28. Toll Increase Limitations Future toll increases other than the periodic adjustments which we may have to make if revenues do not match costs are ultimately limited by the cost of alternatives to the Canal. We have had a number of studies prepared over the years on this subject of the limits of potential toll rate increases and I feel that we have acquired considerable knowledge on the subject even though we are still not capable of precisely determining how high tolls can go before diminishing returns set in. 29. The most comprehensive study we have, and it is the latest in a related series of studies between 1972 and 1975 on the subject, is entitled Panama Canal Toll Rates: Estimates of Maximum Revenues, by International Research Associates, dated January 1975. The essential role of that study was to reaffirm the prior studies and to establish the theoretical maximum amount that toll rates could be raised based on a 1974 traffic forecast; that amount was about 75 percent. 30. The Panama Canal has increased its toll rates twice since the 1974 forecast, once in fiscal 1975 and again in fiscal 1977. In addition, we have modified our measurement rules which has had the effect of another, smaller toll rate increase. The two increases and the measurement rule changes add up to a 50 percent increase in the last three years. 31. In view of the imprecise nature of estimating, it appears prudent to approach future increases on a conservative and gradual basis. Any theoretical maximum toll increase cannot be considered valid until tested, and since the effects of toll increases are most felt over the long term, it may be too late to readjust if the real maximum is lower than the theoretical maximum. 32. You have asked for information on the impact of toll increases on United States ports and on Latin America. We have no study pertaining directly to ports and our 1974 study on the effect of a toll increase on Latin America has already been caught up with by events since then. It was estimated at that time that a toll rate increase of 50% would add $5.0 million in costs annually in South America, principally on countries on the West Coast, such as Chile, Ecuador, and Peru. The impact on Central American countries was estimated at about $2.7 million. 33. It is not possible for me to determine the relative impact of these additional costs on the various economies, but I think it is safe to say that the relative impact on smaller economies is greater than that on the larger ones. Certain countries are heavily dependent on the Panama Canal for movement of their cargo tonnage. For example, in 1974 some 73% of Ecuador's total seaborne trade of approximately 12.9 million long tons were Canal oriented, and in the case of Peru, almost half of their tonnage passed through the Canal. Generally, most Central American and West Coast South American countries rely heavily on the Canal. Cost of Canal Zone Government 34. The final item of background interest in the financial area concerns the cost of operation of the Canal Zone Government. In Fiscal Year 1976, the total funded costs for the Canal Zone Government were $67.8 million. Depreciation and other non-fund expenses added $4.3 million, for a total of $72.1 million. Recoveries, principally payments for school and hospital sponsorships of employees by the various U. S. Government agencies on the Isthmus, amounted to $49.8 million, for a net cost of Canal Zone Government of $22.3 million. Canal Personnel 35. Now for some background material on personnel. Since the end of World War II, improvements in efficiency and productivity have enabled the Canal organization to reduce its overall personnel level, in spite of increased transits. We feel we are now at the minimum staffing level and will have to add personnel to handle the North Slope oil traffic. 36. You have asked for information on job positions and skills of our U. S. citizen employees. I have for the record a list of occupational titles in four groups, which I will summarize for you. There are 638 U. S. citizens in blue collar occupations, 1,565 in technical and administrative white collar occupations, 12 in top management, and 1,180 in special categories. The major subgroups within the special category U. S. citizen group are: 507 teachers and supervisory educational personnel, 208 Canal pilots, and 202 police officers. Security Positions 37. Underlying our personnel statistics is a concept that emanated from Congress under which certain positions within the Canal organization are designated as fillable only by U. S. citizens. With a view toward affording Panamanian citizens increased opportunity for upward mobility within the Canal organization, the number of such positions has been reduced over the years, and now stands at 567. 38. those There are four categories of positions so designated: required by law to be filled by U. S. citizens, such as my own position (6); those involving access to classified defense information (137); those essential to the protection of Government property, which are certain positions in the police and fire departments (158); and those considered necessary to assure continuity of Canal operations (266). 39 The concept of the continuity of operations nucleus assumes the need to operate on a short-range basis at a reduced level in the event the normal work force residing in the Panama were unable to report for work. It postulates the continued availability of a relatively large number of U.S. citizen employees, even though they occupy positions not designated as security, and the support of Panamanian workers living in or temporarily in the Canal Zone. The overall rationale for all security positions is based on the existing situation and its approach would obviously require reevaluation in the event of a new treaty relationship with Panama. U. S. Citizen Turnover Rate 40. Since February, 1974, when the announcement was made of the Joint Statement of Principles signed by Secretary of State Kissinger and Panamanian Foreign Minister Tack, for the negotiation of a new treaty, the Canal agencies have experienced an increased rate of resignations. In addition to the uncertainties resulting from the treaty negotiations, certain management decisions have caused U. S. citizens to perceive a general whittling away of their benefits. These include a necessary program of austerity measures along with other measures designed to ameliorate conditions which were perceived by our Panamanian employees as discriminatory. When compared to the period 1973-1975, the resignation rate among our U. S. citizen employees during 1976 was up 60%. The rate so far during 1977 is 49% over the comparable 1973-1975 base period. 