were to be generated from toll revenues, based on the TBS traffic projections. TABLE 7 (by fiscal years, in millions of dollars) FY 1980 FY 1981 FY 1982 FY 1983 FY 1984 Total costs without interest 316 327 337 349 364 Interest payment 21 21 21 21 21 Non-toll revenue -67 -73 -76 -81 -88 Amount to be received from tolls to cover 270 275 282 289 297 costs Toll rate increase n% needed to break even 1513 On this basis, a one-time increase of over 32 percent would be needed to meet costs in 1980, followed by small annual increases thereafter. Traffic would be less than 2 percent below the baseline projection as a result of the rate adjustment. Applying the IRA sensitivity projections, the Commission would require a 40 percent one-time increase to meet operating costs plus the interest payment, resulting in a traffic loss of about 9 percent by 1985. Conclusions Based on the major studies currently available, it appears that the traffic presently transiting the Canal is relatively price inelastic to toll rate increases in the 25 to kO percent range. An increase of this magnitude should be sufficient to cover the expenses of the new Canal Commission in the short-term with periodic toll rate increases necessary in future years to offset increased costs due to inflation. Barring some unforeseeable events, the Commission should remain self-sustaining and require no appropriations to support Canal operations. Mr. Hubbard. I might say, Mr. Brandes, this report generally confirms the conclusions you drew in the report you did with Mr. Chun. I will start my questions with you, since you were the last person to speak. What appear to be the growth trends of large commodity group- ings other than North Slope oil transiting the canal? Mr. Brandes. For some, they are quite excellent. It is our belief, for example, that growth will continue in grain exports from the United States which have been increasing at an absolutely phe- nomenal rate. Everything that we see seems to indicate that the United States can grow and sell very large amounts of grain abroad. There may be some problems about the ability to ship all this grain, but I hope we can overcome those problems. In other areas, the prospects are a little bit more mixed. Some of the commodities which, in the past, have been so-called staples of the Panama Canal like coal from Virginia to the Far East, or iron ore from the west coast of South America to the east coast of the United States, have tended to dwindle in recent years. They have been supplemented by other commodities. For instance, one of the largest revenue earners is importation of automobiles from Japan, which are shipped through the canal. But again this is a traffic segment that might be endangered by diversion to the west coast. I would like to add one additional traffic area where the pros- pects are very good, and that is in exports to China. All the prospects seem to be that certainly our grain exports to China will continue to increase over the next few years, and other exports as well. Mr. Hubbard. You have said that no one can predict whether the Canal can continue on a financially self-supporting basis for the remainder of this century. By the same token, do you have any information that would indicate that the canal cannot continue on a self-supporting basis? Mr. Brandes. No, I do not have any. If you try to look ahead for more than 5, 7 years, the crystal ball gets very cloudy. One has to make assumptions about the future. If you make an assumption, such as: if things were to continue as they are now, we are, in effect, saying we cannot predict what will happen. 1514 Mr. Hubbard. Do you believe that early retirement and other employee benefits should be included in the toll rate base as sug- gested in the bill introduced by Chairman Murphy? Mr. Brandes. I heard about this for the first time today. And my initial feeling is that it should not be included. I say this because it seems to me this is not really a cost of the business of the canal, which is the transiting of ships. What we are doing with respect to our employees in the canal — and I certainly believe that what we do is fully justified — we do as a nation vis-a-vis people who have served this country well. But I do not see that this is in any way connected with the business of the canal. We are rewarding them for past services. This, to me, is quite different from paying for the current costs of operating the canal. Mr. Hubbard. In a 1974 study you determined that: "U.S. busi- ness and consumers are the ultimate payers of about one-third of all tolls paid at the Canal." Does this hold true today? Mr. Brandes. Yes. Mr. Hubbard. Could the U.S. suffer more than one-third of eco- nomic losses resulting from higher tolls? Mr. Brandes. I do not think the proportions have changed very much. There was a remark made this morning that the United States is involved in two-thirds of the total traffic if you add together cargo which originates in the United States and cargo which is received in the United States. But this particular exercise has a universe of 200, because all cargo has an origin and a destination point. And they are mostly in two different countries. So it still comes out that the United States is the ultimate payer of about one-third of the tolls paid at the Panama Canal. I do not think the proportions have changed very much. Mr. Hubbard. My last question is, in studying the issue of tolls sensitivity, you may have — excuse me just a moment here. OK. That is the life of a Member. You hear bells and beepers. In studying the issue of tolls sensitivity, you may have come to some conclusion as to whether frequency of tolls adjustments af- fects user confidence. If you had to choose between the two alterna- tives, with the objective of retaining traffic, would you have fewer tolls increases of greater magnitude or more frequent smaller in- creases? Mr. Brandes. I would have more frequent smaller increases with one proviso, that they should not be made in a manner so that they become totally predictable. In other words, if the Commission were to operate on the basis of, let us go in every year for the 10-, or 9-, or 7-percent increase, then the shipping public would come to expect that and instead of simply counting one additional toll increase next year, they might make plans on the basis of the total increase that can be expected during a 5 or 10-year span. They would be acting not on the basis of then current tolls, but what they might expect 5 and 10 years hence. I would say yes, smaller increases are better because in an inflationary economy, the small increases are sort of expected. But do not make them so they become totally predictable as to size and frequency. Mr. Hubbard. Congressman Treen. 1515 Mr. Treen. I think it is very important we protect the invest- ments we have in the ports of this country. My questions are all related to that. You were asked, Colonel Haar, the first question you alluded to — I have been provided by counsel with the questions — what will be the impact of toll increases on the Panama Canal ports? You have attachments to your statement which you refer to on page 4. What you are giving us in that table is the total economic impact, is that correct? Colonel Haar. That is correct. Mr. Treen. I think the question was impact of the toll increases. Colonel Haar. We have used a U.S. Maritime Administration study done on the impact of waterborne commerce on the Nation, and we have correlated those findings and standards to the specific trade and commerce that moved all along the Atlantic and gulf regions, and then projected it as an overall economic impact for each region involved. Mr. Treen. Where is that? Is that in your statement? Your table that you give in your statement is the total economic impact of waterborne shipments via the Panama Canal. I am trying to pinpoint what the effect of various toll levels would be economically. Colonel Haar. What we have assumed, taking the study and applying it to our respective percentages of Panama Canal water- borne commerce, which was generally 20 percent of that moved overall through the Atlantic and gulf areas. Then, coming up with an impact in terms of what the benefits of that is now, assuming that would be lost if you had diversions through tolls that were too high. I have a detailed breakout of how this was arrived at. I will be happy to give you this for the record. In the interest of simplicity, I did not put these details in as part of my statement. Mr. Treen. What you have given is total economic impact of commerce through the canal. We want to know what it would be if you raised the tolls. Mr. Brandes. I made a little comment on that in my statement. Mr. Treen. What levels must be reached before the shipper switches to the minibridge? Can you do that? I realize you have a lot of Mr. Hubbard. Before he answers that, forgive me, but I have to ask for recess for our voting. Mr. Treen. That is all right. I thought I could get it in. Mr. Hubbard. I am sorry. We have got to go. Mr. Treen. Be right back, I guess. Mr. Hubbard. We'll recess for 10 minutes, OK, and be right back. [Short recess.] Mr. Hubbard. My apologies for the delay on the House floor. The Subcommittee on the Panama Canal will now resume. I just have one question for Mr. Prior. Before I do that, you were not finished, were you? Mr. Treen. No. Mr. Hubbard. Go ahead. 1516 Mr. Treen. I was rushing because I was trying to get the ques- tion answered before we went to the floor. Now that we are not under the pressure, let me rephrase my question. Colonel Haar, we have in your statement, both on page 4 and as an attachment the total impact on the Atlantic and gulf coast ports of shipments transiting the Panama Canal, the total economic impact. Colonel Haar. Yes, that is correct. Mr. Treen. Of course, what I am interested in is determining what the impact of toll increases will be. I realize you have got different kinds of cargo, different I think you call it segments of cargo, that will react differently to toll increases. Are we able to quantify the effects in terms of dollars and jobs of specific toll increases on any of the various segments of trade? Colonel Haar. I think Dr. Brandes could probably address that. Dr. Brandes. Let me try. We make our sensitivity estimates on the basis of total traffic. As a norm, I would say that one can use that average as a guideline for any portions of traffic. So I would say in response to a 50-percent total increase a 12- percent decline in tonnage which is what is foreseen in our sensi- tivity study, would be the norm. For the gulf and Atlantic coasts, I would probably think that the decline might be slightly above average. So I am thinking in terms of perhaps a 15-percent decline in traffic for these ports in response to a 50-percent total increase. If we further qualify this, obviously the diversion of traffic refers not necessarily to total losses of trade. They refer to losses to the canal, and obviously, in this instance, also to losses to the ports where the ships originated or were destined to. They do not necessarily involve a total loss in trade. For instance, if grain shipments were to be diverted via the west coast, the farmers in Iowa and Nebraska would still be selling their grain, but the Port of New Orleans would be losing that particular trade. So our estimates are that both the gulf and the Atlantic coast in response to a 50-percent total increase would probably suffer a loss of trade which is slightly more than 12 percent. Mr. Treen. You say a 50 percent. Over what period of time are you talking about? Dr. Brandes. We are talking about a onetime increase amount- ing to 50 percent or more. There is another time dimension in- volved here. Foreign trade activities involve long-term contracts, and the full effect of a toll increase is not necessarily felt the first or second year. It takes time for changes to become effective. Obviously over time, many other things happen, too, so that the effect does tend to get lost a little; but I still believe that a 15- percent decline, more or less, is likely in response to a 50-percent toll increase. This would be a good yardstick to use for the ports on the gulf and the Atlantic. Mr. Treen. When you talk about a 15-percent decline, you are talking about tonnage? Dr. Brandes. That is right. We are talking about tonnage. Mr. Treen. Not necessarily revenues. Dr. Brandes. That is right. We are talking about tonnage. 1517 Mr. Treen. I gather from your statement that you think that the container cargo, the roll-on, roll-off type cargo, would be diverted. That traffic coming through the canal that is subjected to being shipped by vessels to the west coast and then by rail would be more impacted by increased tolls than, say, grain or coal, is that correct? Dr. Brandes. That is correct. Mr. Treen. Is there anyway for you to quantify that? For exam- ple, taking a 50-percent increase in tolls over and above inflation, what would that do to that type of cargo? Dr. Brandes. It is very difficult. I do not think our data are such that permit that fine a cut. I could make another guess, but it would be just that, a guess. I do not really have the basis to make that fine a breakdown in total cargo shipments to the gulf coast. Mr. Treen. Mr. Lidinsky? Mr. Lidinsky. Attached to my statement, I have a one-sheet summary prepared by the Delaware River Port Authority which looks at precisely the question you just posed regarding diverted containerized cargo. This high value cargo listing covers just the North Atlantic port range. In the 2 years following the two toll increases of this decade, the period from 1975 to 1977 when we had about a 50-percent increase, the North Atlantic ports lost in container tonnage close to 6 mil- lions of cargo. One cannot say this can all be placed at the door step of canal toll increases, but certainly for a shipper who is offered the alter- native of the minibridge, which purports to be a quicker, faster, and safer service, he thinks twice in sending it through the canal. So here is already a direct impact on our ports which has been measured. Mr. Treen. I guess the other side of the question is, if you did not have any increases in your tolls would this movement toward the minibridge, coming across the United States by rail, would that be diminished or are there other factors in driving cargo in that direction which really do not have much relation to tolls? I guess it is awfully hard to scientifically determine this, is that correct? Mr. Lidinsky. It is awfully hard, and it is one of those questions which rests with each individual snipper. When the minibridge was being sold, the one key factor in selling it was that this gave you additional speed in getting your cargo to or from any point in the United States, saving you a couple of weeks on the sea. We are told by our office in Tokyo that some lines would never use minibridge because of shipping sensitive electronic equipment, and so forth, it is better to use water service, so that they would always use the canal. So, it remains a tough question. Mr. Hubbard. I am going to have to ask to recess again for 10 minutes, and this time we will try not to be diverted on the House floor. There is a vote going on and the second bell has rung. [Whereupon, a short recess was taken.] Mr. Hubbard. The subcommittee will now, please, resume. Congressman Treen? Mr. Treen. I think I have a question on the table. I do not know if you recall what it was. The question, I believe, was the effect on 1518 the minibridge of various increases in the tolls, and you gave me some response to that. Did you have anything more to add to that? Dr. Brandes. No. Mr. Treen. All of you are in agreement, apparently, on your proposal that the tolls be limited to 27 V2 percent increase initially with an 11 percent cap annually thereafter. That 27 percent increase would be over what period of time? Between now and when? Mr. Lidinsky. That would be for the initial increase, whatever period of time it would take for the new Commission to put that into effect. We assume that would be this year. Mr. Treen. If it could be put into effect immediately, would you say an 11 percent increase for the first 12 months following that increase would not have an adverse impact? Mr. Lidinsky. I would say the 11 percent increase should come after that 12 month period after the 27 percent. Mr. Treen. I thought initially, Colonel Haar, that the proposal was that 27 V2 percent would be the maximum increase between now and the end of 1980. Colonel Haar. It was over a 2-year period. Mr. Lidinsky. I am sorry if there is confusion. If you put 27 percent in on October 1, 1979, your 12 months for the 11 percent would not start tolling until October 1, 1980. So you have a full year after the 27-percent increase. Mr. Treen. And we would get very quickly to the 50 percent total increase that you are talking about, Dr. Brandes, for a 12 percent loss in cargo. Or are you assuming that that would only be a net increase of, say, 4 or 5 percent after inflation? Is that an assumption you are making? You say a 50 percent increase in tolls would produce an 11.8 percent loss of cargo. We start with 27 percent then we have 11 percent, and we are over your 50 percent in 3 or 4 years. Dr. Brandes. Yes, sir, I fully recognize that. I would like to add, irrespective of whether or not such ceiling provisions are adopted, it is my hope that the actual increases that will be sought will be far less than any of those ceilings. I fully recognize the danger that exists that the toll increases will get very quickly to the level where the loss of traffic will become very damaging. Mr. Treen. In fact, I think your study would show that 75 percent toll increase would result in a loss of 20.6 percent of cargo. Dr. Brandes. That is right. Mr. Treen. You are going to get there very quickly with 27 percent and then annual steps of 11 percent. You are going to be there in about 5 years, less than that. Mr. Lidinsky. No. Let me explain about the 11 percent. The 11 percent does not mean that there would be in every 12 month period thereafter an 11 percent increase. What we are saying is that we hope the Commission can go for 3 or 4 years with no increase at all, but that in any given 12-month period, increase requests could not exceed 11 percent. After the initial increase, we would hope they would not come back for 3 or 4 years. 1519 Mr. Treen. I know what you hope. But if we write into this bill that increases shall be held to 11 percent per annum and that is taken advantage of by the Commission, at that rate level then we are going to be very quickly at those toll levels. I got the impression from the fact that you were supporting this amendment that you could live with the 27 percent and then the 11 percent per annum each year. Colonel Haar. I think that that is the language we have in my enclosure. Mr. Treen. Direct me to that page. Is that attached to your statement? Colonel Haar. That refers to the enclosure to my statement. It is a one-page sheet, and the next to the final item, under the right- hand column under the gulf-Atlantic proposed amendments where it says ' 'tolls" and you will find mention of the 11 percent figure. We say in there all increases require advance notice and publica- tion of basis and economic justification and detailed consideration per "Long understanding", and we feel that part is very important, and we feel that the "Long understanding" is in the first column in this same enclosure as, the last item. Mr. Treen. I have seen that, and I am going to try to get Senator Long's understanding into our bill. Colonel Haar. We think when that "Long understanding" is applied, if there is not a valid basis for a full economic justification for that 11 percent increase, that it will shake out in the applica- tion of the "Long understanding", and then in some cases, only a 6- or 7- percent increase will be justified, even though they are seek- ing 11 percent. So we feel that the "Long understanding," along with these other special items, will have to take place, and the language provided will insure that these will be a cap and not an arbitrary automatic 11 percent increase. Mr. Treen. In other words, what you are saying is that you will be severely hurt if they went to the 27-percent increase plus the 11 percent per annum, within several years. Colonel Haar. Yes. Mr. Treen. Do you support that, Dr. Brandes? Dr. Brandes. Yes. Mr. Treen. Under the bill sponsored by the chairman of the full committee, Mr. Murphy, he would include amortization of the net U.S. direct investment. If that is included, generally what effect would that have on trying to restrain tolls? Can you quantify that? Dr. Brandes. According to the statement submitted by Governor Proffit, I understand the difference between full amortization and interest payment versus no interest payment and no amortization is between a 14-percent increase and a 35-percent toll increase. The difference is roughly 20 percent. These are Governor Proffit' s fig- ures. I, obviously, have not done the calculations. Mr. Treen. That would have a rather devastating effect, would it not, on the economic viability of our ports? Dr. Brandes. I believe so. Mr. Treen. On the makeup of the Commission, you have recom- mended that two people be industry oriented out of the five U.S. appointees, and I generally support that. 1520 I would be interested in your reaction to a thought that I had that we require the U.S. appointed members to vote in block. You have got four Panamanian members. They are chosen by the Presi- dent of the United States, which is kind of an odd situation. But they are Panamanian nationals, and you have five U.S. members. And if the Panamanians vote in block, which I think they probably will, all they need to do is get one U.S. member to vote with them to have a majority. I have been giving some thought to trying to put in the legislation requirement that the U.S. members first vote among themselves, and based on how they agree on a vote of 3 to 2 that is the way they would have to vote in the Commission meeting. I suppose that might pose some dangers to the other way but not really because of the mathematics of it. Under the proposed legislation all they have to do is get one member to vote with them. Do you have any comments about that? Would you support it or oppose it? Colonel Haar. I think I would support it as long as you had the businessmen included. I think you would have their input and their counsel, and hopefully, they would be able to bring reason and the importance of taking into consideration impacts, diver- sions, for example, that might result from a given toll increase that is being sought and bring out those factors that the industry would be concerned with, the port industry and their industry, so that the other members of that Commission would be fully informed and will have all of the facts before them before they arrive at a judgment. And hopefully they will act with a certain amount of good faith and arrive at a proper, reasonable decision. Mr. Treen. Just one last question. Any of you who are represent- ing port authorities, were you or any of your colleagues consulted by the Administration at any time with respect to the impact on our ports during the negotiation of the Panama Canal Treaties? Do you recall ever being consulted? Mr. Lidinsky. Not at all. In fact, in the midst of the treaties ratification process a speech was given in Baltimore by a State Department representative, which of course supported the treaties, and came up with a very minimum impact prediction on the ports. As I said in my statement, we were never provided any follow up or copies of how that guess was arrived at, and it was only after formation of our committee that, as far as I am concerned, I was contacted for the first time by the State Department. Mr. Treen. I think you testified before the Senate, did you not, Colonel Haar? Colonel Haar. Yes. But since the recent treaties were passed the U.S. Ambassador to Panama was recently in New Orleans and did come by to visit with our port director. Mr. Treen. After ratification? Colonel Haar. After ratification. Mr. Treen. I have no other questions, Mr. Chairman. Thank you, gentlemen. Mr. Hubbard. A question for Greg Prior. Of the vessels that call at your port authority facilities in Charleston, S.C., where would most of the cargoes that now come to Charleston be diverted? 1521 Mr. Prior. You mean to a minibridge system? Mr. Hubbard. Right. Mr. Prior. Probably to one of the west coast ports, Oakland, Long Beach, or Los Angeles. Mr. Hubbard. And what kinds of commodities would be affected? Mr. Prior. Textiles, machinery. Mostly manufactured goods on the export side. Some types of semifinished textile products. Mr. Hubbard. Thank you. One question for Mr. Lidinsky. What is the rationale for the exclusion of the article XIII 4(b), payment from the 11 percent per annum ceiling? Mr. Lidinsky. This would go, Mr. Chairman, to Mr. Steers re- marks this morning, and also to Congressman Bauman's on the give and take of the treaty overall. We feel that way because of the language of XIII 4(c) is an optional payment of $10 million. By structuring our amendment around the necessity to comply with 4(b), the fixed annuity payment of $10 million, we would hope tolls would never be raised, even 1 percent, to insure that second $10 million payment of 4(c). In other words, we would be saying by our amendments is that we do not feel it is right that this country should give 1 cent of that second $10 million and that the tolls should not have to bear that burden. Mr. Hubbard. Thank you. Colonel Haar, two questions or three. Why do you want to limit the terms of Commission Board members to 4 years? Colonel Haar. That is a personal experience of mine, Mr. Chair- man. I felt that board members generally bring a certain vitality and certain drive if they serve a single term. I have seen a number of boards in my experience where there have been repetitive appointments into advanced years of age where productivity of a commissioner or board member has been less than what it should be in my judgement, and I have always had the feeling that a single term would be in the best interest of all concerned. It is a personal observation and experience of mine. Mr. Hubbard. Do you want the Board members to be responsive to the President? Colonel Haar. Yes. I think they should be and have to be. They are his appointees. Mr. Hubbard. How did you arrive at the determination of the two classes of persons who should have representations on the Board of the Panama Canal Commission? Colonel Haar. Well, I felt Mr. Hubbard. You said, am I correct, that two of five persons on the Board from the Atlantic or Gulf area, one engaged in the management or operation of an American-flag steamship line and the other in a major import or export business, depending upon the Panama Canal as its principal transportation route? Colonel Haar. Yes, sir, that is correct. Mr. Hubbard. How did you arrive at that? Colonel Haar. I felt that they, too, were looking at it from the port viewpoint, that they are two categories that are very much involved and have a lot at stake and would probably be able to give 1522 the best judgment and have the best insights into what is involved in terms of what is going to be good and proper for our industry and are going to make those judgments that is going to be in the best economic interest of our port industry in our respective region- al areas. Mr. Hubbard. I have no other questions of these four helpful witnesses. Do you have any questions? Mr. Tannenbaum. Yes; I do. Mr. Prior, I believe you said that the most important element you consider is the congressional oversight, is that correct? Mr. Prior. Yes, sir. Mr. Tannenbaum. And I know that Mr. Lidinsky touched on that question on page 2. I was wondering if that was the feeling of the other two members of the panel that congressional oversight is the most important or certainly one of the most important? Colonel Haar. Yes, sir, I would agree that congressional over- sight is all important. I would agree with that. Dr. Brandes. I concur. I believe two of my recommendations have an implicit need for congressional oversight. One is with respect to the organization of the new Commission and a yearly review of its budget. And the third recommendation is what I call a searching public review of every request for toll increases. Mr. Tannenbaum. What do you consider the next most impor- tant issue? Colonel Haar. I think the next most important issue is probably the membership on the Commission of the type we just discussed with the chairman, and if I could go a step further, I would say I would be quite interested in a limitation on the tolls of the type that we have discussed, and also if it were possible, we would be very interested in Mr. Murphy's bill dropping the requirements on interest payments. Mr. Tannenbaum. That poses an interesting question, and I will raise this with Mr. Lidinsky. On page 4 of your statement you say the east coast ports were assured by the State Department that any toll increases would not be harmful. On page 6 you say: We further recognize and accept the fact that canal users and not the American taxpayer should bear the burden of canal operations. Now, you heard the exchange this morning on the interest pay- ment that it would be bad accounting practice to drop the interest payment. It is a cost. Now, are you just saying generally that the United States should just subsidize the operation? Mr. Lidinsky. No. I would be in favor — and I am speaking per- sonally here— that in Mr. Murphy's bill, if the amortization provi- sion were eliminated and the interest was rebased on a lower figure so that the interest would come out in the neighborhood of $20 million a year, that that would not be too great a burden for users. What I said on page 6 regarding the burden of operating the canal should fall on the users, I meant the normal day-to-day 1523 operations and a repayment of a reasonable interest figure, about $20 million a year. Mr. Tannenbaum. Then you favor a $20 million interest pay- ment? Mr. Lidinsky. I would think and hope the carriers could live with that if you eliminated the amortization and had a safeguard in there that toll increases were not just going to become rampant to increase revenues to get into the 4(c) the second $10 million. Mr. Tannenbaum. Mr. Brandes, in previous testimony before this subcommittee, I believe you testified that there was a lapse period between the institution of a toll and really finding out what that means in terms of effect upon the operations. Could you describe that in relation to our current situation? Dr. Brandes. Yes. The lapse essentially is in finding that the maximum effect of the toll increase will probably not be felt for 5 years or more. Obviously in a 5-year period, many other things will come in to cloud the picture, so to speak. But this does not detract from the logical finding that, because of the nature of foreign trade, where so much is involved with contracts, many of them long-term contracts that require compliance no matter what the circumstances are, that it takes several years before many compa- nies or organizations are in the position to make the kind of alternate arrangements necessary to avoid using the canal. We also have found that once companies and organizations decide not to use the canal and make investment in alternate facilities, that business is lost to the canal forever. Then these same companies, in fact, have a vested stake in the use of the alternate means. So there is a great danger in ignoring this long-run effect of toll increases. In the short run it may appear as if it is possible to get away, so to speak, with a large toll increase, but the effects of it may catch up in 5 years time. This still holds true. This does not mean that all the effects are delayed for 5 years. It really means the maximum effect is delayed for 5 years. Mr. Tannenbaum. Have we felt the full effect of the previous toll increase of 1974 and 1976? Dr. Brandes. Probably not. It is still going on. We have found, for instance, with respect to coal shipments that the amount of coal shipments that go by the Cape of Good Hope is still increasing, even though the last toll increase was in 1976. One company does it, and obviously this kind of thing attracts imitators, who want to see whether this can be done. So more people do it. So yes, you do have an increasing effect, and I do not think you have seen the full impact of the 1976 toll increase. Mr. Tannenbaum. This leads me into the next question, and that is earlier you talked about some of the encouraging items to re- place the Alaskan oil such as the grain shipments and increased trade with China. Are there any discouraging items such, as you point out, as the coal loss or any other items like that that you find reflect adverse- ly? Dr. Brandes. Well there have been some minor losses; for in- stance, intercoastal trade between the east coast and the west coast of the United States which has been virtually eliminated other 1524 than the petroleum shipments from Alaska. This used to be a very thriving business involving the shipments of lumber from our west coast to the east coast, and the shipment of steel products from the east coast to the west coast. The last few ships that were involved in this trade have ceased operations. There is always a process of change going on for a variety of reasons, some of it related to tolls. I believe that tolls probably played a part in the eclipse of intercoastal trade, but there were other factors as well. Mr. Tannenbaum. Are you optimistic or pessimistic as to the ability of the canal to operate on a self-sustaining basis, assuming all proper costs are chargeable to the canal operation? Dr. Brandes. I am optimistic, provided that the Canal Commis- sion is organized in such a way that it can take advantage of the commercial opportunities that exist. I believe, as has been well demonstrated during the past few years that the Panama Canal is actually in a competitive business. It used to be thought of as a monopoly. It is not a monopoly any more, because obviously with these alternatives there are other ways of satisfying the buyers and sellers involved. If the new Canal Commission realizes it is in the competitive business and begins to behave like a competitive business, I think there is room for optimism. The basic reason for this is that the foreign trade of the United States is expanding quite rapidly, not just in imports, but in exports as well. The canal can continue to play a very vital role in this, but I feel there must be a change with respect to the management of this business. Being in a competitive business, the managers of the new Commission must recognize that they have to go out and sell themselves. Traditionally, I think the company has been ready to accept any ship that came to the canal and give the ship a transit. But nobody was prepared to go out and dig up new business, so to speak. I think this probably will have to change. The Canal Commission should engage in marketing like any other organization that is engaged in a competitive enterprise. Mr. Lidinsky. Can I add that since the 1976 toll increase there is a legal-regulatory reality now present which greatly adds to the sensitivity question, and that is that the Federal Maritime Com- mission has finally resolved the legality of the minibridge and declared that service legal. That opinion was not appealed to the higher courts so that stands, and there also has been a great increase in a new service concept at the Federal Maritime Commission called microbridge, which is even a more direct and greater threat to east and gulf ports than the minibridge. So these two factors are now present, and they are going to be very important in the toll increase sensitivity area. Mr. Tannenbaum. Colonel Haar, you studied the economic impact of the Panama Canal shipments as it affects each State. Could we have a copy of that? Colonel Haar. Yes, sir, I will be happy to make that available for your record. [The following material was submitted for the record:] 1525 TA5LE r.O. I [ICO. .(),.' I C I .(PACT OF AKTEHfiOlME SHIPMENTS VIA PANAMA CAKAL Foil ATLANTIC 4 GULF COAST PORTS GROUPED oY STATE iOTEl PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED & DISCHARGED ON WEST COASTS OF MEXICO, CENTRAL & SOUTH AMERICA, FAR EAST, AUSTRAILIA, & OCEANIA DIRECT IMPACT TOTAL IMPACT EMPLOYMENT = S44 PER LOi.G TON = 1.6 TIMES DIRECT IMPACT = I JOB PER 600 LONG TONS 1 " 1 LO i 1 1 JO TOWS | nl...c"CT 1 TOTAL IE •PLOY "hi. r 1 1 IMPACT I IMPACT | IMPACT L. -J- _L ' 1 roiAi ! M 1 1 1 , -j03, 33 1 I2,926l465fc4|4,681834555| 1 IO t B3U STATE OF LOAD/DISCHARGE 1 1 1 1 AI.AlsA. A | 3 ,755,500| 165, 242 t 000| 264,387, 223| 6,2'j9 CONNECTICUT i 201,972' b,<:;6,76d| I4,2l8,84y| 33 o OELAWAKL i 69,y55| 3,073 f 020| 4,v24,dyij No FLORIDA . | 4 ,454, >42| 1 ;5,y99,li4li|3l 3,599,801 | 7,424 GEORGIA I y06,30v| 19,877,5961 o3,b04,22 0j 1,510 LOUISIANA ! 1 ; 610,. i i')|o'.2,i.7::,720| 1 , 380605978 j 32,63-. '•' A I iME ! 2 7,2615 1,199,4841 1,919,214 1 4 'j \AHYLAtiii i 5 456, ?.j ?i 240,075, I32i 184, 120,2'* >| 9,093 '••SSACHUSLTTS I 816,3561 15,9I9,664| 57,471,4811 1,360 MISSISSIPPI 1 | 185,1611 52,147,0841 83,435, 377| 1,97b •i&i HAMPSHIRE 1 90,250» 3,971,000} 6,353,630| 150 lEK YOtiK/Hdti JERSEY 4 670, 4<" \2)^,A.i 1 , v3o | 32 8, 77 1 , 1 4? \ 7,783 JOuTH CAROLINA i 444,505| I9,5f>8,220| 3 1,293, 21 7| 740 PENNSYLVANIA , i '-> ,422,3 $91 1 On, 585, 116) 170,536,2481 4,03 7 RHODE ISLAND i 143,8101 6,327,640! 10, !24,250| 239 SOUTH CAROL INA ,1 723,710! 3I,«43,240| 50,949, l85| 1 , 20^ ITIXAS i 1 f) ,042,5091 4 ) ,,?7'),390| 749,232,0/ 1 1 7,73 7 VliiOlMA i 10 ,88 1 , y|6[4 ?8,b04, 3U4I 766,086,91 41 1 8, 136 L I i l_ 1526 TABLE NO. 2 STATE SUMMARY ANALYSIS BY COUNTRY OF LOAD/DISCHARGE ECONOMIC IMPACT OF HATERBORNE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC * GULF COAST PORTS GROUPED BY STATE NOTE* PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED 4 DISCHARGED ON NEST COASTS OF MEXICO, CENTRAL & SOUTH AMERICA, FAR EAST, AUSTRAILIA, & OCEANIA DIRECT IMPACT- TOTAL IMPACT EMPLOYMENT » $44 PER LONG TON - 1.6 TIMES DIRECT IMPACT » I JOB PER 600 LONG TONS STATE OF LOAD/DISCHARGE i ALABAMA I LONG TONS | I ; l i DI RECT | IMPACT | L I TOTAL | EMPLOYME NT IMPACT | IMPACT L TOTAL MEXICO GUATMLALA EL SALVADOR NICARAGUA CANAL ZONE COLOMBIA ECUADOR PERU CHI LE THAILAND "ALAYSIA SINGAPORE INDONESIA PHILIPPINES KOREA, REP. OF... HONG KONG REPUBLIC OF CHINA JAPAN AUSTRALIA NEW ZEALAND I 3,755,500| I29,07l| 4131 7,367| 7ti| 3I4| 2,767| 2,6I3| 687,2031 503,25 11 1 ,8d7| 37,6d3| 23,7421 35,0731 58,3081 78,3I9| 5, I36| 78,767| I ,8I3,470| 284,389| 5,638| I 165,242,0001 5,679,1241 18,1721 324,I48| 3,4321 I3,8I6| I2I,748| I 14,9721 30,236,9321 22, I43,044| 83,028| 1,658,052 1 1,044,6481 1,543,2121 2,565,5521 3,446,036| 225,984| 3,465,748| 79,792,680| 12,513, II6| 248,0721 1 264,387,2231 9,086,644| 29, I00| 5I8,666| 5,549| 22, I60| I94,855| I83,956| 48,379, II2| 35,428,894| I32,857| 2,652,9I5| 1,671,4421 2,469, 172| 4, 104,9371 5,5I3,708| 36 1 , 59 I | 5,545,2621 I27,668,3I0| 20,02 1,0521 396,942| L. 6,259 215 12 4 4 I, 145 838 3 62 3^ 58 97 130 8 131 3,022 473 9 SEE F(X)TNOTI-:S AT END OF TA8LE. 1527 - 2 - TABLE NO. 2 STATE SUMMARY ANALYSIS BY COUNTRY OF LOAD/DISCHARGE ECONOMIC IMPACT OF WATERBORNE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC & GULF COAST PORTS GROUPED BY STATE NOTE i PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED & DISCHARGED ON WEST COASTS OF MEXICO, CENTRAL & SOUTH AMERICA, FAR EAST, AUSTRAILIA, & OCEANIA DIRECT IMPACT TOTAL IMPACT EMPLOYMENT -CONTINUED = $44 PER LONG TON = 1.6 TIMES DIRECT IMPACT = I JOB PER 600 LONG TONS STATE OF LOAD/DISCHARGE * CONNECTICUT I LONU TONS | I L DI RECT IMPACT | TOTAL | IMPACT J! I | EMPLOYMENT | IMPACT 1 TOTAL ECUADOR PERU CHILE THAILAND MALAYSIA PHILIPPINES PEOPLES REP. OF CHINA KOREA, REP. OF JAPAN I 201,9721 II, 23 I I 2,I9I| 28,572| 45 | 2211 35,891 | 10! 33,614| 90, I94| L. 3,d86,768| 494,I64| •96,404| I,257,168| I ,980| 9,724| l,579,204| 440| 1 ,479,016| 3,968,536| L I I4,2I8,849| 790,684| 154,2551 2,01 I, 495 1 3, I78| I5,589| 2,526,744| 72 4| 2,366,4701 6,349,705 1 L. 336 13 3 47 59 56 150 iEE F(X)TNOTES AT END OF TABLE. 