payment of tolls on vessels passing through the Panama Canal, that Government has studied carefully those proposals and the arguments in support of them, with a view to the bearing thereon of the provisions of the treaty between the United States and Great Britain of November 18, 1901. The communication sums up the proposals mentioned as (1) one to exempt all American shipping from tolls, (2) one to refund to all American ships tolls which they might pay, (3) one to exempt from the payment of tolls American ships engaged in the coastwise trade, and (4) one to repay to the last-named class of American ships tolls which they might pay.

The communication indicates it to be the opinion of His Britannic Majesty's Government that to exempt all American shipping from the payment of tolls would involve an infraction of the treaty, and indicates further the opinion that there would be no difference in principle between charging tolls only thereafter to refund them and remitting such tolls altogether. The opinion is expressed that the method of charging but refunding tolls, while perhaps complying with the letter of the treaty, would still contravene its spirit. The communication admits that there is nothing in the Hay-Pauncefote treaty to prevent the United States from subsidizing its shipping, but claims that there is a great distinction between a general subsidy either to shipping at large or to shipping engaged in any given trade and a subsidy calculated particularly with reference to the amount of use of the canal by the subsidized lines or vessels. Such a subsidy, if granted, would not, in the opinion of His Britannic Majesty's Government, be in accordance with the obligations of the treaty.

With respect to the proposal that exemption shall be given to vessels engaged in the coastwise trade, the communication states that it may be that no objection could be taken if the trade should be so regulated as to make it certain that only bona fide coastwise traffic, which is reserved for American vessels, would be benefited by this exemption; but that it appears to His Britannic Majesty's Government that it would be impossible to frame regulations which would prevent the exemption from resulting in a preference to American shipping and consequently in an infraction of the treaty.

President Taft signed the bill over the British protest, giving his reasons therefor in a "Memorandum to accompany the Panama Canal Act," dated the White House, August 24, 1912. So much of the memorandum as relates to the toll question is quoted below.

MEMORANDUM TO ACCOMPANY THE PANAMA CANAL ACT

In signing the Panama Canal bill, I wish to leave this memorandum. The bill is admirably drawn for the purpose of securing the proper maintenance, operation, and control of the canal, and the government of the Canal Zone, and for the furnishing to all the patrons of the canal, through the Government, of the requisite docking facilities and the supply of coal and other shipping necessities. It is absolutely necessary to have the bill passed at this session in order that the capital of the world engaged in the preparation of ships to use the canal may know in advance the conditions under which the traffic is to be carried on through this waterway.

I wish to consider the objections to the bill in the order of their importance.

First. The bill is objected to because it is said to violate the Hay-Pauncefote Treaty in discriminating in favor of the coastwise trade of the United States by providing that no tolls shall be charged to vessels engaged in that trade passing through the canal. This is the subject of a protest by the British Government.

The British protest involves the right of the Congress of the United States to regulate its domestic and foreign commerce in such manner as to the Congress may seem wise, and specifically the protest challenges the right of the Congress to exempt American shipping from the payment of tolls for the use of the Panama Canal or to refund to such American ships the tolls which they may have paid, and this without regard to the trade in which such ships are employed, whether coastwise or foreign. The protest states "the proposal to exempt all American shipping from the payment of the tolls would, in the opinion of His Majesty's Government, involve an infraction of the treaty (Hay-Pauncefote), nor is there, in their opinion, any difference in principle between charging tolls only to refund them and remitting tolls altogether. The result is the same in either case and the adoption of the alternative method of refunding tolls in preference of remitting them, while perhaps complying with the letter of the treaty, would still controvert its spirit." The provision of the Hay-Pauncefote Treaty involved is contained in article 3, which provides:

The United States adopts, as the basis of the neutralization of such ship canal, the following rules, substantially as embodied in the convention of Constantinople, signed the 28th October, 1888, for the free navigation of the Suez Canal that is to

say:

1. 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, so 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.

Then follow five other rules to be observed by other nations to make neutralization effective, the observance of which is the condition for the privilege of using the canal.

