toll payments by foreigners would have a positive effect on the GNP and such payments can be added to the GNP.15 "Additional toll payments by U.S. nationals would have no effect on the total GNP since they can be regarded as payments in lieu of other taxes. Any additional costs borne by U.S. nationals as a result of the toll increase, such as the added cost to the United States of using various alternatives to shipment through the Canal would have a negative effect on the GNP and must be subtracted from the total. It was found that the assumed increases in tolls of 15%, 25%, and 50% would cause increases in the real GNP of the United States ranging from about $12 million in 1975, assuming a 15% increase, to a maximum of about $42 million for 1985, assuming a 50% increase. It was found that the increases in GNP were almost the equivalent of the net increase in toll collections from foreign sources. The deductions that had to be made for added costs to U.S. nationals from the use of alternatives to the Panama Canal were relatively small, amounting to no more than about $1,000,000 for any one year." 16 Table 24 provides a summary of the ways that higher tolls could affect U.S. Real Gross National Product. Table 25 shows the estimated effects of toll rate increases on U.S. Real Gross National Products. In a more recent study, Howell and Solomon, using a different methodology arrived at the same basic conclusions as reached in the IRA report.17 The Howell and Solomon analysis pointed out that "increased toll payments would represent an addition to the U.S. Gross National Product since they are an increase in the value of a service (transiting the Canal) being sold. However, the increased value is in price, not volume. That is, the increase is in nominal rather than real product. Thus, to put empirical content in the elementary statement, raising toll revenues by the maximum possible amount, some $93 million (under the conditions described in the analysis), would increase the U.S. trillion dollar GNP only trivially. It is manifest that PCC revenues policies cannot be an instrument of general economic policy for the United States as far as domestic economic objectives are concerned simply because the magnitudes are too small." 18 TABLE 24.-SUMMARY OF WAYS THAT HIGHER TOLLS COULD AFFECT UNITED STATES REAL GNP Traffic categories Traffic between foreign countries Shifting to alternative routes.... Shifting to alternative foreign Shifting to alternative developments. Ceasing to move in trade....... Tolls independent of annuity to Panama Tolls related to annuity to Panama +By net increase in toll collections (all +By any net increase in toll collections from foreigners). Net change in toll collections from -By all additional costs for real re sources paid for by U.S. nationals. sources. -Reduction in amount received by -All additional costs to U.S. nationals.. -Loss of real value involved in shifting from foreigners remaining after allocation for annuity payment to Panama. -By any net increase in toll collections from U.S. nationals allocated for annuity payment to Panama. Same as when tolls are independent of the annuity to Panama. Source: International Research Associates. "Panama Canal Toll Rate Increases: Effects on the U.S. Economy." (Palo Alto, Calif.: International Research Associates, undated) pp. 4-9. 15 International Research Associates. Panama Canal Toll Rate Increases: Effect on the U.S. Economy. (Palo Alto, California: International Research Associates, undated). 16 IBID. p. 2-4. 17 Howell, James E. and Exra Solomon. The Economic Value of the Panama Canal. (Palo Alto, California: International Research Associates, 1973). 18 IBID. p. 35. TABLE 25.-ESTIMATED EFFECTS OF TOLL RATE INCREASES ON UNITED STATES REAL GROSS NATIONAL 41, 721 Net change in real GNP (plus).. 11, 979 19, 437 34, 907 13, 150 20,065 37,967 14,633 21,831 1 International Research Associates: "Panama Canal Toll Rate Increases: Effects on the U.S. Economy." (Palo Alto Calif.: International Research Associates, undated) pp. 2-5. H. BALANCE OF PAYMENTS Calculate the particular and general effect of the proposed measurement rules on the U.S. balance-of-payment due to: (1) Increase or decrease of Canal transits. (2) Costs or benefits accruing to the U.S. from use of alternative routing if goods are sensitive to measurement rules change. (3) Changes in exports and imports of the United States. (4) Positive or negative changes in shipping charges due to the use of bottoms of another country in lieu of those presently used. "The sale of PCC services, including transit services, to non-U.S. Canal users appears in the U.S. balance of payments as a demand for dollars, i.e., as an export-type item. To the extent these costs to non-U.S. Canal users are shifted forward to U.S. customers or backward to U.S. producers, the benefit to the U.S. balance of payments is reduced. Note the asymmetry here, because tolls paid directly by U.S. Canal users do not appear at all in the U.S. balance of payments unless. they are shifted forward or backwards to non-U.S. entities. In the absence of contrary evidence, standard national income accounting procedures require that shipping costs be imputed to the importing country regardless of the appearance of who signs the check, the country of origin, or the nature of the commodity. "Following this convention, PCC transit charges on U.S. outbound and on foreign-to-foreign shipments would be imputed in balance of payments accounting to non-U.S. countries, and thus the dollar amounts would appear in the U.S. balance of payment as an export item, i.e., as a demand for dollars. The other two categories of traffic, U.S. intercoastal and U.S. inbound, by this procedure have no impact on the U.S. balance of payments. "Tonnage data, already presented in this section, can