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governments through such means as are provided by the Marshall plan and ECA, and not to indulge in supplemental subsidies to individual citizens of foreign nations.
The most important feature of the recommendations made to this subcommittee by the shipping interests is the elimination of interest on investment in the Canal by the United States Government from consideration as a cost of the operation of the Canal. The adoption of this recommendation alone would amount to a subsidy of $15,000,000 a year.
That the elimination of interest on investment as a cost to be met by tolls is a subsidy and the lack of justification for any such action will be dealt with at greater length later. But accepting for the moment our position that it would in fact constitute a subsidy, I wish to call attention briefly to the interest of the railroads in this matter. Our most direct interest is as a form of transportation in competition with shipping concerns employing the Canal in intercoastal operations which would share in the subsidy in the same manner as all other shipping concerns.
The grant of a subsidy to domestic water shipping is directly contrary to the national transportation policy declared by Congress in the 1940 amendments to the Interstate Commerce Act. That declaration reads in part as follows:
It is hereby declared to be the national transportation policy of the Congress to provide for fair and impartial regulation of all modes of transportation subject to the provisions of this act, so administered as to recognize and preserve the inherent advantages of each. The essential point of the congressional declaration is equality of treatment for all forms of transportation, in all respects. The granting of a subsidy no matter in what form or how disguised to one mode of transportation serves to defeat the aim of preserving the inherent advantages of each.
The choice of shippers and travelers among competing transportation services is largely determined by relative charges for the service rather than by relative costs of performing them. Unless, therefore, the rates charged by each mode of transportation reflect its true costs, we cannot hope for an economic distribution of traffic among the various modes, and it is only through an economic distribution of traffic among them that there can be any hope of developing and preserving the inherent advantages of each, as envisioned by the national policy. To some extent in the case of all types of carriers, and to a marked degree in the case of the railroads, the unit costs of their services vary inversely with variations in the volume of their traffic. The inherent advantage of one type of transportation may thus easily be destroyed through loss of traffic to a less efficient type as the result of a wholly artificial advantage enjoyed by the latter because of Government aid. Such a situation must inevitably result in increasing the Nation's total transportation bill.
The second basis for our opposition to this unsound proposal of the shipping interests is as a taxpayer. The railroads of this country paid into the Federal Treasury in the form of income taxes alone approximately $450,000,000 last year, which certainly gives them a real and substantial interest in seeing that the Federal Government does not squander money in pursuance of unsound policies.
While the shipping interests, in the principal statement made on their behalf by Mr. Bailey, president, National Federation of Ameri
can Shipping, state that they recognize the dual purpose of the Canal for national defense and for commerce, they base their suggestion that there should be no further charge for interest on capital provided for the construction of the Canal on two propositions-first, that national defense considerations provided the major justification for the construction of the Canal, and, second, that no part of the cost of its construction or of its operation has heretofore been charged to naLional defense. We shall deal with those two propositions in that order.
A study of the history of the Canal shows that the commercial aspects of the project constituted an equal if not a more cogent reason for the construction of the Canal than national defense. For instance, in the very passage quoted by Mr. Bailey from the message by President Theodore Roosevelt to Congress, on January. 4, 1904, President Roosevelt stated the well-recognized fact that the Panama Canal was “long acknowledged to be essential to our commercial development." In the light of this one statement alone it could hardly be argued logically that the principal purpose of building the Canal was for our national defense.
In view of the recognition of the authority with which President Theodore Roosevelt spoke on this subject, it night be well to consider the following from an earlier message of his to the Fifty-seventh Congress, in 1901, where he said:
No single great material work which remains to be undertaken on this continent is of such consequence to the American people as the building of a canal across the isthmus connecting North and South America. Its importance to the Nation is by no means limited merely to its material effects upon our business prosperty; and yet with view to these effects alone, it would be to the last degree important for us immediately to begin it.
In still another message to the Congress, on December 7, 1903, President Roosevelt had the following to say with respect to the construction of the Panama Canal:
For 400 years, ever since shortly after the discovery of this hemisphere, the canal across the isthmus has been planned. For twoscore years it has been worked at.
When made it is to last for the ages. It is to alter the geography of a continent and the trade routes of the world.
