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have something on that. If 3 percent is too great, reduce it to 24 or

3 % even 2 or something below. It would give us something. Now I am not urging that but stating that as a possible taxpayers' reaction to the proposition.

The war was, of course, won to a large extent by the industrial might of the United States.

A great many cement mills, steel mills and what not fully justified themselves during the war, but we are not talking about giving people free steel and free cement from now on because they paid for them in the war. I mean there is some dividing line in there which is the difficult job of your committee to determine. It still comes back to you, Mr. Chairman.

Mr. Thompson. Yes. Unfortunately, I can't get any body to advise us what to do.

General STEESE. Those are roughly the high points as the previous testimony appeared to me and I am just giving you off-hand comments on it, not as an advocate, but in the interest of getting all the facts into the record.

Mr. THOMPSON. Do you remember having this same question up before in your experience, to charge off the entire capital structure?

General STEESE. No, sir. That is new. Also, the war has exaggerated another angle. All during the construction of the Panama Canal, and in the subsequent years, we never heard anything about national defense. The Canal was purely a commercial institution. Of course, its construction was speeded up by the experience of the Oregon getting around the Horn, but it was primarily a commercial institution. We never thought of any war or anything like that. It is a great military asset, just as our railways and highways and any other utilities are, but they are self-supporting on the basis of commercial business. Also, up until World War II, the Army-Navy business was negligible, a very, very small percentage of the total business, and whether we carried them free or charged them, we kept a record of it for our own purposes as a talking point, but we never considered it any important item at all. As I say, after World War I, we in the Canal from a commercial outlook were always careful to soak the Army and the Navy for everything they got and were careful that none of it got into our capital account. We were watching that. I say, in '21, we threw out 136 million or so.

Mr. THOMPSON. I think that all comes about from the three big war years.

General STEESE. Yes, sir.
Mr. THOMPSON. ’44, '45 and '46, of course.

General STEESE. Yes. The war has distorted the whole perspective. That free traffic is a serious item if it continues. It is quite a large item still. Of course, if you make them actually pay, it just takes it out of one pocket and puts it into the other, but it would strengthen the toll situation, both under the treaty and in fairness to our own shipping interests to include all of that free service as revenue for the purpose of determining tolls. Instead of making the commercial tolls pay the whole load, as we were doing until just before the war, include these free tolls as a basis of calculation and then adjust your interest rate to whatever seems fair, so that the shipping will get the credit in that calculation for this free business we are giving, and we would also be in a stronger position for the treaty.

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It is true, we had the Attorney General give an informal opinion that we could put our own stuff through free under the treaty, but I think it is pretty poor law, I think.

Mr. Thompson. General, we certainly appreciate your views. You have been most helpful, as you have always been.

Mr. BURDICK. Mr. Chairman, I wonder if I could just explain some statistics pertaining to American-flag vessels and foreign-flag vessels?

General STEESE. I would like for Mr. Burdick to correct any figures that I gave which he might have.

Mr. BURDICK. I think Mr. Bailey misunderstood me when I said at the present time 58 percent are foreign-flag vessels, I believe, that is what the Governor told you last month. I don't question the figures that Mr. Bailey presented for 1947 or 1948, and I don't think it is of particular importance whether my figures are correct or his. I think they are both correct and they do show the relative amount at the present time.

I think Mr. Bailey misunderstood me, and I believe the record will show, that I did say that in early years of the operation, meaning after the official opening in 1920, there were several years in which the revenues exceeded the costs, including the interest on the investment. I was looking, at the time I was testifying, at that same table No. 24 which has been inserted in the record.

Mr. THOMPSON. Well, we will make all proper corrections.

Mr. BURDICK. On the question of when we will reach the capacity, I call the committee's attention to one or two paragraphs in the Governor's statement, indicating that we will probably reach the capacity along about 1970 instead of 1960, as estimated some 10 years ago.

Mr. THOMPSON. That was the capacity of the present Canal as is. Mr. BURDICK. The present Canal.

Mr. THOMPSON. Twenty years isn't so very long when you are establishing a national policy. We must be prepared to increase the capacity by some means. Now the reason I keep injecting that into our thinking is that I was trained as an accountant and I keep thinking in terms of reserve for obsolescence, reserve for new construction, and so forth. I think that ought to be taken into our consideration.

