Senator SCOTT. If you put that into context with the living of the Panamanians, might that make a difference in your response? That would be contrasted with the average American in this country.

Governor PARFITT. In the same fashion, within Panama there is quite a wide range in quality of housing. There is housing in Panama which is much more resplendent and valuable than that which is in the Canal Zone.

On the other hand, there are the heights of poverty as well, which we do not have in the Canal Zone.

Senator HATCH. My good friend and colleague, Sam Hayakawa, during his campaign said, tongue in cheek—and it was reported as though he meant it, but nevertheless it was tongue in cheek—“It is ours. We stole it fair and square."

Do you consider the United States to have stolen the Panama Canal or do you think we paid a fair price for it in those days based upon constant dollars?

Governor PARFITT. My own personal opinion is that the quid pro quos of the 1903 treaty were not so heavily weighted in favor of the United States as is now suggested in hindsight. At that point in history it was quite a high risk and quite an investment of assets and manpower.

Senator HATCH. Imagine if the French company had failed.

Governor PARFITT. In a major undertaking which was very difficult. I do not think the imbalance then was anywhere near as suggested today.

Senator HATCH. I think from your testimony here you are saying that we paid a fair and reasonable price and took almost inordinate risks in order to produce and develop and maintain and operate the Panama Canal.

Governor PARFITT. Yes, sir, I feel that way.

Senator HATCH. Can I also ask you if you feel that the United States has basically been fair to Panama under the circumstances? You are the Governor. You are intimately connected with the details. I appreciate the very effective and pervasive statement that you have given here today.

Do you think that we have basically been fair to the Republic of Panama in our approach to the canal up to, say, 1974, when the Kissinger-Tack Agreement was entered into?

Governor PARFITT. I believe that basically the U.S. Government has made a very extensive effort to be fair and equitable under the terms of the original agreement. Looking in hindsight, one can perhaps now say that under today's circumstances we ought to be more generous. Senator HATCH. I am talking about 1974. I think our obligation to be fair may be a continuing obligation, but you are saying that basically we have been fair.

Governor PARFITT. I think we have been basically fair. Certainly I feel that in today's circumstances we perhaps could find ways to do more to assist Panama than we are doing right now under the terms of the current agreement.

Senator HATCH. Have you seen any indication on the part of anybody in this country of an unwillingness to do more or to do what is right or to be fair to the Republic of Panama and its citizens? Governor PARFITT. No; I do not really believe so.

Senator HATCH. Is there anybody down there in your administration or in your jurisdiction or working for you or for the Government of the United States who has indicated any willingness not to be fair, or any desire not to be fair to the Republic of Panama or the Panamanians?

Governor PARFITT. No; I think we have extended ourselves to cooperate and to work with Panama and the Panamanians.

I should say here that there is a good people-to-people relationship between the citizens of the Canal Zone and the U.S. citizens in general, with Panamanians. Recently this relationship has become rather more delicate. It has been played up as being something of a hate campaign, but it really is not a feeling from person to person.

Certainly, there are certain segments of society who have had aroused in them emotions and antagonisms that cause frictions on the local scene. However, I do not think that typifies the general basic people-to-people relationship.

Senator HATCH. It has been said by some of the critics of our present ownership of the canal that we need to give up the canal because all of Latin America is against our continued ownership of the canal.

Living in Panama and negotiating and working with other Latin American neighbors at least the nearby countries-do you agree with that statement?

Governor PARFITT. I believe that the official position of most if not all of the countries in that part of the world would be in support of a Panamanian effort to have the canal revert to them.

Having said that, I also believe that there is a body of opinion amongst the population that is not quite so sure that it would be in their interest or that it should be done.

Nevertheless, the official position is that in support of Panama.

Senator HATCH. I can see that. However, you have indicated that maybe it is not quite so strong that we would have to give it up or else lose the respect and friendship of other Latin American countries and perhaps incur the enmity of those countries, as has been advocated by those who would like to give up the canal. Is that true?

Governor PARFITT. Well, that is hard to judge, as I have indicated. In the world scene on an official basis, they will support Panama fully. Behind that there is a certain economic fact of life that tells them that it is in their interest to have an efficient operating canal. They would like to have a low-cost canal. They are quite happy with the way in which the United States has exercised its stewardship.

Therefore, this is a competing thought in their mind. How they really fall out in the final analysis I could not project.

Senator HATCH. I think it would be fair to say that they might not be overly concerned if the U.S. continues to operate the low-cost operation of the Panama Canal and decides to forego the treaty.

Governor PARFITT. I believe that that would be their innermost thought, but I still believe that they would vocalize support

Senator HATCH. For the Latin American Community they would

Governor PARFITT. Yes; they will vocalize support.

Senator HATCH. Are you talking about the immediate countries around Panama, or all Latin American countries. "

sir.

Governor PARFITT. Pretty generally all Latin American countries,

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Senator HATCH. Would you expect there to be a major disruption in American-Latin American relationships if we do not have a treaty giving the canal back to the Panamanians?

Governor PARFITT. I really would not be competent to express an opinion on that matter. I really would not know how to judge that. It would appear to me that the State Department would have a better view.

Senator HATCH. Well, let us bring it down to Colombia and Venezuela, which are oftentimes mentioned. Do you think we would have a major disruption in our relationships with Colombia and Venezuela to the point of being irreparable should we not divest ourselves of the canal with a treaty?

Governor PARFITT. Again, I am not competent to say, but I do note that those two countries have been most vocal and most active in their support of the Panamanian cause.

Senator HATCH. I have particularly appreciated your testimony, and I think that it is very important to have somebody who is right there, who is familiar with the issues and the area, to come here and tell us the true facts.

