U.S. farmers and rural communities thus have much to gain from continued, dependable operation of the Panama Canal. These benefits radiate throughout the economy. Farmers depend on the export market to take one in every three harvested cropland acres, amounting to a fifth of net farm income. And gross farm income in the first half of 1977 was running at an annual rate of $108 billion-more than that generated by any other U.S. industry-with some $85 billion of the production expense paid to people outside agriculture. A LOOK BACK For early U.S. shippers, South America posed a formidable barrier capped by a hellish passage around Cape Horn through the Straits of Magellan. Probably the most vivid picture of shipping in the 1830's comes from Richard Dana's Two Years Before the Mast and his account of life on brigs laden with hides bound from the west coast for Boston. To Dana, the voyage from Santa Barbara, California, to Boston reached its climatic low on the trip around Cape Horn. Describing desolate Staten Land east of Cape Horn, Dana wrote: "It was a place well suited to stand at the junction of the two oceans, beyond the reach of human habitation, and encounter the blasts and snows of a perpetual winter. Yet dismal as it was, it was a pleasant sight to us; not only as being the first land we had seen, but because it told us that we had passed the Cape-were in the Atlantic-and that, with twenty-four hours of this breeze, we might bid defiance to the Southern Ocean." The "remote and almost unknown coast of California" described by Dana was eventually to become a bustling commercial and population center, while distant markets in Europe and the Far East were to figure importantly in U.S. trade. Transit time from the U.S. west to east coasts would be shortened from 150 days or more to about 2 weeks. Actual distance would be reduced by more than half with the building of the Panama Canal across the Isthmus of Panama some 80 years later. And costs, both human and monetary, would be cut dramatically. Because of early shipping problems, however, attention was soon focused on building a canal across the narrow neck of the Isthmus of Panama. In 1881, a French company began the first unsuccessful, effort to build a sealevel canal across the Isthmus. Some 21 years later-on June 28, 1902-Congress approved the Spooner Act, authorizing President Theodore Roosevelt to buy for $40 million the rights and property of that company, contingent on provision by Colombia of the necessary land to be controlled by the United States. The Hay-Herran Treaty, signed by the United States and Colombia January 22, 1903, would have provided these rights for 100 years. The U.S. Senate ratified the Treaty, but the Colombian Senate refused. On November 3, 1903, a revolt in Panama created the independent nation of Panama, and U.S. naval vessels prevented Colombian troops from landing to put down the revolt. The new nation was recognized by the United States on November 16. Then, on November 18, 1903, the Hay-Bunau-Varilla Treaty was signed by the United States and Panama's Provisional Government. It granted the United States the exclusive right in perpetuity to build and operate a canal across Panamanian territory and all the rights it would possess as if it were sovereign. The United States agreed to pay Panama $10 million outright and $250,000 annually beginning in 1913. This treaty has remained the basic authority for U.S. control of the Canal, although modifications were agreed to in 1936 and 1955. The Canal was opened August 15, 1914, after 10 years of construction at a cost of $387 million. It is 51 miles long, and the Canal Zone is 647 square miles, including tidal water. Under terms of the 1903 Hay-Bunau-Varilla Treaty, the Canal Zone is within the jurisdiction of the United States and is administered under U.S. law by a governor appointed by the President for a 4-year term. The governor serves as president of the Panama Canal Company, which is a corporate agency of the U.S. Government and operated under a Board of Directors appointed by the Secretary of the Army. The Canal Company is responsible for all operations involved in the movement of ships through the Canal. Following Panamanian riots in 1959 and 1964, new draft treaties were announced in 1967. These proved fruitless, and new treaty negotiations were begun in 1973, continuing until this year. Since 1964, four Admninstrations, representing both political parties, have pursued such negotiations. PANAMA CANAL TREATIES U.S. negotiations of new treaties have been based on the premise that the national interest lies in assuring that the Canal continues to be efficiently operated, secure, neutral, and open to all nations on a nondiscriminatory basis. The cooperation of Panama is fundamental