Now if we face in 20 years the completion of the third locks project and some of the other projects that have been suggested from time to time such as the terminal lake plan, we had better know about it right now. Also, if we are going to construct an entirely new canal which must be paid for out of tolls, if that is going to cost in the neighborhood of 3 to 5 billion dollars, then we had better tear everything up and start over again, because I would be afraid to go on the floor of Congress and recommend such a thing to the taxpayers.

Mr. BURDICK. You know our position on that, I believe, Mr. Chairman, that unless the canal is built for commercial purposes, we would not advocate paying for it with commercial tolls. In other words, if it is necessary to increase the capacity for commercial purposes, as we think it will be, the costs might be 100 or 200 million dollars to adequately provide for commercial shipping for the next 50 years. On the other hand, the Congress might decide to convert to a sea-level canal. Our view of that would be, if they do, it would be for national security reasons, and therefore not properly chargeable against commercial tolls.

Mr. THOMPSON. Yes, I think your position is very clear on that, so we can dismiss that from our thinking.

Mr.. BURDICK. On the traffic question, I call the committee's attention to the traffic study included in the Governor's report under Public Law 280. That study was made by Dr. Kramer, a professor of commerce and transportation at the University of Pennsylvania.

Mr. THOMPSON. What was the date of that, do you remember?

Mr. BURDICK. The Governor's report was submitted to the Congress by letter of December 1, 1947. Mr. THOMPSON. Didn't that survey go back to prewar days?

Mr. BURDICK. This was a restudy, I believe, Mr. Chairman, of the whole question.

Dr. Johnson, who was a professor of transportation and commerce at the University of Pennsylvania, made the original studies in 1912. There were some other studies made, a number of other studies made, but the most important study was in connection with the work of the special tolls committee in 1936 and 1937, when Dr. Huebner of the University of Pennsylvania, who had previously worked with Dr. Johnson, made a study. That, as I say, was in connection with a study made by the special tolls committee and later by the congressional committees here. Then another study, of course, was the one made between 1945 and 1947, under Public Law 280.

Mr. THOMPSON. Well, then, unless there is someone who wants to go on the record right now, we will adjourn, subject to call, I hope, toward the end of this week; if not, as early as possible next week. Thank you very much for your attendance.

(Whereupon at 11:45 a. m., the subcommittee adjourned, subject to call of the Chair.)


TUESDAY, JUNE 14, 1949


Washington, D. C. The subcommittee met, pursuant to notice, at 10 a. m., Hon. Clark W. Thompson (chairman) presiding.

Mr. THOMPSON. I think we will go ahead. Mr. Miller will be here very shortly, and we do have a quorum present.

The first witness this morning is Mr. Gregory S. Prince. STATEMENT OF GREGORY S. PRINCE, ASSISTANT GENERAL


Mr. PRINCE. Mr. Chairman and gentlemen, my name is Gregory S. Prince. I am assistant general solicitor of the Association of American Railroads, for which organization I appear here today.

In addition to myself there will be testimony presented by Dr. Julian M. Parmelee, who will follow me and take up in somewhat more detail certain features which I shall not attempt to go into in my testimony.

The issue before this subcommittee under House Resolution 44 as drawn by the shipping interests who have already appeared is a comparatively narrow one, but, at the same time, a very fundamental

In effect, what it amounts to is a request on the part of the shipping interests for a subsidy at the expense of the United States taxpayers.

The nature of the subsidy requested, however, has the unique feature of being applicable to foreign ship owners as well as to American ship owners.

This is unavoidable and inherent in the situation because under existing treaty obligations the United States Government is obliged to operate the Canal on terms of entire equality for the shipping of all nations. Not only would each foreign ship owner partake of the largess of the American Government to the same extent as each American ship owner, but, as already disclosed by figures presented to this subcommittee, the total amount of subsidy to foreign shipowners would today exceed that to American shipowners, and, judging from past experience, might in normal times amount to as much as double the subsidy to American shipowners, if Congress were to adopt the recommendations made before this subcommittee by American shipping interests.

Certainly it is sound policy to limit our grants-in-aid which are for the benefit of other than American citizens to grants to foreign



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