In view of the fact that the Panama Canal is being constructed by the United States wholly at its own cost, upon territory ceded to it by the Republic of Panama for that purpose, and that, unless it has restricted itself, the United States enjoys absolute rights of ownership and control, including the right to allow its own commerce the use of the canal upon such terms as it sees fit, the sole question is, Has the United States, in the language above quoted from the Hay-Pauncefote Treaty, deprived itself of the exercise of the right to pass its own commerce free or to remit tolls collected for the use of the Canal?

It will be observed that the rules specified in article 3 of the treaty were adopted by the United States for a specific purpose, namely, as the basis of the neutralization of the canal, and for no other purpose. The article is a declaration of policy by the United States that the canal shall be neutral; that the attitude of this Government toward the commerce of the world is that all nations will be treated alike and no discrimination made by the United States against any one of them observing the rules adopted by the United States. The right to the use of the canal and to equality of treatment in the use depends upon the observance of the conditions of the use by the nations to whom we extended that privilege. The privileges of all nations to

whom we extended the use upon the observance of these conditions were to be equal to that extended to any one of them which observed the conditions. In other words, it was a conditional favored-nation treatment, the measure of which, in the absence of express stipulation to that effect, is not what the country gives to its own nationals, but the treatment it extends to other nations.

Thus it is seen that the rules are but a basis of neutralization, intended to effect the neutrality which the United States was willing should be the character of the canal and not intended to limit or hamper the United States in the exercise of its sovereign power to deal with its own commerce, using its own canal in whatsoever manner it saw fit.

If there is no "difference in principle between the United States charging tolls to its own shipping only to refund them and remitting tolls altogether," as the British protest declares, then the irresistible conclusion is that the United States, although it owns, controls, and has paid for the canal, is restricted by treaty from aiding its own commerce in the way that all the other nations of the world may freely do. It would scarcely be claimed that the setting out in a treaty between the United States and Great Britain of certain rules adopted by the United States as the basis of the neutralization of the canal would bind any Government to do or refrain from doing anything other than the things required by the rules to insure the privilege of use and freedom from discrimination. Since the rules do not provide as a condition for the privilege of use upon equal terms with other nations that other nations desiring to build up a particular trade involving the use of the canal shall not either directly agree to pay the tolls or to refund to its ships the tolls collected for the use of the canal, it is evident that the treaty does not affect that inherent, sovereign right, unless, which is not likely, it be claimed that the promulgation by the United States of these rules insuring all nations against its discrimination, would authorize the United States to pass upon the action of other nations and require that no one of them should grant to its shipping larger subsidies or more liberal inducement for the use of the canal than were granted by others; in other words, that the United States has the power to equalize the practice of other nations in this regard.

If it is correct, then, to assume that there is nothing in the Hay-Pauncefote Treaty preventing Great Britain and the other nations from extending such favors as they may see fit to their shipping using the canal, and doing it in the way they see fit, and if it is also right to assume that there is nothing in the treaty that gives the United States any supervision over, or right to complain of, such action, then the British protest leads to the absurd conclusion that this Government in constructing the canal, maintaining the canal, and defending the canal, finds itself shorn of its right to deal with its own commerce in its own way, while all other nations using the canal in competition with American commerce enjoy that right and power unimpaired.

The British protest, therefore, is a proposal to read into the treaty a surrender by the United States of its right to regulate its own commerce in its own way and by its own methods a right which neither Great Britain herself, nor any other nation that may use the canal, has surrendered or proposes to surrender. The surrender of this right is not claimed to be in terms. It is only to be inferred from the fact that the United States has conditionally granted to all the nations the use of the canal without discrimination by the United States between the grantees; but as the treaty leaves all nations desiring to use the canal with full right to deal with their own

vessels as they see fit, the United States would only be discriminating against itself if it were to recognize the soundness of the British contention.

