Before Chairman Murphy asks questions please permit me to take this prerogative. One more constituent is in the room, Mr. Orstein of Paducah, Ky. Paducah, Ky., is where a late Vice President came from and where 95 percent of the people are who were opposed to these treaties in the first place.

Chairman Murphy, would you like to ask Mr. Maechling questions?

Mr. MURPHY. Mr. Maechling, we appreciate the very carefully prepared document you presented this morning. I think it is perhaps the title on page 2, the administrative proposal set forth in

H.R. 111.

Mr. MAECHLING. It should be H.R. 1761.

Mr. MURPHY. At the bottom of page 3 you said: "It further provides (section 102) for Senate confirmation of all nominations to the Board

Would you comment on the question of the Panamanian nominees to the Board and Senate confirmation of those individuals. Mr. MAECHLING. By Panamanians?

Mr. MURPHY. Panamanian nationals being confirmed by the U.S. Senate.

Mr. MAECHLING. I understand that there was a whole section in Mr. Breecher's brief stating that this could not be done. I frankly feel that this is more of a problem for the Panamanian officials in connection with their own country than it is for us. I have not actually researched this point. My impression is that in the early days of the Republic there were frequently foreign officers that swore an oath of allegiance to the United States and served in one capacity or another here and overseas, particularly in the Foreign Service.

I, myself, see no objection to Senate confirmation for all nominees to the Board. I also would see no harm in changing the legislation to having Senate confirmation for all U.S. appointees and simply accepting whoever Panama designates.

I think it does present a problem to require Panamanians to swear an oath of allegiance to the United States.

Mr. MURPHY. It does not cause any problem with them being on the U.S. payroll.

Mr. MAECHLING. Not to me, sir, nor can I see any problem. We have appointed people who are not citizens to office. We have the whole area of local hire abroad. I believe we have appointed honorary consuls, and indeed consuls that were foreigners, back through the length of American history. I do not see that a consul would be much different than a member of a board, but I respectfully say that I have not researched this point in the depth that would justify a categorical answer.

Mr. MURPHY. I have some friends who are American citizens but were representing foreign citizens in this country.

Mr. MAECHLING. That is the reverse situation.

Mr. MURPHY. Do you regard members of the Board as officers of the United States?

Mr. MAECHLING. It would depend. It seems to me that under your bill they would not need to be provided the legislation could be amended to clarify the point. Otherwise I do not see how they could help but be officers of the United States.

Mr. MURPHY. When you discussed that the legislation should provide for complete cost accounting, both of services rendered by Panama and by the Commission, or with provision for holding payment for adjustment of such services which are either deficient or nonexistent, you mention concealed subsidies.

Would you elaborate on that comment, please?

Mr. MAECHLING. Well, it certainly seems to me that the toll provisions in some respects are a concealed subsidy to Panama. It seems to me that the way they provide for a flat $10 million payment for the first few years, 3 years, with only revision downard thereafter, is clearly an estimate on the high side, and to this extent constitutes a concealed subsidy for the Republic of Panama. I do not see how this conclusion can be avoided.

Mr. MURPHY. You stated that only the Supreme Court can settle the issue when the consent of both Houses of Congress is required for disposition of property to which the United States is tied. Didn't the justice branch reject a congressional case on this issue?

Mr. MAECHLING. It does not seem to me that it was posed in quite those terms. As I understand the issue has never actually gone to the full court. One of the problems, Mr. Chairman, is that the old texts simply assume that these Indian treaties were valid. They did not draw the distinction that has been drawn in the memoranda that I have seen that now raise this question of the distinction between adjustment of a boundary or relinquishment of territory which was in dispute or to which the United States not have an unequivocal claim and where there had been a long historical record of good title.

It may be that when the court does decide the issue, depending on the way they want to decide, that they may not attach much importance to that particular question. But I had never seen a U.S. Supreme Court decision that squarely addressed itself to the issue posed in terms of this distinction.

Mr. MURPHY. About 60 Members of Congress tried to get to that point. I think there is going to be quite a question raised. Unfortunately it was not decided at the appropriate time.