44-394 O - 79 pt. 2-44 1528 TABLE NO. 2 STATE SUMMARY ANALYSIS BY COUNTRY OF LOAD/DISCHARGE ECONOMIC IMPACT OF WATERBORNE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC & GULF COAST PORTS GROUPED BY STATE NOTE i PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED & DISCHARGED ON WEST COASTS OF MEXICO, CENTRAL & SOUTH AMERICA, FAR EAST, AUSTRAILIA, & OCEANIA DIRECT IMPACT TOTAL IMPACT EMPLOYMENT -CONTINUED $44 PER LONG TON 1.6 TIMES DIRECT IMPACT I JOB PER 600 LONG TONS STATE OF LOAD/DISCHARGE i DELAWARE TOTAL MEXICO PANAMA PERU CHILE KOREA, REP. OF... HONG KONG REPUBLIC OF CHINA JAPAN AUSTRALIA NEK ZEALAND | LONG TONS I 1 DIRECT I 1 TOTAL (EMPLOYMENT 1 1 1 _i_ IMPACT | 1 IMPACT | I IMPACT 1 1 I 69,9-351 1 3,073,0201 1 4,924,8931 116 | 14,0011 6I6,044| 985,670| 23 1 l,933| .87,2521 139,6631 3 1 76o| 33, 704| 53,979| 1 1 4,I73| 183,6121 293,80d| 6 I 20,340| 894,9601 1 , 43 1 , 96 1 | 33 1 2I| 924| 1.4971 1 22 J 968| 1,6101 1 7, 69l| 333,404| 54 1,5I5| 12 | 2 0,737| 9I2,428| 1 ,459,937| 34 1 216| 1 _i_ 9,504| 1 I5,243| SEE F(X)TNorES AT EN J OF TABLE, 1529 TABLE NO. 2 STATE SUMMARY ANALYSIS BY COUNTRY OF LOAD/DISCHARGE ECONOMIC IMPACT OF WATERBORNE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC 4 GULF COAST PORTS GROUPED BY STATE PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED 4 DISCHARGED ON WEST COASTS OF MEXICO, CENTRAL 4 SOUTH AMERICA, FAR EAST, AUSTHAILIA, 4 OCEANIA DIRECT IMPACT TOTAL IMPACT EMPLOYMENT -CONTINUED S44 PER LONG TON 1.6 TIMES DIRECT IMPACT I JOB PER 600 LONG TONS STATE OF LOAD/UISCHAHGEt FLORIDA LONG TONS | I 1. I I DIRECT | TOTAL | EMPLOYMENT IMPACT | IMPACT I IMPACT TOTAL MEXICO CUATMLALA EL SALVADOR HONDURAS NICARAGUA COSTA RICA PANAMA CANAL ZONE COLOMBIA ECUADOR PERU CHILE THAILAND MALAYSIA SINGAPORE INDONESIA PHILIPPINES MACAO PEOPLES REP. OF CHINA.. KOREA, REP. OF IIONo KONG REPUBLIC OF CHINA JAPAN AUSTRALIA PAPUA NEW GUIMtA I 4,454,5421 I 26,9I5| l,636| 50, I72| 4| 33,5631 35,4881 1,913! 7631 I4,537| 184,3941 69, 897 | 71,7661 65,5711 9,6I5| 74,234| 36,6951 127,7431 6| 275| 1,283,7481 5,532| 5 7,6 7 1 | 2,247,543| 4^,66 1 | 0| 95,999, I, 184, 71, 2,207, 1,476, 1 , 56 I , 84, 33, 639, 3, 113, 3,075, 3, 157, 2 , 885 , 423, 3,266, 1,614, 5.620, 12 56,434 24 3 2,537 93,891 2, 141 I 848|3I3, 260| I, 984 | 568| 3, I76| 9921 2 4721 2 1721 5721 62 8| 1 336| 12 468| 4, 704| 5, I24| 4, 060| 296| 5, 5801 2, 6921 8, 264| I00| 9121 90, 408| 52 4 | 4 892| 158, 0U4| 3, 01 5 99, 894, 115, 532, 363, ,498, 134, 53, ,02 3, ,981, ,920, ,052, ,616, 676, ,226, ,583, ,993, I 801 | 866| 24l| I65| 339| 239| 407| 6b I I 7I6| 43l| 364 1 748| 3751 2031 9531 099| 358| 1431 445| 400| 899| 474| 0931 092| 804| 39| 2 83 55 59 3 24 307 116 119 109 16 123 61 212 2, 139 9 96 3,745 SHE HmTNdFS AT h'.JU OH TAbLl: 1530 TABLE NO. 2 STATE SUMMARY ANALYSIS BY COUNTRY OF LOAD/DISCHARGE ECONOMIC IMPACT OF WATERBORNE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC & GULF COAST PORTS GROUPED BY STATE NOTEi PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED & DISCHARGED ON WEST COASTS OF MEXICO, CENTRAL & SOUTH AMERICA, FAR EAST, AUSTRAILIA, & OCEANIA DIRECT IMPACT TOTAL IMPACT EMPLOYMENT -CONTINUED S44 PER LONG TON 1.6 TIMES DIRECT IMPACT 1 JOB PER 600 LONG TONS STATE OF LOAD/DISCHARGE: FLORIDA 1 LONG TONS | 1 1 DIRECT IMPACT 1 TOTAL | EM PL OYME NT IMPACT | IMPACT 1 NFN ZFALAKL) 1 6, 162| I6| 21 1. 271,128 704 88 1 433,848| 10 BRITISH PAC. ISL... 1,I62| | 203| 1 TRUST TERR. OF PAC. ISL. SEE F(X)TN()THS AT END OF TABLE, 1531 TABLE NO. 2 STATE SUMMARY ANALYSIS BY COUNTRY <>F LOAD/DISCHARGE ECONOMIC IMPACT OF WATERBORNE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC 4 GULF COAST PORTS GROUPED BY STATE PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED 4 DISCHARGED ON WEST COASTS OF MEXICO, CENTRAL 4 SOUTH AMERICA, FAR EAST, AUSTRAILIA, & OCEANIA DIRECT IMPACT TOTAL IMPACT EMPLOYMENT -CONTINUED $44 PER LONG TON 1.6 TIMES DIRECT IMPACT I JOB PER 600 LONG TONS STATE OF LOAD/DISCHARGE i GEORGIA TOTAI MEXICO EL SALVADOR NICARAGUA COSTA RICA PANAMA CANAL ZONE COLOMBIA ECUADOR PERU CHI LE THAILAND MALAYSIA SINGAPORE INDONESIA PHILIPPINES MACAO PEOPLES RLP. OF CHINA... KOREA, HEP. OF HONG KONG REPUBLIC OF CHINA JAPAN AUSTRALIA NEW ZEALANU I LONG TONS I I : l. i 906,3091 131 123! 9, 1521 I2,750| IB, 227| l,237| 8,5121 14,6211 15,7101 3, I9.ll 8, I6I| I3,20V| 6,023| I, I75| 44,421 I HI 10, 161 | 55,775| 18,4971 29, 162! 59l,759| 42, I95| l,403| L DIRECT | IMPACT I L TOTAL lE'XPLOYMENT IMPACT | IMPACT L 5 402 561 801 54 374 643 691 140 359 581 300 51 1,954 447 2,454 til 3 1,283 2*. 037 l,o56 61 I 596| 5721 4121 688| 000| 988 1 428| 528| 324| ,2401 7I2| 084| I96| 432| 700| 524| 484 1 084| I00| 868| 1281 396| 5bO| 732| L 8 644 897 1,283 87 599 1,029 I, 106 225 574 92 9 480 82 3, 127 715 3,926 1,302 2,05 3 41 ,659 2,970 9o I 220| 9221 7I7| 334| 640| I85| 086| 246| 328| 005| I48| 5721 925| 6921 733| 2621 8051 387| 6I4| 258| 02 9| 867| 542| 83 5| L 1,510 15 21 30 2 14 24 26 5 13 22 I 74 16 92 30 48 936 70 2 SEE FmTWOTES AT diJIJ Oh TAUI.L. 1532 TABLE NO. 2 STATE SUMMARY ANALYSIS BY COUNTRY OF LOAD/DISCHARGE ECONOMIC IMPACT OF HATERBORNE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC & GULF COAST PORTS GROUPED BY STATE PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED & DISCHARGED ON WEST COASTS OF MEXICO, CENTRAL & SOUTH AMERICA, FAR EAST, AUSTRAILIA, & OCEANIA DIRECT IMPACT = $44 PER LONG TON TOTAL IMPACT ■ 1.6 TIMES DIRECT IMPACT EMPLOYMENT = 1 JOB PER 600 LONG TONS -CONTINUED STATE OF LOAD/DISCHARGE* LOUISIANA 1 1 | LONG TONS | 1 1 1 1 1 DIRECT | IMPACT | 1 TOTAL | EMPLOYMENT IMPACT | IMPACT 1 TOTAL | | y 1 1 1 ,6l0,080|86 2,d78,720| 1, 380605978 1 b22,720| 22,999,6001 36,799,491 | 3d, 570| I,697,0b0| 2,715,3781 367,777| 16,182,188) 25,891,5661 0| Of 9| I62,374| 7,I44,456| 11,431, I83| 89,751 | 3,949,044| 6,318,500) I3I,867| 5,802,1481 9,283,441 75,9I8| 3,340,392| 5, 344,62b) I22,300| 5, 3« 1 ,200| 8, 609, 965 | 161,2531 7,095,1321 11,352, 264 | 566,o62| 24,933,1281 39,893,036) 269,948| 11,077,7121 I9,004,360| 266,1901 11,712,360) I8,739,840| 201,4531 8,863,9321 14,182,340) 150,1961 6,960,624) 11,137,030) 404,06 11 17,778,6841 28,445,936| 769,5821 33,86l,608| 54,I70,640| 22| 968| 1,602 1 86,749| 3,8I6,956| 6, 107, I29| 918,499) 40,413,9561 64,662,332) 8,9021 391,608) 626,7I4| ,592, I93| 70,056,4921 1 1 2,090, 436| ,682, 5931 5 14, 034, 092 |622, 45 4, 573| 9I2.6I0J 40,I54,840| 64,247, 770| 2, 839| 124,9I6| 199,927) 1 1 1 32,684 MEXICO 871 64 612 NICARAGUA 270 COSTA RICA 149 21 9 126 203 ECUADOR 268 PERU 944 CHII E 449 THAILAND 443 335 263 67 3 1 ,282 SOUTHERN ASIA, N.e.C | PEOPLES REP. OF CHINA... | KOREA, REP. OF | 144 1,530 14 REPUBLIC OF CHINA. | 1 j || 2,653 19,470 1 ,521 PAPUA NEW GUINEA. . 4 SEE FOOTNOTES AT END 01- TABLE. 1533 TABLE NO. 2 STATE SUMMARY ANALYSIS BY COUNTRY OF LOAD/DISCHARGE ECONOMIC IMPACT OF WATERBORNE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC & GULF COAST PORTS GROUPED BY STATE NOTE* PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED & DISCHARGED ON WEST COASTS OF MEXICO, CENTRAL & SOUTH AMERICA. FAR EAST. AUSTRAILIA. & OCEANIA DIRECT IMPACT TOTAL IMPACT EMPLOYMENT -CONTINUED = $44 PER LONG TON =1.6 TIMES DIRECT IMPACT = 1 JOB PER 600 LONG TONS STATE OF LOAD/DISCHARGE « LOUISIANA LONG TONS I I L DI RECT IMPACT TOTAL IMPACT IE MP! OYMENT I IMPACT 1 NEW ZEALAND FRENCH PAC. ISL TRUST TERR. OF PAC. ISL. OTHER PAC ISL. N.E.C 70 f 256| 7 f 833| 556| 19, I92| L I 3,09 1,2641 344,652| • 24,4o4| 844 t 448| L I 4,V46,0o7| 55 1 , 473 | 39, I54| 1,35 1, 17 1 | L 117 13 31 SEE FOOTNOTES AT END 01-' TABLE 1534 TABLE NO. 2 STATE SUMMARY ANALYSIS BY COUNTRY OF LOAD/DISCHARGE ECONOMIC IMPACT OF WATERBORNE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC & GULF COAST PORTS GROUPED BY STATE NOTE* PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED & DISCHARGED ON WEST COASTS OF MEXICO, CENTRAL & SOUTH AMERICA, FAR EAST, AUSTRAILIA, & OCEANIA DIRECT IMPACT TOTAL IMPACT EMPLOYMENT -CONTINUED = $44 PER LONG TON = 1.6 TIMES DIRECT IMPACT = I JOB PER 600 LONG TONS STATE OF LOAD/DISCHARGE* MAINE TOTAL COLOMBIA ECUADOR CHILE THAILAND SINGAPORE PHILIPPINES HONG KONG REPUBLIC OF CHINA JAPAN AUSTRALIA NEW ZEALAND SEE F(X)TNOTES AT ^D OF TABLE 1 1 I LONG TONS | DIRECT I TOTAL | EMPLOYMENT 1 1 1 I IMPACT | 1 IMPACT | 1 IMPACT 1 1 1 27,2611 1 1, I99,484| 1 I,9I9,2I4| 45 I 2,066J 90,904| !45,458| 3 1 0| 0| 6| 1 2,6371 1I6,028| I85,666| 4 1 15, II5| 665,060| 1,064, III | 25 | 448| 19,7121 3I,573| 1 321 1 ,408| 2,2861 1 0| 0| 30| 1 533| 23,452! 37,566| 1 576| 25,344| 40,593| 1 5, 304| 233,376| 373,429| 8 | ( j46| 1 -L 24,024| 1 38,493| 1535 TABLE NO. 2 STATE SUMMARY ANALYSIS BY COUNTRY OF LOAD/DISCHARGE ECONOMIC IMPACT OF HATERBORNE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC 4 GULF COAST PORTS GROUPED BY STATE NOTE i PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED 4 DISCHARGED ON WEST COASTS OF MEXICO, CENTRAL 4 SOUTH AMERICA, FAR EAST, AUSTRAILIA, 4 OCEANIA DIRECT IMPACT TOTAL IMPACT EMPLOYMENT -CONTINUED = $44 PER LONG TON = 1.6 TIMES DIRECT IMPACT - I JOB PER 600 LONG TONS STATE OF LOAD/Ulf.CHARGEt MA RYU NO LONG TONS | I L DIRECT | I '(PACT | TOTAL | EM IMPACT | L_ PLoYMENT IMPACT ToTAJ MEXICO EL SALVADOR NICARAGUA COSTA rtICA PANAMA CANAL ZONE COLOMBIA ECUADOR PERU CHILE THAILAND MALAYSIA SINGAPORE INDONESIA PHILIPPINES MACAO PEOPLES REP. OF CHINA... KOREA, REP. OF HONG KONG REPURLIC OF CHINA JAPAN AUSTRALIA MEW ZEALAND FRENCH PAC. ISL TRUST TERR. OF PAC. ISL. I 5,456,2531 II0,527| 224| 997| 9,45l| 7,9721 5, I40| 2I,62V| 2 I , 92 7 1 73,9131 117,7211 37,83o| 30,969| 23, 006| 49,322| I49,930| 33| 988| 273,500| 38,509| 287,525| 3,729,6331 391,4361 4,23l| 39,907| 29,905| L 240,075 4,863 9 43 415 350 226 95 1 964 3,252, 5, 179 1,664 1,362 1,012 2,170 6,596 I 43 12,034 I ,694 I 2 , 65 I 164, 103 I 7, 223 136 1,755 1,315 I .1321 . I8«| ,856| ,868| ,844| ,768| .5121 .676| .788| ,1721 .724| ,784| ,636| ,264| , I68| ,920| ,4521 .4721 ,0001 ,396| , I00| .8521 , I84| . I64| ,908| ,820| 384, 120, 7,781 15 70 665 561 362 1,522, 1,543, 5,203, 8,287, 2,663 2, 180 1,619 3,472 10,555 2 69 19,254 2,711 20,241 262,566 27,557 297 2,609 2, 105 I 243| I63| 808 1 2I4| 3651 298| 46l| 72l| 676| 534| 620| 7II| 243| 665| 296| I25| 357| 559| 464| 054 1 828| 228| I 44 | 9I2| 466| 32 7| 9,093 184 15 13 8 36 36 123 196 63 51 38 82 249 I 455 64 479 6,216 652 7 66 49 SEE F(K)TNoruS AT UiA\) OK TABLE. 1536 TABLE NO. 2 STATE SUMMARY ANALYSIS BY COUNTRY OF LOAD/DISCHARGE ECONOMIC IMPACT OF HATERBORNE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC & GULF COAST PORTS GROUPED BY STATE PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED A DISCHARGED ON HEST COASTS OF MEXICO, CENTRAL & SOUTH AMERICA, FAR EAST, AUSTRAILIA, & OCEANIA DIRECT IMPACT TOTAL IMPACT EMPLOYMENT -CONTINUED = $44 PER LONG TON - 1.6 TIMES DIRECT IMPACT = I JOB PER 600 LONG TONS STATE OF LOAD/UISCHARGEI MASSACHUSETTS TOTAI "EX ICO EL SALVADOR COSTA RICA CANAL ZONE ECUADOR PEHU CHILE THAILAND MALAYSIA SINGAPORE INDONESIA PHILIPPINES MACAO PEOPLES REP. OF CHINA.. KOREA, REP. OF HONG KONG REPUBLIC OF CHINA JAPAN AUSTRALIA PAPUA NEW GUINEA NEW ZEALAND FRENCH PAC. ISL SEE F(X)TN()TES Al' END OF TABLE. 1537 - 12 TABLE NO. 2 STATE SUMMARY ANALYSIS BY COUNTRY OF L() AD/DISCHARGE ECONOMIC IMPACT OF WATERBORNE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC & GULF COAST PORTS GROUPED BY STATE NOTE i PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED & DISCHARGED ON HEST COASTS OF MEXICO, CENTRAL & SOUTH AMERICA, FAR EAST, AUSTRAILIA, & OCEANIA DIRECT IMPACT- TOTAL IMPACT EMPLOYMENT -CONTINUED $44 PER LONG TON 1.6 TIMES DIRECT IMPACT I JOB PER 600 LONG TONS STATE OF LOAD/DISCHARGE « MISSISSIPPI I LONG TONS | I L DIRECT | IMPACT | L TOTAL | EMPLOYMENT IMPACT | IMPACT L TOTAL MEXICO EL SALVADOR PANAMA ECUADOR PERU CHILE THAILAND MALAYSIA SINGAPORE INDONESIA PHILIPPINES PEOPLES REP. OF CHINA... KOREA, REP. OF HONG KONG REPUBLIC OF CHINA JAPAN NEW ZEALAND I 185, I6I| 4 , 94 2 1 I6,435| l,065| I47,895| 7, 0I9| 17,733 1 70,527| 6I| l,2dl| I, I66| 24,d66| 30,74 11 32,244| 24| 67, I87| 760,3031 I,6I3| I 52, I47,084| 2I7,448| •723, I 40 | 46,860| 6,507,380| 308,836| 782,4521 3,103,1881 •2,6841 56,364| 5I,304| I,094,I04| 1,352,604| I,4I8,736| l,05o| 2,956,2281 33,453,3321 70,972| 83,435 34 7 1, 157 74 10,41 I 494 1,251 4,965 4 90 82 1,750 2, 164 2,270 I 4,730 53,525 113 I ,377| ,9731 ,0d9| ,980| ,871 | , 141 | ,96l| , I2d| ,304| , I84| ,I38| ,623| ,224| ,011 | ,73V| ,0I9| ,3731 ,610| _L. 1,975 8 27 I 246 I I 29 117 2 I 41 51 53 II I 1,267 2 SEE F(X)TNOI\£S AT END OH TABLE, 1538 TABLE NO. 2 STATE SUMMARY ANALYSIS BY COUNTRY OF LOAD/DISCHARGE ECONOMIC IMPACT OF WATERBORNE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC & GULF COAST PORTS GROUPED BY STATE NOTEt PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED & DISCHARGED ON WEST COASTS OF MEXICO, CENTRAL & SOUTH AMERICA, FAR EAST, AUSTRAILIA, & OCEANIA DIRECT IMPACT TOTAL IMPACT EMPLOYMENT -CONTINUED = $44 PER LONG TON ■1.6 TIMES DIRECT IMPACT = 1 JOB PER 600 LONG TONS STATE OF LOAD/DISCHARGE: NE/J HAMPSHIRE I LONG TONS | I L DI RECT IMPACT TOTAL IMPACT TOTAL . , MEXICO, CHILE.. I 90,2501 4I,504| 43,745| L I | EMPLOYMENT I IMPACT 1 3 , 97 I , 000 1 I, 326, I76| 2, 1'44,780| - L I 6,353,6301 2,92l,934| 3,43l,696| L 50 69 81 SEE FOOTNOTES AT END OF TABLE, 1539 TABLE 0.0. 2 STATE SUMMARY ANALYSIS 3Y COUNTRY OF LOAD/DISCHARGE ECONOMIC IMPACT OF WATERBOR.IE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC 4 GULF COAST PORTS GROUPED BY STATE PANAMA CANAL SHIPMENTS DEFINED AS ALL CAkGOS LOADED & DISCHARGED ON rtEST COASTS OF MEXICO, CENTRAL & SOUTH AMERICA, FAR EAST, AUSTRAILIA, & OCEANIA DIRECT IMPACT TOTAL IMPACT EMPLOYMENT S44 PER LONG TON 1.6 TIMES DIRECT IMPACT I JOB PER 600 LONG TONS NEri YORK/NEN JSifS . _ . . ..,.._ 1 LONG TONS | 1 L _L 1 DIRECT 1 impact i i 1 TOTAL | EMPLOYMENT IMPACT 1 IMPACT 1 TOTAL 1 4,o70,044| ? 26, lUiJ] 704 J 64,767! 2b| 30, 7dl | 6v,569| 83.&74J 33, W3| 70,641 | 27d, oo. if 1 14,6 S6| 1 14,2471 90, 656 | 0| I0y,y()7| 82,6431 1 6 1 , 70 1 1 II! I 4bb,o6yi 237! 1 0| 9,264| 16! 4/7,5291 21 ft, 4331 t l 05.4JI ,93o|32cJ,77l, 1421 l,l4H,7b2| l,U38,038| 30, 976 | 49,62d| 2,El7, 371, 7321 91,794,B26| 6, 941, I44J 27, 105,8331 I ,056| 3,944,990) 264| 1 ,760| 1 4 , oOt, | 92,0921 I ,BU4| L 1 , 740 1 6,312,02^1 445| 2, 8I6| 23,439! !47,4I5| 2,94 2! 650 2,173 64 1 149 3 1541 lAULt NCI. £ STATE SUMMARY ANALYSIS BY COUNTRY OF LOAD/DISCHARGE ECONOMIC IMPACT OF NATEHBORNE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC & GULF COAST PORTS GROUPED BY STATE NOTEi PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED & DISCHARGED ON WEST COASTS OF MEXICO, CENTRAL & SOUTH AMERICA, FAR EAST, AUSTRAILIA, & OCEANIA DIRECT IMPACT TOTAL IMPACT EMPLOYMENT -CONTINUED = $44 PER LONG TON = 1.6 TIMES DIRECT IMPACT = i job per 600 long tons STATE OF LOAD/DISCHARGE « NORTH CAROLINA TOTAL NICARAUUA PANAMA COLOMBIA ECUADOR PERU CHILE THAILAND MALAYSIA SINGAPORE INDONESIA PHILIPPINES PEOPLES REP. OF CHINA. KOREA, REP. OF HONG KONG REPUBLIC OF CHINA JAPAN AUSTRALIA NEW ZEALAND LONG TONS I I = L DIRECT | IMPACT | I TOTAL I EMPLOYMENT IMPACT | H'PACT I 740 b 4 I I 101 I6d 13 O 2V 20 60 I 24 293 3 SEE F00TN(/TFS AT END OF TABLE. 1542 TABLE NO. 2 STATE SUMMARY ANALYSIS BY COUNTRY OF LOAD/DISCHARGE ECONOMIC IMPACT OF WATERBORNE SHIPMENTS VIA PAWAMA CANAL FOR ATLANTIC * GULF COAST PORTS GROUPED BY STATE NOTE i PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED & DISCHARGED ON WEST COASTS OF MEXICO, CENTRAL & SOUTH AMERICA, FAR EAST, AUSTRAILIA, & OCEANIA DIRECT IMPACT TOTAL IMPACT EMPLOYMENT -CONTINUED = S44 PER LONG TON = 1.6 TIMES DIRECT IMPACT = I JOB PER 600 LONG TONS STATE OK LOAD/DISCHARGE « PENNSYLVANIA TOTAI MEXICO EL SALVADOR NICARAGUA COSTA RICA PANAMA CANAL ZONE COLOMBIA ECUADOR PERU CHILE THAILAND MALAYSIA SINGAPORE INDONESIA BRUNEI PHILIPPINES MACAO PEOPLES REP. OF CHINA... KOREA, REP. OF HONG KONG REPUBLIC OF CHINA JAPAN AUSTRALIA PAPUA NEW GUINEA NEW ZEALAND LONG TONS | I DIRECT I IMPACT | TOTAL I EMPLOYMENT IMPACT | IMPACT L 2,422,389| 106,585 II I2,599| 554 18,9551 834 4I| 3, 46 I | 2, I40| 5,64H| 55,294| 416,4391 51, 1801 25,355| 2,506| 5.988J 14,0421 9| 187,631 | 21 1,8561 195,5d4| 12,2841 I2U.205I 949,6891 272,3951 1,7311 59,3391 152 94 248 2,432 18,323 2,251 1,115 I 10 263 617 0,255 81 8,605 540 5,641 1 1 , 786 I 1,985 76 2,610 I I I o I 44| 356| 020 1 804 | 284| I60| 5121 ,936| ,3161 ,920| ,620| ,264| ,4721 ,848| 396| ,764 | 88| 664 1 ,696| 496| ,020| ,3I6| ,380| , l04| ,9I6| I 170,536 887 1,334 2 243 150 397 3,892 29,317 3,603 1,785 176 421 988 13,209 130 13,769 864 9,025 66,858 19, 176 121 4. 177 I 248| 78| 026| 457| 933| 680| 682| 668| 75 7| 329| 08l| 046| 4501 6I9| 559 | 646| 2391 I86| 708| II4| 794 1 700| I4I| ,635| 868| 499| L. 4,037 20 31 5 3 9 92 694 85 42 4 9 23 312 3 325 20 213 1,582 45 3 2 98 iEE !-(X)TNOTES AT END Or TABLE. 1543 - 17 - TABLE NO. 2 STATE SUMMARY ANALYSIS BY COUNTRY OF LOAD/DISCHARGE ECONOMIC IMPACT OF KiATERBORNE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC & GULF COAST PORTS GROUPED BY STATE NOTEi PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED & DISCHARGED ON WEST COASTS OF MEXICO, CENTRAL & SOUTH AMERICA. FAR EAST, AUSTRAILIA, & OCEANIA DIRECT IMPACT TOTAL IMPACT EMPLOYMENT -CONTINUED = S44 PER LONG TON = 1.6 TIMES DIRECT IMPACT = I JOB PER 600 LONG TONS STATE OF LOAJ/D IS CHARGE: PENNSYLVANIA LONG TONS DIRECT IMPACT TOTAL IMPACT EMPLOYMENT IMPACT FRENCH PAC. ISL , OTHER PAC ISL, N.E.C, 176 22 317 SEE F(X)TN()TES AT END OF TABLE. pt. 2 1544 TABLE NO. 2 STATE SUMMARY ANALYSIS BY COUNTRY OF LOAD/DISCHARGE ECONOMIC IMPACT OF fcATERBORNE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC & GULF COAST PORTS GROUPED BY STATE NOTEt PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED & DISCHARGED ON WEST COASTS OF MEXICO, CENTRAL & SOUTH AMERICA, FAR EAST, AUSTRAILIA, & OCEANIA DIRECT IMPACT TOTAL IMPACT EMPLOYMENT -CONTINUED = $44 PER LONG TON = 1.6 TIMES DIRECT IMPACT = I JOB PER 600 LONG TONS STATE OF LOAD/DISCHARGE: RHODE ISLAND TOTAL PERU KOREA, REP. OF... REPUBLIC OF CHINA JAPAN 1 1 | LONG TONS | DIRECT 1 1 TOTAL 1 EMPLOYMENT 1 IMPACT | 1 IMPACT | 1 IMPACT 143 1 8I0| 6,327, 1 640| 10,124, 250 J 23 9 | 1 047| 46, 068 | 73, 742| 1 | 33 I96| 1,460, 624| 2,337, 022| 55 1 ' 7 7(34| 782, 496| 1,252, 021 | 29 1 91 7821 1 4,038, 408 1 1 6,461, 463| 1 152 SEE F(X)TNOTES AT END OF TABLE. 1545 TABLE NO. 2 STATE SUMMARY ANALYSIS BY COUNTRY OF LOAD/DISCHARGE ECONOMIC IMPACT OF WATERBORNE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC & GULF COAST PORTS GROUPED BY STATE PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED & DISCHARGED ON WEST COASTS OF MEXICO, CENTRAL 4 SOUTH AMERICA, FAR EAST, AUSTRAILIA, & OCEANIA DIRECT IMPACT- TOTAL IMPACT EMPLOYMENT -CONTINUED STATE OF LOAD/DISCHAHGE« SOUTH CAROLINA S44 PER LONG TON 1.6 TIMES DIRECT IMPACT I JOB PER 600 LONG TONS LONG TONS | I DIRECT | IMPACT I L TOTAL | EMPLOYMENT IMPACT | IMPACT L TOTAL GUATMEALA EL SALVADOR COSTA RICA PANAMA CANAL ZONE COLOMBIA ECUADOR PERU CHILE THAILAND MALAYSIA SINGAPORE INDONESIA PHILIPPINES MACAO PEOPLES RtP. OF CHINA .. KOREA. REP. OF HONG KONG REPUBLIC OF CHINA JAPAN AUSTRALIA PAPUA NEW GUINEA NEW ZEALAND I 723,7I0| ltf| 26| I9,851| I6,507| 222| 8.7V0I 45,604| 42,6011 47,6831 4, 424 | 2, 8971 20,642| 4,359| 50,909| I3| 7,8311 88, 101 | 50,0881 II8,4I4| I23,534| 55,2331 31 15,8851 L 3 1,843, I, 873, 726, 9, 386, 2,006 I ,874 2,093, 194 127, 908, 191 , 2,239, 346, 3,876, 2,203, 5,210 5,435 2,430 693 240| 7921 I 44 | 444| 308| 768| 760| 576| 44 4 J 052| 656 | 468| 248| 796| 996 1 572| 764 1 444 | 8721 2I6| 496| 252| I32| 940| L 50,949 I ,397 I, 162 15 618 3,210 2,999 3,356 31 I 203 I ,453 306 3,584 554 6,202 3,526 8,336 8,696 3,888 1,118 I I85| 296| 846| 5421 I32| 630| ,370| 546| I42| ,891 | 509| 9851 259| 9431 0331 962 1 839| 340j 2631 ,360| , 832 | ,408 1 242| ,336| ,20o 33 27 14 76 71 79 7 4 34 7 84 13 146 83 197 205 92 26 SEE FU)TNOTES AT END OF TABLE. 1546 TABLE NO. 2 STATE SUMMARY ANALYSIS BY COUNTRY OF LOAD/DISCHARGE ECONOMIC IMPACT OF WATERBORNE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC & GULF COAST PORTS GROUPED BY STATE NOTE i PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED * DISCHARGED ON NEST COASTS OF MEXICO, CENTRAL A SOUTH AMERICA, FAR EAST, AUSTRAILIA, & OCEANIA DIRECT IMPACT- TOTAL IMPACT EMPLOYMENT -CONTINUED = $44 PER LONG TON » 1.6 TIMES DIRECT IMPACT « I JOB PER 600 LONG TONS STATE OF LOAD/DISCI lARCbi TEXAS LONG TONS I I DIRECT | IMPACT | L TOTAL IMPACT | EMPLOYMENT I IMPACT TOTAL MEXICO GUATMEALA EL SALVADOR HONDURAS NICARAGUA COSTA RICA PANAMA CANAL ZONE COLOMBIA ECUADOR PERU CHILE THAILAND MALAYSIA SINGAPORE INDONESIA BRUNEI PHILIPPINES PEOPLES REP. OF CHINA... KOREA, REP. OF HONG KONG REPUBLIC OF CHINA JAPAN AUSTRALIA PAPUA NEW GUINEA I 0,642,509| 224,0941 60,746| 109,4931 0| 67,2I7| 52,6881 24,952| 36,497| 249,6431 356,9I3| 709,699| 373,036| 109,6771 37,3I9| 133,8621 290,2151 I4| 196,7321 3,040| 49 1,5031 79,863| 266,4281 5,821,3301 B66,050| 5I9| 468,2 70 9,060 2,672 4,817 2,957 2,318 1,097 I, 005 10,984 15,704 31,226 16,413 4,825 1,642 5,889 12,769 8,656 133 21,626 3,513 I 1,722 256, 138 38, 106 22 I 396| I36| 824| 6921 0| 548| 272| 888 | 868| 292| I72| 756| ,584| ( 788| ,036| ,928| ,460| 6I6| ,208| ,760| ,I32| ,972| ,8321 ,520| ,200| ,836| L 749,232 15,776 4,276 7,708, 4,732 3,709 1,756 2,569, 17,574 25, 126 49,962 26,261 7,721 2,627 9,423 20,43 1 I 13,849 214 34,601 5,622 18,756 409,821 60,969 36 I 678| 229| 573| 3I3| 33| 099 | 298| 649| 404 1 904| 690| 840| 775| 30l| 26 1 | 953| I90| 030| 996 1 045| 846| 399 | 597| 678| 92 0| 557| I 7,73 7 373 101 182 112 87 41 60 416 594 1,182 62 1 182 62 223 483 327 5 319 133 444 9,702 1,443 SEE FOOTNOTES AT END OH TABLE. 154* - 21 - TABLE SO. 2 STATE SUMMARY ANALYSIS BY COJNTFY OF LDAZ/3 ISCHAftCE ECONOMIC IMPACT DF M.TEKBoRdE SHIPrfE'-TS *:* PMUMJ .=()= ATLANTIC & X1F C AST - -75 -"- - STATE N TEl PANAMA CANAL SHIPMENTS DEFINED AS All SA -1 E i »ied 4 ::s:-* : :e: '- hest coasts ~- :i'7 : -_ i l ~- A.rfE=ICA, FAS EAST, AUST-.AILIA, L SEAMA DIflBCI I w FACT = s^4 PES 1 : 7*1 :--*:" =1 .6 TIWES em? low est = 1 job per -continue: STATE OF LOAD/D ISCr IHUEi 7 E mo i s: '-ACT 7 SS j - I I 1 1 -7 7 ,'-[ 1 r - _- i 1 67,7571 II 71 - 13, 96| 1 1 2,93l,308| El: I76| 1 1 4,770,1251 = :~l 1 112 : : : 21 SEE - ' 7 1! ' 1548 TABLE NO. 2 STATE SUMMARY ANALYSIS BY COUNTRY OF LOAD/DISCHAROE ECONOMIC IMPACT OF HATERBORNE SHIPMENTS VIA PANAMA CANAL FOR ATLANTIC 4 GULF COAST PORTS GROUPED BY STATE PANAMA CANAL SHIPMENTS DEFINED AS ALL CARGOS LOADED 4 DISCHARGED ON WEST COASTS OF MEXICO, CENTRAL 4 SOUTH AMERICA, FAR EAST, AUSTRAILIA, 4 OCEANIA DIRECT IMPACT TOTAL IMPACT EMPLOYMENT -CONTINUED S44 PER LONG TON 1.6 TIMES DIRECT IMPACT I JOB PER 600 LONG TONS STATE OF LOAD/DISCHARGE i VIRGINIA TOTAL MEXICO GUATMEALA EL SALVADOR PANAMA CANAL ZONE COLOMBIA ECUADOR PERU CHILE THAILAND MALAYSIA SINGAPORE INDONESIA PHILIPPINES PEOPLES REP. OF CHINA.. KOREA, REP. OF HONG KONG REPUBLIC OF CHINA JAPAN AUSTRALIA NEW ZEALAND TRUST TERR. OF PAC. ISL OTHER PAC ISL, N.E.C... I I LONG TONS | DIRECT | I IMPACT | 1. L L TOTAL | EMPLOYMENT IMPACT | IMPACT I I0,8dl,9l6|478 330,0101 14 36| la, i63| 899| 2,405| 473| 2, 690| 8,5521 278. I7!i| 40,903| 77,965| 76,692| I57,802| 60,408| 8891 690,834| 6, B80| lll,784| 4 8,874,7951390 96,342| 4 45,I99| I II 21 L I ,804,304| ,520,440| l,584| 799,I72| 39,5561 I05,820| 20,8121 I I8,360| 376,2081 ,239,7001 ,799,7321 ,430,460| ,374,448| ,943,288| ,657,952 1 39, II6| ,396,6961 302,720| ,918,4961 ,490,980| ,239,048| ,988,7561 44 1 88 | 766,086 23,232 2 1,278 63 169 33 t-89 602 19,583 2,879 5,48b 5,399 I I , 109 4,252 62 48,634 484 7,869 624,785 6,782 3, 182 I 9I4| 736| ,600| ,723| ,307| 347| ,364| ,430| 0621 539| 578| 8031 I45| 305| 740 1 649| ,743| ,404| ,635| ,6I3| ,536| ,077| 90| I70| L ,136 55 30 I 4 4 14 463 68 129 127 263 100 1,151 I 1 186 14,79 1 160 75 1549 Mr. Whitman. I have one short question. I know in the past you have stressed the importance of using the disaggregated approach for use in your forecast of traffic and sensitivity of traffic to toll increases. Is it still your opinion that this is the better way to do it or the only way to do it? Dr. Brandes. My opinion is that it is the best way to do it. I might wish to explain for the record that the disaggregated ap- proach involves analyzing separately the various commodities and commodity movements instead of trying to do one total analysis for all Panama Canal traffic in one lump. We have traditionally sought to analyze the traffic in terms of specific commodities and specific commodity movements, because there really is no logical link between these various commodity movements except that they happen to pass by the same street corner, so to speak, called the Panama Canal. Since there is nothing that logically connects these movements, there is no valid reason for trying to think that they will all behave in exactly the same way. This, in essence, was our justification for trying to analyze these various segments separately, and I believe this justification still holds. Mr. Whitman. Thank you, Mr. Chairman. Mr. Hubbard. Thank you, counsel for the majority. Now, counsel for the minority, Mr. Kenneth Merin. Mr. Merin. You gentlemen are here today representing the gulf ports and the coastal ports. Would you say there is a substantial identity of interest between your own ports and the west coast ports? Colonel Haar. I would like, in that regard, to answer in two ways. First, you have received from the American Association of Port Authorities a statement for the record which enclosed the position of the entire port industry nationwide in the form of a standing resolution, and I have a copy of that here. [The following was submitted for the record:] The American Association of Port Authorities, February 20, 1979. Hon. John M. Murphy, Chairman, Committee on Merchant Marine and Fisheries, House of Representatives, Longworth Building, Washington, DC. Dear Congressman Murphy: We are aware of the hearings being held by your Committee on the Panama Canal situation. I transmit herewith, for your hearing record, a copy of Resolution No. E-28— Urging Toll Levels That Will Not Interfere with Maximizing Use of the Panama Canal. This resolution represents the position of the American Association of Port Au- thorities on this subject as adopted at its Convention in September 1978. We com- mend it to the attention of you and your Committee. Sincerely, Melvin Shore, Chairman, U.S. National Transportation Policy Committee. [No. E-28] Urging Toll Levels That Will Not Interfere With Maximizing Use of Panama Canal Whereas, continued economically feasible access to the Panama Canal by vessels engaged in international trade is of vital importance to the continued welfare of the ports of the United States; and 1550 Whereas, the level of the Panama Canal tolls imposed directly affects the frequen- cy of use by such vessels; and Whereas, a stable and predictable level of tolls is essential to encourage the maximum use of the Panama Canal and to prevent a decrease in the frequency of the use thereof. Now, therefore be it resolved, that the American Association of Port Authorities, in view of the importance of the continued maximum use of the Panama Canal by vessels engaged in the international trade to the economics of the ports of the United States, supports the establishing and controlling of present and future tolls for the use thereof at a stable and predictable level which will not decrease the use thereof; and Be it further resolved, that the Executive Vice President and the Chairman of the Committee on U.S. National Transportation Policy be and they hereby are author- ized to take whatever steps are necessary to carry out the purposes of this resolu- tion. (Unanimously passed) Mr. Haar. It was transmitted to you over the signature of Mel Shore, who is the port director at Sacramento, Calif., who is also the chairman of the American Association of Port Authorities, U.S. National Transportation Policy Committee, a committee that has responsibility in this area for that particular standing resolution. And I might just read one small sentence in that resolution which says, speaking for AAPA, ' 'supports the establishing and controlling of present and future tolls for the use thereof at a stable and predictable level which will not decrease the use there- of." I think that is the essence of that position. So that represents the standing resolution passed by the entire membership of the Ameri- can Association of Port Authorities, which a California port direc- tor did transmit to you for inclusion in the record of this hearing today. However, that notwithstanding, I think some of the California ports are starting to probably count their chickens, we think, before they hatch. We know that Oakland and Los Angeles from newpaper reports that have been published have developed esti- mates as to what potential increase in business they may receive as a result of increasing tolls and diversion of traffic. There is substantial tonnage involved. In fact, they are even getting into some capital programs where they are planning to increase their facilities to take advantage of this new business that they expect to receive. So I think that question should be answered in the two ways that I have addressed it. Mr. Merin. Do you know if the rail industry has made any projections as to how their operations might be affected by mini- bridge? Mr. Lidinsky. There is a letter, which I did not make part of my statement, but I can provide it for the record, which I believe was from the American Association of Railroads, written last year to the Senate in which this was precisely the question. [The following was received for the record:] 1551 Association of American Railroads, Washington, D.C., August 17, 1977. Hon. Ralph H. Metcalfe, Subcommittee on the Panama Canal, Committee on Merchant Marine and Fisheries, the House of Representatives, Washington, D.C. Dear Sir: Thank you your invitation to testify on the vital interests of the United States in the Panama Canal during the hearings held by your subcommittee on July 25-27, 1977. Unfortunately, as I explained to Coleman Comroy of your staff, I was committed to be away from Washington throughout that period. Under those cir- cumstances, I appreciate the opportunity to transmit my comments on certain questions relating to the railroad industry. Among the questions concerning the economic interests of the United States in the Panama Canal that you submitted to members of Panel No. 2, questions Nos. 3, 13, and 14 addressed the issue of alternative transportation facilities that may exist. In general, the railroads of the United States appear capable of satisfying the transport demands that would be placed on them by a temporary or a permanent closing of the Panama Canal. American railroads have, in fact, already diverted substantial amounts of traffic that would at one time have moved through the Canal. The development of contain- erization as a technique for transferring cargo swiftly and economically from ship to rail and from rail to ship has given particular impetus to this shift of cargo from all-water routes utilizing the Canal to joint land-water routes. These joint rail-water operations have proven themselves capable of serving all kinds of international traffic that would otherwise employ the Panama Canal. "Mini-bridge" is the name that has been given to container operations that employ a transcontinental rail movement in preference to transiting the Canal in moving U.S. imports or exports between the West Coast of the U.S. and Europe, Africa and the Near East or between the East Coast of the U.S. and the Orient. Even contain- erized cargoes moving between Europe and the Orient are being diverted from the Canal to rail movement across North America. Such operations have come to be known as "land-bridge." In many instances the service provided by mini-bridge and land-bridge is actually superior to that provided on all-water, trans-Canal routes, and the total cost to the shipper, lower. For example, cargo from Europe to a Pacific Coast port that takes 19 days by containership through the Canal requires only 13 days going from Europe to an Atlantic port, thence by rail to a Pacific Coast destination. It commonly takes a containership 23-31 days to travel from an East Coast port to Japan by the Canal, versus only 17 days via mini-bridge, a 6-to-14-day saving. Such time savings mean not only better service for shippers but lower costs as well. Even if mini-bridge rates roughly equal all-water rates, as they frequently do, the shorter transit times reduce the inventory cost of goods tied up in transit and loss, damage and pilferage of those goods as well. Mini-bridge can also benefit ship owners through improved utilization of expensive vessels. For example, a ship from the Orient can unload on the West Coast, reload and return to the Orient in roughly the same time that it would take to use the all- water route via the Canal just to get to the East Coast. Use of mini-bridge also results in fuel savings. Joint rail-water service between the U.S. East Coast and Japan actually uses fewer BTU's per ton than all-water service between the same points, since the mini-bridge route is some 2,800 miles shorter. Considering the large circuitry inherent in most water movements, the railroads use less energy than any other general freight mode as substantiated in a study supported by the National Science Foundation. It is cost and service advantages such as these that have already diverted many cargoes from all-water routes using the Canal to rail routes across the U.S. This trend away from the Canal should be of particular interest to the subcommittee in assessing the impact of closing the Canal, for the diversion has occurred voluntar- ily—not because the Canal route is unavailable, but because the joint water-rail route is preferable. Unfortunately, available data do not permit quantification of the extent to which mini-bridge and land-bridge arrangements have already diverted international car- goes from the Canal, but there are indications that they are appealing to substantial volumes of traffic. The U.S. railroads' container traffic, most of which is import and export cargo, is a fast-growing category in total railroad piggyback traffic which itself has experienced a 23 percent gain in the fast five years. Conversely, total tonnage of oceangoing cargo moving through the Canal fell from a record level of 150 million long tons achieved in 1974 to 141 million tons in 1975 and only 117 million tons in 1976. Traffic Management Magazine recently reported that 51 per- 1552 cent of all cargoes in U.S. Pacific trade in 1975 moved by the railroads' bridge service, thus bypassing the Panama Canal. The question remains as to the ability of U.S. railroads to handle the traffic demands that might be placed on them were the Canal to be closed to traffic. The railroads would absorb the additional traffic without difficulty in the long run. Even if the entire 117 million long tons (131 million short tons) that transited the Canal in fiscal year 1976 were to be tendered to U.S. railroads, an unlikely prospect, the resulting increase over the 1,406 million tons that the U.S. railroads originated in 1976 would be only 9.3 percent. It is of course unlikely that all of the traffic presently moving through the Canal would shift to American railroads. Shipments with neither origin or destination in the U.S. would in many cases shift to other all-water routes, such as around Cape Horn (where a considerable amount of bulk cargoes are now moved in giant vessesl), or around the Cape of Good Hope, or through the Suez Canal. Some of the Panama Canal traffic might simply cease to move at all, as consignees turned to other suppliers whose location did not require moving cargoes through the Canal. Canadi- an railroads would offer another alternative to cargoes that shifted to "land-bridg- ing" across North America, were the Canal to be closed. Indeed, the traffic most likely to be diverted to U.S. railroads in the event that the Canal were to be closed would be traffic that has either a U.S. origin or a U.S. destination or both. The table below shows the volume of such traffic in fiscal year 1976: Origin: Long tons East Coast United States 46,407,921 West Coast United States 7,395,949 Destination: East Coast United States 20,198,924 West Coast United States 8,754,132 Subtotal 82,756,926 Less duplications 1 4,677,888 Total: Panama Canal traffic with U.S. origin or destination 78,079,038 1 Panama Canal traffic with both U.S. origin and destination is counted twice in the detail, once by origin and once by destination. These 78 million long tons would, if totally converted to "mini-bridging" on U.S. railroads, cause a 6.2 percent increase in originated tonnage. The commodities that move in volume through the Canal are pretty much the same as those that move in volume on American railroads. One notable exception is petroleum and petroleum products, the largest category of Canal traffic. The rail- roads have lost most traffic in liquid petroleum products to pipelines and trucks, so the railroads would be ill-equipped, in the short-run at least, to handle the 22 million long tons of petroleum and petroleum products that moved through the Canal in 1976. (Total rail traffic in petroleum and its products in 1975 was only 45 million short tons.) After petroleum, the principal categories of Canal traffic are (in descending order): grains, coal, iron and steel products, ores and metals, fertilizers, miscellaneous agricultural commodities, lumber and products, canned and refriger- ated foods, chemicals and petrochemicals, and machinery and equipment. U.S. rail- roads presently carry volumes many times larger of each of these commodities. While the railroads should have little difficulty in meeting the demand of this additional traffic after an adjustment period of one to two years, the ability of the railroads to handle immediately the large surge that might result from a sudden, unanticipated closing of the Canal is more open to question. Two bottlenecks would probably occur if the Canal were to be suddenly closed and freight traffic tendered to U.S. railroads were to increase seven percent or so. First, there would be tempo- rary shortages of equipment, freight cars and locomotive power. It would seem likely, however, that some of the sudden surge in demand could be accommodated with the existing fleet by improving its utilization. Average freight car utilization rates, for example, are considerably lower today than at times in the past. To the extent that additional freight cars and locomotives are required, the current lead time from order to delivery for freight cars is about 3-4 months and 4-5 months for locomotives. Further, freight car production in recent years has been sustantially below the productive capacity of U.S. freight car builders. Thus, the potential for improved car utilization plus the capability of the car builders and locomotive manufacturers to bring about a fleet expansion would alleviate the temporary shortages within a few months. 