41. The total number of resignations from January 1, 1974 to May 31, 1977 among U. S. citizens in permanent positions was 748, or an average of 18 per month. Although the number is not of such magnitude as to cause great concern, what we are concerned about is the trend--the fact that this could snowball and ultimately seriously affect our ability to perform the Canal's mission. 42. During this same period there were also 458 retirements of U. S. citizens. Many of the vacancies resulting from the overall turnover can readily be filled from the local labor market, either by Panamanians or by U. S. citizen dependents in the Canal Zone. There are 94-468 O-77-6 certain hard-to-fill categories which do concern us, however, including Canal pilots, towboat and dredge masters and engineers, nurses, medical officers, machinists, electricians and some others. It takes an active program of recruitment within the United States to fill these positions. Recruitment problems have stemmed from the adverse publicity in the U.S. concerning the situation in the Canal Zone and the Republic of Panama. Prospective employees are wary in seeking employment with the Panama Canal when doubt exists as to the future security and tenure of the position and the conditions which might prevail under a new treaty. Nevertheless, to date we have managed to fill our essential requirements. 43. Of the total 1,206 vacancies over the 41 months since January 1, 1974, we have filled 1,039 of the positions with U. S. citizens; the difference is accounted for by reduced requirements, by some recruiting lag, and by the hiring of non-U.S. citizens. The 15-point Paper on Employee Assurances 44. To dispel some of the uncertainties about the treaty negotiations. the Secretary of the Army, with the concurrence of the U. S. treaty negotiators, authorized in March of this year the release to our employees of a 15-point list of assurances concerning employee rights that constituted the benefits and protections being sought for employees of the Canal enterprise. A copy of the 15-point paper is submitted for the record. 45.Employee response to the announcement has been cautious and reserved to date. They are generally appreciative for having been authoritatively informed; however, there is a general feeling that the assurances are inadequate and leave many questions unanswered. In June, at the invitation of the U. S. negotiators, Alfred J. Graham, a canal employee and union representative, was designated by the AFL-CIO to serve as the representative of organized labor to the U. S. negotiators. Poll on Continuing Employment 46. Because of the status and classified nature of treaty negotiations, the Company has had no valid basis on which it could poll or project how many workers would be willing to remain with the Canal operation under changed conditions resulting from a new treaty. The only known effort in this direction was an informal poll conducted in April, 1977 by the Canal Zone Civic Council, which is an organization of community representatives. Of the limited sampling of 285 U. S. citizens contacted, 62.8% said they would not consider remaining in the Canal area and working for the Canal organization if there were complete Panamanian jurisdiction. 47. Although this survey may not be a true measure of employee intentions, it is certainly a measure of their apprehensions. As such, it confirms the need for an extremely high degree of attention in the treaty negotiation process to the problem of retention of necessary U. S. citizen personnel. 48. Demonstrations, Acts of Violence, and Illegal Intrusions into the Zone Periodic demonstrations, acts of violence and illegal intrusions into the Canal Zone have been a factor contributing to employee apprehensions. During the past two years there have been several public demonstrations by Panamanians against the United States and the Canal Zone and its residents, ranging from gatherings of a few dozen persons to major concentrations of students as occurred most recently on June 6 of this year. For the sake of brevity, I will refer only to the more significant Events of January 9, 1977 49. On January 9, 1977, the anniversary of the 1964 riots on the Canal Zone border, the radio and TV stations in Panama began broadcasting reenactments of events leading up to and occurring during those riots. A group of approximately 125 persons who were enroute to a cemetery near the border where memorial services were to be held, and who were under escort by motorcycle officers of the Traffic Section of the Panama National Guard, diverted from their route of march and crossed the boundary into the Canal Zone. Initial attempts by Canal Zone police to enlist the assistance of the National Guard in diverting the students back into Panama to avoid a confrontation were unsuccessful. The group planted several Panamanian flags, burned a U. S. flag and reentered Panama across Fourth of July Avenue. Events of June 6, 1977 50. On June 6, 1977, about 1,000 Panamanian student demonstrators gathered in the area of the Legislative Palace and then moved into Shaler Triangle in the Canal Zone. The students, in the presence of National Guard personnel, painted anti-U.S. slogans on walls in the area, removed the U.S. flag from its pole and raised a Panamanian flag in its place. The American flag was returned to Canal Zone authorities by members of the National Guard later that morning in a severely torn and damaged condition. On the Atlantic side, a group of about 300 Panamanian students marched into the Canal Zone and prevented the Panama Railroad train from leaving the station at Cristobal. While several students lay across the railroad tracks, others painted anti-U.S. slogans on the engine and several passenger cars. One contingent of demonstrators attempted to set fire to the railroad ties by igniting large pieces of cardboard and other paper materials which they had been carrying. Canal Zone fire units were able to extinguish the fire without further incident. 51. As a result of the seriousness of events involving the public desecration of the United States flag and the potential such actions hold for more serious confrontations leading to major eruptions of violence, formal diplomatic protests were lodged with the Panamanian Government for both the January 9 and June 6 incidents. 10 t |