83. With respect to water, the Company owns and operates two completely separate subsystems: one serving the Atlantic side of the Canal Zone and a major portion of Panama City. The Atlantic subsystem includes a filter plant currently capable of processing 16 million gallon per day, 7 large storage tanks and 78 miles of pipeline. Of total production, approximately 12 million gallons per day are currently being delivered to the city of Colon with the remaining 4 million gallons going to communities in the Canal Zone. The Pacific subsystem includes a filter plan: currently capable of processing 45 million gallons per day for sustained periods, 21 storage tanks and 137 miles of pipeline. The Pacific subsystem currently provides approximately 30 million gallons per day to Panama City with the remaining 15 million gallons going to communities on the Pacific side of the Canal Zone.

84. The Government of Panama recently constructed its own water plant which is processing between 20 and 33 million gallons per day. Although linked to Panama's distribution system, both of the Company's subsystems work on a one-way basis, that is, while potable water is delivered to Panama from the Canal Zone, none is received from Panama through its distribution network.

85. The Company's power system includes generating stations, transmission lines, substations and distribution lines necessary to furnish power thorughout the Canal Zone. Present power generation capacity is 161.5 megawatts, of which approximately 46 megawatts are obtained from hydroelectric units and the remainder from thermal plants. During periods when there is an adequate supply of water in Gatun and Madden Lakes the Company attempts to maximize power supplied from the hydroelectric units. During the dry season hydroelectric generation is curtailed in order to conserve water for transiting service. The Company also purchases power from and sells to Panama on an intermittent basis through power interconnects with the Panamanian system on both sides of the Isthmus.

86. The Panama Canal Company's telecommunications system provides telephone, teletype, radio communication, and special service circuits for the Company/Government, their employees and shipping interests operating through local agents in the Canal Zone. The system is interconnected with the armed forces communications system and with systems in adjoining cities of the Republic of Panama. The system includes special telephone facilities at the locks and various inter-office communication networks, and presently consists of five telephone exchanges serving 6,682 telephone in residences, 5,282 telephones in offices, and 86 teletypes. There are also 476 microwave channels and 958 special service circuits.

87.

As a mentioned earlier, each of our three public utility systems are interconnected with Panama's in some fashion. In a purely technical sense, therefore, it may well be feasible to integrate the respective systems. Recognizing, however, that utilities impact directly on our ability to sustain operations and as such are facilities vital to the Canal, consideration of further integration of these systems should be subjected to the criteria emphasized throughout my testimony; that is, quality, reliability and cost, priority for Canal requirements, impact on employees, and emergency preparedness.

Feasibility Studies on Transfers

88. With respect to the final question in your letter to me, the Panama Canal Company has not engaged in any feasibility studies involving the transfer of Company facilities per se. In this connection, the management of the Canal enterprise has increasingly over the years followed a policy of obtaining services from outside sources whenever the aforementioned criteria on quality, reliability and costs have been met. As the opportunities have occurred, the enterprise has turned to contractual arrangements for services ranging from construction and painting to provision of grain unloading facilities on the piers and the furnishing of rock quarry products. As a general matter, however, current treaty restrictions on the establishment of new business enterprises in the Canal Zone, and the application of legislative provisions such as those contained in the OSHA and FLSA, have discouraged Panamanian businessmen from seeking new opportunities in the Canal Zone.

Conclusion

89. Mr. Chairman, I have tried to forthrightly address the questions set forth in your letter and I very sincerely hope the information I have provided will be helpful toward the purpose of these hearings. Should the Committee desire additional data concerning my testimony I would be pleased to furnish it. This concludes my statement.

Memorandum for Mr. Crommelin.

PANAMA CANAL COMPANY, Washington, D.C., August 3, 1977.

At the hearing on July 22, Governor Parfitt was requested to furnish for the record a copy of the assurances made to present employees of the Panama Canal organization.

The requested material is attached. If I can be of further assistance to you in any way, please do not hesitate to call me. THOMAS M. CONSTANT,

Enclosures.

ASSURANCES

Secretary.

