tional economic significance. One of their principal purposes is to assure for all nations the uninterrupted use of an efficiently operated canal. Implicit, too, in the treaties is an assurance of reasonable and equitable tolls for users. This assurance is firmly provided by the Panama Canal Treaty until its expiration on December 31, 1999. Until that time, tolls will continue to be established and modified by the United States through a new U.S. Government agency, the Panama Canal Commission. Thereafter, Article III (c) of the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal commits the Republic of Panama to the continued establishment of tolls and service charges that are "just, reasonable, equitable and consistent with the principles of international law." Because such conditions, if achieved, can only enhance the value and significance of the Canal for the U.S. Merchant Marine and all other users, we support these treaties.

Of course, the Canal offers significant advantages to vessel operation in terms of time, distance traveled, fuel consumed, and net delivery or laydown capability. Thus, use of the Canal on the Indonesia to U.S. Gulf trade saves 28 percent in distance and steaming time over a trip around_Cape Horn. Similarly, the Canal routes from Valdez, Alaska, to the Gulf or from El Segundo, California, to the Gulf save 57 and 67 percent, respectively. The reduced shipping time that the Canal makes possible has resulted in significant reductions in the cost of intercoastal shipments and the size of the U.S. merchant fleet required for their carriage. Both the U.S.-flag and world merchant fleets rely substantially on the Canal. In FY 1976, over 12,000 transits were made through the Canal by vessels flying the flags of 65 nations. U.S.-flag vessels made over 1,000 of these transits. Of the 117 million tons of commercial cargo transported through the Canal in FY 1976, 78 million tons or 67% were either part of the U.S. foreign or the U.S. domestic trades. This represents 9.1 percent of total U.S. oceangoing trade, a highly significant portion. Should Canal usage cease to be economically feasible for any reason, the increased costs and shipment times would undoubtedly cause many U.S. and foreign markets to face serious economic hardship. Some markets, such as the U.S. East Coast market for Ecuadorian bananas and Colombian coffee would probably disappear, while other movements such as ores and concentrates from Peru and Chile would tend to be captured by operators of larger vessels. While the loss of such markets might not be significant for U.S. consumers, the net impact on many U.S.flag operators would be a serious loss of business.

We believe that the advantages of Canal usage to U.S. shipping will be substantial through the remainder of this century. Even though the U.S. and world economies are expected to continue to recover and to expand, Canal capacity is expected to remain adequate through the year 2000. The anticipated increase in traffic will include, at least for the next few years, the transshipment of the West Coast surplus of Alaskan crude oil to the Gulf and East Coasts.

Many of the other nations of the world rely on the Canal_relatively much more than does the United States, and that reliance will continue. In 1974, approximately 73 percent of Ecuador's foreign trade and almost half of Peru's transited the Canal. In fact, most Central American and West Coast South American countries rely heavily on the Canal. The Maritime Administration sees this reliance as a stabilizing influence under the new treaties, one which should work toward the continuing availability of the Canal at reasonable toll rates for all nations.

This brings me to what I regard as my principal comment in these hearings. The chief concern of the Maritime Administration with any change in the status of the Panama Canal centers on those factors which suggest the possibility of increased operating costs and, hence, possible economic hardship for many U.S. ship operators.

The possibility of toll hikes is of course one of those concerns; but above and beyond that is the concern that the Canal remain open and accessible to the many U.S. operators who depend on it. On balance, the Maritime Administration supports the new Panama Canal treaties as far and away the best means to assure this. Obviously if tolls were to increase too greatly many markets would be hurt severely in much the same manner, if not to the same degree, that they would be if the Canal were completely closed.

