Senator SCOTT. Thank you, Mr. Chairman.

Let me first welcome the Governor to our committee. Certainly you extended every courtesy to me and to those with me on our visit to the Canal Zone. We are grateful to you for this. We appreciated the candor that you and your associates showed in sharing your views in an informal manner regarding the matters relating to the canal and to its future.

You know, as our Chairman has indicated, that the Judiciary Committee as well as the Armed Services Committee has an interest in this matter. In fact, I believe that all of the Members of the Senate and perhaps the American people have an interest in the future of the canal.

I would ask you, if you will, in responding to these questions to give your personal opinion on the matters that I am going to present to you. I know that you are the executive head of the entire Canal Zone and Governor of the Canal Zone and that you are in overall charge of the operation of the canal. You also are President of the Panama Railroad, but you are a Major General in the U.S. Army. I would think that that would play a part in the views that you would express to this committee.

I just hope that you will share your personal thoughts as candidly as you did in an informal way a few weeks ago.

I understand from a conversation during our recent visit that the United States not only acquired rights in the canal by virtue of the 1903 Treaty with Panama, but our Government also purchased title to the property that was held in private ownership and paid the private citizens the market value for this property. Is this your understanding?

Governor PARFITT. That is correct, sir. Approximately $4 million was spent in that fashion.

Senator SCOTT. Four million dollars to private owners?
Governor PARFITT. Yes, sir.

Senator SCOTT. In 1903.

Has the State Department, Governor, solicited your views on the question of whether or not we should transfer title or control of the canal to Panama? I heard your previous remarks, but on the basic question as to whether we should transfer title or control of the canal to Panama, have your views been solicited?

Governor PARFITT. I have to qualify my answer to that question, sir. My responses to inquiries and questions concerning the treaty stem from the starting point of the Principles of Agreement, the socalled "Tack-Kissinger" agreement. Since that was consummated and agreed upon before my assignment as Governor, and since that is an executive agreement, that is a premise upon which I submit my advice concerning the treaty negotiations.

Within that framework I have responded, from the point of view of the operator, to the negotiator, as to what I deem to be the essential needs in terms of control to insure continued effective operation of the Panama Canal.

Senator SCOTT. Let me go back to the basic question, General. Has the State Department asked you whether or not in your judgment we should transfer title or control of the Panama Canal to the country of Panama?

Governor PARFITT. They have asked me in general terms about my view of the impact on the operation of some of the initiatives that they are proposing, which involve transfer of title and in some cases ownership and control.

I have responded, in a classified mode, with my point of view on this issue. It varies with different facilities and different parcels of land and so forth.

Senator SCOTT. On the wisdom-the judgment factor of whether or not we should transfer the title or control of the Canal to the country of Panama, have your views been solicited on that general question? Governor PARFITT. That is correct, sir.

Senator SCOTT. They have been solicited on whether or not we should transfer title to the Canal Zone to the country of Panama?

Governor PARFITT. I really have a hangup on the word "title," sir. They have queried me on the degree of control that is essential for the operator in operating the Panama Canal.

Senator Scorr. General, what I am trying to get at is the overall treaty. As I understand what you are saying to us, on various portions and various matters and I do not know what the questions have been, maybe personnel matters or something like this on the basic matter that I believe we are concerned with, which is whether or not this should be done the overall transfer of the Canal from the United States Government to the Government of Panama-have they solicited your opinion on this overall? Have they said, "Should we do this or not do it?" I am talking about the overall question.

Governor PARFITT. I must go back again, sir, to the fact that the Principles of Agreement, which were signed in 1974, established the concept that the Executive would undertake to consummate an agreement with Panama which canceled the 1903 Treaty, which transferred sovereignty to Panama, which ended perpetuity, and which transferred jurisdiction promptly to Panama. All of these things were matters consummated before my entry on the scene. Therefore, no questions have been asked me in this regard.

The questions posed to me have been, using as a premise the TackKissinger Agreement, how should we consummate and flesh out a treaty and what would the impact be on the operator or on the operational capability?