be used to provide estimates of the actual balance of payments impact for 1972. Thus, about 72 percent or $71 million, of the 1972 transit income of $98.8 million, can be imputed to non-U.S. entities, and thus represents a contribution to net U.S. exports. For 1975, the two toll estimates presented earlier, $120 million (at present toll rates) and $185 million (at maximum toll rates) would imply net U.S. exports of $86 and $133 million, respectively, using the 72 percent rule. But since the higher toll rates would have an asymmetrical impact on traffic adjustments, the best guess is that the latter number would be somewhat smaller, so the net differential, balance of payments effect from higher tolls would be not $47 million but perhaps $25-$35 million. An improvement of that magnitude in U.S. export figures, and thus in the U.S. Balance of payments, is too small to be significant in light of the fact that U.S. exports of goods and services in 1973 were over $100 billion. As a practical matter, one must conclude that Panama Canal tolls, while contributing positively to the demand for dollars, do not do so to a significant extent, not even when the larger, hypothetical maximum toll levels are considered. "Using a different method of analysis, one based on a commodity-bycommodity scrutiny of market conditions, International Research Associates in its Panama Canal Toll Rates Increases: Effects on the U.S. Economy (Palo Alto, 1972), deduced essentially the same results for the balance of payment impact." ." 19 The following excerpt summarizes the conclusions reached in the IRA study: "With respect to the impact on the U.S. balance of payments, additional toll payments by foreigners would, of course, have a positive impact on the balance of payments. Similar payments by U.S. nationals would have no balance of payments effect. The balance of payments could also be affected by the use of alternatives to the Canal in lieu payment of higher tolls. For instance, if U.S. payments for foreign shipping services increased as a result of alternative routes, such payments would have a negative effect on the balance of payments. A similar negative effect would result if U.S. net receipts from exports were reduced due to foreigners seeking alternative sources for their imports. On the other hand, increased U.S. receipts from foreign sources for shipping services, etc., as a result of using alternatives would have a positive effect on the balance of payments. The total estimated effects of toll rate increases on the balance of payments are presented in Table 26. As can be seen, the net effect of the balance of payments would be positive, improving the annual balance in amounts ranging from $11,889,000 to $41,689,000, depending upon year and size of increase. As in the case of the effect on the GNP, it was found that most of the impact was accounted for by increased toll collections from foreign sources. Additional U.S. payments for foreign shipping services and reduction in U.S. net receipts from exports accounted for minor reductions, amounting to no more than about $1,000,000 per year." 20 TABLE 26.-ESTIMATED IMPACT OF TOLL RATE INCREASES ON U.S. BALANCE OF PAYMENTS Net increase in toll collections from 11, 991 19, 481 35, 664 13, 172 20, 254 38, 834 14, 659 22, 112 42,819 Reduction in U.S. net receipts from abroad owing to use of alternative sources and markets (minus)_____ Total impact on U.S. balance of payments (plus).......... Source: International Research Associates. "Panama Canal Toll Rate Increases: Effect on the U.S. Economy." (Palo Alto, Calif.: International Research Associates, undated) pp. 2-5. 19 Howell, James E. and Ezra Solomon. The Economic Value of the Panama Canal. (Palo Alto, California: International Research Associates, 1973) p. 33-34. 20 International Research Associates. Panama Canal Toll Rate Increases: Effects on the U.S. Economy. (Palo Alto, California: International Research Associates, undated) p. 2-4. Although there is evidence that a toll increase at the Panama Canal would result in a positive contribution to the demand for dollars, it is a positive balance of payments "that is not large enough in absolute terms, now or in the forseeable future, to be significant within the large context within which balance of payments phenomena must be judged." 21 I. RELATIONSHIP OF REOPENING OF SUEZ CANAL TO MEASUREMENT RULES CHANGES (1) Compare the present competitive position of the Panama Canal with that of the Suez Canal in attempting to attract the transit of vessels, especially containerships, which could use either waterway for transport of cargo. Assess the impact of the measurement rules change, especially the deck cargo provision, on that position. Traffic which accrued to the Panama Canal after the closure of the Suez Canal in 1967, was over two routes Europe-Asia and Europe-Oceania with the former a basic Suez route and the latter only marginally so. All other things being equal, vessels on the Europe-Asia route and having no intermediate stops in the North Central, or South American range would proceed via Suez. Excessive toll rates at Suez could encourage use of the Panama Canal or of the Cape of Good Hope route for Europe-Asia traffic. Excessive tolls at Panama would simply ensure that ships which would normally use Suez would indeed do so. Current Panama Canal tolls are approximately half of Suez toll rates, thus the tolls revenue associated with the measurement rule changes would have no effect on vessel transits which would normally be Suez routed because of the distances involved. I. (2) Is it the Canal organization's position that there ought to be competition for the vessels cited above? At current Suez and Panama toll rates there is no competition between the two Canals for what is essentially each Canal's business