The bill here in question does not positively do more than to discriminate in favor of the coastwise trade, and the British protest seems to recognize a distinction between such exemption and the exemption of American vessels engaged in foreign trade. In effect, of course, there is a substantial and practical difference. The American vessels in foreign trade come into competition with vessels of other nations in that same trade, while foreign vessels are forbidden to engage in the American coastwise trade. While the bill here in question seems to vest the President with discretion to discriminate in fixing tolls in favor of American ships and against foreign ships engaged in foreign trade, within the limitation of the range from 50 cents a ton to $1.25 a net ton, there is nothing in the act to compel the President to make such a discrimination. It is not, therefore, necessary to discuss the policy of such discrimination until the question may arise in the exercise of the President's discretion.

The policy of exempting the coastwise trade from all tolls really involves the question of granting a Government subsidy for the purpose of encouraging that trade in competition with the trade of the transcontinental railroads. I approve this policy. It is in accord with the historical course of the Government in giving Government aid to the construction of the transcontinental roads. It is now merely giving Government aid to a means of transportation that competes with those transcontinental roads.

*

In a message sent to Congress after this bill had passed both Houses I ventured to suggest a possible amendment by which all persons, and especially all British subjects who felt aggrieved by the provisions of the bill on the ground that they are in violation of the Hay-Pauncefote Treaty, might try that question out in the Supreme Court of the United States. I think this would have satisfied those who oppose the view which Congress evidently entertains of the treaty and might avoid the necessity for either diplomatic negotiation or further decision by an arbitral tribunal. Congress, however, has not thought it wise to accept the suggestion, and therefore I must proceed in the view which I have expressed, and am convinced is the correct one, as to the proper construction of the treaty and the limitations which it imposes upon the United States. I do not find that the bill here in question violates those limitations.

On the whole, I believe the bill to be one of the most beneficial that has passed this or any other Congress, and I find no reason in the objections made to the bill which should lead me to delay, until another session of Congress, provisions that are imperatively needed now in order that due preparation by the world may be made for the opening of the canal.

THE WHITE HOUSE, August 24, 1912.

WM. H. TAFT.

CHRONICLE OF INTERNATIONAL EVENTS

WITH REFERENCES

Abbreviations: Ann. sc. pol., Annales des sciences politiques, Paris; Ann. Vie Int., Annuaire de la Vie Internationale, Brussels; Arch. dipl., Archives diplomatiques, Paris; B., boletin, bulletin, bolletino; B. P. U., bulletin of the Pan-American Union, Washington; Clunet, J. de Dr. Int. Privé, Paris; Doc. dipl., France: Documents diplomatiques; Dr., droit, diritto, derecho; For. rel., Foreign Relations of the United States; Ga., gazette, gaceta, gazzetta; Cd., Great Britain; Parliamentary Papers, Int., international, internacional, internazionale; J., journal; J. O., Journal Officiel, Paris; L'Int. Sc., L'Internationalism Scientifique, The Hague; Mém. dipl., Memorial diplomatique, Paris; Monit., Moniteur belge, Brussels; N. R. G., Nouveau recueil générale de traités, Leipzig; Q. dipl., Questions diplomatiques et coloniales; R., review, revista, revue, rivista; Reichs G., Reichs-Gesetzblatt, Berlin; Staats., Staatsblad, Groningen; State Papers, British and Foreign State Papers, London; Stat. at L., United States Statutes at Large; Times, the Times (London); Treaty ser., Great Britain: Treaty series.

January, 1912.

18

BELGIUM

PORTUGAL. Convention signed at Lisbon, regarding the establishment of telegraphic relations between Belgian Congo and Portuguese Angola. Monit. B., July 19.

February, 1912.

12 BOLIVIA GREAT BRITAIN. Agreement signed at La Paz for the exchange of postal money orders. Treaty ser., No. 15, 1912.

March, 1912.

4

AUSTRIA HUNGARY-MONTENEGRO. Exchange of ratifications of treaty of commerce and navigation signed January 24, 1911. 30 FRANCE MOROCCO. Treaty signed at Fez organizing French protectorate over the Moroccan Empire. J. O., July 18. Text in R. Politique et Parliamentaire, 72:420.

April, 1912.

1

AUSTRIA SPAIN. Royal decree establishing reciprocity in matters of intellectual property. Ga. de Madrid, April 3.