But it is not certain what toll increase applied over what period of time would be too great. Under the new Panama Canal Treaty, we are faced with the possibility of an immediate toll hike to cover various provisions for reimbursement to the Republic of Panama, and, under paragraph 4, Article XIII, we are committed to an indexing scheme for further adjustment of payments to Panama after five years and every two years thereafter until the expiration of the treaty on December 31, 1999. The prospective toll hikes to cover these payments would of course be in addition to the roughly 50 percent effective rate increase that has already taken place since

July 1974. The latter did not destroy the markets that I have voiced concern about, and, to the extent that future toll hikes reflect general inflationary pressures, to which all competing markets are subject, U.S. operators will very likely be able to operate under those too.

One way to look at the possible effect of any immediate substantial toll hike is to consider the price elasticity of demand for commodities that are moved through the Canal. The Maritime Administration performed such a study in 1974, and its results were mainly applicable to a short-run outlook. The Department of State, with the Department of the Army, I should note, have recently commissioned a much more comprehensive study which will address the relationship of toll hikes to Canal transits, cargo and revenue in considerable detail. The approach taken in our own earlier study, however, helps to show what the net effect of a toll hike might be. The thread of the analysis is as follows:

The average delivered value of the various commodities of U.S. trade that are moved through the Canal is about $300 per ton. Suppose, to take an extreme case, that the Canal tolls were to be raised 100 percent, that is, from about $1.29 per Canal ton to $2.58 per ton. That would mean that about forty-three hundredths of a percent (0.43%) would be added to the average landed price of a Canal transported commodity. Consider the "price elasticities" of the commodities. Price elasticities are numbers which characterize the marketplace for commodity sales. They usually represent the percentage drop in quantity sold for a given percentage increase in price and are expressed as a constant ratio. A commodity price elasticity of 1.0 for example, would mean that if the price were increased by some percentage, the quantity sold would drop by an equal percentage.

According to a study done at the Maritime Administration a few years ago, the average price elasticity of the commodities that are transported through the Canal in U.S. trade is less than 1.5, meaning that the quantity of those commodities that is actually sold tends to drop by less than 1.5 percent for each 1 percent rise in price. Therefore, if tolls are raised 100 percent, thereby adding 0.43 percent to the average landed cost of a commodity, we can expect a drop in the U.S. tonnage that transits the Canal of under sixty-five hundredths of a percent (0.65%). According to the Panama Canal Company's FY 1976 figures, this translates into a tonnage drop of about 500,000 long tons. Šince U.S.-flag shipping carries about 10 percent of U.S. Canal trade, U.S.-flag operators might expect to lose no more than about 50,000 tons of cargo per year overall under a 100 percent toll hike.

Should toll increases immediately following ratification of the new treaties be about 30 percent, as some have suggested, the same line of reasoning would lead us to conclude that U.S.-flag operators would lose less than 15,000 tons of cargo. The elasticity approach helps us to illustrate arithmetically what we have understood from the start: that tolls do in fact make up only a small part of the total cost to the consumer of Canal-transported commodities, and, given that they are always adjusted to represent the fair economic value of Canal service to general users, their increase will result in only a small loss of cargo overall to ship operators. In fact, the effect on U.S. export and import trade transiting the Canal that I have noted is essentially a short-term effect. All of the economic studies we have reviewed indicate that reductions in tonnages through the Canal, for toll increases approaching 100%, tend to be more than offset over a longer term by increased Canal traffic due to trade growth.

Unfortunately, the elasticity type of analysis doesn't necessarily describe the effect of increased costs on small, differentiated markets. To return to my earlier examples, if toll hikes were to make Ecuadorian bananas and Colombian coffee more costly on the U.S. East Coast than bananas and coffee from other sources-by whatever amount-these markets, far from suffering a mere small percentage de cline, would be seriously affected, possibly even destroyed. The total size of these markets is currently about 500,000 long tons per year. Of this, U.S.-flag ships typically carry 20-25 percent or 100,000 to 125,000 long tons. These figures serve to illustrate that smaller segments of a market can be affected to a greater extent than the overall, consumer oriented market analysis might suggest.

