freedom from negligence in order to avoid liability. For non-locks cases, the Administration's bill would continue present law, which has been interpreted to require the claimant affirmatively to establish negligence on the part of agency employees before the claim may be paid.

In both locks and non-locks cases, the Commission could be sued on vessel accident claims in the Eastern District of Louisiana. That jurisdiction was selected because of its relative proximity to the Canal and, more importantly, because of the recognized expertise of its bench in handling admiralty cases.

Sections 271, 291 and 292 of H.R. 111, on the other hand, would change the liability situation back to the way it was between 1940 and 1951. That is, the Commission would not be amenable to suit for nonmaritime claims but would have the authority to pay up to $60,000 on such claims. With regard to ship accidents, the Commission would be suable only for casualties occurring in the locks and would remain a virtual insurer in those cases. In vessel accidents occurring outside the locks, the Commission, although not suable, would be authorized to pay up to $60,000. Claims in excess of that amount would have to be presented to the Congress for consideration.

We question whether the figure of $60,000 has any relevance to presentday repair costs. Based on the consumer price index, materials which cost $60,000 in 1940 now cost more than $315,000. According to the index of shipping costs in the United States, shipyard costs for labor and materials were 615.8% higher in August 1978 than they were in 1940.

Our claims experience in recent years seems to confirm these increases. During the period from FY 1974 to 1978, the Company paid more than $60,000 on each of 17 claims arising from vessel accidents occurring outside the locks. Thirteen of these payments were over $100,000, of which seven were over $200,000, two were over $300,000 and one amounted to almost $2 million. Even more striking are the non-locks claims which arose during that same period but which have not yet been settled. Forty-one such claims, totalling more than $15 million, remain to be disposed of. Twenty-eight of those claimants are seeking more many considerably more than $60,000. Finally, during FY 1977 and 1978, there were a total of 46 vessel accidents occurring outside the locks for which the Company has not yet been presented with claims. We have budgeted a total of $5,300,000 for these potential claims. The figure includes estimates of over $60,000 for 15 of these accidents.

In any event, it is important to realize that it is world shipping, and not the United States, which bears the cost of ship accidents occurring at the Canal, since reserves to cover vessel damage claims against the agency are included in the toll base. In view of that circumstance, and because the present system has worked satisfactorily over the last 27 years, a return to the pre-1951 scheme of liability would seem to be unwarranted.

MISCELLANEOUS PROVISIONS

Section 148 of H.R. 111 states that, for the purpose of determining benefits related to basic compensation, the basic compensation of each

employee who is a citizen of the United States shall include the rate of basic compensation established for his position plus the amount of any increase in basic compensation or allowance resulting from wage base changes, across-the-board increases, or recruitment and retention remuneration. The Administration's bill [Sec. 306 (b)] makes no distinction with respect to citizenship in this computation of basic compensation. It could be argued that the H.R. 111 provision on this point is in violation of the treaty with regard to wages and fringe benefits since it appears to discriminate on the basis of nationality.

Section 149 of H.R. 111 states that the Panama Canal Employment System shall provide for appropriate interchange between the Panama Canal Employment System and the competitive service. It makes no distinction as to citizenship. Section 307 of the Administration's bill limits the interchange to "citizens of the United States employed by the Government of the United States." The latter represents a continuation of the present system and is the preferred route to take.

Section 212 of the Administration's bill and section 240 (c) of H.R. 111 address interagency reimbursement from appropriations for health care. So far as these reimbursements are concerned the bills appear to be similar and adequate. The Administration's bill, however, goes further by authorizing the use of appropriations or funds to defray costs of health care services to elderly or disabled persons who were eligible to receive such services prior to the effective date. We believe this last provision is important to assure the continued health care of disability relief recipients, their widows, Civil Service Annuitants who retired prior to 1970, and these elderly patients remaining at the Canal Zone Mental Health Center pending transfer to facilities in the Republic of Panama.

For all the reasons stated above, the Canal Zone Government and the Panama Canal Company favor those provisions of H.R. 1716, over those contained in H.R. 111, dealing with the organization and oversight and financial framework to be established for the new Panama Canal Commission as well as those concerning the liability of that agency for the payment of claims. As noted earlier, we perceive no significant differences between the provisions of the two bills dealing with employee rights and benefits and, accordingly, would support either version.

In your letters requesting this report, you ask that we include estimates of the costs which would be incurred in carrying out the provisions of the two bills. Advance copies of these estimates were forwarded to your staff earlier this week, and are submitted herewith for the record.

The Office of Management and Budget has advised that it has no objection to the submission of this report.

Sincerely yours,

H. R. PARFITT, Governor of the Canal Zone, President, Panama Canal Company.

PANAMA CANAL COMMISSION

ESTIMATED APPROPRIATION REQUIREMENTS AND ESTIMATED PAYMENTS TO TREASURY UNDER H.R. 111

Total payments to Treasury.