I would like to bring forward for these hearing the Supreme Court comments on the cases you have presented to the committee. I guess, again back as far as 8 years ago, 6 years ago, 5 years ago, I wanted to get their comments on cases the State Department had regarding the Chief Moose Dung case which was won, in the 40 barrels of whiskey case.

Mr. MAECHLING. Those are the ones. But I believe there is such a paucity of solid decisions in this area that the issue has not really been called into question until relatively recently. Where Congress acted before, the two Houses were acting in total agreement and unanimity either through concurring resolutions or a concurring House vote to Senate consent.

Also important is the fact that the property being ceded to Panama in this particular case is not all real property. Some of it is actually property in the sense of installations, facilities, equipment and so forth. This distinction has perhaps not been drawn. The argument has not been made that all the historical precedents or virtually all involve land and the boundary adjustments.

Mr. MURPHY. Moving on to page 9 and article IV, section 2 of the treaty, it is a very short section. It says that the Republic of Panama terminates the land licenses for reasons arising under its law.

Mr. MURPHY. This is the implementing agreement, article IV, section 2.

Mr. MAECHLING. First of all, I would say this is totally subject to the nondiscriminatory provisions of article IX, and also must be subject to section 2 of article IX of the treaty, at least for the 30month transition period.

I, therefore, can only conclude that the termination power applies only after the 30-month transition period.

Mr. MURPHY. Could there then be a retroactive application of Panamanian law?

Mr. MAECHLING. I do not see how, under section 1 of article IX of the treaty, which says that 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 the treaty only to the extent specifically provided in prior treaties and agreements.

In other words, I do not think they can do this in view of article IV of the agreement in implementation and section 1 of article IX of the treaty. A retroactive tax would be an event; the conduct of a business which occurred prior to the entry into force of the treaty would also be. They could not do that.

Any retroactive penalty dealing with some real or fancied violation, a sanitary violation or something like that, which occurred back in the fifties or sixties would relate to an event which occurred in the former Canal Zone prior to the entry into force of the Treaty: Again, that would be barred.

The paragraph in the agreement of implementation to which you referred, as I see it, must be modified by the 30-month transition period on the one hand, and the retroactive prohibition of article IX-1 on the other; and since that paragraph is a subordinate part of the total agreement, it must hang on the peg of the treaty and would be overridden or modified by the relevant treaty provisions. I would reject any Panamanian claim in this area. Mr. MURPHY. They made that claim.

On pages 14 and 15 you talk about settlement of up to $60,000 for nonmaritime claims. You said you would double that.

Mr. MAECHLING. Mr. Chairman, I would probably raise it to $300,000.

Mr. MURPHY. It would permit the person damaged to pay his legal fees, as well.

Mr. MAECHLING. Yes; Mr. Chairman, it would.

Mr. MURPHY. Would you comment on the legality of this question: The plebiscite in Panama was supposed to be for ratification of the treaty by Panama but it was only the basic treaty and not on any Senate qualification, additions or amendments. Will you comment as to the force and effect of those additions and qualifications of the treaty as far as the Republic of Panama is concerned. Mr. MAECHLING. As I understand it, Mr. Chairman, the law on this is fairly well established now.

The Vienna law of treaties-I did not bring a copy with me, unfortunately-does address the point of reservations but in gener

al the principles are that reservations that are attached to multilateral treaties are treated in a more lenient way than reservations on bilateral treaties.

In the case of bilateral treaty reservations or interpretations that are attached by one country to a treaty, these must in theory be positively accepted by the other country. However if the other party is silent that may be deemed acquiescence. If one party repudiates the other country's reservation, it imperils the treaty itself.

Mr. MURPHY. Thank you very much. Thank you, Mr. Chairman. Mr. HUBBARD. Congressman Carney?

Mr. CARNEY. I have no further questions. Chairman Murphy hit the questions that I was vitally interested in and I thank Mr. Maechling for coming and giving his testimony.

Mr. MAECHLING. Thank you, Mr. Chairman.