FOR PRESENT EMPLOYEES OF THE PANAMA CANAL COMPANY/ CANAL ZONE GOVERNMENT UNDER A NEW PANAMA CANAL TREATY

The following list of assurances for present United States citizen and nonUnited States citizen employees of the Panama Canal Company/Canal Zone Government are derived from the United States position. They represent those assurances on fundamental items of particular interest to Canal employees which would, as a minimum, be provided in the context of any new treaty relationship. Obviously, all treaty provisions are subject to negotiation, the ratification process, and such Congressional implementing legislation as may be appropriate.

No formal, comprehensive agreement has been reached between the U.S. Government and the Republic of Panama regarding this issue or any other.

These assurances are not intended to be final or all-inclusive. Other areas of concern are continuing to be examined. These assurances should, however, provide employees with a general understanding of the minimum level of benefits and protections being sought.

1. Schooling and medical care provided by the U.S. Government will continue to be available for U.S. citizen employees and their dependents.

2. U.S. citizen employees will continue to be provided with adequate housing at a reasonable cost. Residential areas will be managed in such a manner as to maintain a mix of United States and Panamanian residents.

3. U.S. citizen employees and their dependents will continue to enjoy dutyfree import and purchasing privileges concerning items for private use. They will also be authorized use of military service facilities.

4. U.S. citizen employees and their dependents will be exempted from Panamanian tax on any income derived from

The Canal operation or other U.S. Government agencies, and
Sources outside the Republic of Panama.

5. In connection with offenses arising from acts or omissions punishable under the laws of the Republic of Panama, U.S. citizen employees and their dependents will be entitled to specific procedural guarantees, such as prompt and speedy trial, specific charges, cross-examination of witnesses and legal representation of choice.

6. U.S. citizen employees and dependents who may be considered to be dual nationals will have the same status under the new treaty as those of exclusive United States citizenship.

7. Non-United States citizen employees automatically will be covered under the Panama Social Security System, except that those with five or more years of U.S. Government service as of the effective date of the new treaty will have the option to retain U.S. Civil Service retirement coverage in lieu of transfer to Panama Social Security coverage.

8. Panamanian citizens will be employed in increasing numbers at all levels of the management and operation of the Canal.

9. Increased Panamanian employment in the operation of the Canal will not be used to displace current U.S. citizen Canal employees.

10. All eligible employees are guaranteed by current regulation, reduction-inforce and reassignment right, transfer of function rights, and discontinued service retirement following involuntary separation. In addition, the Civil Service Commission will be requested to grant approval of and/or waivers for "early optional retirement" or liberalized severance pay coverage for employees of Canal enterprise activities which are scheduled for elimination, reduction or transfer. Employees whose working conditions are so adversely affected by the treaty that special consideration is appropriate may also be included in this commission request.

11. Civil Service Commission approval will be sought to provide any present U.S. citizen employee requesting such assistance with priority placement consideration for appropriate vacancies in federal government agencies.

12. To the extent consistent with sound management, the terms and conditions for the employment of non-United States citizen personnel will, as a matter of policy, conform with the general principles contained in the labor laws of the Republic of Panama.

13. The Government of the United States will ask that special placement assistance be offered by the Republic of Panama to any non-United States citizen employee who may be displaced by reason of the Treaty.

14. The Canal management will conduct its relations with recognized employee unions representing Canal employees in accordance with Executive Order 11491, as amended, and/or other mutually acceptable form of collective bargaining.

15. Recommendations, if appropriate, will be made to the Office of Management and Budget for legislative action found necessary to prevent an erosion of the general level of employee benefits and conditions of employment under any new treaty.

Senator ALLEN. We have this problem: General McAuliffe, who has come all the way from the Canal Zone to testify, has to catch a plane

at 12:30.

With the indulgence of Senator Gravel and Congressman Murphy, we would like to hear from General McAuliffe at this time. We will get to the other witnesses just as quickly as we can.

I would like to invite the Congressmen to come up and sit with us. General McAuliffe, we appreciate your coming before the subcommittee and giving us the benefit of your expertise and knowledge and your views. We look forward to hearing your testimony, and you are invited to proceed in such fashion as you desire.