to these goals. The new treaties, signed in Washington, September 7,1977, are contingent on ratification by the U.S. Senate and by national plebiscite in Panama. There are two treaties-one guarantees the permanent neutrality of the Canal, and a basic treaty governing the operation and defense of the Canal through December 31, 1999. Provided the treaties are ratified, the United States will have responsibility for Canal operations, including tolls, during the period of the basic treaty (until 2000). It will continue to have access to and the rights to use all land and water areas and facilities necessary for the operation and maintenance of the Canal during that period. Panama will receive an annual payment from toll revenues of 30 cents per Panama Canal ton transiting the Canal, this to be adjusted periodically for inflation. The United States also will pay Panama $10 million a year for operating expenses, plus $10 million more, if Canal revenues permit, compared with $2.6 million currently paid each year. In addition, the United States has pledged its best efforts to assist Panamanian development through loans and credits under existing U.S. authority. Private business and nonprofit activities in the present Canal Zone will be able to continue on the same terms applicable elsewhere in Panama. A joint authority will coordinate port and railroad activities. All U.S. civilians currently employed in the Canal Zone can continue in U.S. Government jobs until retirement. Other provisions generally assure the continuation of protections and benefits now available to these employees. The two countries commit themselves jointly to study the feasibility of a new sealevel canal and, if they agree that such is necessary, to negotiate mutually agreeable terms for its construction. In addition, the United States will have the right throughout the term of the basic treaty to add a third lane of locks to increase the capacity of the existing Canal. Other provisions of the treaties cover defense and national security considerations. The United States will have primary responsibility for the Canal's defense during the basic treaty's term, after which the U.S. military presence will end in the year 2000. Total U.S. military personnel in the Canal Zone is now 9,300. U.S. agriculture's interest in the treaties hinges on continuation of dependable trading lanes throughout the world-free of exorbitant new increases in transportation costs. Higher energy costs have not been avoidable, but farmers need to know that the commodities they produce will not stack up in port or on the way to sea-owing to a closing of a major transportation route or a prohibitive rise in shipping costs. It is important that the Panama Canal Treaties perpetuate these conditions. POSSIBLE EFFECTS OF INCREASED CANAL TOLL FEES AND RESTRICTED ACCESS TO THE PANAMA CANAL ON U.S. AGRICULTURAL TRADE (By Janice E. Baker) This report was prepared in response to a Congressional request for analysis of and comments on the general effect of increased Panama Canal tolls on U.S. farm trade, and for comments on the statistical tables appearing in "The Panama Canal and U.S. Farm Trade," Foreign Agriculture, October 17, 1977. IMPORTANCE OF THE PANAMA CANAL The Panama Canal has been a major transportation route for U.S. farm exports and imports for many years. In 1976, approximately 20 percent of all U.S. agricultural exports, or about 20 million tons of commodities, travelled through the Canal. This figure included 45 percent of U.S. grain sorghum exports, 26 percent of U.S. soybean exports, and 18 percent of U.S. corn exports. Imports of fruits and other tropical products pass through the Canal on route to U.S. markets. Domestic produce, such as processed fruits and vegetables, moving from the U.S. West Coast to eastern markets also use the Canal. The Canal is particularly important in U.S.-Asian trade. About 70 percent of U.S. farm products sent to Asian markets in 1976 travelled through the Canal. Corn, soybeans, wheat, and grain sorghum from the Midwest were shipped to Gulf ports and through the Canal to the Far East. Short staple cotton from Texas, Arkansas, and Louisiana followed the same route to Asian markets. Japan, the largest single market for U.S. farm commodities, receives much of its imports by way of the Canal. In 1976 Japan received 12 million tons of U.S. corn, soybeans, and grain sorghum through the Canal. Korea and Taiwan each received 1.5 million tons of U.S. farm goods by the Canal route. The second table in the Foreign Agriculture article, found on page 3, shows that the bulk of cargo moving through the Canal in 1975 was on route from the eastern United States to Asia. This shipping represented 39 percent of the total tonnage going through the Canal. The