Many other statements were made at the time consideration was being given to the construction of the Panama Canal which indicate that the Canal was considered vital to our commercial needs. Take for instance the following from the report of the House Committee on Interstate and Foreign Commerce on H. R. 2538 (H. Rept. No. 351, 56th Cong., 1st sess., February 17, 1900, p. 2), which would have authorized construction of the so-called Nicaraguan Canal:
If the provisions of the bill can be carried out, the United States will, within a few years (from 6 to 8), be in full ownership and control of a waterway connecting the oceans that it can defend, and that it can use in the interest of its Navy and its merchant marine as wisdom may dictate.
The subject of a canal connecting the waters of the Atlantic and Pacific Oceans is one that for more than half a century has engaged the attention of the American people. The desire for its construction seems to grow with the increase of our population, the development of our capacity of production, and the necessity for the expansion of our commerce.
Your subcommittee is not the first body which had undertaken to pass on the question of the purpose of building the Panama Canal. In an act of Congress, approved by the President April 13, 1936
(Public Law 516, 74th Cong.), provision was made for a report upon Panama Canal tolls and vessel-measurement rules. This brief statute provided as follows:
The President is authorized to appoint a neutral committee of three members, for the purpose of making an independent study and investigation of the rules for the measurement of vessels using the Panama Canal and the tolls that should be charged therefor and hold hearings thereon, at which interested parties shall have full opportunity to present their views. Such committee shall report to the President upon said matters prior to January 1, 1937, and shall make such advisory recommendations of changes and modifications of the Rules for the Measurement of Vessels for the Panama Canal and the determination of tolls as it finds necessary or desirable to provide a practical, just, and equitable system of measuring such vessels and levying such tolls.
Pursuant to this statute, President Franklin D. Roosevelt appointed a Special Committee consisting of Messrs. Emory R. Johoson, George H. Rock, and Arthur J. Weaver, to carry out the above statutory mandate.
If you gentlemen are not familiar with those three experts, and who they are, I would say for your information that Mr. Johnson is well recognized as one of the foremost transportation students and experts in this country and particularly well versed in matters pertaining to the Panama Canal. He was a member of the Isthmian Canal Commission from 1899 to 1904. He is author of numerous works dealing with the Panama Canal, its traffic, and its value as a commercial and industrial project.
Mr. Weaver was former Governor of Nebraska and presidert of the Mississippi Valley Association, and Mr. Rock was rear admiral, retired, of the United States Navy, and had been chief constructor with the Navy.
This was the three-man neutral committee selected by President Franklin D. Roosevelt to carry out the mandate in the statute which I have just read to you.
This Special Committee made an elaborate investigation, giving interested parties all full opportunity to be heard and to submit briefs and other documentary data. It thereafter rendered a full and complete report, consisting of 150 pages and published as Senate Document No. 23, Seventy-fifth Congress, first session. Mr. Chairman, I have attempted to obtain copies of this so that I might have them here for each member of the subcommittee, but the Government Printing Office informs me it is out of print and no further copies are available. Perhaps this committee would have a supply, and I would certainly like to suggest it be incorporated by reference. However, I will leave with the committee this copy and as a matter of fact I would like to have that incorporated by reference in this record.
Mr. THOMPSON. We can certainly do that. I am under the impression we have some copies in this committee. Do you have any, Mr. Burke?
Mr. BURKE. I was furnished with one copy. It is out of print.
Mr. THOMPSON. We will see to it that this is retained in the committee. It is a very worth-while document.
Mr. PRINCE. It is a very worth-while document and I commend it for your consideration. They held long hearings and spent about 9 months working on the problem.
Mr. MILLER. Their problem was the method of measurement and establishing a scale rather than the rates, was it not?
Mr. PRINCE. Both questions. Perhaps the major question involved was the establishment of the Official Measurement Rules and that is set forth in their report.
Mr. MILLER. Is that the method that is still being followed today and the one that you recommend?
Mr. PRINCE. I believe so, but someone else may have to answer that.
Mr. MILLER. To that extent it has stood the test of time for 23 years.
Mr. PRINCE. Yes, sir.
Mr. THOMPSON. For the information of all of you who want to refer to this document it is Senate Document No. 23, Seventy-fifth Congress, first session, entitled “Panama Canal Tolls.” You may want to refer to it.
Mr. FUGATE. Mr. Prince, that study was made in 1937, was it not?
Mr. PRINCE. I think quite a number of policies that they recommended with respect to tolls have also stood the test of time and are very sound, and I will refer to certain of them in my testimony.