1553 A large portion of oceangoing traffic is containerized. Consequently, much of the surge in demand that would accompany a closing of the Canal would be concentrat- ed on container-carrying flat cars. Temporary shortages of flat cars might, there- fore, occur. However, even this shortage could be avoided by organizing "unit trains" of flat cars that could be shuttled rapidly back and forth between Atlantic- Gulf and Pacific Coast ports, thereby achieving much higher rates of utilization. The more serious bottleneck that might occur is at U.S. ports. Many U.S. ports and the railroads serving those ports have made large investments in recent years to modernize and expand the capacity of those ports, partly in response to the growing popularity of land-bridge and mini-bridge arrangements. Nevertheless, the surge in traffic that might result from a sudden closing of the Canal could overtax the capability of those ports, leading to temporary congestion and delays. The willingness of the railroads and the ports to expand their fleets and their cargo-handling capacity in response to a closing of the Canal would be greatly influenced by whether the closing were understood to be temporary or permanent. It would be poor economic sense for either to invest large sums to expand capacity if the Canal closing were seen as only temporary or some alternate route across the Isthmus of Panama were to be developed. Beyond the temporary problems of car shortages and port congestion, there is no question as to the ability of the railroad route network to handle an 8-10 percent increase in throughput. It is widely held that the railroad network has the capacity for carrying twice as much traffic as at present. The ability of the railroads to meet a sudden surge in demand was dramatized during the build-up for World War II. In just one year, 1941, railroad ton-mileage jumped 27 percent over the previous year to a record high level. In 1942, it grew an additional 34 percent in just one year. Then in 1943, it grew still another 14 percent. More recently, it grew 15 percent in the 1973-1974 period. In sum, the physical volume of cargo moving through the Canal would present no unmanageable demands on U.S. railroads, even in the most unlikely event that 100 percent of it were to be diverted to the railroads if the Canal were closed. There is adequate capacity in the route network to handle an even greater surge in demand. Car utilization could be sufficiently increased in an emergency to accommodate the additional priority cargoes, with the probable exception of petroleum and petroleum products. If additional cars and locomotives were needed, the lead time for their production would not exceed six months. Bottlenecks, were they to exist, would probably occur at the ports. The railroads' performance during the World War II build-up provides comforting evidence that the railroads could respond even to a sudden closing of the Canal in stride. If we may provide additional information or assistance to you or your committee, please let us know. Sincerely, Richard E. Briggs. Mr. Lindinsky. And if my memory serves me correctly, I believe they said they would be able to handle all the cargo that would be diverated from the east and gulf coasts. So there seems a natural desire there to haul this cargo minibridge and microbridge to the west coast. One also reads of these constant boxcar and flatcar shortages. It seems contradictory. I will however, supply that letter for the record. Colonel Haar. I would like to add, if I may, one little caveat to what Mr. Lidinsky just said. I think in the case of grain, the movements are so huge that even though there could be some diversion, I think they might be hard pressed if you got into some massive numbers of being able to handle all of it. Mr. Merin. I have read Mr. Brandes 1978 report as well as some other studies. I wonder if you could clarify one point for me. In general terms, if that is possible, how much of the cargoes that are currently going through the canal can be routed through the mini- bridge. Are there certain types of cargoes that are susceptible to alternative means of shipping? 1554 Dr. Brandes. According to the records of the canal, cargo is either classified by the actual commodity or it is characterized as containerized cargo. The latest data that I have seen showed that for approximately 123 million tons, thereabouts, that went through the canal in 1977, I believe, that 9V2 million tons was classified as containerized cargo. Now,this does not mean that only 9V2 million was containerized. There was some other cargo that was also containerized, but the shipper specified what was in it, and then the canal would show it as cotton or drums or other manufactured goods, even though they were in a container. Our estimate is that containerized cargo accounts for approxi- mately 10 million tons of the cargo going through the canal at the present time. It depends entirely on how the ship reports its cargo as it goes through the canal, whether it calls it simply containers, miscellaneous containers or whether it specifically identifies the cargo, what it actually consists of. Our best guess is that approximately 10 million tons of the cargo going through the canal consists of containers in terms of actual weight tons. Mr. Merin. This is not to say that other noncontainerized cargo could not be shipped by rail or other means? Dr. Brandes. That is right. Mr. Lidinsky. The vast majority of the cargo going to the North- east, to New York, Boston, Philadelphia, and Baltimore, is contain- erized. We differ from New Orleans in that our bulk movements are very minimal. Most of our canal tonnage is containerized because of the con- sumer-oriented-type goods from the Far East going to our part of the country. Mr. Merin. One final question. Earlier this morning, you were talking about the cost, the increased cost of tolls and how much of that would be passed on to the consumer, and I think you used one- third, and three or four other people have used something higher. Would you give me some general guesstimate as to what that figure would be? If tolls go up, say, 50 percent, how much of that would be passed on to the consumer and how much would be absorbed by the shipper. Dr. Brandes. At the present time, we are talking about a toll base of roughly $200 million. A 50-percent increase in tolls would yield slightly less than 50-percent increase in revenues, so I would guess another $80 million. According to the yardstick, that I use, roughly 33 percent of that or $27 million, more or less, would be paid for by the American consumers. We think that the American consumer pays one-third of the Panama Canal tolls and obviously be is likely to pay the same portion of any increase. Mr. Merin. Thank you. Mr. Hubbard. To Colonel Haar, Mr. Lidinsky, Mr. Prior, and Dr. Brandes, I want to extend, on behalf of our subcommittee, our commendation for your intense effort and interest that has been shown by the reports on the issue of treaty implementing legisla- tion. We appreciate your common efforts. 1555 We thank each of you as we express appreciation to Mr. Leonard Kujawa and Mr. Philip Steers Jr., who testified earlier for your constant willingness to provide counsel and assistance to our sub- committee and members on the staff. We hope to talk informally with you again in the very near future. We take your concerns very seriously. We share many of your concerns about the Panama Canal Treaty. Thank you. Mr. Hubbard. Our next witness will be W. M. Benkert, president of the American Institute of Merchant Shipping. We apologize to Mr. Benkert for his lengthy wait to be heard. He was bumped by three Members of Congress, we might say, who were here to intro- duce their constituents. We have heard the constituents, and now we look forward to hearing you, Mr. Benkert. And then we will hear Mr. Blocklin and Captain Clark together and that will conclude today's hearing. Go ahead. STATEMENT OF W. M. BENKERT, PRESIDENT OF THE AMERI- CAN INSTITUTE OF MERCHANT SHIPPING, ACCOMPANIED BY BARBARA BURKE, LEGISLATIVE ASSISTANT, AMERICAN IN- STITUTE OF MERCHANT SHIPPING Mr. Benkert. Thank you very much, Mr. Chairman. With your permission, I have with me Ms. Barbara Burke, who is the Ameri- can Institute of Merchant Shipping legislative assistant. Mr. Hubbard. Barbara Burke, nice to have you, and you are Admiral Benkert, right? Mr. Benkert. Yes, sir. I am a civilian now, Mr. Chairman. With your permission, Mr. Chairman, I have a very short, brief, hopefully to the point, statement which I would like to read. It is just three pages long,and I would like to go ahead and read this. Mr. Chairman, members of the subcommittee, I am William M. Benkert, president of the American Institute of Merchant Ship- ping, known as AIMS. AIMS is the national trade association of the American-flag oceangoing merchant fleet, and includes in its membership 27 companies which own or operate U.S.-flag tankers, liquified gas, chemical and dry bulk carriers. Many of our members regularly utilize the Panama Canal in their operations; therefore, of course, we have a substantial interest in this treaty implement- ing legislation. The primary concern of shipowners is the continued, safe, effi- cient and nondiscriminatory operation of the Panama Canal for reasonable toll charges. We feel certain that the Commission will recognize this waterway's commercial value and will work to main- tain it. Therefore, timely enactment of implementing legislation to prepare for and insure such uninterrupted efficient service is of paramount importance to us. Vessels which currently utilize the canal do so because of a substantial savings realized as opposed to the increased transit time and obvious operating costs involved in longer and differing alternative routes. Many of our U.S.-flag tankers are involved in the carriage of Alaskan North Slope oil of which 400,000 barrels per day pass through the canal. However, we do anticipate that possibly as early as mid-1982 economically attractive alternatives to canal transit may be offered in the form of west coast pipeline transportation. 1556 For this reason, tolls must be kept at the lowest level possible consistent with covering all direct expenses including necessary plant replacement or improvements so that the canal can continue to be a commercially competitive route for those wishing to utilize it. This will help to insure that the canal will be a self-sustaining operation when it is turned over to complete Panamanian control in the year 2000. Therefore, Mr. Chairman, we support the repeal in H.R. 1716 of interest payments to the Treasury on the U.S. net direct invest- ment in the canal. AIMS has urged repeatedly over the years that this amount not be included in the tolls base in order to avoid excessive toll increases which place the burden of covering this requirement upon canal users and ultimately consumers. Similarly, we oppose requiring further amortization payments, which, together with the interest requirement, would add another 17 percent to a toll increase. We feel the canal has already paid for itself through its availability to meet national defense needs over many years, so that this unnecessary additional expense should not be required. Additionally, on the matter of tolls, we are in favor of the provi- sion contained in H.R. Ill which governs the procedure for effect- ing changes in toll rates. This procedure involves two stages, with publication of proposals in the Federal Register, public hearings and final effectiveness 30 days following Presidential approval. This system would appear to provide greater protection against possible unjust toll increases by allowing a longer period for review. And I might add, Mr. Chairman, in my opinion, a specific re- quirement for true, full, thorough justification of increases. On the subject of claims for damages, we favor the approach in H.R. 1716 which does not limit the authority of the Panama Canal Commission to settle suits above $60,000 for damage outside the locks. We feel that $60,000 is inadequate for today's economy, and at any rate, canal usage is international in nature so such claims adjustment should not be a burden placed upon the U.S. taxpayer. Inasmuch as shipping is a global industry and the canal provides a service to world commerce, we would like, Mr. Chairman, to take this opportunity to express the views of the International Chamber of Shipping, the ICS. The ICS asked AIMS as the U.S. constituent member of that organization to convey its position to the U.S. Congress. As you, Mr. Chairman, may know, ICS is an organization repre- senting shipowners associations in 29 countries, together compris- ing some two-thirds of world merchant shipping and the majority of free world merchant ships. ICS has not sought to express any views directly on the question of the new Panama Canal treaties and the transfer of ownership of the canal, believing this to be the prerogative of the United States and Panamanian interests. ICS believes, however, that it would be timely to make a general comment on the canal and its operation on behalf of the interna- tional shipping industry as a whole. And I quote, Mr. Chairman, if I may: 1557 The Panama Canal is an international waterway of major importance to the shipping industry, and its continued efficient operation, at reasonable cost to users, is essential if economic shipping services are to be maintained. There are two major factors which influence the use of the canal by shipping companies-the level of tolls and the ability of ships to transit the canal safely and to schedule. Significant increases in tolls and delays in canal transit both represent major financial considerations for canal users and could encourage operators to consider alternatives to the use of the canal. Thus while it is very much in the interest of the shipowner that the canal should be efficiently and economically run, equally it is in the interest of the operators of the canal to provide an attractive service and thereby maintain a satisfactory level of usage." That is the end of the quote, Mr. Chairman, from the communi- cations our organization had from the International Chamber of Shipping. In regard to that last portion of the statement, which I just read, that it is in the interest of the operator of the canal to provide an attractive service and thereby maintain the satisfactory level of usage, I think myself that is very pertinent that they emphasize what one of the previous witnesses just said a little earlier, about maintaining the canal in a businesslike, efficient manner to provide a good service. I would like to conclude my statement, Mr. Chairman, by essen- tially concurring with what the ICS has presented in the way of a general statement of approach to the canal and to the legislation, and I would be glad to answer any questions you might have, sir. Thank you. Mr. Hubbard. Thank you very much. Mr. Benkert, before I ask you questions, I would like to take a moment to introduce a con- stituent and friend of mine, Mr. Wendell Cave of the Kentucky Department of Education. Thank you for attending our hearing. I am sorry I cannot meet and talk with you. You have an appoint- ment with Kentucky's two Senators. Just tell them we are trying to implement what they did. Wendell, I regret again I cannot even shake your hand, but I am doing the best I can. I am the only member here. I commend your statement, Admiral Benkert, for looking at the long range good of the Panama Canal and not just the short term. Certainly a good capital program is necessary to keep the canal operating beyond the year 2000. We must have an adequate handle on that program, however, to insure the users get everything they pay for. In your statement, you indicate a preference for the claims regime established by the administration's bill, 1716, because the $60,000 limit in Chairman Murphy's bill is too low. If that limit were raised to around $250,000 would that eliminate your chief objection to the claims regime in Chairman Murphy's bill or do you see other problems? Mr. Benkert. I think, Mr. Chairman, I find my objection is to putting a limit on the damage outside of the locks because you would perhaps get into a very lengthy congressional procedure, and some kind of an additional expense to the taxpayers of the United States. I feel that the Commission itself should be able to settle, adjudi- cate claims, whether they happen within the locks or outside the 1558 locks. If you have an accident within the locks, as I understand it, the Panama Canal is specifically responsible in settling the claims. Mr. Hubbard. Do you have a preference as to the form of agency for the Panama Canal Commission? Mr. Benkert. No, sir. Mr. Hubbard. Regardless of whether the Commission is an ap- propriated fund agency or Government corporation, is it not cor- rect that the users main interest is to receive expeditious transit and to know the financial results of operations and what is being paid for by the tolls? Mr. Benkert. Yes, sir. I agree with that fully, and if I could add to that, sir, I think that the basic premise should be to have a good, businesslike operation just like any other business. There are going to be additional charges that are necessary for the safe and effi- cient operation of the canal. The system for implementing those charges should be an open one, subject to review and to question; in fact, toll increases should be fully justified so that the user knows what he is paying for and why. And I think in this case, the user as with any other service, should be prepared to pay a reasonable price for good service. Mr. Hubbard. Counsel for the majority? Mr. Tannenbaum. No, sir. Mr. Hubbard. Counsel for the minority? Mr. Merin. AIMS is the U.S. constituent member of ICS? Mr. Benkert. Yes, sir. Mr. Merin. Is there a Panamanian constituent member of ICS, because the Panamanian flag line is fairly large? Mr. Benkert. Yes. Mr. Merin. There is a Panamanian member? Mr. Benkert. Yes. Mr. Merin. Do you know if they took any position on the trea- ties? Mr. Benkert. My answer is no. The ICS itself as an overall association comprised of individual countries' associations took no position, as I said before, because they felt this was a matter for the United States and Panama. Mr. Merin. While the treaties were lying before the Senate, did your organization do any forecast or analysis of what impact the cost requirements might have on the members of your organiza- tion? Mr. Benkert. No. Mr. Merin. Thank you. Mr. Hubbard. Thank you, Admiral Benkert, for your informa- tion. Sorry you had to wait so long. Mr. Benkert. Thank you very much for taking me, Mr. Chair- man. Mr. Hubbard. We were intending that you precede the four who just left. Mr. Benkert. I enjoyed listening to their testimony. Mr. Hubbard. Thank you for your cooperation. We will now call the last two witnesses jointly, Capt. J. W. Clark and Hans Blocklin. 1559 STATEMENT OF HANS BLOCKLIN, VICE PRESIDENT, LYKES BROS. STEAMSHIP CO., INC., AND CAPT. J. W. CLARK, PRESI- DENT OF DELTA STEAMSHIP LINES, INC. Mr. Clark. Mr. Blocklin has a short statement. I will let him start. Mr. Hubbard. Mr. Blocklin will be testifying in place of Mr. W. J. Amoss of the Lykes Bros. Steamship Co. Mr. Blocklin is the vice president of Lykes Brothers in the District of Columbia area, and we look forward to hearing your testimony. Mr. Blocklin. Thank you, Mr. Chairman. Mr. Hubbard. I am sorry, also, that you two had to wait so long. Mr. Blocklin. No problem. As Mike Benkert said, it was inter- esting, educational, and partly enjoyable. Mr. Chairman, Lykes Bros. Steamship Co., is one of the largest American flag steamship companies. Our company was founded in 1900. It has served as a common carrier in foreign commerce from the U.S. gulf ports for over 79 years. Lykes also serves ports in the South Atlantic and ports in the Great Lakes, and this year has commenced services from west coast ports to the Far East. The Lykes fleet totals 44 large, modern vessels, registered under the U.S. flag and manned by U.S. crews. Lykes is a major user of the Panama Canal and its services from gulf ports to Japan, Korea, Taiwan, and Hong Kong, on its service to the Philippines, Indone- sia, Singapore, and Thailand, and on its service from gulf ports to the west coast of South America. And I might add parenthetically that we are hopefully very shortly to be using it in our service to China, to the Peoples' Republic of China. The New Orleans Steamship Association whose membership com- prises 60 steamship owners, operators, agents, and stevedores in the port area of New Orleans is associated with literally hundred of shipowners in international commerce. In recent years the Panama Canal tolls have increased dramati- cally for cargo vessels, and today tolls for passage through the canal are a significant portion of vessel operating costs which must be recovered through ocean freight rates. All water services operating through the canal to foreign destina- tions have been seriously impaired in competition with combina- tion rail and water service to such an extent that steamship service to the Orient has become concentrated in west coast ports and steamship service to European destinations has concentrated itself in east coast ports. As a result, canal passages for dry cargo liner vessels have seriously declined as have resultant toll incomes. This has pro- duced a situation where rising tolls diminish canal traffic and diminished canal traffic creates further rising tolls. It is already apparent that this cycle would be intensely felt by the Canal Company were it not for the recently increased move- ment of crude petroleum through the canal brought about by the development and shipment of Alaskan oil to gulf and east coast refineries. As this committee surely knows, however, plans are underway for the development of a west coast to midcontinent pipeline that 44-394 O - 79 - pt. 2 - 46 1560 would ultimately displace the sea transport of Alaskan crude via the Panama Canal. It is, therefore, apparent that urgent operating efficiencies must be adopted by the canal company merely to hold tolls within an economic range that can be borne by dry cargo carriers While we urge such action, there is little that will encourage us to believe that operating efficiency will be a primary goal of the Canal Company. Indeed, one of the strong reasons for Lykes recent move to establish services to the Orient from the west coast was to recapture cargo formerly carried from gulf ports via the Panama Canal and to hedge future toll trends which may further impair the commercial use of the Panama Canal for U.S. commerce. We believe that proposals to limit the range in which tolls may be increased and to provide for the inclusion of knowledgeable persons with a shipping background as members of the Commission are actually imperative if control is to be maintained in the future operation of the canal. We urge that the committee adopt such a proposal. Not only are they in the interest of the carriers, but indeed, in the interest of the ports, particularly those of gulf and Atlantic region and of American exporters and importers from these areas striving to remain competitive in foreign markets. That concludes the written portion of our statement. Mr. Hubbard. Thank you, Mr. Blocklin. One question. Could you elaborate for the committee on the thinking that went into your decision to establish services to the Orient from the west coast? I believe this would be a helpful kind of case study for the committee to hear. Mr. Blocklin. Over the last 5 years as canal tolls have in- creased, we have seen an increasing amount of cargo go mini- bridge, microbridge, et cetera, and shippers avail themselves of that route. We were seriously affected by it so much so that our sailing has decreased by about 30 percent on the Far East run. Mr. Hubbard. Thank you. Counsel for the majority? Mr. Tannenbaum. Just one curious question. Here you say on page 2 there is little to encourage us to believe that operating efficiency will be the primary goal of the Canal Company. Do you care to elaborate on that? Mr. Blocklin. I tell you we worry about commissions. We were not particularly enchanted with the previous commission as far as any indication on their part that they were seriously concerned with the problems that we as carriers and shippers had. Unless you have very stringent controls and a commission com- prised of knowledgeable people we are afraid that this might be like other commissions, a commission that rubber stamps certain policies and we are forced to bear the result. Mr. Tannenbaum. Thank you. Mr. Hubbard. Any other questions? Mr. Tannenbaum. No. Mr. Hubbard. Counsel for the minority? 1561 Mr. Merin. Just one, sir. Did your organization correspond with or testify with either of the Senate committees when they were considering this treaty? Mr. Blocklin. We provided some background information that was, perhaps, used. We furnished it to Senator Strom Thurmond and his people. The delegation from Charleston, at the time, was interested in this problem. Mr. Merin. Did you express your concern about the tolls? Mr. Blocklin. Yes. Mr. Merin. Thank you. Mr. Blocklin. I might be able to provide what we provided but I guess you can get it. Mr. Hubbard. Thank you very much, Mr. Blocklin. Capt. J. W. Clark, president of Delta Steamship Lines. We are ready to hear your statement. Mr. Clark. Mr. Chairman, ladies and gentlemen, members of the staff, I understand there is a time limitation. I have a rather lengthy statement which, if it pleases the committee, I would like to have you insert in the record. I will just touch briefly on some of the high points. [The following was received for the record:] Prepared Statement of Capt. J. W. Clark, President, Delta Steamship Lines, Inc. Thank you, Mr. Chairman and members of this subcommittee, for the opportunity to appear here today and express my views on legislation intended to implement the Panama Canal Treaties of 1977. My name is J. W. Clark and I am president of Delta Steamship Lines, Inc., headquartered in New Orleans, Louisiana. We operate twenty-four ocean-going vessels under the United States Flag, serving Latin Amer- ica from the U.S. gulf, Atlantic and Pacific coasts, in addition to Caribbean Islands and West Africa. Four of our vessels are combination cargo-passenger vessels carry- ing approximately one-hundred passengers each, — the last passenger vessles remain- ing under the U.S. flag. We anticipate that vessels of our Delta fleet alone will accomplish at least 125 transits during 1979, and therefore Delta is one of the principal users of the Canal. I have some personal knowledge of the Canal's oper- ation, having visited the Panama Canal Zone on many occasions during the past thirty years. In addition to Delta, there are four * other U.S. flag liner companies which regularly transit the Canal, also U.S. bulk carriers, and an increasing number of "Panamax" U.S. flag tankers engaged in the Alaskan North Slope oil shuttle. I am confident that all informed U.S. citizens share some concern as to the future operation of the Panama Canal and the resulting effect on our national security and national economy. Of the total Panama Canal traffic, about two-thirds now origi- nates or is destined for the U.S.A., directly or indirectly affecting all U.S. citizens. This refers to commercial traffic alone — the foreign commerce of the United States. The Panama Canal treaties are now fait accomplis and it would serve no useful purpose to contemplate amendments. However, the Congress does have an opportu- nity now, in considering implementing legislation, to carefully consider the best interests of our country in the implementation process. I recognize that distin- guished Members of the Congress are far better qualified than I to judge national security and political aspects and, recognizing the time restrictions, I will confine my remarks primarily to operational and economical questions affecting U.S. for- eign commerce and, particularly, U.S. flag liner operations. tollage In 1974 and 1976, tollage increases coupled with changes in the measurement rules resulted in an increase of approximately 50 percent in the tollage rate, which is now $1.29 per Panama Canal net tonnage. Under the terms of the treaties it is estimated that payments to Panama, unrelated to operating costs, will approximate seventy million dollars per annum which, on the basis of reported 1978 operating U.S. Lines, Farrell Lines, Lykes, and Waterman. 1562 costs of $314.3 million, 1 would mean that the tolls apparently would have to be increased about 22.3 percent to cover these political payments alone. In my opinion, it is inequitable that users should be compelled to pay for costs unrelated to actual canal operation. If interest payments of approximately $19.3 million per annum are to be contin- ued, plus an accelerated depreciation rate to recover U.S. investment by the year 2000, plus early retirement costs, etc., we could expect, according to previous testi- mony, that initial tollage increases of the magnitude from forty to fifty percent would be imposed. It seems rather obvious that it was the intent of the administra- tion to convey the canal to Panama at noon, Panama time, December 31, 1999, in good operating condition, which will entail considerable expenditures for both capi- tal improvements and required maintenance and repair over the next twenty years. In effect, the canal will be handed over intact, as a "going concern," as a "gift' from the people of the United States to the Republic of Panama. Therefore, it seems rather unfair that all these costs should be borne solely by the users, the majority of which are engaged in the foreign commerce of the United States. It is widely recognized that the basic considerations affecting the drafting and ratification of the Panama Canal treaties were primarily related to U.S. foreign policy. While it is assuring to receive the advice of Governor Harold R. Parfitt that the initial toll rate increase should only approximate 14 percent under the administra- tion's proposal, (H.R. 1716), this prediction is contingent upon; a continuation of the North Slope oil movements through the canal; a healthy growth in other segments of traffic; and elimination of interest payments and retirement benefits, etc. from inclusion in canal operating costs. In practice, there has already been a substantial diversion of canal traffic through mini-bridge, micro-bridge and land-bridge, in- creased use of the Suez Canal, and routing of large bulk carriers via the Cape of Good Hope. Both Governor Parfitt and Dr. Ely M. Brandes, president of Internation- al Research Associates — who has been an economic consultant to the Panama Canal Company on the subject of tolls and revenues for the past fifteen years — are in apparent agreement as to the sensitivity of canal traffic to toll increases, diminish- ing returns, etc. It should be apparent to all concerned that any further toll increases above twenty-five percent will impact on traffic, causing a gradual but irreversible trend toward less users, required further increases in tollage, etc. When the Sohio/Pactex (Longview to Midland) pipeline is completed in 1982 canal rev- enues would be sharply affected, requiring prompt upward adjustment in tollage rates, further diversion of traffic, thus accelerating the vicious cycle of higher rates on the fewer and fewer surviving users. It is significant that both Dr. Brandes and Governor Parfitt strongly recommend that every care be made to minimize tollage increases in order to maintain the long term financial viability of this vital waterway. There are alternatives to using the canal, and any prudent private shipowner must consider all of the options if he is to remain in profitable operation. It was once suggested to me by Ambassador Ells- worth Bunker that the increased cost of the canal could always be passed along in the form of freight rate increases. This is illusory, both from the point of view as to the practicability of raising rates to keep U.S. products competitive with foreign sources of supply, as well as from competitive services utilizing mini-bridge, etc. Besides, our importers and exporters are also taxpayers. I felt compelled to remind Ambassador Bunker that no American vessels have a guarantee of profit, nor do we have control of freight conferences. In practice, it has been our consistent policy to encourage trade by maintaining efficient, frequent services at reasonable rates. American Liner Companies can only prosper when American importers and export- ers prosper, as we have only one thing to sell — service. PANAMA CANAL COMMISSION It is understood that the administration's bill would pattern the Panama Canal Commission after the present Panama Canal Company, making only those changes in organization and functions as are required by the treaty. The President of the United States has traditionally appointed the Secretary of the Army to serve as "stockholder" of the Panama Canal Company. The Secretary has consistently desig- nated a general officer of the U.S. Corps of Engineers as both Governor of the Canal Zone and as President of the Panama Canal Company. Further, the Board of Directors, consisting of between nine and thirteen members appointed by the Secre- tary of the Army, until recently was composed primarily of distinguished private citizens. It is my understanding 2 that the administration bill, H.R. 1716, contem- plates that the President intends that the Department of Defense, acting through 'Gov. H. R. Parfitt. department of State, testimony of Hon. David H. Popper. 1563 the Secretary of the Army, shall exercise oversight of the Panama Canal Commis- sion and, further, the President intends to designate as U.S. members of the Board of Directors of the Panama Canal Commission senior officials drawn from interested departments. The Defense representative would serve as Chairman of the Board, with other members drawn from the Departments of State, Treasury, Commerce, and Transportation. By contrast, H.R. Ill proposes that the Panama Canal Commission shall be "* * * established as an agency and instrumentality of the United States * * *", and that the Commission "* * * shall be supervised by a board which shall act under the direction of the Secretary of Defense", which board shall include four additional nationals of the United States, with the specific proviso the "No member of the Board other than the Secretary of Defense of his designee shall hold any other office in or be employed by the Government of the United States or of the Republic of Panama". Further, H.R. Ill proposes that "The President shall appoint the members of the Board, by and with the advice and consent of the Senate." In order to provide professional experience on the Board to efficiently operate the Canal on a business-like basis, maintaining the utmost economy in operations to minimize the obvious dangers of a spiraling cycle of tollage increases, with diminish- ing returns. I am of the conviction that the implementing legislation should provide very specific provisions for the nomination of the five Board members of the Com- mission representing the United States. Obviously, for national security reasons, the Secretary of Defense, or his designee, (presumably an outstanding engineering offi- cer) should be the Chairman. The other four members should be representative of the United States interests most heavily involved and affected by the future oper- ation of the Panama Canal. I therefore recommend that the implementing legisla- tion shall specifically provide for a well balanced Board composed of the following: (1) the Secretary of Defense, or his designee; (2) a corporate executive representative of U.S. import-export interests dependent on the use of the Canal; (3) a representa- tive of east and gulf coast ports, experienced in the flow of U.S. foreign commerce through the Panama Canal; (4) a senior official of the AFL-CIO, preferably repre- sentative of U.S. Maritime Labor; and (5) the president of a U.S. flag steamship line actively engaged in operating liner vessels in regular service through the Panama Canal. I would like to remind this subcommittee that the appointment of senior corpo- rate executives to such boards would not be novel. Members of the Board of the Panama Canal Compamy have been previously drawn from the ranks of private industry. This has also happened frequently in the appointment of United States Ambassadors, cabinet officers, U.S. delegations, other government posts, advisory committees, etc. The usual security clearance would apply. Government officials, although they may be well qualified for their respective positions in government, are usually not business oriented, especially in the areas of operational expertise, cost control, etc. A commission composed entirely of government officials would probably be more concerned with political matters than operational considerations. "Over-riding political considerations" have only too often adversely affected U.S. business interests abroad. Due to the critical importance of selecting well qualified representatives for the Commission, I do feel that a public review of their qualifications is essential and I therefore recommend that the President shall appoint the members of the Commis- sion, with the advice and consent of the Senate. Referring now to composition of the consultative committee, the Treaty provides for "* * * an equal number of high-level representatives of the United States of America and the Republic of Panama, and which may appoint such subcommittees as it may deem appropriate." In view of the Board advisory role of the consultative committee in the continuity and efficiency of the Canal operation in the future, with impact on general tolls policy, employment of Panamanian nationals, etc., it would appear advisable that the consultative committee should be appointed by the Commission itself. This would make for a much more efficient organization and could avoid possible future conflicts between the parties. As to the selection of the five United States representatives, I would recommend that the Panama Canal Commission submit nominees to the President for considera- tion and appointment. The same procedure should be followed with regard to the appointment of the Administrator and the Deputy Administrator. This would be in consonance with usual corporate practice, which is apparently advocated by the administration. 