second most significant category in the table was shipping between Europe and the U.S. West Coast (7 percent of the total). Increases in Canal toll fees or loss of access to the Canal route could have had detrimental effects on shipping between those markets. CANAL TOLL INCREASE U.S. law requires that the Panama Canal Company be self-supporting through collection of Canal toll fees. The current toll is $1.29 per Panama Canal ton, a measure equal to a volume of 100 cubic feet. With or without ratification of the recently negotiated treaties, Canal toll rates are expected to rise in the near future, perhaps by as much as 30 percent. Using that figure, the new rate could be $1.68 per Panama Canal ton. Department of Agriculture officials have estimated that a 30 percent increase in the toll could add 5 percent to overall transportation costs for farm exports using the Canal. Although this increase could reduce the current price advantage of U.S. wheat over Canadian wheat, the U.S. soybeans over Brazilian soybeans, in Asian markets, the impact on the total volume of U.S. export sales should be minimal. The third table in the Foreign Agriculture article, found on page 4, shows the major agricultural commodities moving through the Canal in 1976. In the Atlantic/Pacific direction, the most important items in terms of tonnage were corn (42 percent of the total) and soybeans (23 percent). An increase in transportation costs for these commodities could make them somewhat less competitive with similar products from other nations. Because export sales of these products are major contributors to the positive side of the balance of trade, the United States has good reason to try to maintain the volume of feed-grain and soybean exports. The table indicates that in the Pacific/Atlantic direction the most significant commodities shipped in 1976 were canned and refrigerated foods (33 percent) and sugar (25 percent). An increase in transportation costs for these commodities could be reflected in retail costs for these products in grocery stores in the eastern United States. The fourth table in the Foreign Agriculture article, found on page 4, indicates quantities could be reflected in retail costs for these products, 1975-1979. For fiscal year 1978 the largest projected users are coarse grains and soybeans, followed by lumber, sugar, and wheat. Most of the projected traffic in coarse grains, soybeans, and wheat reflects exports from Atlantic and Gulf ports to Asian markets. Increases in transportation costs could reduce the comparative advantage of these U.S. commodities. RESTRICTED ACCESS TO THE CANAL U.S. officials and traders are more concerned over restricted access to the Canal than over a toll increase. Certainly the effect of restricted access to the shorter shipping route would be more harmful to farm trade than a higher charge for use of the Canal. The first table in the Foreign Agriculture article, found on page 2, indicates the comparative distances between selected ports by way of the Panama Canal and by way of Cape Horn at the southern tip of South America. The shipping distance between New Orleans and Yokohama, Japan, would increase by 7,456 nautical miles, an increase of 82 percent. Although the shipping time and cost might not increase by the same percentage, it is clear that the longer route would have an adverse effect on the price of U.S. products in Asian markets. Secretary Bergland has indicated that closure of the Canal could add 20 days to the delivery time for U.S. grains and soybeans in Asian markets, and the route around Cape Horn could double transportation costs. Australia and Canada would probably take Asian wheat markets away from the United States, and Brazil could undersell U.S. soybeans. In the Far East the United States currently has a price advantage over Brazil in soybeans, but the Cape Horn route would put the U.S. commodity at a price disadvantage. Restricted access to the Canal could also have an adverse impact in terms of domestic marketing. The shipping distance between San Francisco and New York, for example, would increase by 150 percent. The relative costs of ocean and overland transportation and the importance of time in transit would have to be considered by West Coast shippers supplying the eastern United States. Development of an overland transportation network to move grains and processed foods between East and West in the United States would require substantial financial investment. Railroad, truck, storage and handling facilities are currently insufficient to absorb the bulk of farm commodities that now travel by ship through the Canal. The CHAIRMAN. Our next witness is Mr. Herbert J. Hansell, Legal Adviser, U.S. Department of State. Mr. Hansell, if you would proceed. STATEMENT OF HERBERT