Senator Scorr. If I interpret your answer correctly, on the overall question as to whether or not this would be a wise thing to do, you are saying no, it is not.

Governor PARFITT. That is correct.

Senator SCOTT. Thank you.

We would like to have your personal opinion, your opinion as an individual, as someone who is familiar with Panama and the surrounding areas, as someone who has worked there, and as someone who has been a military officer for a number of years on a number of questions. In your opinion, General, would the Panamanians maintain the canal at the level that it has been maintained by the United States? Would their standards be as high in the maintenance of the canal as the United States?

Governor PARFITT. I foresee serious problems there. Certainly it would take a considerable amount of training between now and the turnover of the canal to Panama to bring them up to the state of effectiveness that we now have.

Certainly that is envisioned in the treaty that is underway. There would be a transition period during which we would train and upgrade technicians, particularly.

Senator SCOTT. You are saying that the present employees would train the Panamanians, some of the present employees being Panamanians and some being American citizens?

Governor PARFITT. The concept would be that the numbers of Americans who are in highly skilled positions would, over a period of time, be replaced by Panamanians who were selected and trained to perform those skills.

It is conceived that over time this could be accomplished.

Senator SCOTT. You are saying that the management employees would have greater difficulty. The Panamanians would have greater difficulty as far as management employees are concerned?

Governor PARFITT. No, I think that their biggest difficulty would be in the area of technical skills, such as pilots and highly skilled electricians and mechanical experts those sorts of people. Additionally, in the management area the problems arise from the fact that a small country such as Panama would have competing needs. Therefore, moneys that are generated through a canal operation would not necessarily be made available to the operator. At least there would be tendencies to make them available for other competing needs. We do not have that problem today, since the canal enterprise is self-sustaining and permitted to use the money generated for replacements and addition and for maintenance. There would be a very real problem for Panama to face up to the hard question of how funds generated would be utilized.

POPULATION OF CANAL ZONE

Senator SCOTT. As I understood you a few mintues ago you said that the Canal Zone had a population of 37,000 people. How many of these are permanent residents of the Canal Zone?

Governor PARFITT. All are permanent residents, sir.

Senator SCOTT. Do they all work for the Canal?

Governor PARFITT. No, approximately 10,000 of those are Canal Zone Enterprise employees and their families; U.S. citizens. Approximately 4,000 are non-U.S. citizen employees and their families. The remainder are primarily military and their families and dependents.

Senator SCOTT. I was told that an employee of the canal-an American employee-when he retired, he could no longer live in the Canal Zone. Is this an accurate statement?

Governor PARFITT. That is correct, sir. Nobody can live in the Canal Zone unless he is employed or a dependent of one who is employed. Senator SCOTT. That is really what I was getting at, and I appreciate it.

You mentioned resignations in recent years. Would that, in your judgment, be tied to the proposed treaty?

Governor PARFITT. Yes. I believe it is definitely tied to the treaty and corollary actions related to the treaty. The apprehensions that the treaty raised has motivated a movement of individuals to seek employment elsewhere.

Senator Scorr. Is there any difficulty in getting pilots for the ships that guide the vessels through the canal, or the tugs?

Governor PARFITT. There has been an increased turnover, but to date we have been able to get the necessary replacements.

Senator Scorr. The pilots that are aboard the ship is what I should have said.

Governor PARFITT. Yes, sir. There has been an increased turnover, but we have been able to get replacements to date.

Senator SCOTT. In your personal opinion, Governor, would the toll charges by the Panamanians cover only the cost of the operation of the canal, as has been done by our Government in the past, or would the Panamanians attempt to operate the canal at a profit?

I know I am asking you to speculate, but I look on you as an expert witness. As you know, an expert can express an opinion. Therefore, I am asking you as a judgment factor: In your opinion would the toll rates be increased in the event that the canal was operated by the Panamanians?

Governor PARFITT. Panama has over the years indicated that the United States has been overly generous and protective of shipping and shipping interests and have kept tolls inordinately low. They have indicated, on occasion, that if they were running the operation they would run it in order to maximize profits.