Mr. THOMPSON. Very well.
Mr. PRINCE. I do not believe that any committee of Congress or . any other body making an investigation of Panama Canal tolls and the policy with respect thereto could afford to do so without giving the most thorough consideration to this ably prepared document. That the principal question which this subcommittee is concerned with was thoroughly considered by the Special Committee is made clear by the following, from part I of its report, entitled “The Investigation-Its Purpose and Scope," at page 14:
The study and investigation that the committee was required to make include the tolls that should be charged for the use of the Panama Canal. A recommendation as to the tolls or revenues that should be derived from the Canal must be determined, first of all, by giving weight to the purposes for which the Canal was constructed and is being operated and administered.
Immediately after the above statement the report gives as the considered view of the special committee on this question, the following:
The major purpose of the Panama Canal is to provide American and foreign shipping and commerce with a much-needed facility. It removes the barrier that restricted the commercial intercourse of the countries and ports of the Atlantic and Pacific. The Canal Zone concession was obtained, the Canal has been constructed, the Canal is being operated, and the activities incident to the operation of the Canal are being carried on in order, primarily, that the Canal may render a commercial service.
The cost of constructing and the expense of maintaining and administering the Canal are obligations that have been assumed primarily to provide a commercial facility. The capital and current expenses thus incurred may properly be borne by the shipping that is aided. (Pp. 14–15.)
There is no question, I think, from that quotation, as to how that special committee felt about the purposes of the Panama Canal.
In addition to the report of the special committee, which was unanimous, Mr. Weaver submitted a separate report in which he also
discussed this question at some length. He first stated the question in the following manner (p. 141):
15. The Panama Canal initiated, designed, and constructed for commercial purposes.-A full and fair consideration of the nature and purpose of the Panama Canal project, as well as the manner of its use in the 22 years it has been open for traffic, will answer the question so often raised as to whether the cost of the Canal, or any part of it, was for military purposes.
Then, after discussing certain of the evidence bearing on this question, he reached the following conclusion (p. 142):
(9) The evidence hereinbefore set forth, as well as other subject matter reviewed as to the purpose and nature of the Canal project, unquestionably leads to the conclusion that the Canal was conceived, constructed, and operated as a commercial project (with the single exception of the additional cost of $9,588,750 for widening the locks at the instance of the General Board of the Navy, and therefore strictly a national-defense item * *). There is no evidence that any other item for the purpose of national defense is a part of the present capitalization,
We submit that no case has been made or can be made for this subsidy on the ground that national defense considerations provided the major justification for the construction of the Canal.
On the basis of our study of the history of the construction of the Panama Canal, we think it clear that the Canal probably would have been constructed for commercial purposes regardless of any other consideration. It is also clear that it has great military value. However, who can say with certainty whether the Canal would have been constructed solely as a commercial enterprise or solely as a defense measure? Certainly at the time no one was faced with such a decision because admittedly the construction of the Canal had great value from both standpoints and it was only necessary to decide whether its over-all value warranted the expenditure of the money involved. Furthermore, it seems wholly unnecessary for this committee to attempt to reach any such decision. It is only necessary that this subcommittee clearly recognize the dual nature of the value of the Canal, and this, we submit, has been demonstrated beyond question.
This, quite logically, brings us to the question of how the cost of the Canal is to be borne when considered in the light of the purposes for which built and the dual use to which it is put. From the beginning it has been the established policy of the Panama Canal administration that the Panama Canal enterprise as a whole should be self-supporting. This was the intent of Congress when it authorized the construction of the Canal and provided for the levying of tolls and is of course a sound policy. So far as we can determine, no one before has ever questioned the soundness of this policy. From the report of the Special Committee it would appear that no one who appeared before it even suggested such a startling departure as has been advocated before this committee. The Special Committee merely stated the long-established policy as a simple conclusion that the "Panama Canal enterprise as a whole should be self-supporting” (p. 84). Elaborating upon this, the report of the Special Committee went on to say:
The rates of toll levied upon vessels using the Canal should be such that the receipts from tolls, together with the other revenues of the enterprise, will be sufficient to cover interest on the investment and current operating expenses and to provde a property depreciation reserve and a surplus fund for normal replacements and betterments of property. Future additions to capital investment should be made only to cover the cost of extraordinary additions to property.