1564 MAINTENANCE AND REPAIR During my most recent trip to the Canal Zone, a few months ago, it was my privilege to confer with Governor Harold Parfitt and his staff, senior Panama Canal Pilots, steamship line agents and prominent businessmen. I also personally made a transit of the Panama Canal aboard one of our passenger vessels, during which I endeavored to most carefully observe the operation of the locks as well as the navigation of the vessel, etc. Throughout my visit I was constantly reminded of the imperative need for constant and effective repair of the physcial facilities, the retention and/or replacement of the skilled supply of Panama Canal pilots, engi- neers and other technicians. It appears certain that, without adequate incentives, there will be a loss of those most skilled in the operation of the canal through early retirement, with inadequate provision for qualified replacements. There has really been very little change in the physical operation of the canal during the past thirty years since I have known it. The massive equipment, although maintained through- out the years in good order, is simply getting old, and unquestionably capital expenditures will be required to maintain a continuing efficient operation. As an example of maintenance problems, we just last week received advice from our Panama office that a critical lock overhaul at Gatun Locks commenced on March 2nd and is expected to continue through March 24th, with large numbers of vessels awaiting transit. Delays experienced have been 24 to 36 hours and are expected to increase, the Canal Company has stated that they are unable to suspend or delay overhaul as the condition of the lock valves are so poor that repairs are essential to avoid possible failure and complete interruption of transits. Unfortunately, many of our most skillful pilots and engineers are nearing retire- ment and must be replaced. Despite a provision in the Panama Canal Treaty for the training of Panamanians, this will take considerable time and most careful consid- eration must be given to qualifications. I have been closely associated with many friends throughout Latin America for the greater part of my life and I certainly have a very high regard for Latin American professionalism. Unquestionably, there are many well educated and competent Panamanains who could assume top level operational and administrative responsibilities. However, great care must be taken to avoid "political" appointments of individuals without proper qualifications, train- ing and experience. Reference is made in the Panama Canal Treaty (article X-4) that "* * * the United States of America without prejudice to its right to require additional professional skills and qualifications, shall recognize the professional licenses issued by the Republic of Panama." This sounds adequate but, unless specific provision is required for detailed examinations, minimum experience re- quired, etc., it would be extremely difficult to deny applicants possessing Panama- nians licenses. As an example of my concern, I would cite the example of licenses which can be issued by Panamanian consuls for ships officers, including masters. It is common practice for applicants to obtain such licenses, even authorizing them to command the largest ships afloat, without undergoing any examination or demon- stration of any experience, simply by paying a small sum of money. Imagine the employment of such a person as a Panama Canal pilot. The utilization of unquali- fied personnel could result in severe disasters, causing complete interruption of Panama Canal traffic. In this connection, I would remind the subcommittee that there is a provision in the 1936 Merchant Marine Act, (sec. 216(B)(1)) 1 which provides "* * * two vacancies shall be allocated each year to the Canal Zone, to be filled by qualified candidates nominated by the Governor of the Canal Zone from among the sons of residents of the Canal Zone and the sons of personnel of the United States Government and the Panama Canal Company residing in the Republic of Panama * * *" Apparently this provision would cease as of October 1, 1979, and I would certainly recommend to this subcommittee that provision be included in the implementing legislation for the continuation of this essential training program (with due consid- eration for recent rule changes related to gender). Further, I would urge that special training programs for Panamanian candidates should be expanded in view of the urgent necessity of preparing qualified Panamanians to assume essential adminis- trative, engineering and pilotage responsibilities. CONCLUSION Unless the canal is competently managed during the next twenty years, it is entirely possible that Panama will inherit a "white elephant" — a canal frequently inoperative due to operational failures, and with little hope of attaining the expect- ed financial returns. The consequences of a failure to maintain the canal as a viable operation would not only adversely affect Panama, and our foreign commerce, but U.S. Merchant Marine Academy 1565 also the foreign commerce of all Latin American nations whose economies depend to a substantial degree on the canal. The U.S. economy will become increasingly dependent on sources of strategic and critical raw materials available in Latin America. Allow me to remind you of some pertinent history. In 1954 Congress investigated the accessibility of strategic and critical materials to the United States in time of war and for our expanding economy. This report is frequently referred to as the Malone report: (Senator George W. Malone was then chairman, Minerals, Materials, and Fuels Economic Subcommittee, Committee on Interior and Insular Affairs). Among other things, the committee confirmed that the availability of critical and strategic materials are vital to both military security and to our expanding domestic economy, with major emphasis on ample and uninter- rupted supplies of 77 critical raw materials. To assure that the essential needs of the United States be met, the committee recommended the closest cooperation among the nations of the Western Hemisphere, as the only dependable source of these vital materials. The committee conducted hearings over ten months, examined more than 360 distinguised witnesses, and produced then volumes of testimony. In the summary of evidence the committee specifically stated: "We belong in the western hemisphere. "Our ultimate security is threatened if any European or Asiatic nation moves : .nto that area to gain military, political, or economic control. "Therefore, close cooperation between the nations of the Western Hemisp e is immediate and compelling." While the Malone committee was primarily directed to review the accessibility of critical materials in time of war, particularly to its effect on nationa) set - y, it is significant that the expanding national economy received equal com,: ion. In the 24 years since this report was published very little has changed. The U.S. is still dependent on foreign sources for the bulk of its strategic raw materials, except that the list of such materials has grown. We now have dramatic evidence of how dependence on foreign sources of petroleum can cripple the economy. The Malone committee even predicted the possibility of a complete shut-off of Middle East oil — in 1954 — when the U.S. had plentiful supplies of domestic oil. Our trading relations with Latin America are vital to our national interests and, as Senator Malone and his colleagues so aptly stated, "We belong in the Western Hemisphere." Mr. Chairman, members of the committee, I attach hereto my response to the seven (7) specific questions propounded by the committee. I will now be pleased to respond to any other questions. Response of J. W. Clark to Questions Propounded by the Panama Canal Sub- committee, Committee on Merchant Marine and Fisheries, U.S. House of Representatives (1) Since the base for canal tolls is a reflection of various costs which may be attributed to canal operation or defense, what suggestions do you have as to those elements which should be included or excluded in the tolls base? What prospective costs can be reduced or eliminated? A. I have discussed this in some detail in my prepared statement. Obviously, every economy should be practiced and I specifically propose the following: (1) While the treaty specifically provides for certain "political" payments to the Republic of Panama (to be paid from operating revenues), such payments are related to foreign policy considerations and, in my opinion, should not be properly charged to users. Under the circumstances, perhaps the implementing legislation could provide for another source of revenue from which these pay- ments could be made. (2) The cost of interest and amortization should be eliminated as, in effect, the U.S.A. is making a "gift" of the canal facilities to the Republic of Panama. Further, any future capital expenditures should not be related to user tolls. Retirement benefits, etc. and any figures not directly related to the physical operation of the Panama Canal should not be included in computing tollage assessments. (2) Do you have any suggestions as to the type of tolls structure that will be appropriate under the regime to be established in the Canal Treaty implementing legislation? A. As Governor Harold R. Parfitt and Dr. Ely Brandes have emphasized, dimin- ishing returns can be expected following the application of any increase in tollage exceeding 25 percent, rapidly escalating beyond that point to an early point of diminishing returns. Therefore, it would appear that a provision should be made 1566 whereby some formula should be found to specify a maximum practicable tollage amount, or maximum percentage of increase. Public hearings should be held in connection with all proposed toll increases. (3) What is your view as to the merits of the provisions of H.R. Ill and H.R. 1716 relating to procedures for tolls adjustments and changes in measurement rules? A. I do not consider these provisions to be practicable as they would inevitably result in the not too distant future in diminishing returns as a result of the spiraling cycle of traffic diversion, increased tollage on surviving users, further diversion, etc. (4) How should the concerns of the ports and the maritime interests of the United States be reflected in the decisionmaking structure for canal matters? A. In my statement I have suggested that the composition of the Panama Canal Commission, in addition to the designation of the Secretary of Defense (or his designee) as Chairman, should be composed of executives representative of U.S. ports, U.S. steamship lines, maritime labor and foreign commerce. (5) What is the relative effect of the provisions of H.R. Ill and H.R. 1716 concerning claims procedures? Would the provisions of either bill have any effect on decisions of water carriers to use the canal? A. The references to "claims" in both proposals appear ambiguous and should be clarified, particularly with respect to owned and chartered vessels. I do not anticipate the claims provisions will have any significant impact on decisions to use the canal. (6) What is your view of the provisions in H.R. Ill and H.R. 1716 for the inspection of vessels transiting the canal? Are regulations similar to those govern- ing marine inspection by the United States Coast Guard satisfactory to all users? A. As long as the regulations are nondiscriminatory as they affect vessels of all flags, and vessels are in full compliance with prevailing international regulatory and classification societies, we feel the provision would be equitable. Regulations similar to those governing marine inspection by the United States Coast Guard are acceptable as long as they are equally applied to vessels of all nations. (7) What suggestions do you have for accounting policies of the Commission, including the accounting for payments to Panama? A. This is a question which can probably best be answered by the General Accounting Office, acting in concert with appropriate committees of the House of Representatives and the U.S. Senate. However, accounting policies as well as the accounting for payments to Panama should be made available to the general public on an annual basis, with appropriate press releases, etc. Mr. Clark. Delta is headquartered in New Orleans. We have 24 vessels, including the last four passenger ships under the American flag. We project 125 transits through the Panama Canal in the year 1979 including these passenger vessels. So we think we know some- thing about the canal and the significance of what the treaties will mean in years ahead. On the subject of tollage, it is my conviction that any cost which is not related to the actual operation of the Panama Canal should not be included within the tolls. I am familiar with the treaties. I have read them very carefully. We have conferred with our congressional delegations on this subject. The payments to Panama, for instance, have been estimat- ed to reach in the area of $75 million a year. The cost related to defense, and other costs are also involved. The question of interest, the question of amortization, all of these unquestionably will bring the cost of the tollage increase to what I consider will be an almost impossible level within a very short time. It is imperative that there be understood what the intent of the Congress of the United States was, of the administration, when these treaties were proposed and when they were ratified. It is basically a question of foreign policy. It is intended that the canal and all of its appurtenances, and all of its equipment will be 1567 turned over at the year 2000 to Panama as, in effect, a gift from the people of the United States to the people of Panama, and I think that this committee and other committees of the House, as well as the Senate, should keep that forever in mind. There are alternatives to using the canal. You have heard a lot of them today. I can tell you right now my company is considering alternatives, and as this vicious cycle continues with increasing tolls, you will have more and more diversion of cargo to mini- bridge, microbridge, and around the Cape of Good Hope, and the cycle will continue with fewer users and the burden falling on less and less carriers. Under the circumstances, there is no alternative but to come up with some reasonable level for tolls. We know when the Pactex pipeline comes in the effect will be even more sharply felt. Ambassador Bunker told me not too long ago that we could pass the charges on to our customers. We have to keep the U.S. import- ers and exporters competitive with their competitors — the Japa- nese, the European Common Market, et cetera. We also have to be competitive with competitors using the mini- bridge. Mr. Hubbard. Captain Clark, in all fairness to you I am going to have to recess for 10 minutes. I am about to miss a vote even if I ran over there and back without stopping. I am sorry. The bells have rung the second time, and I have waited as long as I can. I will be right back. [ Whereupon, a short recess was taken.] Mr. Hubbard. In racing over there like a race horse, I did make it. It sure would be nice to have a little better system to notify me of these bells ringing. Maybe next time we will have a room where the bells ring and I will not have to depend on remote control and get there after the time had run out. Captain Clark, you were in the process of giving your excellent statement. Would you go ahead and proceed now? Mr. Clark. Thank you, Mr. Chairman. I appreciate your patience today. I know it has been very trying for you. Mr. Hubbard. My apologies for interrupting. I do have two con- stituents that I would ask to wait on me. I thought you all had left. Is Mr. Fendley still out in the hall? He did not tell me you all were here, and he did not tell me the bells were ringing. But Helen Davis from Elkton and Clara Mays from Lexington, we appreciate your being here, and we are almost about to complete the hearings so if you all will wait patiently, I will be able to see you. Now, Captain Clark, please proceed. Mr. Clark. Mr. Chairman, I will try to make this as brief as possible, again requesting that my full statement be included in the record. At the time it was necessary for you to proceed to vote, I was mentioning a discussion I had with Ambassador Ellsworth Bunker just before the ratification of the treaties, at which time I men- tioned, from the shipowner's point of view, the problems that would follow and the very obvious possibility of raising tolls far above an economic level and the consequent diversion, a vicious 1568 cycle, never ending, with less and less users and more and more tolls until the canal could become almost a " white elephant." Mr. Bunker at that time said: "Captain Clark, all you have to do is raise your freight rates and pass the cost on to the users," to which I responded, and which I would like to mention now, because it has a very definite bearing on this whole question: "If this is to be done or considered, we have to think about our competition. We will not be in business unless our customers are in business, be- cause all we have to sell is service. This means that our customers must be able to compete with other sources of supply, say, from Europe, the Common Market, and from Japan. If we cannot pro- vide them with a reasonable freight rate, we are out of business." American-flag ships are not guaranteed a profit. We have to charge the same rates as all of our competitors. Second, we have to compete with the lines that will be using the minibridge. If they can do it cheaper and faster, we are at a competitive disadvantage. Now, there is one other aspect which I told Mr. Bunker. Our importers and exporters are taxpayers just like we are. So why should the burden fall on such a few? This is it in a nutshell. Regarding the Panama Canal Commission, I very definitely feel that we should revert to policies of past years when all of the members of the Commission were, in general, I think without exception, private citizens. Placing only U.S. Government officials — or bureaucrats if you would call them that, as a previous witness stated — on the Commis- sion in my mind is something dangerous. However well qualified they might be for their own positions, they are not usually business oriented, and I do not think they will give us efficient service. They will not be familiar with cost controls. And this is where this is going to be of tremendous importance if we are going to keep these tolls at an equitable, fair, and reason- able level and not price the Panama Canal out of existence. Therefore, I would like to recommend that consideration be given to a selection process within the Commission whereby specific cate- gories would be listed: One, the Secretary of Defense; two, a repre- sentative import-exporter; three, a port representative knowledge- able about the flow of commerce to and from the United States through the canal; four, a representative of labor — AFL-CIO— be- cause we are going to have a lot of labor problems involved in the movement of cargo through the canal as well as with the after- math of minibridge which is bound to grow. As you know, the ILA is very much involved in all of this. Lastly, there should be an active steamship line executive who understands this and who knows whether or not he would be moving in the direction of minibridge or whatever other alterna- tives, because there are other alternatives. I had mentioned previously — I do not know if you heard it, Mr. Chairman — that we are considering alternatives, and any prudent shipowner has to do that to stay in business, because the name of the game is making a profit. I think this would give us a balanced board. Now, with ways and means, whether it is according to Mr. Murphy's bill or the adminis- tration's bill, that's up to the wisdom of the Congress to decide. 1569 But the categories should be spelled out, and in order to be sure of a proper overview, it should be with the advice and consent of the Senate. Going a little bit further to the consultative committee; to me, this is a mysterious committee. I do not really understand it. It would appear that these will be either diplomats, or Members of Congress, or who knows what, but what concerns me now is that it would appear that they would report to their respective govern- ments rather than to the Commission. Now, if the Government is sincere in its desire to set up a corporate-type concern, there should be a provision for the consul- tative committee to be nominated by the Commission, to report through the Commission, and the same thing with the Administra- tor and the Deputy Administrator. This is all for the sake of good order. Otherwise, there is bound to be conflicts all around the mulberry bush. I am very much concerned if we leave it to diplomats and Government officials that we will be in the same old position which American business has had for so many years, we would suffer at the hands of what they call overriding political considerations. Maintenance and repair. Mr. Chairman, gentlemen, I have been through the canal many times, both as a shipmaster and most recently in my capacity as head of Delta. I visited with Governor Parfitt and members of his staff, a group of Panama Canal pilots — senior pilots, steamship agents, and various businessmen. I made a trip through the canal on one of our passenger ships because I wanted to bring myself up to date on the latest develop- ments of the canal. I want to emphasize that, throughout my visit, there was a constant reminder from everyone concerned from the Governor's office on down that there is a very dangerous morale problem. You are facing the prospect of losing the most skillful people we have there. These are the pilots, the technicians, the engineers, and so on. They can take early retirement, and there is no real incentive to stay. They now have a wait-and-see attitude. Something must be done about this. You earlier heard witnesses testify about the sensitivity of the transition period. It is serious. Governor Parfitt himself has stated they have a morale problem. They have a maintenance repair problem and a replacement prob- lem. And I have a letter here if you would like me to read it. I think he testified to that aspect before. What is happening is that the canal is getting old. It was opened in 1914. Just last week one of the Gatun locks was at half speed with a constant backlog of 25 to 36, ships building up to 60 it is estimated this week, and the reason was they could not delay repairs because the gate valves were in such bad condition that if they were not promptly repaired, the whole of Gatun locks would have to be shut down. Now, this would be a catastrophe. But that is what is happening to all of the canal functions. We have to maintain the canal in a going operation, because it is intended that the canal will be turned over to Panama as a going concern for future years. 1570 Now, I do not want to appear critical of the Panamanian techni- cians at all. I have spent my lifetime in Latin America serving Latin America. I have lived in Brazil. I have lived in Argentina. I have lived in other places in Latin America. I travel frequently there, and I have a high regard for Latin American professional- ism. But what I am concerned about is this. There should be no political appointees to technical posts. As an example, I would remind you and the members of the committee that, as an exam- ple, you, sir, without any knowledge of going aboard a ship could, for the sum of approximately $125, be issued a Panamanian master mariner's license enabling you to command the largest vessel afloat without any experience whatsoever, and I can prove that statement, sir, because I had one of our people go to the consul in New Orleans and obtain a master's license and I have it here with me if you want to see it. Now, just imagine having a pilot appointed on the basis of such a license. Mr. Hubbard. Do you have that in your full statement? Mr. Clark. I have it in here, yes. Mr. Hubbard. That letter you referred to a moment ago, is that also in the folder? Mr. Clark. No, sir, I have it separately. Mr. Hubbard. Would you enter that? [The material had not been received at the time of printing.] Mr. Clark. I would be glad to. It is dated July 17, 1978. Just imagine having a man like this, and the same thing would apply to engineers, or anyone who had a license issued by Panama. Despite the provisions of the Panama Canal treaties that there would be necessary examinations and so forth, it would be very difficult to deny any applicant possessing a license if he were politically appointed. It would be very difficult. So, therefore, I earnestly request that great consideration be given to training Panamanians and that specific instructions and provisions within the implementing legislation be included where- by we are assured of an efficient operation with competent people before they take over, because a catastrophe could ensue which would destroy the canal. And then the statement of a couple of the gentlemen who testi- fied earlier could come into being, what about $100 million damage? Who would pay for it? What would we do? That had to do with a landslide, but the same thing could apply if a ship went through one of the locks. Mr. Hubbard. Can you wrap it up in about 3 minutes? And get some questions. Mr. Clark. I am just about finished. Mr. Hubbard. The only reason I say that is we have got another vote. Mr. Clark. I have a concluding statement, but I will just sum it up this way. In 1954, Mr. Chairman, Senator George W. Mallone who was head of a committee of Congress — and that is within my statement — conducted a complete study on the necessity of doing business with Latin America, because it was concluded that we were dependent upon them for vital raw materials. 1571 He even predicted, or the committee did, in 1954 the Mideast oil shortage. That report is very pertinent right now. I recommend that the committee review that, and I have summarized it here. Mr. Chairman, gentlemen, I will rest, and leave my report with you. Mr. Hubbard. Because of your expertise as president of Delta Steamship Lines and having lived in Latin America for years, were you called upon by any of the White House aides or the Senators for advice regarding the treaties they were signing and ratifying? Mr. Clark. The only contact I personally had was a visit by Miss Ann Wexler in New Orleans with a group of us there, at which time her job and her objective was to convince us the treaties were a wonderful thing, and I voiced to her at that point exactly what I am saying now. She was there to convince us and not to listen to us is my feeling. Mr. Hubbard. We had a few of those roaming Kentucky. I would like to ask our staff director if he would share with each member of our full committee the comments of Captain Clark. I appreciate your informative comments. With respect to your comment on licensing, we hope that the Commission will use all powers given to it by the committee to insure that only qualified pilots and others are appointed. If your revelations here would not hinder your competitive posi- tion, could you give us some idea of what a 25-percent increase would do to specific routes on which Delta operates? Mr. Clark. I think an increase up to that 25 percent could be lived with. Anything over 25 percent, there will be diminishing returns and the impact would be more and more. Several Ameri- can flag liner operators have left the canal service and more are expected to go. You have heard my colleague at Lykes talk about the possibility of them leaving. You have the American President Lines, Seatrain, Sealand — they have all left. Mr. Hubbard. And the main reason you are leaving, Mr. Block- lin? Mr. Blocklin. It is the major reason: The major reason is the impact on canal tolls that have driven shippers away and have sought alternate inland uses. We are talking about east-west trade across the canal. Mr. Hubbard. And you, Mr. Clark. Mr. Clark. Not yet, sir; but we may be forced into the same position, and there are alternatives. Mr. Hubbard. And you considered those alternatives? Mr. Clark. Yes, sir. Mr. Hubbard. Questions for the witnesses from counsel? Mr. Merin. Just to finish up the story you were talking about earlier. I like stories with happy endings. When you were talking to Ambassador Bunker, you explained to him the problems that this increase in rates would cause. Was he able to come up with a solution to the predicament that you have? Mr. Clark. I have known Ambassador Bunker for many years, since he was our ambassador to Argentina, and we are good friends. His concluding remark to me, after my statement, he said: 1572 "Captain Clark, we will never agree," and he turned and he walked away. Mr. Hubbard. Captain Clark, it is unfortunate we cannot spend more time with you and Mr. Blocklin. The record will be open for 1 week for any questions that may be related to your excellent statements. And in addition to Captain Clark's, could you have Mr. Blocklin's comments distributed to the members of the full committee? Mr. Clark. It was a pleasure being here. Thank you, Mr. Chair- man. Mr. Hubbard. That does wrap up and conclude today's hearings. We will adjourn today and meet again at 9 a.m. in the morning in room 340 in the Cannon Building,and hopefully it will be a bigger room with maybe a working clock. We will adjourn here at 4:30 p.m. [The following statements were received for the record of the hearing.] 1573 NPPON YUSEN KAISHA HEAD OFFICE TOKYO. JAPAN IMS NEW YORK BRANCH OFFICE ONE WORLD TRADE CENTER, SUITE 5031 DATE March $, 1979 ■ NEW YORK, N. Y. 10048 fr C.blo Aunder the Treaty and since, in fact, it does have the major responsibility for structuring how to meet the fiscal needs of Treaty implementation. There are three alternative models for the Joint Commission. There is. first, the bilateral cooperation agree- ment format such as the environmen- tal agreement between the U.S. and U.S.S.R." This is an exchange of in- formation and experts and oc- casional joint projects to study problems of mutual interest The sec- ond is the pattern of the Inter- national Boundary Commission between the United States and Mex- ico." which focuses on environmen- tal issues of boundary water volume and quality for the Rio Grande and Colorado Rivers. The third is the International Joint Commission between the United States and Canada." The latter two commissions were designed before environmental con- cerns became prominent. Both have taken on environmental issues and procedures in recent years." They have powers to gather information, including subpoena powers, ex- change Information between the two aides, maintain field offices, place matters on the common agenda and require their examination. The refer- ral of a matter to the U.S. -Canadian Joint Commission has proven more significant in prompting ameliora- tion of environmental issues than has the IJC's regulatory power to license "uses, diversions, or obstructions" affecting the flow or bend of boun- dary waters." Experts on staff or secured from other agencies assist the Commis- sions and expert advisory commit- tees undertake oversight and follow- up responsibilities. In the U.S.- Mexico context, its decisions become binding on the respective govern- ments unless an objection is lodged within one month of the decision. Overseer At present, the U.S. Panama Joint Commission is framed as a body to oversee and guide the two nations' commitment to "protection and con- servation of the environment." The Commission "shall" review treaty implementation and "shall recom- mend" ways to avoid or mitigate en vlronmental harm. Both parties "shall" furnish complete informa tion on actions which both agree may have a significant affect on the en- vironment. The information must be given far enough in advance of the proposed action to permit study and let the responsible acting agencies consider any Commission respon- sibilities. For the Commission to work well, the "shall" mandates need to be structured by rules and regulations on each side. The State Department's commitment in the Christopher statement to include public members from scientific and environmental communities will build in some degree of expertise and integrity However, the veto potential where- by cither nation might claim that a proposed action would not adversely 1664 affect the environment and thus avoid the duty to submit information, must be circumscribed by mutually agreed upon standards. The NEPA tests as s to "significance"" need to be grafted onto this clause, and since NEPA in- spired this Treaty language, such a gloss is entirely appropriate. NEPA- like procedures need to be framed Canal Commission Within Panama, ways should be developed to refer matters to local health and conservation officers. Provisions for training and basic data collection programs on an on- going basis should be designed. Procedures for individuals to bring matters to the Commission's atten- tion should be structured. Most important in this regard will be the relationship of the En- vironmental Commission to the Panama Canal Commission, which has operational authority for the Canal. If environmental protection is to be taken seriously, this relationship must be defined at the outset with clarity. Congress has more experience in framing such a relationship than does the State Department, although guidance could be sought from the Council on Environmental Quality and the Departments of the Interior and En- vironmental Protection Agency. Priorities Priorities for the Commission's ini- tial environmental agenda, such as a joint program to contain "hoof and mouth" disease (aftosa) south of the Darien peninsula, should be fixed. The Commission should begin opera- tions with several clear and im- mediate charges. Forestry manage- ment to avoid soil erosion and protect flora and fauna, especially the en- dangered species in the Canal Zone, is another clear priority. Some of these priorities can be in- ferred from other existing bilateral treaties between the U.S. and Panama, or from the multilateral treaties to which both states are par-, ties. Cooperation on aftosa is subject to a 1972 treaty, for instance." One manifest priority is the feasibility study on any expansion of the Canal by a third set of locks or sea-level canal. The State Depart- ment has promised a full en- vironmental impact statement on the study," and since the Treaty calls for the study both nations have neces- sarily put this issue before the Com- mission. Analogy and Reason What ratification of the Panama Canal Treaty brings in terms of new environmental law is an undertaking of two non-neighboring states to act in concert to protect the regional en- vironment. In 1912, a Committee of the House of ^Representatives is reported to have observed that "The Panama Canal is unique in all respects and at every stage presents novel problems . . . legislation to operate and govern [the Canal], with its ad- juncts and incidents, must in the absence of precedent rely on basic principles, with analogy and reason as the only guide."" It will be up to the Congress to take leadership in fashioning the unique administrative procedures for en- vironmental protection under the Treaties. Analogies to NEPA and the boundary commissions exist, and en- vironmental protection guides. Adam Clymer. 2 Panai __ •Courage'". New York Time*, p. l.col 4 (March 17. 197?). 2 Texts of Treaties Relating to the Panama Canal, at 13 (Department of State. Selected Documents No 6. Sept. 1977) 3. All veaaels must submit to safeguards Tor sanitary transit and applicable health, sanita- tion and guarantlve provisions Article III (a) and (e) and Annex A. para. 6. supra note 2 at 14- 15. ( See N.A. Robinson. "Panama Canal Treaty: Environmental Issues". 178 N. Y.L.J, p. 1, col. 1 (Oct 25. 1977). 5. Supra note 2 at 4-5. 8. "Panama Canal Treaties: A Negotiator's Perspective." Dept of State. Speech. Jan. 28. 1978. Bureau of Public Affairs. Of f Ice of Public Communication 7. Christopher text distributed with cover let- ters dated Jan 12, 1978. by William H Mansfield 111. Bureau of Oceans and International En- vironmental and Scientific Affairs. Office of Environmental Affairs. Department of State. 8. Christopher text. para. 1: he continued In para. 2 to explain the development of Article VI as follows: "During the negotiation of the Panama Canal treaties, the Department of State and other agencies of the United Bute* Government recognised the serious en- vironmental Implications of the treaties key provisions The United States noted that the transfer of large tracts of essentially un- Ca'n In economic development < rlously Impact I of the Panama Canal Treaty. In that artl- the United States and Panama commit nselves to implement the treaty 'In a manner with the protection of the natural en- vironment.' The article also provides for the es- tablishment of a Joint Commission on the En- vironment, which is to recommend environmen- tal protection measures to the two government* " ». Ibid.. Para 3: "Such is the framework for environmental action established by the written Instrument. However, it will only be through the joint effort of the two governments, following itlflcatlon of that the commlt- j treaties will come Into effect. For the United States, this will enull provision of relevant Information about the Canal Zone and Its resources, technical assistance, as well as resources needed to carry out effective programs of environmental protectionVTo that rogra in. 1 Ibid.. Para. 4: "On the Panamanian side, lomatlc mission in Panama has noted that the Panamanian Government is taking en- vironmental concerns seriously and has at- tached a high priority to the problem of protecting the Canal watershed. As evidence of this, the mission reports that both the Panaman- ian Minister of Planning and the Vice Minister neprovl Treaty there is also a basis In International law for I and Panamanian cooperation on environmental matters since both countries are parties to the 1954 International Convention for the Preven- tion of Pollution of the Sea by Oil and the 1940 Convention on Nature Protection and Wildlife Preservation In the Western Hemisphere, which established Barro Colorado Island as a Nature Monument." 11. 42 U.8.C. 4321. 12 Supra note 7 at para. S. 13 See Sierra Club National News Report (Jan.. 1978). 14. See "Failure to Meet EPA Law May Block Canal Pacts". Spotlight, p. 3. col. 1 (Jan. 9. 1978) 15. Supra note 7. para. 5. I fi. Agreement of Cooperation In The Field of Environmental Protection. 1172. 17. 22 U.S.C. Sec. 277. et sea. 18. Trealv Relating To Boundary Water* and Questions Arising Along the Boundary Willi Great-Britain. Jan II. 1909. 38 Stat. 2448: Exec. Order No. 9972. 13 Fed. Reg. J573 (1948 (.under International Organisations Immunity Act. 22 US.C. 288 (1945). 19. See P. Smedresman. "The Int'l. Joint Com- mission (U.S -Canada) and the Int'l. Boundary and Water Commlaslon (U.S.-MexIcol: Poten- tial For Environmental Control Along The Boundaries". B NY U.J. INT'L L * POL. 499 (1973). 21). Id. at 305. 21. Section I02(2)(c) of NEPA. supra note II. 22. "Agreement confirming the cooperative agreement between the Panamanian Ministry of Agriculture and Livestock and the United States Department of Agriculture for the prevention of foot-and-mouth disease and rinderpest In Panama." Oct. 5. 1972. 23 U.ST 3108: TIAS 7482. Article XII or the Panama CaneJ Treaty i the question of expansion of the ei Panama Canal to accommodate a larger I United States ' locks to the existing Panama Canal.' With reaped to a possible sea-level canal, the article PUBLIC NOTICE8 THE ANNUAL REPORT OF SAMUEL * MARA ROSOFF FOUNDATION for the calen- dar year ended December II. 1977 Is available at Its principal office, located at c/o Reuben B. Sperber. 7005 N W. 17th Court. Margate. Florida 33083 for inspection during regular hours by any cltlsen who requests It -_„'s hereof. Prlnclpa: ". the Foundation Is SAMUEL ROSOFF vllhln 180 days hereof. Principal Manager of The 1977 Rep of I MAXS1LBER- lepo MANN FOUNDATION Is prepared and copies vailnhle to the public during regular •ss hours. Max Sllbermann Foundation c/o S (JoulU. Trustee. 330 Madison Avenue. ork.New York IIHII7. provides for a study of the feasibility of such a canal without making a decision or commitment that a sea-level canal will be built. Any study of the construction of a sea-level canal will seek to be both thorough and objective as It examines both the economic as well as the engineering feasibility of such a project. In addition, the study would fully explore the environmental consequences of a sea-level canal and would ad- dress the problem* Identified In the reports of the National Academy of Sciences. Moreover, an Environmental Impact Statement would be prepared In accordance with the provisions ol the National Environmental Policy Act Final- ly. 1 should note here that we do not Intend to use nuclear excavation techniques In connection with any effort to enlarge the capacity of the Panama Canal or build a new canal, both for en- vironmental reasons and because of the terms oi the nuclear test ban treaty " •J4 Martha Jane Shay. "The Panama Canal Mr. Robinson served on the Legal Advisory Committee to the Presi- dent's Council on Environmental Quality and Is a member of the Com- mittees on Environmental Law of the New York State Bar Association and the Association of the Bar of the City of New York. He edits the Inter- national and Comparative Earth Law Journal, A.W. Slfthoff Publishing Co., The Netherlands. 1665 NEW YORK LAW JOURNAL— Tuesday. September 26, 1978 VOLUME 180.