J. HANSELL, LEGAL ADVISER, Mr. HANSELL. Good morning, Mr. Chairman. Mr. HANSELL. I am pleased to have this opportunity to appear before you this morning to discuss with you some constitutional questions that have been raised in connection with the ratification of the Panama Canal Treaty. The purpose of Panama Canal Treaty and the treaty concerning the permanent neutrality and operation of the Panama Canal is to establish a new treaty relationship with the Republic of Panama to govern U.S. operation and defense of the canal until the end of the century and to assure its neutrality and the peaceful transit by vessels of all nations in peace and in war for all time thereafter. Without going into all the details of the new relationship, I would like to summarize some aspects of the Panama Canal Treaty which have prompted the issues which I was asked to discuss with you at this hearing. The Panama Canal Treaty reserves to the United States the rights to manage, operate, and maintain the Panama Canal until December 31, 1999. Article XIII of the treaty transfers property to the Republic of Panama when it is no longer required for U.S. operation of the canal, and upon termination of the treaty. During the life of the treaty the Panama Canal Commission, an agency to be established pursuant to the treaty, is obliged to make certain payments to Panama as provided in paragraph 5 of article III and paragraph 4 of article XIII of the treaty. You have asked me to comment on questions that have been raised concerning the consistency of the treaty with provisions of the Con 29-613-78 stitution dealing with disposition of property belonging to the United States and with the appropriation of money from the Treasury. The first question is whether the Constitution requires legislation for the transfer of property belonging to the United States or whether the treaty power can be utilized for that purpose. The nub of the problem is the interrelation between the articles of the Constitution which govern the conclusion and effect of treaties and the article which grants the Congress power over the territory and property belonging to the United States. Article 2, section 2, clause 2 states that the President: *** shall have power, by and with the advice and consent of the Senate, to make treaties, provided two-thirds of the Senate concur. Article 6 of the Constitution provides that: *** all treaties made, or which shall be made under the authority of the United States, shall be the supreme law of the land. Aritcle 4, section 3, clause 2 reads: The Congress shall have power to dispose of and make all needful rules and regulations respecting the Territory or other property belonging to the United States; and nothing in this Constitution shall be so construed as to prejudice any claims of the United States, or of any particular State. Nothing in the language of these clauses limits the treaty power with respect to disposition of property of the United States or makes the legislative power the exclusive method to effect such disposition. The power to dispose of property belonging to the United States by self-executing treaty is independent of and concurrent with the legislative power under article 4. This position is supported by the debates in the Constitutional Convention, by opinions of the Supreme Court of the United States and by prior treaty practice. I propose to refer very briefly to each of those sources. 1. CONSTITUTIONAL CONVENTION DEBATES According to the records of the Constitutional Convention of 1787, the main debates on and the adoption of the provisions on the treaty making power took place shortly before the end of the convention and shortly after the provisions on the congressional powers over the disposition and regulation of territory and property had been finalized. The original draft had vested the treaty power in the Senate alone, but on the suggestion of Madison the power was vested in the President and the Senate. The draft which formed the basis for the final debates on September 7 and 8, 1787 read: The President by and with the advice and consent of the Senate, shall have power to make treaties * **but no treaty shall be made without consent of two-thirds of the members present. The discussion began with a motion to add the words "and House of Representatives" after the words "advice and consent of the Senate" in the first sentence. It was rejected by a vote of 10 to 1. Then Madison moved that for peace treaties only a simple majority should be required. This motion passed but subsequently fears were expressed that in treaties of peace important interests such as fisheries and territory would be at stake. Williamson and Spaight moved that no treaties of peace affecting territorial rights should be made without |