Senator SCOTT. One employee, I believe, of the canal indicated to me that it might be increased thirteenfold. That sounds like a terribly large increase. Would you say whether it is thirteen, or would you be of the opinion that there would be a substantial increase in the cost?

Governor PARFITT. There would be a tendency on the part of Panama, were they running the canal to, as I say, maximize profits. There have been some studies which would indicate that tolls could be raised many multiples of the existing rate.

Our current studies reflect that that is an unreal estimate, and that the practical situation would inhibit inordinate raises of the type that you have indicated. Panama would not be able to do that.

Senator SCOTT. Returns would enter into this.

Governor PARFITT. Diminishing returns, because you would drive away traffic to other competing avenues of arteries of commerce.

Senator Scorr. General, during our stay in Panama we also went to Argentina and Chile. We were told from time to time that the Government of Panama was waging a propaganda effort to influence world opinion in favor of obtaining control of the canal, and that our own Government was not reminding the world community as to how we had overcome hardship in constructing the canal, and how we had operated it for all the nations of the world without making any profit from its operation.

Again, requesting your personal opinion, General, has our Government presented its case as effectively as the Government of Panama? Governor PARFITT. I feel that we have made an attempt to present our case, but I certainly do not feel that our case has been effectively made.

Senator SCOTT. General, would you consider the United States' control and its maintenance of the canal to be a military asset to this Nation?

Governor PARFITT. Yes, sir, I do.

Senator SCOTT. In the event that the United States did not have the use of the canal, in your judgment, would we have to increase the size of our naval fleet in order to maintain its present effectiveness?

Governor PARFITT. I do not really believe that I am competent to respond to that, sir, but it would be my impression that lacking a canal, or the utilization of the canal, we would have to augment our forces.

Senator SCOTT. If I said to you that Admiral Reasoner, the Pacific Commander, said that we would have to, would you agree with that? Governor PARFITT. My offhand feeling would be that we would have to augment our naval fleet lacking a canal.

Senator SCOTT. It has been said that it would cost $4 billion to build a substitute canal. Does this appear to you to be a reasonable estimate of the cost of a substitute canal? Would you have a judgment? I am not asking for a precise figure, but do you think it would be somewhere in the ballpark of $4 billion at present day costs? Would that be unreasonable as an estimate?

Governor PARFITT. The studies in 1970 of a potential for a sea level canal or a third locks canal concluded that a sea level canal in its most optimum location would cost about $2.9 billion, and a third locks-a larger locks structure-would cost in the order of magnitude of $1.4 billion.

If we were to take those figures and escalate them to today's prices it would come to about $5.3 billion for a sea level canal and roughly $2.6 billion for a third locks plan.

Senator SCOTT. Governor, do you personally, as an individual, have any concern that a third party might become involved if a treaty is signed and ratified by the Senate-a third nation?

Governor PARFITT. Certainly there is always concern lest influences which are not in the best interests of the United States become involved. That is a possibility which we have to concern ourselves with.

Senator SCOTT. General, of course we are again requesting your personal views-not your official views as the Governor or the views of the Government of the United States. As an individual and as an army general, do you have any concern that the canal might fall into Communist hands if the United States turns complete control over to the Panamanian Government, if our military stepped out entirely? Would you have any concern about-and I know this is a difficult question, but I am asking for your personal opinion on this-the canal falling into Communist hands?

Governor PARFITT. Yes; I have some very real concern in that regard. I would hope that the treaty would in some way provide assurance against that.

Senator Scorr. I heard during my trip that in the event that it was, regardless of what was put in the treaty and regardless of the number of years that were specified for the gradual turnover or the completion of the turnover, the Panamanians might well nationalize the canal after they obtained possession of the canal.

Would you have any concern about this-about them not following the precise words that are in the treaty? I am asking for your personal views again.

Governor PARFITT. One must, again, concern himself with that because the history of our relationship with Panama has been replete with