— No. 60 Environmental Law 1 By Nicholas A. Robinson Professor Robinson, who writes thii column as a regular feature of the Law Journal, teaches at Pace University School of Law and is special counsel to Marshall, Bratter, Greene, Allison d Tucker. Panama Canal Treaties: Safeguards Stalled Since the Senate's ratification of The Panama Canal treaties' last spring, they have not been much in the news. There was the exchange of ratified texts when President Carter visited Panama. However, there has been almost no report of of- ficial action im- plementing the bilateral agree- ments. A major and comprehen- sive element of the treaties Is their provision for environmental pro- tection. This column examined the treaties' innovative law-making last October 1 and March.' Before the pace of Implementation picks up with the end of summer, It will be useful to review what administrative and legal measures now should be forthcoming. Since the Senate ratification vote was close, and key votes such as that of Senator Howard H. Baker, Ji. were based on an understanding that the opportunity for the United States "to have the quiet use and enjoyment of the Panama Canal for many years to come is greatly enhanced by these treaties," 4 the role of environmental protection in ensuring such quiet use and enjoyment is critical. Details of the environmental measures were not in the treaties, but were left to joint Panamanian and U.S. formula- tion after ratification. Environmental threats to the Canal's operation raise two primary concerns. One Is the deforestation of the Canal Zone, with the attendant erosion Into the Canal and reservoirs and the further loss of water for use in the Canal. Reports from Canal sources indicate that slash-and-bum farm practices are fast encroaching on the Canal; as much as 80 percent of Gatun Lake watershed and 40 per- cent of Madden Lake watershed have been deforested since 1952.' Silting has resulted in the loss of water stored in some reservoirs and land slides from erosion have been a Continued on page B. column 1 Continue* from puqe 1. column 1 problem since the Canal construction : began.' The water shortage in turn is worrisome because Lake Gatun, nearly 50 percent of the Canal's length, must be maintained at a level of 84.6 feet above mean sea level to assure unrestricted use of the Canal. The forests retain water and ease its release as well as preventing sedimentation. Loss of the forest also will eliminate one of the most diverse natural areas in the Americas, deny- ing scientists the flora and fauna they contain. A second major environmental hazard arises from disease and pests. Because of the battles against epidemics of yellow fever. Chagras fever and other forms of malaria In the nineteenth century, 7 sanitation levels have been high In the Canal Zone. Careful sanitation and quaran- • tine controls prevent diseases from . spreading through" the passage of • ships from all parts of the world - through the Canal. Equally important Is the Zone's role as an epidemiological barrier to the migration of disease between South and North America. The health personnel in the Zone constitute what the Gorgas Memorial Institute of Tropical and Preventative Medicine terms "an epidemiological early dis- ease warning system" alerting states from Venezuala and Columbia to Mexico and the United States of dangers. Yellow fever, Venezualan equine encephalitis, vesicular stomatitis of cattle, hoof-and-mouth disease, malaria, leishmaniasis and even hybrid "killer" bees are a few of the possible diseases and pests which could migrate through the region if adequate preventative measures are not taken.' Since the Panamanian governmen- tal agencies at present lack the staff, both in numbers and in trained per- sonnel, and the funding to match the needs for forest watershed manage- ment and sanitation in the Canal Zone, considerable reliance on the existing U.S. services will be neces- sary. The U.S. Agency For Inter- national Development has a $10 mil- lion Watershed Management project for 1978 to develop the Panamanian agencies' capacity to manage and protect the forests of the region.' No comparable measures have been launched for the health and sanita- tion fields." The principal legal institution created by the treaties to cope with these two environmental protection matters, and also the host of all other conservation and environmental Is- sues. Is the Joint Commission on the Environment." Joint Commission Mandate This Commission is mandated to "periodically review the Implemen- tation" of the treaties and to "recom- mend as appropriate to the two governments" ways to avoid or mitigate adverse environmental im- pacts from their actions "pursuant to the treaty."" Beyond Its right to recommend, the Commission has the rirht tn receive "comDlete informa- tion on any acuon taken in accord- dance with this treaty " when both na- tions judge that such action may have a "significant effect on the environment."" The mutual undertakings by which both the U.S. and Panama "commit themselves to implement this treaty in a manner consistent with the protection of the natural environ- ment of The Republic of Panama"" are important contributions to inter- national law. They reflect the duty framed in Principle 22 of the United Nations Stockholm Declaration on the Human Environment that all na- tions shall cooperate to assure en- vironmental protection. They also go far toward Implementing the state duty expressed in Principle 21 of The Stockholm Declaration that each na- tion must prevent actions within its jurisdiction or control from causing environmental harm to areas outside its control." In U.S. municipal law, the Joint Environment Commission is a con- crete response to the obligations of the National Environmental Policy Act (NEPA) to cooperate for en- vironmental protection In the inter- national context." NEPA also re- quires the appropriate U.8. agencies to undertake a full environmental im- pact analysis of any of its actions, un- der the treaties or otherwise, which have a significant effect on the quality of the human environment." Thus, creation of the Joint En- vironmental Commission responds to both international law and national law obligations. However, the real test is implementation, not treaty language. It is the implementation which will determine whether or not the watershed protection and sanita- tion needs will be met. Key Functions The Joint Environment Commis- sion has two key functions. Most im- portant is its role in guiding and structuring the binatlonal commit- ment to implement the treaty consis- tent with protection of the natural en- vironment. Just as the treaty touches all aspects of life In the Canal Zone, so this commission role is extraor- dinarily pervasive. It is like that of the Council on Environmental Quality." The second function is to advise on the environmental aspects of specific implementation steps. To do so, it probably should fashion its own environmental impact assess- ment process. Since what happens in Panama can affect neighboring states, the Com- mission must consider ways to protect them. A system of consulta- tion among environmental officials in these states will have to be set up " U.S. participation in the Joint En- vironment Commission has several structural alternatives. It could be organized along the lines of the U.S.- Canadian International Joint Com- mission or the International Boun- dary and Water Commission between the U.S. and Mexico." The U.S. side of these agreements has its own en- vironmental procedures under 1666 NEPA, as well aa its treaty man- dates. The Mexican Commission is structured by statute" but wai created by treaties." The Canadian Commission was structured by the 1909 U.S. -United Kingdom Boundary Waters Treaty," and is implemented by- Executive Order. The State Department added the Joint En- vironmental Commission to the draft Panama Canal treaty late in the negotiations. This organizational question must now be resolved. The only public positions advanced about the Joint Commission on the Environment are thoae of Acting Secretary of State Warren Christopher, released Jan. 6, 1978,* and the few comments in the Final Environmental Impact Statement." Christopher pledged that the Com- mission would have "the staff and financial support which it needs to be effective." The State Department proposed to include scientific and en- vironmental leaders among the U.S. members of the Commission. To further the Commission's work, Christopher stated that "reports on the state of watershed will be as- sembled and indexed" and the exper- tize of all Federal agencies would be utilized. » Before Christopher's statement, the FEIS had explained the Joint Commission on the Environment. It observed that "the detailed respon- sibilities, staffing and operating procedures of the Commission will have to be worked out within the U.S. Government and with the Panama- nians. ... Its responsibilities will in- volve monitoring, studying and mak- ing recommendations to the two Governments on a broad range of en- vironmental issues . . . The Commis- sion should be supported by a profes- sional staff and be located at the Canal Commission's Head- quarters."" Substantive Agenda Beyond this preliminary organizational thinking, there looms a long substantive agenda of items for the Commission: (1) It must con- sider how to advise Panama as she develops her next five-year Develop- ment Plan; the current plan proposes a number of roads through the Darian forest, all with scant regard for the environmental consequences. (2i The rare and endangered species in the forests of the Canal Zone muat be protected. (3) The environmental components of the "feasibility" study for any sea-level canal, re- quired bv the treaty." must be struc- tured. (4) The laws of Panama, in many respects compatable with ex- isting U.S. environmental laws of the Canal Zone, need expansion to cover those further environmental issues not yet addressed legislatively. (5) Sanitation and health procedures must be developed for Panamanian administration. Even after the Commission members are appointed, and a staff is in place, it is unlikely that the Com- mission and staff alone can aerve adequately . The Camadian and Mex- ican Commissions regularly use the services of other national agencies from each respective set of countries. Procedures for doing so will be needed for this Panama-U.S. venture as well." Finally, if the Joint Commisaion on the Environment functions profes- sionally and well. It will gain the con- fidence of those throughout the region who depend on the Panamanian environment. New functions then may be added, as was the case with the Canadian and Mexican Commis- sions. A system for peaceful settle- ment of environmental disputes should be considered. Panama and the U.S. anticipate the need for new mechanisms between themselves in the treaty." Since Canal-related ac- tions can easily affect the environ- ment of neighboring states as well, a broader dispute settling system, in- cluding fact-finding procedures, would be prudent. When the Panama Canal was con- ceived in the minds of French and American leaders, it was to be a global resource. It has been ad- ministered neutrally, as a trust. Panama now assumes the respon- sibility to continue this trust, and knowingly has assumed the newer environmental protection measures which are increasingly a part of the responsibility of the Canal operator. In the past. Joint commissions have been used to resolve Canal-related matters.*' Three other Commissions (housing, ports and railroad, and military) are created by the treaty along with a Canal Commisaion to operate the Canal. Since en- vironmental protection issues will be of concern to each of these other com- missions, it is critical that the Joint Commission on the Environment be created contemporaneously or even before the others. Regretably, there is no evidence that the State Department's im- plementation group for the Panama Canal treaty has moved to structure the U.S. side of the Joint Commisaion or to reach agreement with Panama on how to proceed. Every effort should be made to proceed with Panama expeditiously during what has been termed the "honeymoon mood" in Panamanian-U.S. relations following the treaty-making." If the State Department does not act affir- matively this fall, Congress should enact the laws necessary to imple- ment the U.S. involvement in the Joint Environment Commission. 1»77). (2) N.A. Robinson. "Panama Canal Treaty; Environmental Issues" NYLJ. p.l. col. 1 (Oct. 5. 1*77). (K N . Safei irdB Panama Can Ironmental (4) Adam Clymer, "Senate. (8-32. Approve* Flrat of Two Panama Pacta; Carter Halle ■Courage."' NY Time* P. Al, col. 6. at p. A12 (March 17. 1*71). (5) Dtp t. of State. Final Environmental Im- pact Statement for the New Panana Canal Treaties (FEIS). December (1*77), at p P-29 (letter of Scientific Committee Chairman of Panama Audubon Society ) ; aee aim FEIS p. P- (() David McCul lough. The Path Between the .166-^ 660-664 J _613 (1*77). IcCullough . t note ( at pp. 137-146, 406-426. 461-4 (») FEIS p. P-ll to P-J2 (letter of President of Gores* Memorial Inatitute ) . The principal Panamanian t Ion Naclonal de Renovablea i REN ARE) In the Ministry of Agricultural Development See FEIS Tab N and AID Initial Environmental Examination (March 20. 1171). (10) The U.S. Canal Zone Government'! Health Bureau cu a staff of 1.747 and a 621 million budget The Panamanian governmental agency for Water and Sewage. IDAAN. !• reported to be over-extended Panamanian civic groups report that "In view of the fact that the Government of Panama places leas Importance on activities of a preventative nature, par- ticularly If the activities are not without some cost, guarantees should be made that these es- sential public health activities continue " FEIS at P-40. Created by Article VI of The 1 (13) Id. Art. VI. Sec. 3. (14) Id. Art. VI. Bee. 1. (16) The Stockholm Declaration la set forth with annotation In L Sohn. "Stockholm Declaration on the Human Environment." 14 Harvard Int I Rev. (1*73). (16) Section 102(2) -t --ch. supra note 1. _,!! The'chrftopher .UUment.U_r.pr laj ted CT,!_ri„h Bulls! until' &£__■_)£ gfc - a. syus 1667 Mr. Robinson. Thank you very much, Mr. Chairman. With your permission, I will also not read my statement. You have it before you, and I will highlight a couple of points. I agree with Dr. Campanella's statement in all respects. I think the difference between Mr. Wright and me are questions of degree rather than kind. This House of Representatives said back in 1912 that: "The Panama Canal is unique in all respects and at every stage repre- sents novel problems * * * Legislation to operate and govern [the Canal] with its adjuncts and incidents, must in the absence of precedent rely on basic principles, with analogy and reason as the only guide." I think that is what we still have here, several decades later. We are trying to set up a Joint Commission that can deal with some very real environmental problems. I would add to Dr. Cam- panella's recital of those problems the fact that as Panama devel- ops and as the Panamanian highway system is continued, you will have a disease vector running from Latin America to North Amer- ica. The Gorgas Institute has warned that if quarantine and other methods are not instituted, we could very well have a whole series of diseases that are controlled in Central and North America and not controlled in Latin America, spread north along that sector, including hoof and mouth disease. The mutual concerns of the Cattlemen's Association and the Sierra Club resulted in those two organizations bringing suit to require environmental review of the final link of the Pan-Ameri- can highway system to examine that question. Review of the Sierra Club and bar association's study of the Joint Commission persuades me that we should view the Commission as an opportunity to deal with not only substantial and environmen- tal problems of the canal, but these other binational problems that can affect us intermittently. The guidelines for setting up a Commission like this have to be a little bit broader and different than United States-Mexican Bound- ary Commission or United States-Canadian one. I have outlined in my written statement, on pages 5 and 6, seven principles that I think ought to be incorporated into the legislation. I think Mr. Murphy's bill, House No. Ill, is the preferable place for incorporating these standards. I think there has to be a clear authorization for this Commission, not just a delegation to imple- ment it. I say that because the State Department has been very wishy-washy about what it wants out of this Commission. I have attached to my testimony the statement that Warren Christopher issued in January 1978 prior to ratification. And if you will glance over that and compare it to his testimony before you, you will see that they are completely different. He never mentions environment once in his testimony before you, and the testimony that the State Department provided through David Popper was similarly noncommittal, very downplaying of the whole concept of this binational cooperation. I have come to the conclusion, and came to it indeed well before this set of hearings, that the only way this Commission is going to be properly structured is for the House of Representatives to take a 1668 strong stand on putting together a solid Commission Structure which would meet the criteria for an effective intergovernmental cooperative body. This is, after all, an advisory body, not a regula- tory body. I would view that there really ought to be a scientist, and the legislation ought to say there should be a scientist, as one of the three members. If this House feels that Senate confirmation should assure the highest quality in the way of expertise for the Presiden- tial appointments and similarly influence and persuade the Pana- manians that we treat this as a very serious bi-national venture, then by all means, let us have confirmation requirements. At least that also gives another opportunity for oversight of the operations by Congress. The testimony that the Smithsonian presented to you, through David Challinor I think is excellent. I commend it to you as a very thoughtful discussion of what the Commission ought to be doing and how it ought to be structured. It clearly needs a staff. It probably should be based in Panama, but the American members are probably going to need some kind of small secretariat here to facilitate their work in North America. It should also have an opportunity to draw upon other agencies of the Federal Government, the Soil Conservation Service, the Agriculture Department, the Forest Service (wherever is going to end up these days), and the other expert bodies that we have that can, with a little trouble, give very good advice to Panamanians and help them develop their expertise to deal with the problems. I think the Commission needs adequate funds. The funds prob- ably should come from appropriations to give this body oversight and because we do not really have baseline data. Although Secre- tary Christopher promised that the State Department would promptly pull together all the baseline data that all the govern- mental agencies have to facilitate the work of the commission that really has not happened. The baseline data, as the Smithsonian points out, is critical to understanding even the environmental studies aspects for the sea-level canal, which I am sure the Senator will speak about shortly. So there is a need to start this Commission up, to give it re- sources to be effective. It ought to begin as soon as possible. The reason I say as soon as possible is that in the treaty itself, in article 6, the treaty language provides that the commission shall periodi- cally review implementation. Well, how can it periodically — this is a shall, it must do this— how can it periodically review implementation if it does not exist, does not have a staff and has not begun and implementation is going ahead? How can it give advice on ways to avoid environmen- tal problems in advance if again it has not the wherewithal to start? I would have hoped that the State Department would have tried to start this activity as quickly as possible, rather than letting it sit on the back burner. There has been a binational committee, hold- ing fairly preliminary discussions in Panama on environmental matters, but not with any sense of how should we tool up the Joint Commission. 1669 So I think the ball is really in your park in terms of both immediate American interests of sound operation of the canal, in terms of common interest of wildlife protection and conservation, and in terms of the prevention of further environmental harm; and I would hope that you would strengthen section 106 of H.R. Ill along the lines that I have just outlined. Thank you very much, Mr. Chairman. Mr. Hubbard. Thank you, Mr. Robinson. Now, I have questions for the panel. First, if the implementing legislation has language that antici- pates an annual appropriation from the Congress for the purposes specified in the joint commission, would that be satisfactory? Mr. Campanella. Yes, I think it would. It would assure them of some kind of continuous level of funding, that combined with some formal arrangement, as Mr. Robinson has suggested, or mechanism for tapping into the local expertise, other governmental agencies' expertise, intergovernmental arrangement; but I think it would be definitely appropriate to have a set amount of funding every year. Mr. Hubbard. Do you think the purposes of the joint commission ought to be more explicitly set out in the implementing legislation, or more guidance given, or should the breakdown of activities of that commission await negotiations with Panama? Mr. Robinson. Well, you have in the treaty a large agenda of items which that would cover, and I have spelled those out in the articles from the New York Law Journal that I appended to my testimony. I think the agenda already exists in the body of the treaties for the commission to take up. I think it is sufficient if the legislation simply establishes the commission and gives it the wherewithal to address this agenda. Mr. Wright. I share the same view. I think we should not get down to trying to anticipate future environmental issues or con- cerns. It is very difficult to know 10 years down the line what kinds of questions the JCE might have to struggle with. Mr. Hubbard. Thank you. I do have two more questions, but at this point, if you would please favor the subcommittee by taking seats in the back, we will call on you again. We are interrupting you to accommodate Sena- tor Mike Gravel of Alaska who has come for his testimony. The distinguished Democratic Senator Mike Gravel from Alaska is our next witness. The Senator needs no introduction to this subcommittee because he testified before our full subcommittee last June on the subject of a sea-level canal. The Senator worked very closely with Chairman Murphy in at- tempts to construct a framework for a new sea-level canal study. Senator, I understand you will be discussing the issue of the sea- level canal study with us. This is a matter which has not received attention in these hearings. Chairman Murphy left about 11:05 and wanted me to indicate to you, Senator Gravel, that he waited 2 hours and 10 minutes to hear you, but an overriding commitment prevented him from re- maining 15 more minutes. He was here during that time. He also indicates that he supports the study you advocate. 1670 We await your testimony, and thank you for being with us. STATEMENT OF HON. MIKE GRAVEL, A U.S. SENATOR FROM THE STATE OF ALASKA Senator Gravel. Thank you very much, Chairman Hubbard, and other members. I appreciate the courtesy and the time allotted. I will try to be as brief as possible Some of the information that I have is redundant. I presented it last year to the committee, as you have noted. I would like it reinserted in the record if possible and would like the committee to take under consideration the possibility of including in your legis- lation the language on a sea-level canal study that has already passed the Senate twice and, I think, merely because of the time constraint, did not pass the House last year. I think that with more time there would have been adequate support for it. The study is a reasonable undertaking. If you would glance at the chart that we have submitted, you will see that today the present canal is 57 percent obsolete, and that that canal will become more obsolete as time goes forward Our economic interest in the canal is equal to about a third of its total. So, as the most important users, we obviously have a concern that the canal is kept as modern and as relevant as possible to present-day maritime needs. That is not the case. I think it is a sad reflection upon us that, under our manage- ment, no provision was made to offset the rate of obsolescence which was apparent upon close examination. That is not the case with the Suez. The new information I have to report to you is that, during the course of the intercession, I went to Ismailia and visited the Suez Canal and made an inspection of the canal myself; and if ever I had any doubts in my mind that the project that I am suggesting will be successful, they were removed with an examination of what is going on in Suez. It is interesting that now the canal is managed by the Egyptians; even the British admit that the Egyptians have given it better management and a better long-term planning thrust. In 1960, much before anybody else was aware of the phenomenon that would take place in maritime transportation, the sea-level canal authority, through its research, was aware of what would happen and had concluded that the ideal tanker size would be somewhere between 200,000 and 250,000 deadweight tons. And they put in motion a plan to do something about it. That plan was interrupted by the 1967 war, but now has been resumed; and phase 1 will be completed by next year. Last year, the revenues of the Suez Canal were $530 million. They anticipate that in the first year, with the new capability that will be to handle tankers of 150,000 deadweight tons, that they will be able to realize an increase in revenue of $400 million— just in 1 year's time. Not only is that obviously an attractive financial situa- tion, but it certainly epitomizes the crying need that exists to make these barriers technically relevant to the new and current mari- time needs of the world. 1671 I need not discuss with this committee the problems, becuse you passed legislation last year, and I want to compliment you on it. The competitive problems I refer to are the Siberian Land Bridge, and the difficulties that Soviet maritime interests are giving us throughout the world. I think that they are subsidizing their mari- time interests in order to secure hard currency. It is still destruc- tive to our maritime interests, and in my opinion, the only competi- tive way that we can solve that problem by bringing about a sea- level canal. I am convinced that one will take place. It is a question of how much time it is going to take to bring it about. How sensitive will we be to this obsolescence factor of 57 percent last year, with a very conservative projection of 90 percent obsolete at the year 2000. That means lost efficiencies that could be realized for the Ameri- can consumer. I know that many times we in public office, governmental bodies, are shortsighted. And I know that our concern is now in the transfer of lands, transfer of the present canal. But let me truly underscore for you that that will not solve, one, the Panamanian problem, nor will it solve our economic problem. What we have to do is set something in motion and begin to arrive at a critical path to decisionmaking. I think that decision will be in the affirmative. But since the credibility of the study that I have put forward is not sufficient to go forward with construction, I would hope the Committee would see the wisdom of including legislation to create a commission. It has received only flippant interest from the administration. Panamanians have some interest in it, but here again, they cannot — they have got a flake in their eye, and they cannot see the forest as we have. I would hope this committee would have the foresight to establish a commission as we have outlined. The details of the study was authored by the chairman of your full committee, working with competent counsel on your side. It was cosponsored and authored by Senator Magnuson and me on my side. If we can just include this language — it truly is not controversial. It is the least controversial item you will address, but I really want to underscore it; I think it will be the most important item that you can put forth in the legislation, because it will set in motion a study that 4 years hence will put us in a "go, no go" position with respect to a sea-level canal. You read in this morning's paper that the proposal for shipment of oil through a pipeline from Long Beach, Calif., to Midland, Tex., has been withdrawn by the company involved. The company has decided not to go forward. That is after spend- ing in excess of $50 million. The major impediment to a positive decision is all government— the government of the State of Califor- nia. I spent 3 days in California 2 years ago trying to address myself to that particular problem, and I am totally convinced it is just bureaucratic machinations and great economic immaturities that have led us to the situation today where a company cannot go forward by using an existing pipeline, which is underutilized, to transport the oil from the west coast of the United States into Midland, Tex., where it can be irrigated into existing oil transpor- 44-394 O - 70 - pt. 2 - 53 1672 tation systems. This is very tragic, because it is the second step in what I consider the continued irrationality of our government policy. The first step was when the Government would not permit the cost of retrofitting refineries on the west coast for our sour crude. Since nobody can pay for that, the Government would not permit consumers to pay for it. What happened was refineries were not retrofitted, so therefore you had a 500,000-barrel glut on the west coast, which is shipped presently through the Panama Canal at excess cost of somewhere between $1.50 and $2 per barrel. Since the cost of oil is fixed it means that that $1.50 to $2 is absorbed by the company and, of course in turn by the State of Alaska. That accounts for my inter- est in the entire issue. The only way we could alter that inefficiency is to have a sea- level canal where 150,000- to 200,000-ton vessels could pick up oil at Valdez, bring it to the gulf coast of the United States, or east coast of the United States, and move it into our infrastructural transpor- tation systems. That decision has not been made. I hope that this committee will take the first step toward rational energy transpor- tation policy in this regard. I am chagrined that when the Department of Energy came before you that all they could talk about are swaps and export of oil. I think both are obviously viable economic alternatives; but in the long run, we could use Alaskan oil as the economic underpin- ning for the creation of this canal, which would be a boon economi- cally to ourselves and to the rest of the world. There are only two maritime barriers in the world left; one is Suez and the other is Panama. The Egyptians had the foresight to remove their barrier, and I hope we will have similar foresight. I want to underscore that the method of doing it is going to be somewhat different than what was thought politically viable a decade ago. We will not be the ones to build it, nor the ones to own it, nor will we seek government appropriations to do it. I think there has been some misunderstanding in that regard. The only way to do this project is to tell the Panamanians that we think it is a sound undertaking and that we would be prepared to guarantee a portion of the financing to bring about its construc- tion. I say a portion. I think we should commit ourselves to guaran- tee an amount equal to our economic interest, which would be somewhere around a third of what the new canal would cost. I think we would be saving untold millions of dollars for the American consumer as a result of that. So, Mr. Chairman, I would hope that you would see fit to include the language. Your counsel is eminently familiar with the specific- ities of the study, since he and the chairman of your full committee had a total hand in writing it. What would be created would be a council that would be made up of five members, five Americans, three appointed by the Execu- tive and two appointed by the Congress, one from the House and one from the Senate. They would make, within 1 year, a determination as to the proper route, which would be a reconfirmation or reexamination of the study that was completed in 1970. 1673 Once that decision had been made, and whatever host country is involved, that host country would be invited to appoint five mem- bers to complement five American members, and that commission would go forward to determine the economic efficacy of the project; the environmental costs involved; and the engineering that would be required. The report would then be made public and reviewed by Panama, the United States, and other maritime nations throughout the world. Then the Panamanians could invite participation in guaran- teeing of financing. The project would be owned by the Panama- nians, and the revenues would accrue to Panamanians. But because of the guarantee on the financing side of it, I think we could safeguard our economic interests by a guaranteed formula on what the tariffs and tolls would be during the life of the project. You have heard the criticism repeatedly, I am sure that when Panamanians get hold of this, they are going to jack up the tolls and are going to be rapacious in their economic practice. I think one has to rely upon historical perspective and not suppo- sition. The best historical perspective is provided by the supposition that the Egyptians would also be irresponsible with respect to the Suez Canal. I think it is interesting to note that present Egyptian policy is to lower the tariffs; they have made a policy to go for volume rather than to maximize their returns on a smaller number with a higher toll. They feel that that is in their best long-term economic interests. I am convinced that management by Panama will be equally judicious and intelligent and that it will be dictated by economic constraints which, of course, is no more than we would ask under the circumstances of our own management. I thank you, Mr. Chairman, for your attention, and I would be happy to respond to any questions you or your colleagues might have. [The following was received for the record:] 1674 Statement of Hon. Mike Gravel, a Senator From the State of Alaska Foreign policy always starts with the question, What United States interests need to be protected? And that is the beginning point for any discussion of the Panama Canal. There is no question that the United States has an interest in a canal at the Panamanian isthmus. But I have become convinced that our real interests lie less with the present canal than they do with the opportunity to construct a new, sea-level canal. I therefore joined with Senator Warren Magnuson in offering an amendment to the Fish and Wildlife Improvement Act of 1978 (H.R.2329) to authorize a four-year study to update the report of the Atlantic-Pacific Interoceanic Canal Study Commission. The Senate approved the study on September 26, 1978. The Canal Study Commission, appointed by President Johnson in 1964 to study the feasibility of constructing a sea-level canal across the Central American isthmus, issued its final report in 1970. At that time it stated that a sea- level canal is wholly feasible from a physical point of view and under reasonable assumptions could be expected to pay for itself within 60 years. The Commission further determined that the defense and foreign policy benefits of a sea-level canal are sufficiently great to warrant writing off a substantial portion of costs for those purposes. In the eight years since the Commission issued its report it has become increasingly apparent that the present canal is rapidly obsolescing and that a sea-level canal would be not only of military and foreign policy significance, but also of great economic value. To fully appreciate this fact it is helpful to compare the economic projections made by the Commission with actual experience over the intervening years. The most frequently heard argument against the economic via- bility of a sea-level canal is that the actual number of ship transits of the present canal has fallen considerably short of the Commission's potential transit forecast. There can be no disputing the facts, although as I shall show momentarily, the interpretation placed upon them has been incorrect. In 1970 there were approximately 15.5 thousand transits of the canal per year. The Commission pro- jected this figure would rise to 18.5 thousand by 1977. But in fact the number of transits declined to just over 13 thousand by 1977. (See Chart 1. ) 1675 CO c (0 (0 c (0 o CD E CO c 2. \ \ \ \ 1 1 \ \ 1 (A 4 A C <\ >5\ g "* 1 V) •o r V ^ CO V) 3 o c • \ \ *■> '<« c <0 \ \ \ o -O 1 \ I ■v*- E 3 O ZtN (D r^ OT CO O tt) o r- > <* — c CO /? o o «) (0 u. f- ■ s Q- r- ri o> *~ 8 ? CO « CN fe r> o O o r- c CD 8 O 6 c dj CJ cc s Z> 8 o> 00 CO LO CO 1676 In part this discrepency can be explained as the result of the world-wide recession which hit hard in 1974, and from which we began to emerge in only the last year and a half. But this cer- tainly does not explain the whole picture, because even before the recession the number of transits was running noticeably below the Commission's projection. Transits also went down with the end of the Vietnam war, but this is not the whole story either. The proper explanation becomes apparent when we look at the tonnage which has moved through the canal in the years since the Commission issued its report. As can be seen from Chart 2, the 19 70 potential tonnage forecast is in fact an* accurate reflection of actual experience. When the actual tonnage figures are graphed against the straight line projection of the 1970 Study, the crests and valleys are just above and just below the forecast figures. If anything, it appears that the tonnage forecast would have been too modest had it not been for the recession years 1974 to 1976. It is obvious that where the forecasters miscalculated was on the growth of vessel size. The average vessel size in the world shipping fleet has increased at a rate much greater than expected, with the result that actual tonnage through the canal has met pro- jections while the number of annual transits has actually declined. This interpretation is further confirmed by comparing actual canal revenues since 19 70 with the potential revenue forecast. As can been seen graphically in Chart 3, actual revenues have been running substantially above those which the Commission projected would be required to amortize the cost of a sea-level canal. This unexpected growth in ship size revealed by comparing the Commission's economic projections with actual experience points up very starkly that the present Panama Canal is rapidly obsolescing. To see just how rapidly, it is useful to take a look at ship growth rates within recent years. Chart 4 displays bulk carrier construction growth rates from 1950 to 1975 for those carriers over 60,000 dead weight tons (DWT)-- in other words, for those ships too large to use the Panama Canal. It is readily apparent that until 1965 the number of bulk carriers too large for the canal we/^e insignificant. But after that date large bulk carrier consrruction soared, such that by 1975 almost 20 percent of all bulk carriers were 60,000 DWT or larger, and hence too big to transit trie canal. What is even more significant, in carrying capacity these large, new vessels represented fully 43.8 percent of the world tonnage for the bulk -carrier fleet. The situation is even more dramatic when we look at tankers. Chart 5 is a time-graph of average tanker size in the world fleet. 