You have been very helpful to the committee today and as straightforward and as fair, I believe, as you can be.

You have indicated that you believe, in response to Senator Scott's questions, that the tolls, if we do divest ourselves of the Canal, will go up considerably because the Panamanians will want to maximize profits.

Governor PARFITT. I think that would be their general tendency, but they will be constrained by the facts of life, which will not permit them to go up inordinately because if they do it would be counterproductive.

Senator HATCH. However, there is no doubt that they will go up considerably-to the maximum that they can and still be economically realistic.

Governor PARFITT. It would be their aim, I believe, to make a profit to permit them to use those profits to build their country.

Senator HATCH. Both Mr. Linowitz and Mr. Bunker have personally assured me that one of the requisites of any treaty concerning the Panama Canal will be that it will not permit the Panamanians to discriminate in toll rates or other related matters among any nations. Do you believe that that would be so if we divest ourselves of the canal and Panama takes it over?

Governor PARFITT. Well, it is my understanding that there would be a continuing commitment in that regard, to have nondiscriminatory tolls.

Senator HATCH. The question that I am getting to is this: Once the canal is divested and Panama takes over the zone, do you think we, as a practical matter, will be able to enforce that understanding without armed intervention?

Governor PARFITT. Well, I believe

Senator HATCH. That is, assuming that they change it and start showing preferences to certain nations.

Governor PARFITT. I believe that it is reasonable to expect that they would live with a commitment of equitable treatment for all.

Senator HATCH. Do you believe that that is a reasonable expectation even for the Torrijos regime?

Governor PARFITT. Yes, because I do not see any real advantage to being discriminatory. In fact, I would suggest that since the treaty would be supported by so many other people, to deviate from a nondiscriminatory attitude would be very, very suspect and would be very adverse to Panama's own interests.

Senator HATCH. If they did, our own recourse would be armed intervention?

Governor PARFTTT. That is correct. Whatever provision that the treaty might have-whether it be arbitration or whatever might be involved in the treaty document-would be our resource. Our rights would be whatever is contained in that document.

Senator HATCH. Within the framework of your understanding of the treaty negotiations, would there by any neutral body to which we could turn to handle the problem of arbitration, other than world opinion?

Governor PARFITT. I was not suggesting that there is arbitration. I was merely saying that there are many mechanisms that could be embodied in the treaty document.

Senator HATCH. Economic pressure could be brought about by other nations.

Governor PARFITT. As a practical matter, it would involve intervention if we wanted to change some decisions that had been arrived at which are inimical to our own interests.

Senator HATCH. I am very appreciative of your testimony, and I appreciate your informative statement. I think it has been very helpful to me personally, and to the committee as a whole.

Thank you, Mr. Chairman.

Senator ALLEN. Senator Helms?

Senator HELMS. Mr. Chairman, I thank you for your courtesy in letting me sit in on the hearing of this subcommittee. I commend the subcommittee and the distinguished chairman for looking into this highly important subject.

Governor, on page 4 of your prepared text you give updated costs for the terminal lake-third locks plan. Your basis for updating is the 1970 Interoceanic Canal Studies Commission report, is it not?

Governor PARFITT. That is correct, sir. We only made a mathematical extension using inflation factors.

Senator HELMs. Is it not a fact that the terminal lake plan studied in the 1970 report was based on rather vastly inflated dimensions and specifications? It has never been proposed in Congress. I understand that in 1971 the Canal Company itself made a study of the cost of the more practical plan which has been introduced in Congress. I believe it has currently been introduced as H.R. 1587.

Mr. Chairman, I would personally appreciate the Governor's supplying for the record updated figures based on the Canal Company's own 1971 study. I believe that the difference in these figures compared with the Commission's report would be rather interesting.

Governor PARFITT. As you suggested, sir, there are quite a few differing plans-so-called "third lock" plans. In fact, I believe there are about six different schemes. Each one has its own cost. They range from, in 1970 dollars, $.8 billion to $1.5 billion.

We would be glad to provide for the record the figures you have asked for.

Senator HELMS. I would be most interested in seeing that.

Senator ALLEN. We hope you will provide that additional information, Without objection, it will be inserted in the record.

[The following material was subsequently supplied for the record:]

1. There have been many third lock plans and a number of variations under each plan. I would like to insert for the record the attached table in order to clarify some of the concerns about costs and some of the basic differences in the plans.

2. We have searched our records and to the best of my knowledge the Panama Canal Company did not make an estimate of the Third Locks Terminal Lake Plan in 1971 which Congressional Bills showed at a cost of $850 million. The 1970 IOCS Report included an estimate of $1.4 billion for this project based on an assumption of 35,000 transits per year capacity. Their interpretation was that three lanes of new three lift locks 140 feet wide by 1,200 feet long by 45 feet deep would be constructed near the Gatun and Miraflores Locks at the Atlantic and Pacific ends of the Canal, respectively, with maximum lake level of 92.

3. Since we do not have our own estimate we have escalated both estimates to 1977 values based on Engineering News Record (ENR) Construction Cost Index. Using the 1970 annual index of 1385 and the July 1977 index of 2583 this would raise the $850 million to $1.6 billion and the IOCS estimate of $1.4 billion to $2.6 billion. Obviously this technique is very rough and if a new estimate were made today it could be either higher or lower.

4. The current Third Locks Bills H.R. 1043 introduced by Mr. Murphy and H.R. 1587 introduced by Mr. Flood appear to be identical to each other but they show costs of $1.15 billion and $1.25 billion respectively. I do not know the basis of these estimates. The Company has not forwarded its comments on these bills as of this date.