TESTIMONY OF LT. GEN. DENNIS P. MCAULIFFE, COMMANDER IN CHIEF, U.S. SOUTHERN COMMAND, ACCOMPANIED BY COL. JAMES F. THORNTON, LEGAL ADVISER

General MCAULIFFE. Thank you very much, Mr. Chairman.

I should like to introduce the officer sitting at my left, Col. James F. Thornton, who is a member of my staff at the headquarters of the U.S. Southern Command.

Senator ALLEN. We are glad to have you, also.

General MCAULIFFE. Mr. Chairman and members of the subcommittee, thank you for inviting me to appear before you.

As the commander in chief of the U.S. Southern Command, my priority mission is that of defending the Panama Canal, and I will be most happy to discuss with you the commitment of U.S. forces and military facilities in the Canal Zone to that purpose.

You have asked that I provide information on the value of all military property and facilities which may be under consideration for transfer to the Government of Panama, pursuant to present treaty negotiations. As the United States and Panama are now talking about a fixed term treaty, at the expiration of which Panama would take over all operations and defense of the canal, I take this to mean the value of all of the military facilities in the Canal Zone. We have only the most approximate kind of data because records are sketchy in this regard. However, the individual service comptrollers managed on short notice to provide some summary data, identified as the "plant replacement value" of the buildings and facilities as of June 30, 1976,

for Navy and Air Force, and March 30, 1977, for the Army, as follows: Army, $856,513,650; Navy, $329,981,915; Air Force, $406,211,000; total, $1,592,706,565.

You have asked that I provide information on the possible effects of such contemplated transfer on the defense of the Canal Zone as well as defense of the United States itself.

Issues as to the effect upon the defense of the United States itself of the transfer of facilities to Panama are matters of national strategy and policy and more properly fall under the purview of the Joint Chiefs of Staff and the Secretary of Defense. However, the importance of the Panama Canal in previous conflicts is a matter of history.

The canal is still important to national defense, but I am not in a position to make an evaluation as to how important the facility will be to national defense in the years ahead.

Today we have forces deployed in the Canal Zone; Army, Navy, Air Force, and Marines; with the priority mission of canal defense. These forces are well trained and are capable of implementing a wide range of defense tasks to insure the uninterrupted operation of the canal and to protect U.S. lives and property in the zone. They are not capable, without reinforcement from the United States, of protecting the canal from a major external threat, nor can the available forces protect all the vital installations of the canal against a major sabotage operation. Substantial reinforcement forces would be needed in the event of such contingencies. We could not, however, assure the uninterrupted operation of the canal in such a hostile environment.

In the future, under a new treaty, the concept of defense would include United States and Panamanian forces operating cooperatively to defend the canal. I believe that we can achieve an effective defense working in close cooperation with the Panamanian Guardia Nacional.

The concept for combined defense which I have recommended to the Joint Chiefs of Staff will require the continued presence of American forces in the vicinity of the canal for the term of U.S. control of canal operations, not only to assist in defense of the canal but to provide protection of U.S. lives and property. I have also provided my views on the types of military facilities which are primary and essential to defense of the canal under this concept. They include the major airfield, cantonment areas for stationing of ground forces in close proximity to the canal, training areas, communications facilities, piers and docks, depots, logistic support facilities, and family housing. The details of these matters are now being discussed by the negotiators and I cannot testify as to the results of their talks or the specifics of my recommendations to them. I am confident, however, that the Department of Defense, which is directly represented in the negotiations, will press for all the facilities and installations needed to defend the canal in a combined defense with the Republic of Panama.

You have also asked that I identify and describe U.S. military facilities which are supportive of, but not essential to canal defense. These would include the U.S. Army School of the Americas. the InterAmerican Air Forces Academy, and the Inter-American Geodetic Survey. I have expressed my views on the continuing desirability for these facilities under a new treaty.

You have requested any comments I might have regarding any change in the status of U.S. Forces located in the Canal Zone which