Similar economic dislocations can of course occur in any industry or in any part of an industry whenever there is a change in the price or in the pricing structure of a major service to that industry. If the pricing structure is—and remains-reasonable and equitable, however, such dislocations can be minimized.

The principal issue, then, that I see for the U.S. Merchant Marine in the new Canal treaty is the alteration in the pricing structure of Canal services that might be forced by the requirement to make payments to the Republic of Panama out of operating revenues and produced surpluses. Henceforth, if this treaty is ratified, Canal tolls can be expected to change frequently, but with an established regularity

and in highly predictable increments. This predictability should help to minimize any possible adverse effects on our industry. In addition, we can look forward to some immediate offsets to the new Panama payments which should help to reduce the amount of any new toll increases needed. I refer again to the transit of Alaskan oil and the increase in revenues that will result. Furthermore, the overall outlook for increased usage of the Canal for all commodity transport promises increased revenues at least through the year 2000.

Given the assurances for the continued availability of the Canal to all users, and the continued practice of establishing reasonable and equitable tolls and service charges, as set forth in both treaties, the risks to the maritime industry appear, on balance, to be minimal and justified. We, therefore, recommend ratification. Mr. Chairman, this concludes my prepared statement. I will be happy to answer as best I can any questions that you or other members of the Committee may have.

29-400 0-78-21

[From the Congressional Record-Senate, Oct. 4, 1977]

THE PANAMA CANAL TREATIES

Mr. HARRY F. BYRD, JR. Mr. President, the distinguished Senator from South Carolina (Mr. Thurmond) made an excellent argument in opposition to the new Panama Canal treaties in testimony before the Senate Foreign Relation Committee this morning.

I ask unanimous consent that Senator Thurmond's supporting documents he presented to the committee be printed in the Record. There being no objection, the material was ordered to be printed in the Record, as follows:

LATIN AMERICA

TORRIJOS, TREATY NEGOTIATORS ADDRESS CORREGIMIENTO ASSEMBLY

(By Foreign Minister Gonzalez Revilla)

Your Excellency President of the Republic, Demetrio Basilio Lakas; Your Excellency chief of government, Gen. Omar Torrijos Herrera; Mr. Vice President of the Republic, Gerardo Gonzalez; honorable chairman of the national representatives assembly, Mr. Fernando A. Gonzalez; deputy commander in chief of the National Guard and members of the chiefs of staff; minister and members of the autonomous entities; legislation commissioners; honorable president of the Supreme Court of Justice, Dr. Juan Materno Vasquez; honorable representatives:

The agreements reached in the negotiations for a new Panama Canal treaty constitute the culmination of a very important phase in the struggle of the Panamanian people for its liberation from all forms of foreign domination. Created as an independent state in 1903 and recognized by all nations of the world, the Panamanian nation immediately announced that the limitations of its sovereign attributes, imposed by a treaty that placed it in a status of dependence, would have to be eliminated. Only thus would it be possible for its position to be, in fact, equally sovereign among the other nations of the world.

From its birth, our nation has struggled relentlessly and continuously to become the master of its own fate. With the contribution, throughout the years, of great Panamanians, whose names must not be mentioned hastily to avoid unfair omissions, we are today in the final stages of a historic battle. Such effort has evidenced that we possess the essential attributes of a true nation-the deep sentiments of freedom and political maturity. The name Panama today is uttered with respect by foreigners and with pride by Panamanians in all corners of the earth.

The proud and constant struggle gave a characteristic nature to our liberation efforts. We can proudly and firmly tell our parents and grandparents that we understood their message and that we did the best we could under the circumstances, that we fought tirelessly and based our debate on historic arguments and legal consistency, honoring those who deserved to be honored without questioning their efforts, united in a single team made up of men who were always inspired by their love for their fatherland.

We may also tell them with the same pride that we shall turn over to our children a nation which has recovered its territorial integrity, which has rid itself of the colonial enclave, and which is ready to take full advantage of its greatest natural resource.