Mr. HUBBARD. Mr. Maechling, just one moment to see if counsel and staff have questions.

Mr. Tannenbaum?

I am sorry, I missed Congressman Lowry.

Mr. LowRY. No questions. You covered it very well.

Mr. TANNENBAUM. On the last question Congressman Murphy proposed, isn't it true that the Panamanian Constitution actually requires a plebiscite for treaty ratification? That would apply to treaty amendments, would it not?

Mr. MAECHLING. Yes.

Mr. TANNENBAUM. So it could be argued that any reservations or understandings or amendments would not be valid.

Mr. MAECHLING. It could be argued; it would depend to some extent on the way it was worded. If it were merely stated that this is the understanding of the Republic of Panama, which I understand is the case of one or two of them, or it would not pose the issue that squarely.

But in any event it is after all a matter of Panamanian law as to whether the original plebiscite still controls and whether or not an additional plebiscite is required.

Mr. TANNENBAUM. In that connection I did discuss this at great length with Panamanian attorneys and they said they had now an independent judiciary and the Supreme Court would be free to so rule on that issue and could rule adversely, similar to our property issue question.

On page 6 you made reference earlier to concealed subsidies in the treaty. Would you care to elaborate on that?

Mr. MAECHLING. Well, I already did for Chairman Murphy but there is no question that the-well, you could argue that the elimination of the interest charge is a concealed subsidy. You could argue that the elimination of amortization is a concealed subsidy. It can be done negatively as well as positively.

You can build a toll structure that provides for payments to Panama in excessive terms.

Mr. TANNENBAUM. I am glad you referred to the elimination of the interest charge. Earlier you referred to Mr. Murphy's bill as increasing the payment by the interest charge.

Mr. MAECHLING. It preserves it.

Mr. TANNENBAUM. The administration bill subtracts it. I thought yesterday we had put this issue to rest because financial experts were here and even Arthur Andersen representatives acknowledged that would be bad accounting practice to eliminate that interest payment.

Mr. MAECHLING. The one thing on the interest payment that I would observe, is that to some extent it all depends on whether you think you have gotten your investment back long since in intangible ways. From that standpoint the strategic benefit of the canal has been and will continue to be the key factor. Whether this should be translated into dollar-and-cents terms and book value and so forth I think is somewhat questionable.

The idea, it seems to me, in making this new arrangement with Panama was to put the Canal on a self-supporting basis. The new payments to Panama are extremely high and perhaps excessive.

If the interest charge is going to break the back of the system I would be opposed to it. If elimination of the interest charge would help to preserve viability of the system I would be in favor of that. So that I think this is a case where principle has to give way to pragmatic considerations.

Mr. TANNENBAUM. Aren't you saying the treaty should be subsidized, whether in payment to Panama or by eliminating the interest cost factor which good accounting requires?

Mr. MAECHLING. The whole theory of it does incorporate subsidies for payments to Panama.

Mr. TAENNENBAUM. I agree that is the theory and however that is not what was stated. You mention there would be no cost to the taxpayer.

Mr. MAECHLING. A very heavy burden has been put on one shipping and the only reason that there is no more complaint is that is the toll increases have been so dwarfed by fuel oil cost increases that the shipping industry has chosen not to make an issue of it this time around.

Mr. TANNENBAUM. On page 8 you talk about the risk of jeopardizing passage in reference to the Senate.

If the Senate reports the bill out and the President signs it, how would it be superfluous-clearly an act of Congress that would supersede the treaty?

Mr. MAECHLING. I merely said the Senate might report it out that way. They might take the position that the legislation is unnecessary. I do not know whether in fact that will be the case; perhaps they will not. But the point has been repeatedly raised by proponents of the idea that the Senate advice and consent alone is sufficient. If the prerogatives of the Senate are engaged in this matter, they may simply include in their report a statement to this effect.

That is all that I was saying in that remark.

Mr. TANNENBAUM. I misread what you said. In other words, if they do pass legislation, if legislation is passed and the property issue is clearly in the legislation, it would take precedence over the treaty.

Mr. MAECHLING. The treaty is the supreme law of the land.