1677 O) CO c tl o H « _ c 1 (0 i O i CD E (0 c CO Q. p 00 ~^\ V ft \ V Ul °- ! ; s ~7 1 / \ \ \ V \ \ \ \ \ \ I \ _A- CD co o o .52 «> s CD B CD o CO o 8 o o o DC g 3 cd 1678 •H 0.i£ 1679 Bulk Carrier Construction Growth Rates— World Fleet Bulk carriers IUUU 800 600 19.6% of all bulk carriers are over 60,000 DWT, 400 acco total unimg rar DWT W.07D or / 200 Cam 60M iers over W DWT i / / / / ... ■ * «™»»^ m. . — •• ~ / / 1950 1951-55 1956-60 1961-65 1966-70 1971-75 Year Constructed Source: The Bulk Carrier Register, H. Clarkson & Co., Ltd. 1680 Average Tanker Size— World Fleet Thousands of DWT 200 180 160 140 120 100 40 20 - a 66. S^ tan 7/1/ 7%ofn kers ov WO DW ew er r f^+66 '% of new tank 'er 70,000 DWT ers o\ 4% off ?r70fl0i tew tant 7 DWT 1^21. OVt kers 2.4% of new 70,000 D tankers WT over a 1950 1951-55 1956-60 1961-65 1966-70 1971-75 1976-80 1981-85 1986-90 Year Constructed SOURCE: The Tanker Register, H. Clarkson and Company, Ltd.. 1681 It shows that as recently as 1960 only 2.4 percent of newly built tankers were over 70,000 DWT, and hence too large to use the canal. But by 1975 this figure had jumped to 66.7 percent, a phenomenal growth rate. Chart 6 tells the same story in a slightly different way. It displays graphically the percent of tonnage of the world tanker fleet over 70,000 DWT. Again we see that the dramatic increase began about 1960, when the total world fleet contained only about 25 tankers too large for the Panama Canal. But by 1975 there were 900 such tankers, representing 37 percent of the total number and a whalloping 76.5 percent of the tonnage. While Charts 4, 5, and 6 relate exclusively to bulk carriers and tankers--the two types most significant in world trade—Chart 7 shows that these exponential growth rates in fact apply to the world fleet as a whole, not just to two particular kinds of vessel. As can be seen from the graph, in January 1966- -a mere 12 years ago- -only 10.41 percent of the world fleet tonnage was too large to transit the Panama Canal. But by January 1971 this had increased to 31.77 percent, and by January 1977 to 57.80 percent. In other words, more than half the world's tonnage is already too large for the canal. Looked at in another way, this means that in the eleven years between 1966 and 1977, the portion of the world fleet tonnage able to use the Panama Canal has dropped from nearly 90 percent to a mere 42.20 percent. If we extrapolate this downward trend at only one- third the actual rate of the past decade, we find that by the year 2001 no more than 7.64 percent of the world fleet tonnage will be able to transit the canal. (See Chart 8.) These figures leave no doubt that the Panama Canal is in large measure already obsolete. Its value is rapidly declining as it is overtaken by advances in technology and engineering. It is not hard to imagine what the situation will be in another ten or twenty years, which is probably the shortest time in which we could expect to have a sea- level canal complete. At present the most striking evidence of the dated character of the Panama Canal is its inability to handle economically the transhipment of Alaskan oil. By next spring Alaska's North Slope will be producing oil at the rate of 1.2 million barrels per day. Within a relatively short time this will be increased to 1.6 million barrels. Even at the lower 1.2 million barrel level, this will produce a West Coast surplus of at least 500,000 barrels per day. There is every likelihood that these figures, as high as they are, will at least double in the next several years. The probability that large quantities of oil will be recovered from the Alaskan Gulf, National Petroleum Reserve No. 4, and other areas of Alaska, both on and off shore, is very high. According to conservative projections by the U.S. Geological Sucvjey (USGS) , recoverable reserves in Alaska may be five times as large as already demonstrated reserves . 1682 Tanker Construction Growth Rates- World Fleet Tankers 1000 800 600 400 200 / Tankers over I 70JQODWT ' / + I I t I 1 I I f I I 37.0% of all tankers are over 70,000 DOT accounting for 76.5% of total DOT I I 1950 1951-55 1956-60 1961-65 1966-70 1971-75 Year Constructed Source: The Tanker Register, H. Clarkson & Co., Ltd. 1683 Percent of World Fleet Too Large for Panama Canal Percent 100 80 60 40 20 57.8M over I bofvesM WJOODH \ rr y > Vessels over60A WDWT A 11.77% oi >ver 60 JX 'vessels fODWT y ' i over 1 Kofvesi S0J00D* 1 cafe VT 1 1 1 1 1966 1968 1970 1972 1974 1976 1978 Year Source: Feamley & Egers Chartering Co., Ltd. 1684 Declining Percent of World Fleet Able to Use Panama Canal 1966-2000 Percent 100 90 70 50 40 30 20 10 ^89.59% of world r - ^ tor \ us mage at e Canal we to J | j42 20% of world \S tonnage able to \ use Canal N j291 S ton >4% of v nage ab vor/d le to *V use Canal I 7.64% of world ible to- 'anal / X use C \ r 1966 1971 1976 1981 1986 1991 1996 2001 2006 Year * 1966-1977 actual figures from Fearnley & Egers Chartering Co., Ltd.. Projected figures assume vessel size growth rates equal to only one third actual rates for the past decade. 1685 I believe it is a conservative estimate that Alaska will be producing an additional two million barrels of oil per day within 2 to 5 years, and yet another two million barrels per day within 5 to 10 years. (See Map No. 1.) Figures of this magnitude are confirmed by an Atlantic Richfield Company estimate that the West Coast oil surplus could be as high as 2.4 million barrels per day in 1990. As these Alaskan oil reserves are brought to production, a sea- level canal becomes increasingly attractive. It would require 120 million tons of canal traffic per year to move a surplus of 2.4 million barrels per day through the canal. This represents almost exactly one-half of the Commission's entire potential tonnage forecast for 199 0. They included in their 2 39 million tons per year estimate only 41 million tons of petroleum, or about one-third the volume that now appears likely to materialize from Alaska alone. If this oil and the accompanying gas is to reach U.S. markets where it is needed, it must be transported by tanker to the Gulf of Mexico and the East Coast, or else it must be moved inland by pipeline from the West Coast. The pipeline alternative has considerable drawbacks. The nation's pipeline infrastructure for the delivery of oil and gas runs south to north, fanning out from the Gulf Coast States to serve the Midwest and Northeast. (See Map No. 2.) The explanation for this pattern is simple. Historically, oil and gas was dis- covered in the Gulf region and was moved to the nation's population and industrial center. This infrastructure represents a $7 billion capital invest- ment in the case of oil lines and $12.7 billion for gas lines. There is also an investment of approximately $19 billion in Gulf Coast refining capacity. If it were to become necessary in the next several years to move our energy supplies from west to east, rather than from south to north, much of this infrastructure would have to be replaced at capital costs much higher than the original investment. For at lea^t the next 2 to 3 years there is no real alternative to using the existing canal for transporting West Coast surplus oil to regions of the country which have a crude oil deficiency. But because of the inefficient lightering operations that are involved, transit charges on this route are sufficiently high that pipeline alternatives become attractive even though new pipeline investment costs would be required. A number of such projects have been proposed to deliver surplus oil to markets in either the Central or Gulf States. (See Table ] and Map 3.) The most important of these are as follows: 1686 1687 < Q X X o u a. PROJECT Transport Costs by Capital Route Thruput Projected Investment ($/Bbl) (MB/D) Start-up ($ M) Chicago Houston Trans-Guatemala 1200 1/81 934 2 52 2.16 Trans-Mountain 165 1/79 115 2 30 Northern Tier to to 0, ui x Phase I 600 1/81 1630 2 78 Phase II 800 1/84 118 > 3 r-t CO < H z to 2 < _ w o \W 2 Eh Sohio Phase I 500 1/79 (incremer 472 tal) 2 29 2.06 TABL 'ION : wes x < D z Panama Transshipment Immediate 2.83 2.46 X to < Cape Horn Immediate 3.53 3.14 MB/D = Thousands of Barrels per Day $M = Millions of Dollars $/Bbl = Dollars per Barrel Source: A.D. Little, Inc. 1688 1689 Trans-Mount a i ii t' Lpc 1 i m 1 . i'iii is .m existing line which at present carries oi] cast to west From Kdmonton to the Vancouver- area. Atlantic- Kichfield Company (ARCO) proposes a partial reversal of the (low to move lbS thousand barrels per day of Alaskan crude from Cherry Point in Washington to the so-called Northern Tier refineries in Montana, North Dakota, Minnesota, Wisconsin, and upper Michigan. 'The capacity of this line would satisfy the needs of these refineries. Capital investment costs would be a relatively minimal $115 million and transportation costs into Chicago would be $2.30 per barrel of oil. This project has, however, run into stiff environmental opposition in the State of Washington and may not get the necessary permits. Moreover, federal legislation effectively prohibiting supertankers at Cherry Point was enacted in the fall of 1977. Northern Tier Pipeline . This proposal calls for the construc- tion of 157C miles of new pipe at a capital cost of $1.6 billion. It would move 600,000 barrels per day of Alaska crude from the Port Angeles area in Puget Sound to Clearbrook, Minnesota, thus serving the refineries in the Northern Tier States. It would deliver oil to the Chicago area at a cost of $2.78 per barrel. It faces environ- mental objections in the State of Washington at least equal to those confronting the Trans-Mountain project. Kitimat Pipeline . This project would involve the construction of 75 3 miles cf pipe from the town of Kitimat in British Columbia to Edmonton, Alberta. It would there interconnect with existing lines to serve the Northern Tier States and the upper Midwest. It would have a capacity of 5?f>,000 barrels per day and would entail an invest- ment of some $969 million. Transportation costs to Chicago would be $2.38 per barrel of oil. At present the sponsors of this project are inactive. It seems unlikely that interest will be revived since the Canadian Cabinet has expressed its opposition. Sohio Pipeline . Standard Oil Company of Ohio (SOHIO) proposes to convert to oil service existing gas lines running from Midland, Texas to Redlands, California. With the construction of an additional 219 miles of pipe, this would allow Sohio to move Alaskan crude from Long Beach to Texas at a rate of 500,000 barrels per day. This is the most economical of all the proposed pipeline projects, as it - o o o o o o m o m m o m m m p* r«- lO r«« fv. u r^. CO 00 r~ 00 CO o • « • • - - fc r^ ON vO CM co r-t CM m vO CO m CM 03 » » - • •u CM f-l i-i nH o vy H O co o o o O o o o o o o o o o o o o o in m o in m m r*. rv. m r- rv. o> en m o\ co m co o> ON m o~\ vO CO to >< cd O o O o o o Q o o O o o O o o O o o o >-i - « « » « o o H I 4J O co ai o o> o c cd 01 u CO M ■d w 2 -J M 1-4 ts CO w o o hJ S3 H M X < > o w < CO to CO 1694 In addition, a sea-level canal could be transited by our air- craft carriers, which are too large for tho present facility. At present, a Carrier Task Group moving from one ocean to the other must send part of it:, force around South America while the remainder transits the canaJ , only to lie idle for l'i days while the rest of the force catches up. As an example of the strategic shortcomings and military in- efficiency of the present canal, let us assume there is an emergency in the Mediterranean which calls for reinforcement from a Carrier Task Group stationed on the West Coast. Under present conditions, the Task Group's crusier and 15 of its destroyers would sail through the canal, reaching Gibraltar in 15 days. Meanwhile, the carrier and an additional 10 destroyer escort would steam the additional 5000 miles around Cape Horn, not reaching Gibraltar for 25 days. If a sea-level canal were available, the entire Carrier Task Group could reach Gibraltar in 15 days, at a savings of "4 7,000 barrels of fuel and $870,000. The strategic flexibility this would provide our Navy would be equivalent to adding an entire Carrier Task Group to our arsenal. In effect, this would provide us an additional $20 billion in defense capabiliiy at no extra cost to the taxpayers. (See Map U . ) Taken together, the military and foreign policy values, the savings from retaining existing energy delivery infrastructures, and the reduced transportation costs of a sea-level canal would appear to justify such a project even in the absence of strict financial feasibility, which, as we have seen, is far from lacking. The United States - perhaps in conjunction with other inter- ested parties such as the State of Alaska, the international oil companies, Japan, Mexico, Venezuela, and countries on the west coast of South America - could guarantee the bonds to finance a new sea-level canal fully owned and operated by the Panamanians. It would be strictly a business arrangement with a Panamanian guarantee of access and reasonable tariffs as the only quid pro quo. This would provide Panama the economic control over her resources she demands, and would at the same time defuse the present controversy. The United States, for her part, would obtain the economic advantages already pointed out, and would achieve her ultimate goal of a defen- sible canal available to all at reasonable rates. I think there can be no doubt that the advantages to the United States are sufficiently great to warrant the authorization of a further $8 million to update the comprehensive work already done by the Canal Study Commission. This update would include (1) a 1695 1696 review of the shipping study, including an update of transportation economics ; (2) a review of potential environmental effects, including the preparation of an environmental impact statement in accordance with section 102 of the National Tnvironmental Policy Act, with special attention being givrn to potential ecological effects oT the migration of marine organisms through a sea-level canal; and (3) a review of the 19 70 engineering findings and recommendations. 1697 woe' 3# CHCRRERA •£/ PUERTO CAtMrP TABOGi : U SlANt SEA-LEVEL CANAL ROUTE 10 Alt « ««£S 1698 4" V V A2/ NICARAGUA KL ^^ MANAGUA* ——"i SALVADOR^, (|Y( \ (COSTA \ "• \ ~ *s*n jos* ■"' V RICA PACIFIC OCEAN . tNSERT "A* CAR IB BEAN I SEA i 1 C % 4.V.4AA N HV -1 «*l ft « ! i ""^Ss/. «r ----liiilli ill KL SALVADOR SOU (* MiiiS 50 50 : fNTEROCEANIC CANAL ROUTE FIGURE 2 «'947 STUDY) 1699 20 30 DISTANCE MILES PRQflLjj tioai CHecM — IWNGU5 urnti INIT'AL CHANNEL- A T.OACCHfO-Jjj "A T.OAL T.DAt CHtCK j APW0ACM WAV LHAWNtfr t CM **«t J "Mae* .SMuts c: cmcck »-t; ~T~ _4^ EXTENSION OF BYPASS- C ROUTE tO CHANNEL CONFIGURATIONS 1700 1701 Mr. Hubbard. Senator Gravel, the subcommittee does not have any questions on your proposal for a sea-level canal study. The record on this issue was amplified extensively in hearings last year. There are just a few matters we would like to raise. You are the first Senator we have had testify before us in this hearing. Just out of curiousity, how did you vote on the Panama Canal Treaty? Senator Gravel. I voted for it and labored hard for its passage. Mr. Hubbard. Do you think the cost to the taxpayers of a sea- level study would be considered in debate on implementing legisla- tion? Let me ask this again: Do you think the cost to the taxpayers of a sea-level study would be an issue in debate on the implementing legislation? Senator Gravel. I think it would add to the debate and it prob- ably would be helpful in passage of the legislation. The $8 million that is requested is a very small sum in comparison to the present economic costs that are being paid for by American industry with the inefficient transportation of Alaskan oil alone, not to speak of the other inefficiencies that exist. So I would hope you could make an argument on the floor that this investment in removing a geographic barrier to more efficient economic factors of our transportation system would be meritori- ous. I would even suggest that the $8 million study moneys could be recouped if the project goes forward. First financing would be to pay back the Government our portion. Or the $8 million could be part of our third of the guarantee. I think it is money well spent on the future, and it need not be money to just go for a grant if you wanted to tie some strings to it. Mr. Hubbard. Is it important that the sea-level canal study, in implementing the bill, be recognized by the Republic of Panama as a joint study contemplated by paragraph 1 of article XII in the Panama Canal Treaty? Senator Gravel. I think they would immediately recognize it. But the study is couched in terms that there is no prejudgment made that Panama is the location. The 1970 study recommended Panama. It is my personal judgment it will be Panama, and the site is 10 miles west of the present canal. But because of the political exigencies in the Senate and in the House, we thought it best to not prejudge that and to reexamine the 1970 study, and then at the end of that year, if the council does choose Panama, then you invite in the Panamanians to join forces with you. But that would be the time that you would seek their participation. Moreover, all conversations I have had with Panamanians and with our negotiators, Mr. Linowitz and Mr. Bunker, indicated that the Panamanians were very supportive in that regard. Of course, our Secretary of State, who is the official involved in our relation- ships with Panama, would sign off on this study— that would satis- fy article XII of the treaty, and it is the understanding of Panama- nians that it would satisfy that element of the treaty. I might say that I was the one who was instrumental in getting that language in the treaty as a result of my findings. Mr. Hubbard. Thank you, Senator. 1702 Congressman Carney of New York. Mr. Carney. Thank you very much for coming today, Senator. You will have to excuse me. I am a freshman Congressman and as such did not participate in the hearings last year on the sea-level canal. I have one question. The basic question is, do you have any ballpark figure as to the cost of the sea-level canal? Senator Gravel. Yes. In the study I will leave here for the record, we cover that quite amply. The cost in 1970 — which, incidentally, was a study that went from 1964 to 1970, initiated by Lyndon Johnson, and cost the taxpayers of this country some $22 million — the cost they came up at the time was $2.8 billion. That is on the assumption that con- struction had been initiated right then in 1970. I solicited from the Corps of Engineers an estimate in 1977 figures, at which time the total was $5.3 billion. Obviously, we cannot get started constructing it until a study is complete 3 or 4 years hence; we are talking about probably $10 billion then, and as delays continue, those costs would increase. But I would like to show you one chart which shows projections by the 1970 Commission. If I could just show it to you from here [indicating]. This line here indicates the 1970 study finding that you could amortize the cost of the sea-level canal over 60 years at 6-percent interest. The interest would be somewhat higher now, but actual revenues during the time since 1970 that you could retire the construction cost very handsomely. I am being reminded by staff that when I visited the Nether- lands, I talked with one of the largest and most experienced dredg- ers in the world. We spent a whole evening with them. It is their judgment that the cost would probably decrease from a unit point of view. Inflation will take place, but the new expertise and the techniques available now to dredging would decrease the unit cost in constant dollars from what was projected back in 1970. Mr. Carney. With the present treaty, we have a $319 million debt involved that the administration would like to write off; when the Panamanian Government takes over the present canal, we would consider that as a writeoff. H.R. Ill looks at it in the other vein, and we think it should be paid off and it should be built into the pay structure. I am looking at your chart where you feel that this payment for the canal can be paid off. We cannot even get the original canal paid off. Senator Gravel. The original canal has been paid off many, many times. You see, what has happened was, the Panama Canal Company changed bookkeeping procedures. The canal has been operated as a nonprofit public utility, benefiting economically developed nations of the world, because those are the nations using maritime trans- portation. Had there been accurate bookkeeping, the Panama Canal would have been every bit as profitable as the Suez Canal. 1703 The Suez Canal, when first built, was one of the finest economic ventures in the history of the free enterprise system. That is why it was so easy for Dr. Lesseps to raise the sums of money that he did to go into Panama. His failure was one of a technical nature, not an economic nature. So I think it is somewhat perverse bookkeep- ing to now turn around and say the Panamanians should pay us a debt when in point of fact we, through subsidies to our consumers, by keeping the tolls at a very low level, have subsidized the mari- time industry and anybody who bought a product that went through the Panama Canal. Now, we have given back the canal, 57-percent obsolete, and by the time they will own it, it will be 90-percent obsolete. Why should we add on to that that they should pay us cost of construc- tion, which has been handsomely amortized many times over? Mr. Carney. I think you and I see that a little differently. I see them owning the canal on October 1 of this year, just about. You are saying that you think it could be paid off like the Suez Canal or could be constructed with private money. Why do you think it is necessary for the United States to get involved in financing a new canal if it is such a viable economic entity to free trade? Why should government get involved in it? Senator Gravel. Because government can establish regulations that can prevent its economic realization. If you do not have gov- ernment involved, you could finance the pipeline from Long Beach to Midland, Tex., just like that; but since you have government capriciousness, it becomes risky and uneconomical. So if it is guaranteed, then I think it could be done totally by the private sector. When you have subsidies in transportation, competing transpor- tation modes trying to get advantage through law, governments have to step forward and provide guarantees in the economic arena so as to forestall any political machinations that will be detrimen- tal to the project. Mr. Carney. You mentioned government subsidies and rate structures, and that we are having bogus bookkeeping, as you consider it. We also talk about sensitivity of the cost of using the canal, and when you raise rates, the use declines. That has an adverse effect on the canal. Now, apparently, if we did not subsidize these rates, the canal probably would have lost its usership. If we do not want to subsi- dize rates, will that take place with the sea-level canal? Senator Gravel. No. The canal was there and would have been used. We just made the canal cheaper for people to use. The subsidy has been to the consumer, not to the canal. We built the canal, kept its use very cheap— and I do not think the implication is there, or should be there, that had the tolls been at full elasticity or close to full elasticity that the canal would not have been used. The canal was recognized by economists as far from full elasticity. If you were not at full elasticity, you could have raised the tolls and still have the same traffic; but by not raising tolls, we subsidized the people who were using it. We subsi- dized our own maritime interest, a third of the traffic, plus we subsidized Europe too. 1704 Anybody who used it was subsidized by our policy. Mr. Carney. I agree with you on that, but for the last nine meetings which we have had in this committee, the subject of tolls has been an issue which has been of great concern, and it seems to me to be in the minds of many experts that the existing canal could not withstand the toll increase of perhaps 25 percent, as one of the numbers that have been floating around. I have heard that more than any other, that the elasticity of the toll structure would be at its end with 25-percent increase with existing canal right now. Senator Gravel. Nobody will be putting it above 25 percent. That would be suicidal. Mr. Carney. Apparently the Panamanian Government is not too concerned about that because there is $1 million a year to start with, pushing canal revenues almost to that point right now, and Senator, I see the Panamanian Government as a government that really does not want to cooperate with the U.S. Government with the present canal and I do not know why you would think they would cooperate with us in a venture to build another, sea-level canal, unless once again we had this outward willingness to give away the store. In the last 3 or 4 weeks it has been noted that the cost of the canal to the American taxpayer — the Senate was under the im- presssion it would be zero — it is up to about $4 billion. The Ameri- can taxpayer is going to subsidize the giving away of the canal to the tune of $4 billion and turn around and build a new one — that is running around $10 billion. I do not think the taxpayer will toler- ate that. Perhaps the news does not get to Alaska as fast as it does to Long Island. But the taxpayers on Long Island do not want to give away the present canal at $4 billion price tag. They are very sensitive to the way the Panamanians treated us when we went down there; I do not see why we would think the taxpayer in America would be willing to pick up an additional cost and why, after my observa- tions of the way the Panamanian Government treats us, that they will treat us any better if we build another canal. We will build another jewel. Senator Gravel. There is nothing I have said here to suggest that we build and pay for another canal. I hope I can disabuse you of that impression. Second, I think the people of Alaska are just as enlightened and independent as the people of Long Island particularly in some cases, such as energy, maybe a little more enlightened. Third, the cost of the canal of $4 billion that you cavalierly throw out is the cost of the defense of the canal, not the cost of the canal. The cost of the canal is somewhere around $350 million and the cost of defending it has been in excess of $4 billion. I submit with a new sea-level canal, that might remove the lion's share of any prospective cost of defending it, since it would be a lot easier to defend the canal. Buried in that cost are also a lot of other military and defense activities relative to our position in the Americas. 1705 I also might say that the orifice of expansion in time of need, which of course is the essential defense benefit of the canal, is total in the case of a sea-level canal. We only have one port on the west coast of the United States that can handle munitions. We have always counted on, in case of a Pacific war, of expand- ing and moving our munitions and other needs through the canal. That has taken place during the Second World War, during the Korean war and during the Vietnam war. I hope you would not be too cavalierish with your statement that we are giving the Pana- manians $4 billion-some-odd. $4 billion-some-odd was money that were paid to help us prosecute the Second World War, the Korean war and the Vietnam war. Mr. Carney. I am talking about the cost, Senator, that it will cost the American taxpayer to turn over the canal right now. Senator Gravel. What is that cost? Mr. Carney. $205 million cost to subsidize early retirements for the people who work in the canal. I might cavalierishly turn out a figure of $4.3 billion, that is what this subcommittee seems to find. I want to remind you, Senator, that the Senate and those who were proponents of this treaty cavlierishly said it would not cost the taxpayer anything. I daresay when the administration admits to $801 million cost right now, my figures are closer than yours, that say it will not cost anything. I think $4.3 billion is a more accurate figure. The point I am trying to bring out is this: I feel after being down in Panama and after listening to these hearings that the Panamanian Government does not really care too much about the United States, what it is going to cost the taxpayer to give this original canal back. They are just about putting us to the wall. I think there are many members on this subcommittee who are so concerned about the treaty that there might be a move toward not reporting implementing legislation. I fear if you tried to come up with the idea of a new canal down there, that might just fuel that feeling, and we might interrupt the possibility of chnanging, imple- menting a treaty that presently exists. We have so many problems right now, so many sensitive areas that we are dealing with, with the present treaty to throw in the concept of a new canal in Panama, I think it is untimely now at any rate. If I might, I would like to ask you to be a little more specific on article XII. I was under the impression that we were somewhat tied into canal stud- ies, canal studies within the nation of Panama through article XII of the treaty. Senator Gravel. I think if you will make a close examination of the Senate record and what the Senate did, you will see that you are in error. Mr. Carney Pardon me? Senator Gravel. You will see you are in error. There is no tie-in to Panama. Mr. Carney. We have the latitude Senator Gravel. We can study it in Nicaragua if we want— put it in Nicaragua if we want. That was action taken by the Senate. Mr. Carney. I am asking that for clarification. Senator Gravel. I am giving it to you. 1706 Mr. Carney. I read it as such and you are looking at another way. Senator Gravel. No. I am not looking at it another way. I am looking at it the way the Senate passed it. I wonder if maybe the Chairman might get for the record — I find it quite astounding that it would cost $250 million to buy off American employees Mr. Carney. $205 million. Senator Gravel. I would be happy, Congressman, if you would give me those figures. Mr. Carney. It was part of the record of the hearings, Senator. It was brought out in testimony. Senator Gravel. I will look at that hearing very closely. I might say, when you say Panamanians do not care for us, I have been to Panama several times. I find that they are good friends of ours. Their track record has been as good friends of ours. They have a certain desire to realize their own national identity. We do the same thing. We probably do it in Long Island too. I do not think it is all that difficult to understand the concept that you have a present canal, the present canal may be obsolete, and if it is obsolete, you ought to think of a new one. If you think of a new one, and you want to do it in a very relevant way, you would let them own it, build it, and if we are required to help in financing, and it is in our economic interest to do it, that would be done. If you and the rest of Congress do not think it is in our economic interest after the study is made, and I am really quite surprised that there would be a rush to refuse to acquire additional knowl- edge about something as fundamental as this — well, I am not advo- cating to build a canal, my dear colleague. I am advocating to study whether we should build it. There is a substantial difference. Mr. Carney. I would agree that there is a substantial difference. I have a problem living with the idea of studying to build a canal when 85 percent of the people in my district do not want to give up the canal we have right now. That would be a tough one to sell. I also would like to say, where I might find difference in Pana- manian attitude toward America is when we were down there, we were told by Panamanian officials that they have every right and they have the desire to backtax American businesses that have been there for the last 7 years. Now, that is not part of the treaty. It is explicit that it is not part of the treaty. Yet they are being arrogant on that particular issue That is not an attitude of good will between two nations. Senator Gravel. Congressman, I want to say that I think you are operating on some very unusual misinformation because I met with the American Chamber of Commerce in Panama City. Now, if all those American businessmen think they are going to be back- taxed, then they sure do not know it, because they have gone on record in past resolutions endorsing the course of action that was taken by the executive. And for you now to make statements, and being quite respectful to you, sir, which I think are ridiculous- there has been no official statement about back taxing and the American establishment, the private companies, American compa- nies living and earning money and operating in Panama do not anticipate any taxes. If they did they obviously would oppose the course of action that is being recommended They endorse it. I have 1707 met with them. I have met with 50 of them. They are all very strongly in support of it. I do not know where this figure comes from that somebody is going to backtax American interests as some punishment. Mr. Carney. It comes from subcommittee hearings that we held in Panama and was a statement made by a Panamanian official. That was less then 3 weeks ago. Senator Gravel. What official? Mr. Carney. It was done by the Deputy Director of Panama Canal Authority, Mr. Manfredo I believe is his name. Senator Gravel. Could you quote his statement of backtaxing? Mr. Carney. He said they had every intention to backtax Ameri- can entities and businesses down there. Senator Gravel. I would be happy to check into this. It strikes me as a preposterous statement. I would be happy to check into it and get back to the committee whether he made that statement and in what context the statement was made. If it is what you are interpreting it to be, you would have heard immediately, I am sure, from the American Chamber of Commerce in Panama. Mr. Carney. In all due respect, Senator, we did. We had quite a reaction from the American businessmen when that became evi- dent. Senator Gravel. And have they testified before you? Mr. Carney. That is correct. Senator Gravel. What is their testimony? Mr. Carney. They are concerned not only about that particular aspect of it, but there also was a different concern that was brought up, and that is nonprofit corporations down there, the churches, the fraternal organizations, the Panamanian Govern- ment has made it quite obvious that they are going to tax these nonprofit organizations and they are going to charge them utility rates that will be triple what they are paying right now They are going to change the whole social pattern of these nonprofit organi- zations. There was a tremendous amount of concern brought up in public hearings held in Panama 3 weeks ago. Senator Gravel. Congressman, I must say I find it quite prepos- terous for somebody to say that the entire fabric of socioeconomic life in Panama is going to be changed by this through some threat to somebody. You are talking about taxing churches. You are talk- ing about a country that is considerably more religious than we are. You are telling me they are going to start taxing the Catholic American Church down there? Mr. Carney. I am telling you what they said. It is part of the record. Senator Gravel. I do not think they will. Mr. Carney. I would suggest you read the record of the hearings that we held in Panama, and you will see that there is a difference of opinion of how the Panamanian Government views our business- es down there and our nonprofit organizations, and that the atti- tude is one that certainly is not an outward sign of cooperation between the United States and the Panamanian Government. Senator Gravel. Panama suffers from a problem that we have many times, and that is they are relatively a free country, and so they cannot be held accountable for all the irresponsible state- 1708 merits that some of their public officials might make. But I person- ally guarantee that I will look into it because I think some of the statements which you are resting your case on appear quite irre- sponsible. They are going to operate just like anybody else. That is, they are going to be dictated by what is economically feasible. It is not economically feasible to chase people away. Is it not interesting that you attribute all of this potential mal- feasance to a government that from 1969 to 1977 has become the second banking center of the world? We are not talking about socialized government activities. We are talking about some 80 international banking concerns which have gone into that little country to operate it. If there is going to be backtaxing and all of these terrible machinations that you are predicting, boy, these people down there do not know it. It is what I would consider the crucible of free enterprise society. We have seen it grow before our very eyes. Mr. Carney. I would have to say too that I differ in the interpre- tation as to how much freedom there is in Panama and how much there is here. Perhaps there are officials of the Panamanian Gov- ernment who take it upon themselves to make statements. But those statements were made and they were made very clear. They are part of our record. I think it would behoove you to look over the record of that particular meeting. They are quite extensive. We had many hours of hearings down there. But the meeting that we had with the Panamanian Government would be quite eye-opening, particularly in dealing with the issue of back taxes and dealing with taxing of nonprofit organizations. These are just a few of the points that were brought out when we were down there, and that to me indicates the Panamanian Gov- ernment has very little concern about the U.S. Government. Their concern seems to be more in line with getting $75 million in toll revenues, that we have projected, more than anything else. Another question that I might add is in doubt with the Panama- nian Government's interpretation of article XIII of section 4, para- graph C, the $10 million, is the additional $19 million if there is a profit. The Panamanian Government does not see that as being a question of whether there is a profit or not. They see that as their being entitled to the $10 million. Once again that is to me a reflection that their willingness to cooperate is really not there. Mr. Hubbard Thank you, Congressman Carney. Mr. Carney. Thank you, Mr. Chairman. Mr. Hubbard. Regarding the dialogue with Fernando Manfredo, Deputy Director of the Panama Canal Authority, we do not know whether what he said was a personal opinion or an official position of the Government of Panama. We will try to get clarification from the Ambassador on that. Senator Gravel. Mr. Chairman, I could only say that there is no control over public officials making statements, no more than here. I am sure somebody will be telling somebody in Panama to read this record based upon statements made that this is policy. Of course it is not even close to policy. I think all you can do is judge what has happened in a country. I think the events speak for themselves. The empirical evidence is that a small country, Panama, during a period of essentially a military leadership, was 1709 able to bring into being a banking center that is only excelled by Switzerland. A free banking center is testimony itself to the kind of policy that will be exercised by that government in the future. Mr. Hubbard. Does counsel for the majority have any questions? Mr. Tannenbaum. No. Mr. Hubbard. Minority? Mr. Merin. No, thank you. Mr Hubbard. Congressman Carney does not have any more ques- tions? Mr. Carney. I will yield to my Chairman. Mr. Hubbard. He is an outstanding freshman, and I might add, if you were to go to his district or mine, we would be careful mentioning how you voted on the Panama Canal Treaty. We would do you that favor so you could get out safely. Senator Gravel. I would offer this to you and to Mr. Carney. I would be happy to go to your districts, and if you wanted to put together a very large meeting, I think I could make a case on what is in their enlightened self-interest. They may have strong emo- tions. But I have found usually when people become enlightened to what is going on in their pocketbook, that they sometimes try to control those emotions, particularly when you have yourself on Long Island the oil company that is making the most money off of the transshipment. The company is in Long Island, and you have a port there that is receiving oil that is coming through the canal. I can only submit that if we can get our product to you cheaper, it means that the cost of energy will decrease in Long Island. I would be happy to go into your district if you wanted to set up a large meeting and take my chances on being tarred and feathered; but if they are so ignorant that they want to risk their economic interests and subvert that to their false emotional constraints, fine. I will be happy to take my chances at that. If you want to check on that, the company's name is Northville. They are from Long Island. They are doing very handsomely at our expense. Mr. Hubbard. This is just friendly dialog, Senator. Congressman Carney and I have a lot of constituents who are for the Alaska wilderness bill. How do you stand on that? Senator Gravel. I am opposed to that. I would offer to go into your district also and talk to those people about the efficacy of the wilderness bill. If they feel they do not need any more oil or gas, then all you have to do is vote for the wilderness bill and that will lock Alaska up and not another drop will come out of Alaska. That may be what your people