domain. Perhaps if Panama Canal tolls were reduced substantially, certain traffic which has not yet returned to Suez would not do so but this can only be conjecture. J. SUMMARY OF IMPACT Give a summary of the aggregate impact of the proposed measurement rules on: (1) trade routes critical to the Canal, including U.S. intercoastal traffic; (2) types of vessels which transit the Canal; (3) flags of various registry which transit the Canal; (4) commodities which transit the Canal; (5) employment of U.S. and non-U.S. citizens; (6) Canal traffic and transits; (7) economic welfare in the U.S. and its various regions; (8) international trade; (9) world economy. The aggregate impact of the proposed measurement rule changes on the major elements of Canal traffic (trade routes, vessel types, nationality, and commodities) is estimated to be minimal in that aggregate increase in measurement tons caused by the rules changes leads to an increase of only 9 percent or $12.4 million in tolls revenue, an amount well within the bounds of acceptability as defined by the analyses of sensitivity. This is not to argue that there will not be selectively greater impacts on particular routes on carriers, etc. It does argue, however, that the impact of selective differences and possible dislocations which might occur from those differences are not sufficient to affect the major elements of Canal traffic as a whole. It is also believed (and supported by analysis) that the impact on employment, economic welfare, international trade, and the world economy is rendered unimportant by the very size of those aggregates in relation to the portion of Canal traffic potentially affected by the increases anticipated as a result of the measurement rule changes. 21 op cit. p. 35. K. EQUITY OF PROPOSED RULES K. (1) In hearings before the Panama Cana Company's Measurement Rules Panel, containership and other vessel operators contended that the present and proposed measurement rules of the Canal discriminated against containerships and general cargo vessels because those types of vessels must carry less cargo per Panama Canal ton than other vessels due to their configuration. The Measurement Rules Panel, in responding to this assertion, concluded that differences in tolls arose from the way in which ships are loaded, "a matter entirely within the control of the vessel". Since the preliminary traffic statistics of the Panama Canal for fiscal year 1975 indicate that the ratio of long tons of cargo to Panama Canal net tonnage is only .508 for containerships and .896 for general cargo ships while the ratio for bulk carriers is 1.384 and for all cargo and cargo/passenger ships is 1.041, does this indicate to the Canal organization that containerships and general cargo ships are presently paying their fair share of earning capacity? What will be the projected changes in ratios as cited above if the proposed measurement rules are approved? The question whether "containerships and general cargo ships are presently paying their fair share of earning capacity" implies that the measurement rules are based on the aggregate earning capacity of all ships using the canal and that the rules are to be so designed that individual vessels will pay their fair share of aggregate earning capacity. This might be a possible way of structuring the standard for the measurement rules but it is not the standard prescribed by Congress in the original Panama Canal Act now incorporated in 2 CZ Code 412 (a). Instead that section provides for the payment of tolls by the prescribed types of ships on the basis of actual earning capacity of each ship determined in accordance with the measurement rules. The measurement system originally authorized by the Congress clearly contemplated measurement of each vessel using the canal to determine the earning capacity, not the degree of utilization of that capacity. Under this system, utilization of the ship fully laden for carrying the same type of cargo as other ships, fully laden, would result in payment of generally comparable tolls per ton of cargo. However, use of ships for carrying different types of cargo and with less than full loads produces markedly different constructed tolls per ton of cargo. It is the view of the PCC that the measurement system prescribed by section 412 is fair and equitable and that under the system a ship that pays tolls on less than its earning capacity is not paying its fair share of the total tolls charges. K. (2) Under the proposed measurement rules, how would the Company propose to measure Panama Canal net tonnage for deck cargo when there is space between that cargo on deck? Does the intended rule on this matter conform to past practice of Panama Canal admeasurement? If there are well defined areas between different or varied types of deck cargo of the same relative height so as to allow clear access by the crew to chocks and bitts and/or passages fore and aft, those areas will be excluded from the rectangular measurement of the area being measured. From the time the Canal was opened until 1937, the Panama Canal Company measured on deck cargo in addition to under deck space to determine Panama Canal net tons. Tolls so determined were measured against tolls computed on U.S. registered tonnage rules and the lower amount actually was charged. The computation based on the U.S. registered tonnage rules usually resulted in the lower toll even with the inclusion of deck cargo in the determination of Panama Canal net tons. K. (3) According to the latest computations of the Canal organization, what proportion of the increased revenues which would result from the implementation of the proposed rules will be derived from containership transits? What proportion will be derived from transits of other types of ships? *41.1% containerships. *Based on 1975 traffic. |