Our chief of government, Gen. Omar Torrijos, promised the coming generations of Panamanians that this liberating process would firmly establish for them a territory covered from border to border by our national sovereignty. This sovereignty includes the canal and its adjacent areas which had been cut off from the rest of our territory for 74 years.

The objective of this struggle is already in sight. The watchword of our campaign has been total sovereignty. In order, however, to consolidate this sovereignty, it is necessary to rely on the expressed willingness of the peoples of both sides through the respective ratification procedure to be carried out in Panama and the United States.

In the case of Panama, it will be done through a national plebiscite as provided by the constitution approved by this assembly. Should we fail to achieve this ratification, we shall be committed to continue our struggle under unpredictable conditions. We are confident there will be sufficient common sense on both sides to realize that an honorable solution has been found which issues a peaceful death certificate to an anachronistic situation that will cease at a fixed date.

To continue our information policy on behalf of the Panamanian people, where all sectors have equal value and rights, we offer an exposition of the main points of the agreements reached by the governments of Panama and the United States and which, in our opinion, constitute an effective program of decolonization. Thank you.

FIRST ESCOBAR BETHANCOURT SPEECH

Your Excellency, president of the republic; chief of government; president of the Assembly of Corregimiento Representatives; ministers; members of the National Guard General Staff; and representatives:

We consider it to be most historic that a detailed report on the negotiations is being submitted to this assembly. It is deeply significant for what you represent. This revolutionary government considers that the republic's new composition, its new political structure, is in actuality linked to the Panamanian people through you, because you come from all sectors of the country. It is precisely you who will have to explain in each of your communities the problem of the negotiations. When the revolutionary government assumed power in 1968, a change took place in its international policy, a change aimed at obtaining for our country those things which needed improvement regarding its sovereignty and jurisdiction. Led by General Torrijos, for the first time in our history a Panamian government, far from evading, opposing or attacking the Panamian people in response to their claims of sovereignty and jurisdiction, has done precisely the opposite and has taken hold of the banners which the Panamanian people have been holding high since 1903. The struggle for the full independence of our country and for the recovery of its natural resources has become not only the slogan but also the foundation of the revolutionary government's policy. When this government is assessed by history, when the revolutionary government and General Torrijos are analyzed, the analysis will indicate that this government was basically revolutionary, because it made national liberation the slogan and the motive power of all its administrative, governmental and political activities.

A campaign to force the United States to sit at the negotiating table and to arrive at conclusions favorable to and positive for our republic began from this position. But this is another of the great differences between this revolutionary government and our past. General Torrijos understood that a struggle for national liberation carried out at only a bilateral level was a struggle without a future, for the simple reason that it was the struggle of a very small country against the major power in the world. Then he decided, using one of his typical phrases, that the problem of Panama, the canal problem, would not be a real problem until it became a problem of the American continent and of the world. An independent international policy was drafted on this basis.

Now, when we are being criticized by certain national sectors or groups, we recall the criticism of those same groups when Panama began its independent international policy. When the general said that each country had the right to its own friends and enemies and that our country's international policy was not going to continue according to the dictates from Washington as was customary, we received strong criticism from domestic sources. During the crisis of the Panamanian ships in Cuba, when the general decided to hold direct contact with Fidel Castro's regime, the persons who bewailed his policy on that occasion are doing the same now regarding the canal. However, now they are not protesting contacts with Cuba because the United States is making such contacts. But when Torrijos did so, they said it was crazy, that it did not make sense, that it was making Panama communist, that the gringos would not tolerate it. We went through all that criticism in this country from those sectors which are now criticizing the treaty draft.

General Torrijos remained firm and imperturbable in defense of his policy and in the face of criticism. In a few years history proved him right and tossed into the wastebasket the position of those opposed to his independent policy. This policy continued with the meeting of the UN Security Council in this same building. We were strongly criticized on that occasion by local sectors and received threats from the United States and bribe offers from U.S. Government officials. General Torrijos