want. There may be those who want to put on a loin cloth and go back into the caves. We do not want to do that. Mr. Hubbard. Congressman Carney has one more question. Mr. Carney. I would just like to say to the defense of the people in my district, Senator Gravel, that they are not ignorant people. I think they are very intelligent. I think they have an awful lot of emotion. Perhaps the reason they have this emotion is because they have been misled by the administration and perhaps by the Senate, if the Senate was cognizant of what the ultimate cost of this treaty will be when they passed this treaty. The people in my district were under the impression that the treaty would cost the 1710 taxpayers nothing. Unfortunately in the last several weeks the price tag of this has gone up and up and up. They are not ignorant. They are somewhat upset. They are upset about perhaps the integ- rity of government, the Federal Government, the way they have been misled over the Panama Canal issue. Believe me we have a great sensitivity to the cost of oil. I might add that I am a propo- nent of opening up the oil that is available in your great State. I can understand it and believe me there are few loin cloths on the people of my State except perhaps in the Shinikook Reservation during festival time. But other than that, my constituents wear normal clothes and they have their normal emotional feelings and their emotional feelings rise to a high when they are misled by the Federal Government. There is no doubt in my mind, and I believe there is no doubt in the minds of perhaps 85 or 95 percent of the people in Suffolk County, Long Island, that they have been sold a bill of goods on the Panama Canal Treaty both by the administration, and if the case may be that the Senate was aware of the price tag — well, in all due respect I do not believe the Senate was aware, and I believe they were misled too. I believe the Senate was being misled and should take corrective action and maybe go back and rescind the Panama Canal Treaty. Then people in my district would be very, very happy. Then perhaps we could get on to studying a sea-level canal so we would have a canal of modern technology that can meet the needs of the people of Alaska and we can accommodate the large fuel oil tankers. We would love to have the price of gasoline as low as possible and the price of home heating fuel as low as possible. I see in Alaska the potential for eliminating foreign dependence on oil. I agree with you on that much. What really hurts is the treaty, Senator. I hope you do not take any of my remarks personally. I am young, I am just a little bit wound up over this whole thing. We have had many, many hours of hearings here and each time some- one comes in, I find out once again that the people of the United States were misled and the price tag goes up and up and up. Perhaps my frustrations have been brought out this morning. In all due respect to you, Senator, I am sorry it had to be a Member of the other body. But perhaps I might have the information to go before your great body and give testimony and you can allow your frustrations to flow at me. OK? Senator Gravel. Congressman, I want to assure you of one thing. You may be new here, but I think it is great to exercise your frustrations and emotions. It opens the mind, irrigates to a certain degree your intellect and hopefully the process is one that adds to your body of knowledge and judgment as you go forward. I am very familiar with your part of the country. I come from there. I used to drive a taxicab in New York City and went to Columbia. I love New York. I think New York is the queen city of the world and have tried repeatedly to bring about improvement. I am also aware of a lot of the problems that do exist with respect to energy policy in the East. I think you, Mr. Chairman, are very sensitive to that with the coal policy. People want things and do not want to pay for it, and we have a lot of demagogues in Government who tell them 1711 they do not have to pay for it. We tell them we can pass a law that changes the laws of economics. We cannot do that. What we do is subsidize foreign interests. You keep repeatingly saying, Mr. Carney, that the Senate was misled or the administration misled. The administration never said once — I am very familiar with the subject — never said once that this would cost nothing. Now, maybe the opponents said it would cost nothing so as to put up a straw man to knock down. I think that is a tool of argument that is used. But it is not a very accurate one. When you say that if we could put this aside, we could then get to building a sea-level canal, I do not know where you are going to build a sea-level canal — maybe across Long Island or the United States — in order to build a sea- level canal in Panama, which is 100 percent cheaper than any other site possible, you are going to have to have the good will of the Panamanian people. The Panamanian people feel they have been raked over our economic interests, and they want to see that corrected. I think it is a reasonable desire on their part. I think it is reasonable on our part to then court them and try to bring about some justice, and hopefully we then can go forward to a new undertaking which would be the sea-level canal. But I will assiduously watch your vote and the vote of others. When they vote against a study to determine what our economic interest is, I can only say then these people are steeped in igno- rance and do not want to improve their knowledge. If you are prepared to support a study to find what is in our best interest, I would commend you. If a refusal becomes apparent, that you do not want to know what is in your economic interest, and you continue to beat a dead horse in Long Island, then I submit that you do not do a service to your constituency. Eventually that will be recognized. One thing that Harry Truman added to the lexicon of political thought is that if you do not solve the problem, it will keep coming back until you solve it. Mr. Carney. One last comment. It seems that when anyone disagrees with the great Senator from Alaska, they are ignorant in the political process. I do not see that to be the case. Senator Gravel. I would not want anything that you said to me to be considered personal, and I would not want anything I said to be considered personal or cast aspersions upon my good colleague from Long Island. Not at all. I was referring to forces abroad doing this. I know you are not guilty of any of their demagoguery. Mr. Carney. I think we could utilize our time better. I will yield back to the Chair. Mr. Hubbard. I would certainly agree with the Senator that the Congressman from New York is not guilty of demagoguery. Actual- ly I congratulate him for his eagerness to protect U.S. interests. I further realize Senator Gravel's interests are the same. We appreciate your being here. This next question is for your benefit, believe it or not. We have an Environmental Panel which preceded you and they are coming right after you. They will be answering questions soon. We know environmental concerns are covered in your proposal. I am trying to do you a favor. You might mention some of these before they follow you. 1712 Senator Gravel. Of the $8 million, approximately $4 million of it will go to the environmental study — to assess the possibility of mixing the two oceans, what would be the ramifications of that, base line studies, what would be the way to handle that particular problem. We essentially structured the study as suggested by the environmental community, asking them what they felt should be undertaken so that a judgment could be made. Here again I want to stress, we are not saying build the sea level canal. I have done my own study and if I were in command, I would go build it right now. But that is not what we are suggest- ing. We are suggesting that we undertake a study to ascertain environmental problems involved, technical construction problems involved, financing problems involved. If one does not even want to study the problem in the face of a canal that is 57 percent obsolete, then I am perplexed. I do appreciate the opportunity you gave me to underscore the environmental concern. I can only say to the environmentalists who oppose the project from even being studied, that again raises a very serious question in my mind. Mr. Hubbard. Thank you very much. Senator Gravel. I appreciate the time and the courtesy you have given me. Mr. Hubbard. Now we will have the environmental panel come back to the table. The next question for the panel is: Can the Joint Commission be kept apolitical in the contentious environment we have had on the Isthmus of Panama, and will the new environmental arrangement in Panama override contentions of the past? Mr. Robinson. I would defer to my colleagues who have spent substantial time in Panama. I have been terribly impressed that the Panamanians on their side want to go ahead with a very careful implementation of the Joint Commission. There is a sub- stantial body of scientific expertise in Panama to make that intent realistic. It is not like many countries in the Third World where you do not have that body of expertise. Mr. Wright. I think originally there were some sensitivities in Panama as in other Third World countries. That the environmen- tal questions associated with the treaties might be another layer of issues whose goal is to frustrate what they see as their desires; however, I think over the last year the Panamanians have demon- strated in many ways a growing concern and willingness to work on environmental questions. The record of the last year is very encouraging. The declaration of a park including a major area of the Canal Zone is the most tangible example of their growing commitment. All of us who have worked on these issues have felt a tremendous amount of good will from the Panamanians. There still is no guarantee that it will keep the JCE apolitical of course but I think the last year is encouraging. Mr. Hubbard. Should appointees to the Joint Commission be subject to Senate confirmation? Mr. Robinson. My own view is that give us another opportunity for oversight. This is a bi-national group. If we are giving it serious- ness, it is more likely that the Panamanians will treat it seriously. Senate confirmation would give an opportunity to examine which issues are examined and which are not. I accept the appropriations 1713 process to fund it from the U.S. side and come up with whatever method they think is appropriate from the Panamanian side. I think the Senate confirmation might be useful. Mr. Wright. I endorse that as it applies to the U.S. Commission- ers. Mr. Hubbard. Senator Gravel discussed the issue of a sea-level canal study. We have had little discussion of that issue in these hearings. I offer you the opportunity to comment upon the sea-level canal issue. Mr. Campanella. As a scientist and someone who has worked within the Environmental Policy Act, I see this as an opportunity, as a forum for open public discussion of the issue, and being conducted under the NEPA format and CEQ guidelines, and I see no reason to stay away from a study of this type. I think it would be opened up to close public scrutiny, meetings, public discussion, and it would involve a wide range of inputs into this thing. As a scientist, I have to agree it would be an excellent idea to go ahead with a study of this type and it would also add to our baseline information and data that we will need for prudent re- source management in Panama. Mr. Wright. The organization which I represent has not taken any position one way or the other on the sea level canal, but in the environmental community as a whole it is an issue which raises some very serious concern. Part of that concern was the possibility of charging ahead without sufficient study. If in fact there is a study, I do not see how any of us could oppose it. We maybe concerned on economic grounds with the cost but that is not really an environmental issue. Mr. Robinson. I have two aspects to my response. First, the Sierra Club Board of Directors, based on studies of the National Academy of Sciences, concluded some time ago that the sea level canal would not be in the best interest of the environment. Only a very small class of ships cannot go through the present Canal. I think the Senator's position on that is subject to some scrutiny. Second, as a lawyer, I have often been criticized and my colleagues in Congress who are lawyers have been criticized for passing laws that are called the "Lawyer Full Employment Act," and it seems to me that the sea-level canal study is a "Scientist Full Employment Act." I am all for scratching the back of the scientific community I do not have any problem with the scientific study if it is well funded, and this one should be. Mr. Hubbard. Mr. Wright mentioned a number of observations on the jurisdiction matter. Would it satisfy the panel if a comment were made in the report on implementing legislation regarding the kind of jurisdiction it should have? Mr. Wright. If the Joint Environmental Commission is going to deal with real environmental issues, the majority of the territory it will have to deal with will be under the control of Panama. That is just a reality. I think that any way we can stress that we would like to have the broadest possible jurisdiction is fine. Whether the Panamanians will argue for narrow jurisdiction will depend on how they perceive the Commission. If they perceive it as a techni- cal commission dealing with common problems, I do not think the question of jurisdiction is going to be very important. Whether 1714 Congress, by putting it on the record, can change their perception one way or the other, I really cannot say. Mr. Robinson. I would hope that would be something on the scope of the Commission's review. The first article, section of arti- cle VI, speaks of the United States and Panama protecting all of the Republic of Panama's environment. It is clear that that is insufficient, that we are talking about impacts that could affect the rest of Central America, that could affect the country's — well, if a ship is passing through the Panama and quarantine and safety conditions are not properly observed, and that ship passes to an- other distant point, it is apparent you are going to have transporta- tion of disease problems. I would hope that a very broad view of the health environmental and scientific issues would be taken. This is after all advisory. Its only power is to point out problems and recommend solutions. If you constrain that activity, you lose the benefit of the Commission. Mr. Hubbard. Congressman Carney. Mr. Carney. Thank you, Mr. Chairman. Gentlemen, I would assume that you all would agree that the Panamanians are not capable at this particular time from a stand- point of resources, whether they be financial or the knowledge of the science involved, in maintaining that delicate ecology down there. Would it be a fair statement to say that without our assist- ance we can almost count on the degradation of ecological systems down there? Mr. Campanella. I think things have changed drastically in the last 5 years. Panamanian, I would say, manpower resources, tech- nical capabilities, are growing at an extremely fast rate. I think their awareness, their perception of the problem is a crucial issue. If we can only make them aware of the significant problems. After all, we are not dealing with a country with a conservation ethic as well established as ours, and we are dealing with one where the conservation ethic has only been established over the last 8 or 9 years. Given that it is developing and given that the Panamanians are willing, and oftentimes in technical engineering and some other areas are very competent, and given the U.S. initiative, the Smithsonian initiative and the large manpower and training pool that the United States maintains there, my perception of the prob- lem is that it is an extremely good base upon which to build. To answer your question more directly, I do not think it will evolve into a long-term cohesive program of environmental man- agement unless we give some continuous support at some level over the next 20 years Mr. Carney. I have only one more question to ask. It has to do with the fact that the Panamanians feel they control 200 miles of their shore lines. I am somewhat concerned about the environment and what damages could be done in the Pacific and Atlantic Oceans near the canal and what type of impact that might have on the canal. The thought comes to my mind that the Panamanians might make an effort to do some sea mining in the Atlantic or Pacific that could have a detrimental effect on the environment down there, indeed detrimental effect on smooth flow of the canal and traffic in the canal. 1715 Other thoughts come to my mind. Mr. Robinson vividly brings out the health problems. Certainly if they use the Atlantic or the Pacific Ocean to perhaps solve their sanitary problems, and I do not mean solve— I mean out of sight, out of mind with their sani- tary problems, solve their solid waste problems — it is a small coun- try although it has an awful lot of undeveloped land and they do have space problems for solid waste. I have the fear that they might utitilize some of the oceans. I am wondering if the Joint Commission will take into consideration the environmental degra- dation if it happened to the oceans as well as I know they have shown outward concerns for the watershed area, the canal, Panama in general, but hopefully perhaps this is not a question, this is a statement, that you should have deep concern about the waters of both the Atlantic and the Pacific Oceans. Is this the intent of the Commission, do you know? Mr. Wright. I would hope that the Commission has as broad a brief as we can get to look into all these questions. The potential that you are concerned with recently came to light very dramati- cally. Several years ago Congress suggested to AID that it should start looking at environmental and natural resource questions when it undertook projects. One of the first areas they reviewed was a proposed AID-supported project in Panama to extend sewer lines farther out into the ocean. They looked at the environmental implications of it and they discovered they were going to drop the sewage right into the middle of a major shrimp fishing bed, which for both food and expert economics was vastly more important than the problem they were supposed to be dealing with. With a few changes they were able to avoid this disaster. We do have to look at this whole question of ocean jurisdiction but I hope the Joint Environmental Commission will be seen as a potential vehicle for information transfer and sharing. I hope from that kind of experience described above in with the AID project people do start taking these environmental matters seriously. So I very much hope the JCE lives up to the potential which Mr. Carney mentions. Mr. Carney. Thank you very much, gentlemen. Mr. Hubbard. Thank you very much, Dr Campanella, Mr. Wright, and Mr. Robinson for your testimony. Mr. Wright. Thank you. Mr. Hubbard. We will now hear from Mr. Rogers and Mr. Koczak. We should be through by 1 o'clock. We have one more witness after them: Mr. Washburn will conclude today's hearings. The subcommittee heard from representatives of the Canal Zone labor union on February 23 and 24 in field hearings in the zone. However the American Federation of Government Employees, which represents more Federal employees than any other labor organization, has understandably indicated their desire to present a separate statement here in behalf of Kenneth T. Blaylock, presi- dent of the American Federation of Government Employees. Mr. Terry Rogers, legislative liaison for AFGE and Stephen Koczak, special projects assistant, will represent President Blay- lock. 1716 STATEMENT OF TERRY ROGERS, LEGISLATIVE LIAISON, AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES, AC- COMPANIED BY STEPHEN KOCZAK, SPECIAL PROJECTS AS- SISTANT Mr. Koczak. Thank you, Mr. Chairman. We would be most pleased to summarize our statement. We understand the entire statement will be part of the record in any case. [The statement of Mr. Blaylock is included in the testimony of Mr. James J. O'Donnell. One page of the statement, however, differs from the earlier statement. The change is as follows:] Concluding Statement We have presented the problems created by the Treaty and by Public Law 95-454 in the area of Labor-Management Relations. One of the steps which the Congress might consider to overcome the problems inherent in Public Law 95-454 is to amend Section 7103(a)(B)(i) to read as follows (the amendment to that section is underlined) "(i) an alien or noncitizen of the United States who occupies a position outside the United States, excepting that any such alien or noncitizen of the United States serving in the area made available to the United States by the Republic of Panama under the Treaties of 1977 shall be considered, for purposes of this Chapter, as if employed in a position not outside the United States" Such an amendment, or one similar in intent, would eliminate the problems we have been discussing regarding the extension to aliens and non-citizens of the United States of the protections of Title VII of Public Law 95-454. As to those problems which will arise because of the provisions of the Treaties, as distinct from Public Law 95-454, we submit that many of these are difficult to anticipate in concrete terms at the present time and we reserve our position on those issues until they have emerged. However, one of the procedural ways in which we believe they can be best anticipated is through the enactment of legislation such as that which I have proposed in Annex III to this statement. In conclusion I wish once again to assure you of the fullest cooperation of myself and my staff in addressing all the issues which will arise. Please accept my best wishes and my thanks on behalf of our union and the Federal employees, both United States nationals and those who are aliens, who look to this Committee for the safeguarding of their rights. Mr. Koczak. Mr. Chairman, our statement deals primarily with the issue of labor and management relations. We find certain problems that have arisen from two sets of considerations. Consid- eration number one is the treaty. The treaty definitely is directed toward displacing American national employees with Panamanian national employees. Our concern was in this situation there ap- pears to be a conflict of interest as among these employees, in addition to a community of interest that they are employees, when they deal with management. The second consideration that we have to address is enactment of Civil Service Reform Act which had brought the labor-management relationship in the Federal Government under statutory jurisdic- tion and taking it out of Executive order or policy-making or discretionary action by the Executive branch. In reviewing these sets of legal developments, we found that the most plausible ar- rangement would be to bear in mind the present status of these employees. If we are correct in our interpretation and the Panama Canal Zone is still the zone and not that special area which is made available to American authorities, then both the American nationals and so-called alien or non-U.S.-citizen employees come under Title VII of the Civil Service Reform Act. They are not now being handled by the Government in that capacity. We find that in 1717 this sense there is an oversight or a cultural lag or a legal lag in the handling of relationships of management and the Federal em- ployees irrespective of their nationality in that area. We have also taken into account that the remedies to the Ameri- can national employees in the event they are displaced are to be supervised entirely and administered entirely by American au- thorities, U.S. authorities, and that the Panamanian authorities have no responsibilities toward American national employees. In light of this, we were going to suggest for your consideration the following principles as to how they are quantified or incorpo- rated into law, there is considerable latitude as to how one would do that. The two principles are the following: First, that they be created in the Office of the Special Counsel of the Merit Systems Protec- tion Board the requirement that all U.S. national employees have available to them directly protection of that Special Counsel to see that their rights to jobs in the United States if they are displaced be carried out and enforced. We are concerned that we find in many cases statute exists that no one supervises it. There is no way to administer it. Inasmuch as it is American national employees who will be the ones who will be displaced, training replacements and Panamanian national employ- ees are the ones who will be seeking to displace them, we felt that there needed to be a very clear commitment on the part of the Government that the facilities of the Special Counsel be available to them. That is part of our Annex 3. We have outlined a suggested amendment which could be incor- porated in any bill that you pass. It largely sees to it that they are afforded these protections. On the matter of technique or mechanisms for procedures for labor-management relations, no matter who is the employer in this case, whether it is the Commission or the U.S. governmental au- thority, Department of Defense or any other U.S. governmental authority, we suggested that both American national employees and Panamanian national employees have identical rights vis-a-vis management, title VII, and in one version of our testimony we have no objection to it being done by Executive order for Panama- nian nationals. However, on later deliberation, we considered that perhaps the simplest thing would be for your committee to recom- mend an amendment to the Civil Service Reform Act of 1978 to Public Law 95-454 to that section which states that labor-manage- ment relations will not be available to any alien or noncitizen of the United States which occupies a position outside of the United States. We were suggesting for your consideration that one way to solve this problem of affording the rights to the Panamanian national vis-a-vis the management to be identical with the rights of Ameri- cans vis-a-vis management is to add a phrase that which reads like this, either this way or something similar: Excepting that any such alien or noncitizen of the United States serving in the area made available to the United States by the Republic of Panama under the Treaties of 1977 shall be considered, for purposes of this chap- ter, as if employed in a position not outside the United States. 1718 That would mean that the issue as to what are the rights of the Panamanian employees vis-a-vis management would be resolved because they would be the same rights they have today. As to whether or not they should be in the same unit, this is an issue of conflict of interest among employees, there are several techniques, and one of them is to be handled administratively, establish that you can only have people who are communities of interest, major communities of interest, who should be in the same units, and I would assume that where the board which would finally have to determine the propriety of these units would decide there is no community of interest, in certain cases and in other cases they might find there is a community of interest, there are no problems. So that to summarize this statement, we feel that the treaties have created a serious problem, a problem which it did not antici- pate. We found subjectively in discussions with some of the unions and some of the employees in Panama that the Panamanian na- tional employees interpret the treaty or tend to interpret the treaty saying they should have the same rights that private enter- prise employees have in the United States which is to bargain for wages and strike, if necessary, whereas the general understanding that we have, in light of the legislation that is now in the books, that is certainly the American national employees would not have those rights, and that the rights which now exist under title VII apply both to American nationals and to aliens, principally Pana- manian national employees, which is the right as written in title VII of the Civil Service Reform Act that was passed last year by Congress. Now, it is not our purpose at this point to go into the issue of the right to strike and the issue to bargain for full wages. We are members of the AFL-CIO. We are committed to that in the long range. We did want to point out in this Commission confronting you as legislators that we do not have that right now and a problem that has arisen under the treaty, a psychological problem is a matter of interpretation that there are many nationals who are not American citizens who construe the treaties to give them the same rights as private enterprise employees have because they construe the Commission to be a private corporation so far as labor-management relations go. It is a difficult subject to discuss for which to devise a solution. Our own recommendation is that obviously all American national employees are entitled to title VII now and they will be entitled to title VII after the treaties come into force. It is our view that many Panamanian employees, they are entitled to provisions of title VII now and that they should by Executive order at least, and if you are so disposed in your wisdom to enact a statute to that effect, it will be continued to be entitled under implementing legislation to the same provisions of title VII under the labor-management rela- tions, but neither bill before you takes that position. Both bills, H.R. Ill and 1726 deprive both the American, purportedly the Panamanian nationals of certain rights they now have. We are opposed to private Americans who work in Panama, those rights they would have in Germany or Japan or anywhere else — we are 1719 concerned that we do not appear to say that the Panamanians in dealing with management should have less rights than Americans. With that I have sought to summarize a rather lengthy and complex statement. I do very honestly request that you look par- ticularly at our argument in favor of Annex 3, which is to protect Americans in obtaining jobs here. We do that for two reasons. If they cannot get jobs here after being displaced in Panama, the only option they have is to retire. That will be one of the options to consider. I think the whole cost, this is of great interest to the issue of cost, the cost of the program, retirement program which I be- lieve Chairman Cambioly [sic] estimates at $205 million, will be affected by the question as to whether or not these displaced Americans are able to obtain jobs in the United States. This I think is a matter on which you might wish to give some delibera- tion, and we would be very pleased to come back and cooperate with you in relationship between jobs in the United States and retirement as alternative options. Mr. Hubbard. Thank you. Mr. Rogers? Mr. Rogers. He pretty well covered it, Mr. Chairman. Mr. Hubbard. If the amendment you suggest on page 15 is adopted, would the United States and the Panamanian nationals in the canal area be able to bargain in the same unit or would they still have to be in separate units? Mr. Koczak. We believe that given the existing units and the determination which probably would be made by the Board that large numbers— there might be three types of units, some miqht be separate, some would be combined — this probably is the situation- there would probably be exclusively Panamanian and some exclu- sively United States and in some areas mixed units. It would determine really on the community of interest, and we should anticipate in advance on what board that would have to make a decision — well, I do not think we can say in advance, we are not trying to say whether you legislate in advance whether they should be in separate or in the same unit. What we are saying is that the standard concept, standard prin- ciple of community interest versus conflict of interest should be criteria which would determine the nature of the unit. That is true even now in the United States. There are units which are not allowed to exist even under title VII. It is not a unique problem. It does not arise in Panama. It is a situation in the United States right now in labor-management relations. Mr. Hubbard. Do you support the request, made to the subcom- mittee by Panamanian employees who might immigrate to the United States, under the terms of implementing legislation, that they be allowed to compete for jobs in the Federal service? Mr. Koczak. We think that that was one of the oversights in the treaty. Inasmuch as these persons were in American territory and if they are given the right to immigrate as a part of the treaty, it certainly appears that some kind of arrangement should be made that they can, if they are qualified, that they have the same right to compete as any other alien resident in the United States. The issue is really very complex and it has been held by the Supreme Court that "Aliens * * * United States has the right to a 44-394 O - 79 . pt . 2 - 56 1720 Federal job cannot be denied the right of employment by the Federal Government," and so on. To the extent that persons feel that the territory of the Canal Zone was under American sovereignty and they were on American jurisdiction and born there in many cases, it would appear that they should certainly have at least the same rights as a person who has never or who had not been born in the United States, immi- grated in the United States, who was an alien. I think they should have the same rights as any resident alien of the United States who was qualified and applies for a job. Mr. Hubbard. Congressman Carney. Mr. Carney. Mr. Chairman, you covered the one question I was concerned about and that was Panamanians who are attempting to come to the United States. There were several Panamanians who work for the Canal Zone, who have expressed their desire to come here almost out of fright, I think, of going back into the Panama- nian economy and some have concerns about their physical and mental well-being. I would have to say that I certainly share the same concerns that you expressed today, not only through Ameri- can citizens and their ability to come back and find alternative employment, but for the Panamanians who so nobly served us as employees of the Panama Canal Company. I think today is a time where we are changing our laws so we do not put people out to pasture. Unfortunately, some of the ramifica- tions of the Panama Canal are going to prematurely put people out to pasture from the work force. I see you have that concern and I would like to express the fact that I am concerned as well. I think perhaps we could work to mend that problem that we have through legislation. Thank you very much. Mr. Hubbard. Other questions? Thank you very much, Mr. Koczak and Mr. Rogers. I think the subcommittee shares your concerns. Mr. Koczak. Thank you very much. Mr. Blaylock, our president, is in St. Louis. He would have testified himself, but he was not in town. Mr. Hubbard. We appreciate your patience. We really intended to hear you earlier, but we had a Senator here and it took more time than we anticipated. We again thank you. Now, one last witness, John Washburn, former legal adviser in the Office of the Department of State. Could you capsulize your comments with the understanding that your prepared statement will be in the record and knowing that time is a problem for some of us who have another hearing to attend at 1 o'clock. Thank you, Mr. Washburn. STATEMENT OF JOHN N. WASHBURN, ATTORNEY Mr. Washburn. I certainly will do that on the understanding that the whole statement is to be in the record. I will be delighted just to summarize. [The prepared statement follows:] 1721 Prepared Statement of John Nelson Washburn Chairman Murphy and Subcommitttee Members, I am John Nelson Washburn, a Washington-based international lawyer. From March 1958 to October 1966 I served as an attorney-adviser (international) in the Office of the Legal Adviser of the Department of State. Part of my service there was in the Office of the Assistant Legal Adviser for Treaty Affairs. Due to accelerated weekend printing schedules the Panama Canal Treaties Hear- ings of both the Senate Armed Services Committee and Senate Foreign Relations Committee went to printer early in February 1978. As a result my statement of February 7, 1978 filed with the Senate Armed Services Committee was not included in its published Hearings nor, of course, was the "Afterword" of March 1, 1978, filed for record with it March 3, 1978. As for the Senate Foreign Relations Committee I concentrated not on a statement but on a series of letters to Chairman John Sparkman, pointing out many irregularities being overlooked by his Committee in connection with the role of Ambassador Sol M. Linowitz in the Panama Canal Treaties as negotiated. I challenged first Chairman Sparkman, beginning March 6, 1978, then Senate Majority Leader Robert C. Byrd, April 2, 1978, and even President Carter, in several letters the last one dated April 28, 1978, to prove me wrong and show me my suspicions were groundless. None of them could do so, and Senator Byrd did not even try. The May 3, 1978 White House response over Landon Kite's signature was in effect an acknowledgment. Mr. Chairman, I respectfully request that the aforementioned Statement and "Afterword" as well as my letters dated March 6 and 23, and April 2 and 28, 1978 be put in the Subcommittee Hearing record at the end of my remarks. I discuss therein an unkept promise and note that Panama Canal Treaty Imple- menting Legislation promised September 29, 1977 arrived March 3, 1978. The mis- chief pointed up in my Senate Armed Services Committee testimony and the April 28, 1978 letter to President Carter echoes your concern, Chairman Murphy, as I heard you express it Sunday evening, March 11, 1979, on the Mutual Radio Network program known as "Reporters Round-Up" on WTOP, that media accounts of negoti- ations of Panama Canal Treaties signed by President Carter September 7, 1977 had been orchestrated by the State Department to make them more palatable to the American people. Your Subcommittee now has the duty to set the record straight at long last, and I am very pleased to have the opportunity to help you do so here today. In your "Reporters Round-Up" comments on the vital strategic nature of the geographical area involved in the implementing legislation under consideration by your Subcommittee, Chairman Murphy, you mentioned the Cuban Missile Crisis. I remember it well, Mr. Chairman, for I was then in Washington serving in the Office of the Assistant Legal Adviser for United Nations Affairs. In considering whether to make tighter or looser provisions on the Panama Canal Treaty Implementing Legis- lation, with a view to enhancing America's security needs, it is well to remember such crises and the nation responsible for creating the war scare. In that connec- tion, the following description and appraisal of the Panama Canal in a book pub- lished in Moscow in 1978 by G. V. Vishnya, under the rubric of the U.S.S.R. Academy of Sciences, entitled "SShA-Latinskaya Amerika: Vneshne-politicheskie otnosheniya v sovremennykh usloviyakh, 1968-1976," (USA-Latin America: Foreign Policy Relationships under Contemporary Conditions, 1968-1976), might be worth noting: "* * * Panamskii kanal, yavlyayushchiisya strategicheskom klyuchom k Atlanticheskomu i Tikhomu Okeanam" (The Panama Canal, constituting the strate- gic key to the Atlantic and Pacific Oceans). I would hope, Mr. Chairman and Members of the Subcommittee, that in dealing with such a strategic key to two great oceans you exercise maximum vigilance to prevent any possible slippage in practical results from terms accepted solemnly back in the summer of 1977, when agreements in principle were transformed into commitments. In order to counteract such slippage resulting in further burdens to the hard- pressed inflation-plagued American taxpayers, while seeking to enhance America's security needs in the Panama Canal area, as appropriate, I would make timely passage of Panama Canal Treaty Implementing Legislation a goal subordinate to careful formulation of effective Implementing Legislation. Pleas by Deputy Secre- tary of State Christopher and others for "sufficient lead time" in view of the October 1, 1979 entry into force date for the Panama Canal Treaties should not dissuade the Subcommittee from taking a long, hard look at every provision of the implementing legislation under its consideration until it is satisfied that the best elements have been found and applied correctly, after on-the-spot investigation in Panama when required. 