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 something 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 information 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 primarily 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 investment, 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. 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 Can 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 fting 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 traports 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 addition 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, maintenance, 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 selfsupporting will be about $19,250,000. It is estimated that the operating and maintenance 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 ultimately 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. 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-supporting. 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 expenses, 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 12 to 24 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 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 American 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. THE REPORT OF THE SPECIAL COMMITTEE APPOINTED AND VESSEL MEASUREMENT RULES FEBRUARY 24 (calendar day, FEBRUARY 26), 1937.-Read; referred 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 |