474, 966

408, 057

Note 1: Assumes all unexpended but obligated cash balances will be returned to U.S. Treasury, necessitating an immediate appropriation to fund those outstanding obligations.

Note 2:

Note 3: Operating expense estimate in 1982 includes $2,500,000 for repatriation and commuted leave of police and judicial employees terminated at end of transition period. This was an accrued cost of prior period and is not included in base for revenues for that year. Operating expense estimates for 1983 and 1984 were escalated at 6 percent per year over 1982 base, as adjusted for discontinuance of courts and law enforcement activities.

Note 4: In addition to the amounts shown for appropriation in 1980, there is also a requirement created by sec. 241 of H.R. 111 to appropriate moneys to liquidate outstanding postal money orders.

Note 5: Our reading of H.R. 111 indicates that there is to be included in the tolls base depreciation on existing plant assets, the full amount of the appropriation received to cover new plant acquisitions, and amortization of the investment. This treatment is not reflected in the above estimates since it would result in shipping being required to pay more than twice the amount of the investment of the United States. We have included in the toll base depreciation plus an increment, the sum of which would produce an amount equivalent to the total capital requirement.

Note 1: Operating expense estimates for 1983 and 1984 were escalated at 6 percent per year over 1932 base, as ajdusted for discontinuance of courts and law enforcement activities.

Office of Financial Vice President, Panama Canal Company, March 1979.

EXECUTIVE COMMUNICATION

H.R. 1716, including provisions referred solely or concurrently to the Committee on Merchant Marine and Fisheries, was the subject of Executive Communication No. 464, which was referred to the Committees on Merchant Marine and Fisheries, International Relations, the Judiciary, and Post Office and Civil Service. The Executive Communication follows herewith:

COMMUNICATION FROM THE PRESIDENT OF THE UNITED STATES, TRANSMITTING Α DRAFT OF PROPOSED LEGISLATION TO IMPLEMENT THE PANAMA CANAL TREATY OF 1977 AND RELATED AGREEMENTS, AND FOR OTHER PURPOSES

THE WHITE HOUSE, Washington, January 23, 1979.

Hon. THOMAS P. O'NEILL, Jr.,
Speaker of the House of Representatives,
Washington, D.C.

DEAR MR. SPEAKER: I am pleased to forward herewith the text of proposed legislation to implement the Panama Canal Treaty of 1977 and its Related Agreements. I would appreciate its urgent consideration and timely passage by the Congress.

Senate approval of the Canal Treaties last April, and the delivery of instruments of ratification in June, marked the beginning of a new and important phase in our relations with the Republic of Panama and other nations of the Hemisphere. Under the Treaties, the United States will retain operational control of the Canal and primary responsibility for its defense until the end of this century. Panama will

participate in the operation and defense of the Canal and will assume full responsibility for its operation when the Canal Treaty expires.' Under a second treaty approved by the Senate the United States retains, permanently, the right to defend the Canal against any threat to its neutrality.

The constitutional processes of both countries have now been completed, and the treaties will enter into effect on October 1, 1979. Under their terms, on that date the Canal Zone will cease to exist, the United States Government agencies known as the Panama Canal Company and the Canal Zone Government will cease to operate within Panama, and general jurisdiction over the area as well as the performance of a number of important support functions will pass to Panama. Property transfers will become effective in accordance with Treaty provisions.

Under the Treaty, we will acquire extensive obligations and rights with respect to the Canal on October 1. We will not, however, be in a position to exercise these rights in a manner which will fully protect our interests in the Canal unless legislative action is taken promptly. To assure a smooth transition and continued efficient Canal operation once the new Treaties come into force, the legislative frameworkin which the agencies responsible for operating and defending the Canal will be operating-must be established well in advance so that they may make the necessary plans and preparations.

Delay in adopting the legislation bevond May 31, 1979, could thus make conversion to the new system of Canal operation and defense less efficient and more costly. Moreover, uncertainty concerning the proposed legislative protection and benefits for Canal employees will increasingly affect employee morale and complicate the process of making necessary personnel adjustments. The consequent disruptive impact on the work force could reduce the efficiency of Canal operations and adversely affect the interests of U.S. shippers and consumers. Our stewardship of the Panama Canal has been one of the outstandingly successful undertakings of American history. I urge the Congress to consider this legislation as a step toward the completion of another chapter in that history-one in which we will join with Panama to keep the Canal open, efficient and secure. In doing so, I am confident that this Government will maintain a system of management and a standard of performance of which all Americans can continue to be proud.

Enclosure.

JIMMY CARTER.

[Committee note.-The draft bill is H.R. 1716 as introduced.]

SECTION-BY-SECTION ANALYSIS

A BILL To Implement the Panama Canal Treaty of 1977 and Related Agreements, and for other Purposes

INTRODUCTION

This draft legislation would implement several aspects of the responsibilities and role of the United States under the Panama Canal Treaty of 1977 and related agreements. It includes the establishment