1722 A good scenario from the standpoint of protection of United States interests would be for this Subcommittee to adopt as the basis for Panama Canal Treaty Implement- ing Legislation Chairman Murphy's bill H.R. 111. Its best provisions, in my opinion, are those placing the Panama Canal Commission under the "Direction" of the Secretary of Defense, making the Panama Canal Commission an appropriated funds agency rather than a government corporation so as to dramatize inauguration of a new era under the closest possible Congressional scrutiny, and (as a rebuff to the Administration for its brazen violation of a 1972 Senate provision embodied in Section 501(c) of the Foreign Service Act of 1946, as amended, by lengthening the Sol M. Linowitz term for Panama Canal negotiations beyond the six month legal limit) requiring confirmation by the U.S. Senate of all Members of the governing Board (including the four Panamanians) of the Panama Canal Commission as well as requiring Senate confirmation of the Administrator and Deputy Administrator of the Panama Canal Commission. Unless the Administration promptly withdraws its flimsy objections to those aspects of H.R. Ill singled out above and agrees to accept such increasingly popular provisions in lieu of its own as set forth in H.R. 1716, then it does not deserve to have Panama Canal Treaties enter into force, as scheduled, October 1, 1979. [Note. — Accelerated printing of Armed Services Committee hearings of January 24, 31, February 1, 1978 caused omission of this statement in the published hearings but copy of statement was filed for record with the committee February 8.] Statement of John Nelson Washburn, Ph. D., LL.B., of February 7, 1978 Chairman Stennis and Members of the Armed Services Committee of the United States Senate, I am John Nelson Washburn, a Washington-based international lawyer. I graduated from the University of Michigan Law School in 1957 and, from March 1958 to October 1966, served in the Office of the Legal Adviser of the Department of State U.S.A. as an attorney-adviser (international). Part of my serv- ice there was in the Office of the Assistant Legal Adviser for Treaty Affairs. Inasmuch as your Committee on January 31, 1978 heard, albeit inconclusively, from the Carter Administration's top international lawyer — State Department Legal Ad- viser Herbert J. Hansell — about reservations and amendments to the Panama Canal Treaties, and also heard from former Deputy Secretary of Defense Clements about a draft treaty provision (ensuring United States security interests in the canal) formu- lated by lawyers of Benjamin Forman's shop, I am taking the liberty of presenting for the record some points of my own not hitherto emphasized in connection with the ratification process and the negotiation process of these vital Panama Canal Treaties. In so doing, I respectfully request that my remarks be incorporated in an Appendix to your published record of the January 31-February 1, 1978 Armed Services Committee Public Hearings. First, let me state that in my opinion the means being employed to the end of persuading the American public of the beneficial nature of the Panama Canal Treaties signed September 7, 1977 by President Carter are unworthy of a great, self- respecting nation. The impression is given that the regime of the canal is governed exclusively by a single treaty instrument which is obsolete. Thus, as Secretary of State Vance stated in Louisville, Kentucky on January 12, 1978 (Department of State Press Release No. 13 of January 12, 1978): "Each of the last four American Presidents has been convinced that the old Panama Canal treaty— negotiated in 1903— had outlived its usefulness." However, a look at the 1972 through 1977 editions of the State Department publication entitled Treaties in Force, in the section devoted to U.S.A.-Panama Bilateral Treaties and Other Agreements, dis- closes that the Isthmian canal convention signed at Washington November 18, 1903 has undergone changes pursuant to a General treaty of friendship and cooperation signed at Washington March 2, 1936 and a Treaty of mutual understanding and cooperation signed at Panama January 25, 1955. These two bilateral treaties were in fact cited in the Confidential January 10, 1966 State Dept. Memorandum initiated by Jack H. Vaughn and drafted by Andreas F. Lowenfeld constituting "Circular 175 Authorization to Negotiate New Treaty for Panama Canal", which on January 13, 1966 received Mr. T. C. Mann's approval. Inasmuch as this Vaughn to Mann Memorandum of January 10, 1966 proposed on the subject of defense of the Panama Canal a joint obligation provision similar to the one in the 1936 bilateral treaty, it is obvious that in his January 12, 1978 Louisville, Kentucky address devoted to the new Panama Canal Treaties Secretary Vance was utilizing a simplistic, if not dishonest approach. Moreover, when Secretary Vance in concluding that January 12, 1978 address declares: "Because they are fair, because they serve our national interests, because 1723 they provide for our future, the treaties should be ratified by the Senate."— you, Senator Stennis, and Members of the Armed Services Committee, should be even more appalled. If the Secretary of State has not mastered yet the second paragraph of Article II, Section 2, of the United States Constitution ("He shall have Power, by and with advice and Consent of the Senate, to make treaties, provided two-thirds of the Senators present concur. * * *"), he is unfit to hold that high office and President Carter should bring about his resignation before he demonstrates such imprecision in situations from which greater detriment to United States interests can ensue, as in negotiations with the U.S.S.R. With respect to "imprecision," perhaps Secretary Vance and not State Depart- ment Legal adviser Hansell should be held responsible for failure to submit, as Mr. Hansell promised the Senate Foreign Relations Committee on September 29, 1977, the implementing legislation for the Panama Canal Treaties to the Congress, even three months late. As Senator Mclntyre noted when Mr. Hansell was before your Committee January 31, 1978, the promise ("certainly well before the end of Octo- ber") made with such assurance by Mr. Hansell (as set forth in the senate Foreign Relations Committee Panama Canal Treaties Hearings Part I at page 216) was hardly reassuring to those still seeking more facts on the treaties to be debated. Senator Mclntyre's concern appeared even more substantiated when Mr. Hansell declined to give a new date for delivery of the important implementing legislation to the Congress. Was he unaware that President Carter's own transmittal message dated September 16, 1977 cautioned against "undue delay"? Second, it should not be forgotton by Senators participating in the debate on these Panama Canal Treaties that, although the negotiations leading thereto have been long, excessively long in my opinion, the breakthrough came through action by Henry A. Kissinger which was soon challenged by senator Byrd of Virginia. To refresh your recollection, the memorable exchange on the subject of Panamian negotiations between Secretary of State Kissinger and Senator Harry F. Byrd, Jr. ocurred March 7, 1974 in the U.S. Senate Finance Committee Hearing in Room 2221 of the Dirken Senate Office Building. Taking exception to one statement made in Panama by Secretary Kissinger, Senator Byrd stated: "Now you said this in your statement to the Panamanians that you commit the United States to prompt completion of negotiations leading to the transfer of sover- eignty over the Canal Zone from the United States to Panama. I just want to get clear whether you can commit the United States to negotiations leading to giving up the Panama Canal in perpetuity. In reply Secretary Kissinger stated: "I can commit the United States to the negotiations. I cannot commit the United States without ratification by the Congress to the result." What is important about this exhange, which I personally witnessed, is that Dr. Kissinger was then ignorant of the nature of the treaty ratification process in the United States of America, wherein the Senate gives advice and consent to ratifica- tion on the part of the United States and the President thereupon may proceed to ratify that treaty by means of the appropriate ratification instrument drawn up in the Department of State. Dr. Kissinger's ignorance of this process, or at least his inability to articulate it despite his vaunted eloquence, continued at least through August 20, 1976. That morning, on the NBC Today Show, when interviewed by Marilyn Berger in Kansas City, where the Republicans were in their conclave, Secretary Kissinger's defense of the Helsinki Accords of August 1, 1975 contained a reference to the 1946 Peace Treaties to which the United States was a Party "that were ratified by the United States Congress." Eventually, on October 14, 1977, when former Secretary of State Kissinger ap- peared before the Senate Foreign Relations Committee on behalf of the Panama Canal Treaties along with former Secretary of State Rusk, he finally got it correct- not ratification by the Congress, but Senate advice and consent to ratification! Dean Rusk, an astute man and underrated Secretary of State, had probably clued in his more famous predecessor before Chairman Sparkman called the Committee to order that morning in Room 318 of the Russell Senate Office Building. To recapitulate, for the American public to think of the Panama Canal Treaties as President Carter's treaties supported by former Secretary- of State Kissinger can be misleading and I, for one, think of them more as Secretary Kissinger's treaties to which President Carter has lent his support and his prestige, perhaps to his own detrmiment should a Pyrrhic victory (a probability) or a defeat (a possibility) result in the Senate. Third, and last, I believe that the status of Ambassadors Bunker and Linowitz as conegotiators of the Panama Canal Treaties" should be clarified. At pages 27 and 28 of the Senate Foreign Relations Committee Panama Canal Treaties Hearings 1724 Part I, there is the following exchange between Chairman Sparkman, Ambassador Linowitz and Ambassador Bunker, which occurred Monday morning, September 26, 1977: The Chairman. You and Ambassador Bunker have worked together as our chief negotiators during the whole period of negotiation. Is that not right? Ambassador Linowitz. Ambassador Bunker has been working on these treaties for a longer time. I joined him in February of this year. The Chairman. You joined him about 6 months ago? Ambassador Linowitz. About 7 or 8 months ago, yes, sir. The Chairman. But during that time, have you worked in complete agreement? Ambassador Linowitz. Absolutely, yes, I think. Ambassador Bunker? Ambassador Bunker. Yes; absolutely, Senator Sparkman. This public show of total solidarity and harmony goes so far beyond mere biparti- sanship as to be unpersuasive. It did not convince me because Ambassador Linowitz does three times more talking than does Ambassador Bunker in this scene, although Ambassador Linowitz had been serving on the team only since mid-February 1977, pursuant to being designated by President Carter on February 8, 1977 as a mere "part-time conegotiator" (Cf. Presidential Documents, Vol. 13, No. 7, p. 161). Was Ambassador Bunker reduced to the role of a "YES man" after February 8? It may be that style rather than substance has unduly preoccupied me in this matter, but nevertheless I would hope that somewhere in the Senate debate on the Panama Canal Treaties evidence reflecting reality as to the modus operandi of the negotiat- ing twins is developed. ******* (Afterword of March 1, 1978 Filed for record with the committee March 3, 1978.) Having read the complete Senate Foreign Relations Committee and Armed Serv- ices Committee Hearings on, respectively, the Panama Canal Treaties and Defense, Maintenance and Operation of the Panama Canal, including Administration and Government of the Canal Zone, I would like to reinforce the three points set forth above February 7, as submitted February 8, 1978. If as conegotiator Linowitz told the Senate Foreign Relations Committee in his opening statement September 26, 1977 we the United States of America have been engaged in negotiating a new Panama Canal Treaty "for over 13 years now," then he should produce the State Department Circular 175 Authorization to Negotiate that new Panama Canal Treaty for it apparently was not the Circular 175 Authori- zation approved January 13, 1966. The U.S. Senate must not give advice and consent to ratification of Panama Canal Treaties unless negotiations therefor were properly authorized in the Department of State, and my point takes on added importance in the light of Senator Javits recollection on opening day September 26 that a U.S.-Panama treaty "in contemplation in 1967" had been rejected by Torrijos upon taking power in Panama. As for sloppiness in characterizing the U.S. Senate's role in the treaty ratification process by equating advice and consent to ratification with ratification itself, it should be noted that this disease of imprecision has infected the President himself. Yes, in Nashua, New Hampshire February 18, 1978 he told his high school audience: "And I hope and I believe that the Senate in a great demonstration of patriotism and courage will ratify the Panama Canal Treaties." If this imprecision reigns in the land, how will proper attention be given to Senator Griffin's wise counsel expressed on the Senate floor at the outset of this Senatorial debate on the Panama Canal Treaties, namely, that the Senate give its advice and not its consent to ratification, with the advice being to put the negotiators back at the drawing boards? My second point about these Panama Canal Treaties constituting, pursuant to the February 7, 1974 U.S.-Panama Joint Statement of Principles initialed by Secretary of State Kissinger and his Republic of Panama counterpart, Secretary Kissinger's treaties rather than President Carter's treaties finds support from Senator Gold- water January 31, 1978 in his colloquy with General Maxwell D. Taylor in the Senate Armed Services Committee Hearings referred to above, at page 219: Senator Goldwater. As I told the President the first time I saw him after he signed it, I said: This is not your baby, you didn't even talk about it in your campaign. You had nothing to do with this thing so why push it with so much force and acceleration. On my third point, about the nebulous status of Sol Linowitz as a Panama Canal Treaties conegotiator, first raised but not resolved definitively in , the series of questions on status September 26, 1977 asked directly of him by Senator Griffin, I would repeat that according to Presidential Documents, Vol. 13, No. 7, p. 161, President Carter's designation of Ambassador Linowitz February 8, 1977 was as 1725 "part-time conegotiator." Yet even after the expiry of his commission, as in the joint Bunker-Linowitz appearances of September 26 and October 19, 1977 before the Senate Foreign Relations Committee, one finds that interventions by Ambassador Linowitz numbered 207, by my count of the text of the record of the Committee on the Panama Canal Treaties, whereas Ambassador Bunker had only 66. Who is the junior partner? And if the Linowitz ambassadorial status for Presidential purposes in connection with negotiation of the Panama Canal Treaties was for a 6-month term, which Ambassador Linowitz told the Senate foreign Relations Committee expired August 10, 1977, and there was no reappointment, according to Ambassador Linowitz, then by citing the official Presidential source could not expiration of the single 6-month term have come before the Parties reached agreement in principle in Panama on August 10, 1977? As I recall the course of the Senate debate on the Panama Canal Treaties, Senator Griffin first drew attention to completion of the negotiations on the "agreement in principle" on the last day of the tenure of Ambassador Linowitz as conegotiator, i.e., on August 10, after giving February 10 and not February 8 as the designation day. Even if these three points I have raised and then reflected upon further are satisfactorily explained, I should like to make one final observation covering the style and not the substance of the negotiations of these Panama Canal Treaties currently under consideration. I recall Senator Goldwater's words in the Senate Armed Services Committee Hearings January 31, 1978, particularly these five sen- tences: Senator Goldwater. I saw the treaty two days after the President and Torrijos signed it. I don't consider this the repudiation of the President. I think if anything it is the repudiation of the negotiators who did not do a good job in negotiating with the people that have to approve it; namely the Senate. * * * I don't want to see the President hurt in any case but I am afraid that if it is not approved that he is going to have to take some of the blame whether he likes it or not. I think the negotiators did a very bad job in explaining it to the people that they have to depend on to get this thing ratified. In this connection, I also recall the words of a Secretary of State, John Foster Dulles, under whom I had the pleasure of serving. On April 6, 1953 in testimony before the U.S. Senate Committee on the Judiciary, he stated: "The Constitution provides that the President shall have power to make treaties by and with the advice and consent of the Senate. This administration recognizes the significance of the word 'advice.' " Washington, D.C., March 6, 1978. John Sparkman, Chairman, Committee on Foreign Relations, U.S. Senate, Washington, D.C Dear Senator Sparkman: Assistant Secretary of State for Congressional Affairs Douglas J. Bennet, in reply to my query of March 4, stated that late in the evening of Friday, March 3 provisions of implementing legislation for the Panama Canal Treaties were delivered to certain Senators and that those provisions would be printed today in the Congressional Record. You will recall that State Department Legal Adviser, Herbert J. Hansell promised the Senate Foreign Relations Commit- tee on September 29, 1977 that "a complete draft" would be "available for submis- sion to both Houses within several weeks" and "certainly well before the end of October," and, a few minutes after replying to your question as to when that proposed legislation would be submitted to Congress, Mr. Hansell reassured Senator Case and the entire Committee that work on the implementing legislation by his team of specialists would be kept moving at "white heat" pace. The slippage of some four months in the Hansell timetable, which even at the roughly three month mark had irked six members (Mclntyre, Byrd, Helms, Gold- water, Thurmond and Bartlett) of the Senate Armed Services Committee during Hearings held January 31 and February 1, 1978, recalls the headline on and across page 3 of The New York Times of February 14, 1977: "Panama Canal Talks Resum- ing Today, With Both Sides Hoping for New Treaty by June." Agreement came August 10. In this connection, I respectfully request that either you or Subcommittee Chair- man Sarbanes with the aid of Mr. Dockery do investigate in a no-nonsense manner what heretofore has been a mere concern of one member of your Committee, Senator Griffin, and not a matter of illegal action. I refer to the role of Ambassador Sol M. Linowitz in the Panama Canal Treaties as negotiated. Senator Griffin ex- pressed concern about the Linowitz role not only in Committee September 26, 1977, 1726 posing a series of status questions to Mr. Linowitz himself, and in Part XIII of the Committee's Report of February 3, 1978 on the Panama Canal Treaties, but also in the course of the beginning phase of Senate debate on those Treaties (see Congres- sional Record of February 6 at page S1259 and of February 8 at page S1534). In all four instances when Senator Griffin expressed such concern, he stated (three times very explicitly, once by clear implication) that Mr. Linowitz "was appointed on February 10, 1977" and that President Carter had "named" him to be a negotiator "On February 10, 1977," and this "for a six month period." I submit that President Carter designated Mr. Linowitz to be, as the White House Press Release of February 8 indicates, both in its original form and as printed in the Weekly Compilation of Presidential Documents, Vol. 13, No. 7, page 161, conegotia- tor "today", i.e. February 8, 1977. Under the law, Sec. 501(c) of the Foreign Service Act of 1946, as amended, such a Presidential special mission appointment may not exceed six months. Senator Sparkman, you as one Senate conferee for what became P.L. 92-352 which added Sec. 501(c) are particularly well qualified to honor my investigation request as appropriate in the light of Senator Griffin's Minority Views and related items attached. Sincerely, John Nelson Washburn. Washington, D.C., March 22, 1978. John Sparkman, Chairman, Committee on Foreign Relations, U.S. Senate, Washington, D.C. Dear Senator Sparkman: After contemplating at greater length your March 14, 1978 letter to me on the aforementioned subject covered by Section 501(c) of the Foreign Service Act of 1946, as amended, I must bring to your attention two additional concerns not mentioned in my letter to you dated Monday, March 20, 1978. These two concerns relate, respectively, to the second and third sentences in your March 14 letter's second paragraph, sentences reading as follows: " * * * Therefore, he was legally entitled to sign the Panama Canal agreements on August 10, 1977. From that date on he has acted as a consultant to the Depart- ment of State without the special title of Ambassador." The trouble I have with the first of these two sentences explaining what your Senate Foreign Relations Committee records show is that you imply that Presiden- tial special representative Ambassador Linowitz signed "Panama Canal agreements on August 10, 1977." Having checked on Tuesday and Wednesday, March 21 and 22, 1978 with both the Office of the Assistant Legal Adviser for Inter- American Affairs in the Department of State and the Embassy of the Republic of Panama in Wash- ington after reviewing applicable State Department documentation and items in the Weekly Compilation of Presidential Documents for the Week Ending Friday, August 12, 1977, plus pertinent accounts in The New York Times for August 11 and 12, 1977, I maintain that Ambassador Linowitz signed nothing on August 10, 1977, for what was reached on that date was not "agreements" as you state but, in Ambassa- dor Bunker's words, August 10, in Panama, "agreement in principle on the basic elements of a new treaty — and a new relationship between our countries. Our legal specialists will continue working to express promptly those elements in formal treaties." The trouble I have with the second of these two explanatory sentences is that you claim for Mr. Linowitz at the State Department a "consultant" role "From that date on", i.e. August 10, 1977. Do you mean to tell me that on Thursday, August 11, 1977, while en route by air from Panama in an Air Force jet arriving at Andrews Air Force Base near Washington just after 2:30 P.M., or enroute from Andrews to the White House by helicopter, or while closeted with the President of the United States at the White House for the next ninety minutes, or even in the short interval remaining before the close of business that Thursday, Mr. Linowitz became officially a Department of State "Consultant", as that term is defined and provided for in 5 U.S.C. 3109 together with other appropriate legislative provisions and applicable regulations? I doubt such continuity was maintained. Please check this. Sincerely, John Nelson Washburn. 1727 Washington, D.C., April 2, 1978. Senator Robert C. Byrd, Senate Majority Leader, Capitol Hill, Washington, D.C. Dear Senator Byrd: Two weeks ago today, on the CBS News Face the Nation program, questions on the Senate approval of the Panama Canal Neutrality Treaty by the panel centered by George Herman brought forth from you a strong answer that no deals for votes had come to your attention and that any such loose "innuen- do" talk deserves a "spit-in-the-face ' rebuff from individual U.S. Senators involved. I also feel strongly about the Senate's advice and consent role with respect to the two Panama Canal Treaties. My letters (the first two of which were dated and delivered by hand March 6, 1978) addressed to U.S. Senate Foreign Relations Com- mittee Chairman John Sparkman in re Panama Canal Treaties; "Full Powers"/ Linowitz produced an answering letter dated March 14, 1978 (copy enclosed) in which, in the second paragraph, Senator Sparkman states that Foreign Relations Committee records show President Carter's actual appointment of special repre- sentative Linowitz as being dated February 10, 1977 and, in accordance with Sec. 501(c) of the Foreign Service Act of 1946, as amended, terminated August 10, 1977, so that "From that date on he has acted as a consultant to the Department of State without the special title of Ambassador." Imagine my surprise, after a visit March 23, 1977 to the State Department's seventh floor, where information that confirmed albeit without dates the current consultant status of Mr. Linowitz in S/AB, i.e. Ambassador at Large Bunker's shop, and service there without compensation, to receive from U.S. Senate Foreign Rela- tions Committee staffer Robert Barton March 24, a note dated March 23, 1978 (copy enclosed) enclosing pages from the March 22, 1978 Congressional Record including page S4334 (copy enclosed) on which is a March 7, 1977 State Department letter to the Senate Foreign Relations Committee Chairman read into the Record by your colleague Senator Sarbanes. Its second paragraph states that along with the Febru- ary 10, 1977 Presidential appointment of Mr. Linowitz there was, simultaneously, State Department appointment of Linowitz as a "Special Government Employee." Inasmuch as "consultant" and "Special Government Employee" are not, under applicable regulations, the same, and are subject, like the aforementioned Sec. 501(c) to a cut-off date, please provide me with clarification on this point, and please tell me by what authority Mr. Linowitz negotiated (see enclosed page 467 of Panama Canal Treaties, Foreign Relations Committee Hearings, Part I) the October 14, 1977 Carter-Torrijos Joint Statement of Understanding. Sincerely, John Nelson Washburn. Washington, D.C, Friday, April 28, 1978. The President of the United States, The White House, Washington, D.C. Dear President Carter: In this my final communication to you about the Panama Canal Treaties I ask you not to proceed to ratify them unless you are absolutely sure, despite Senate advice and consent to ratification, that a 1972 Senate provision embodied in Section 501(c) of the Foreign Service Act of 1946, as amended, was not violated in negotiations: designation of linowitz February 8, 1977: The President today designated Ambassador Sol M. Linowitz to be part-time conegotiator of the Panama Canal negotiations. Ambassador Linowitz will join Ambassador at Large Ellsworth Bunker in heading the U.S. negotiating team. He will serve as Special Representative of the President with the personal rank of Ambassador. (Applicable legal provision setting limit of 6 months:) Appoin tmen ts Sec. 501. (a) The President shall, by and with the advice and consent of the Senate, appoint ambassadors and ministers, including career ambassadors and career ministers. (b) The President may, in his discretion, assign any Foreign Service officer to serve as minister president, charge d'affaires, commissioner, or diplomatic agent for such period as the public interest may require. 1728 (c) On and after the date of enactment of the Foreign Relations Authorization Act of 1972, no person shall be designated as ambassador or minister, or be designated to serve in any position with the title of ambassador or minister, unless that person is appointed as an ambassador or minister in accordance with subsection (a) of this section or clause 3, section 2, of article II of the Constitution, relating to recess appointments, except that the personal rank of ambassador or minister may be conferred by the President in connection with special missions for the President of an essentially limited and temporary nature of not exceeding six months. (Monday Sept. 26, 1977 — Linowitz acknowledges 6 months mission limit:) Mr. Linowitz' status Mr. Linowitz, for the record let's clarify your status. You were appointed, as I understand it, for a 6-month term as negotiator with the rank of Ambassador. Ambassador Linowitz. Yes, sir. Senator Griffin. That 6-month term expired in August? Ambassador Linowitz. August 10. Senator Griffin. Were you reappointed? Ambassador Linowitz. No, sir. Senator Griffin. So you appear now in a private capacity rather than as an officer of the United States. Ambassador Linowitz. Yes, sir, although I still serve as adviser to the delegation. Senator Griffin. The appointment as negotiator for only a 6-month period did not require confirmation by the Senate. Is that correct? Ambassador Linowitz. That's right, sir. (Wednesday Oct. 19, 1977 — Linowitz admits Oct. 14 role as President's negotiator of Oct. 14 Neutrality Treaty — Carter-Torrijos Joint Statement of understanding:) Ambassador Escobar's agreement with statement In summary, it simply reiterates and confirms the Torrijos statement. In fact, he literally reads it in his press conference. So, I think there is little doubt that at least Mr. Escobar agrees with the interpre- tation and the statement that was issued here on Friday. Ambassador Linowitz. Senator, may I interject a comment on that? Senator Clark. Yes please. Ambassador Linowitz. Ambassador Escobar actually negotiated the statement on behalf of Panama. He was here and he and I actually worked out the exact wording. Senator Clark. I see. I didn't understand that. Thank you. John N. Washburn. The White House, Washington, May 3, 1978. Dear Dr. Washburn: I am responding to your recent letter to President Carter. Your expression of concern is appreciated and the President thanks you for writing. Sincerely, Landon Kite, Staff Assistant. Mr. Washburn. I am very pleased to be here particularly when the Senator Gravel was also here, because last year, that is, from September 1977 on through the summer, I was in the position of Representative Carney trying to pin down some of the Senators. It may be reflected in some of the items that I have put in the record here with my statement. I have had the interesting experience of trying to buttonhole Senator Church, giving him a statement and saying: 'This is very important, sir;" and then seeing him a second time and saying: "Did you agree that it was important, and something that should be looked into with somber realism, sir?" His reply: "No, I gave it to my assistant." And so it disappears. It is very, very hard to pin down Senator Church. So I appreciate very much what Representative Carney was trying to do. That is why I would suggest, and the import of my remarks is just that, that you have a situation here where there are lots of irregularities and lots of loose ends, and they were never 1729 tied together very well. Particularly as Senator Gravel was speak- ing of the Senate Foreign Relations Committee Panama Canal Treaties hearings — if he had only been to the Senate Armed Serv- ices Committee hearings, he would have gotten answers. So Mr. Carney would have won his debate, if Senator Gravel had been at those hearings. They did not get as much attention, but Democrats and Republicans alike asked penetrating questions of the State Department and the DOD witnesses, whereas in the Foreign Rela- tions Committee hearings very easy questioning took place. If I understood Congressman Murphy's statement over the radio that I heard Sunday night, reporting back on what you gentlemen had accomplished in Panama, I think, to repeat it, that the more questions asked, the more sense of just being a little bit skeptical, let us say, is important, and going on to get precise facts, and specific statements for the record is very, very essential. Shifting from my role as attorney to one as a Soviet affairs specialist, I put in the record specifically a statement from a recent Soviet text just to show what Soviets think about such a strategic key as Panama Canal. And so you have a heightened duty to do your very, very best, realizing that senatorial action with respect to these two treaties are full of little, let's say, obscure areas that need more probing. Again, on the general strategic plane, it is very essential that we know the Soviets have interest in this particular area, and I have said so in print. It is stated in the U.S.S.R. Academy of Sciences publication that the Panama Canal is a strategic key to both the Pacific and Atlantic Oceans. One last point. Legal Adviser Hansell — and I used to work in the Office of Legal Adviser — on September 29, 1977, made a promise to Senators, the Foreign Relations Committee, yes, sir, I will have implementing legislation up to you by the end of October 1977 for sure. And then it was March 3, 1978, before even the first draft of the implementing legislation reached— reached not the Senate, but only certain key Senators. One sees that either they did not comprehend completely what implementing legislation was in the Office of Legal Adviser Han- sell or they were making a promise they did not intend to keep. But at those Armed Services Committee hearings, Senator Mcln- tyre and Senator Byrd of Virginia and Senator Helms said: You promised us the implementing legislation and we would like a peek at it before we question you further. In other words, before you in this subcommittee start at the job of working on implementing legislation, you should know it had a history in the Senate Armed Services Committee in particular. That concludes my summary of those two points. Therefore, I am hoping that you are careful to retain a provision of advice and consent of the Senate to appointments and that this be made in the language of H.R. Ill, that you stick to that lan- guage despite concerns of the Department of State and others that maybe we should not have Senate advice and consent to certain appointments, for the Board and others. I would urge strongly that one stick to this safeguard, having seen what happened with Sol Linowitz in negotiating of those Panama Canal Treaties. 1730 Thank you very much, sir Mr. Hubbard. The main thrust of your testimony is to advise us to take a good long look at implementing legislation? Mr. Washburn. Yes, sir, exactly. Mr. Hubbard. Would this possibly, however, jeopardize the inter- est of the United States if implementing legislation were postponed by a long look? Mr. Washburn. I would not want you to postpone it. I just want you to do an extra good job safeguarding this country's interest, knowing that there was a little bit of shortcutting in the process of advice and consent to ratification. Mr. Hubbard. Good answer. Congressman Carney. Mr. Carney. Yes. Mr. Washburn, I would just like to say that the Comptroller General of the United States before the Senate Armed Services Committee said that: "If I was a Senator, I would not vote on the treaty until I saw implementing legislation." It is unfortunate that 67 Senators did not take his advice at this point. But that is water under the bridge. Now the responsibility for the implementation of the treaty falls upon the House, and I think we are compelled to do the best we can, and certainly I am going to look with great concern over your testimony. I have one question that you might be in a position to at least give me some thoughts on. I question whether the Panamanian treaty had been ratified properly. I note you are an international lawyer with international background. Have you done any studying into the implementation of the treaty from the Panamanian side, not the American side? Mr. Washburn. No. Interestingly enough, that was one that got legal advisor Herbert Hansell in deep trouble before the Armed Services Committee. He said I understand Panamanian law. I shall say, I am ignorant of it. He said, I understand it. Then a very intelligent Senator, maybe one of the smartest, Sam Nunn of Geor- gia, asked one question he could cope with but the second one floored him and had him saying: I shall have to look at the law before question No. 2. I will have to say I am ignorant of that Panamanian side. Unfortunately, I do not know anything about it. I do not have enough intelligence, I suppose. Mr. Carney. I have to admire your frankness. I would hope I would have the opportunity to speak with members of the interna- tional legal community that would have expertise on Panamanian Government. I think there are questions as to whether the treaty has been ratified properly. I would ask another question. This has to do with international law. I believe it is from the Geneva Convention, 1967, I believe, where they state that no international treaty can be made under threat. It is section 82. I forget which Geneva Convention it is. I am not prepared, I am sorry. But international law says that no treaty between two nations can Mr. Washburn. There is a general principle of coercion. 1731 Mr. Carney [continuing]. Under threat. Would you consider the actions of General Torrijos during the period the Senate was deliberating over the canal, when he said if you do not give us the treaty we will come and take the canal, a threat? Mr. Washburn. Again, excuse my ignorance of this Torrijos situation. I do know that when you have a totally one-sided treaty — well, offhand, off the top of my head, I do not think this would be quite in the category suggested. Maybe that is because I have not looked at the coercion point recently. There is of course the one-sided treaty forced by duress; but I do not think this would qualify. I really do not. I do not think this would be of such magnitude so as to consitute anything that would make it applica- ble to the general principle. I must say that I cannot pinpoint the Geneva convention you are talking about either. Anyway I think one ought to let this one go. Mr. Carney. I think we agree just how much he really could threaten us. It was just a point I thought I would bring up. I certainly appreciate you coming here. I would just like to say I thought I won the argument with the Senator today. Mr. Washburn. I'm sure you did. In my mind, you did. Mr. Hubbard. Thank you. If we have that on tape, you could get reelected easily. Mr. Washburn, thank you for being with us and to each of you in the room who have been here day after day taking notes and listening, we thank you for your patience in being with us. After 9 days of hearings and about 50 witnesses and 52 hours, these hear- ings do now come to a close. Mr. Carney. If I just might say, Mr. Chairman, I would just like to take a moment from the side of the minority and I would just like to praise the chairman for the way these hearings were con- ducted. I know I am echoing the sentiments of all the minority members of the committee and I dare say I am echoing the senti- ments of the majority members too. The chairman of the committee certainly deserves appreciation of the people of the United States, particularly the people who are involved in these hearings. As he said, there were 52 hours of long hard hearings, but they were conducted in a fashion that I think did a great service to the Members of the House of Representatives and the people of the United States. Thank you. Mr. Hubbard. Thank you. The meeting is adjourned. [Whereupon, at 1:01 p.m. the subcommittee adjourned.] O UNIVERSITY OF FLORIDA 3 1262 08128 289 8