of the future Panama Canal Commission to raise tolls. As the members of this Committee are undoubtedly aware, the proposed treaty with Panama specifies that a portion of the royalty payments to be made to Panama is to be adjusted upward in line with the expected upward movement of a price index. It must also be expected that the other costs associated with operating the Canal will continue to increase. At the same time, our projections indicate that traffic and revenues will, on average, increase only at a moderate rate, much less than the rate experienced over the last 15 years.

All of these circumstances seem to underscore the probability that toll rates may have to be increased several times during the next 23 years if the Canal is to continue on a financially self-supporting basis. The question, therefore, arises whether the present and prospective sensitivity of the traffic to toll increases is such that these increases can be absorbed; or whether at some point, soon, the Canal's ability to raise tolls will be exhausted and any further toll increases will actually result in less and less revenue.

Our findings on this question, unfortunately, are not conclusive. The future ability of the Canal to raise sufficient revenues to cover its costs depends partly on how fast the cost of Canal operation increases and partly on how well these cost increases are matched by increases in the cost of the alternatives. As my example showed, many alternatives to the Canal involve alternate transportation services which are also affected by inflation. However, there are other alternatives which do not require any measurable service. Moreover, the recent devaluation of the U.S. dollar in relation to other currencies has had the effect for many foreign ship operators of making Panama Canal transit cheaper and, thereby, lessening the impact of past or future toll rate increases.

Given the many and often conflicting trends which affect the present and future costs of transiting the Panama Canal versus its competing alternatives, it would be hazardous, if not foolhardy, to attempt a pinpoint forecast of their relative positions some 20 years hence.

Our own conclusion on this point is that for the next five to ten years a future Panama Canal Commission should have sufficient revenue resources availableactual or potential-to meet its costs. This means, in effect, that during that period the income required should either be available from toll revenues at current rates; or if necessary, those rates could safely be raised to obtain the additional amounts likely to be needed. But beyond ten years the uncertainties simply become too numerous to permit a worthwhile forecast.

So much for the principal findings. Let me now present a personal assessment of the significance of our study to the deliberations of this Committee and of the United States Senate.

Our most important finding, as far as the treaties are concerned, is that actual or potential toll revenues will be sufficient to meet the needs of the present Panama Canal Commission for the next five to ten years though our study did not concern itself with the projected expenditures of the organization during this time periodthese will undoubtedly be presented by the Panama Canal Company in due time-I am familiar with the budgetary assumptions made last summer during the last phase of the negotiations. Compared to those, both our revenue and sensitivity projections indicate that the actual or potential toll revenues that will be available during this period will be larger than was estimated last summer.

A second significant conclusion of our study is that beyond the next ten years we can give no assurance about the ability of the Canal to maintain itself on a financially self-supporting basis. One very important aspect of this conclusion is that we did not come to it because we detected some insurmountable obstacles in that distant future. As I said before, our reason was simply that there are far too many uncertainties on this point to permit us to make a long-range forecast which we could consider credible.

Finally, while it is impossible to predict with any degree of certainty whether the Panama Canal can continue to function over the next 22 years on a financially selfsupporting basis, I am convinced that the quality of the management of the future Panama Canal Commission will play a significant role in determining the economic life-span of the Canal. In a new organization, good top management is essential to make certain that the size and scope of that new organization matches the duties assigned to it and no more. Good management may also have an effect on the future level of revenues because Canal users often consider both the cost and the service quality of a transit before choosing between the Panama Canal and one of the alternatives.

I would therefore urge this Committee and the United States Senate to use their influence and power to assure that the appointments that will be made to the

Panama Canal Commission measure up to the level of competence which these positions will so evidently require. The importance of the Panama Canal, past, present and future, is such that it deserves nothing less.

This concludes my statement.

STATEMENT BY MR. HENRY R. GEYELIN

Mr. Chairman, members of the Committee, on behalf of the Council of the Americas, I want to thank you for this opportunity to present our views. As you know, the Council of the Americas is composed of over 200 U.S. corporations, comprising nearly ninety percent of all U.S. private investment in Latin America and the Caribbean. The mission of the Council is to further understanding and acceptance of the role of private enterprise as a positive force for the development of the Americas.

The Council of the Americas would like to urge speedy ratification of the new treaties with Panama. We are encouraged by the constructive negotiations now underway to clarify any misunderstanding and to resolve any issues which might impede the conclusion of new Panama Canal treaties. The Council's decision to support ratification of such treaties resulted from a consensus vote of the Board of Trustees in which 95% favored the Council's taking a supportive role.

We have been aware for quite some time of the hemispheric impact of the success or failure to resolve the Panama Canal treaty issue, and our extensive experience with Latin American affairs had ld us to believe that there is a compelling need to modernize our relations with Panama.

Throughout 1976 and 1977, the Council supported the continuation of the negotiating process, as well as the need for a new relationship with Panama through good faith negotiations. To achieve these goals, the Council formed a Work Group on Panama to stimulate nonpartisan debate on both sides of the issue. Our statement of support for ratification of the treaties, however, is not necessarily a consequence of our prior support for the negotiating process. The Council carefully avoided taking a position on any possible terms of the treaties themselves until 1) they had been made public, and 2) member corporations had had an opportunity to analyze the documents carefully and to discuss fully both sides of the issue. This analysis has now been completed and we have decided that ratification of the new Panama Canal treaties, with appropriate clarification, merit the support of the Council of the Americas.

We believe the treaty enables the U.S. to continue to keep the Canal open by working with Panama, a long-term ally who has never failed to keep its international obligations. We further believe that the gradual nature of the proposed change in the status of the Canal over the next quarter century is the best means by which to insure the fundamental interest of the U.S.-an open Canal that is continuously accessible to world commerce.

Furthermore, we do not feel that the United States is "surrendering" the Canal to an unstable nation. We are entering into a mature partnership of mutual responsibility with a long-term friend and strong supporter of free enterprise for the benefit of the United States, Panama, and the world.

Above all, the fundamental interest of the U.S. is an open Canal, efficiently operated and maintained, accessible to ships of all nations, and permanently neutral. We believe that the best way in which to preserve this interest is for the U.S. Senate to consent to the ratification of these new treaties, with the appropriate clarifications, and to enter into the partnership that they create.

The Council of the Americas views positively the strong emphasis on free enterprise and private investment in Panama's economic development planning. Panama's goal of becoming a major regional center for shipping and trade will depend on its ability to deal successfully with private enterprise internationally. In addition, Panama's development plans indicate a healthy reliance on private investment. To illustrate this point, Dr. Nicolas A. Barletta, Minister of Development and Planning of the Republic of Panama, at the Annual Meeting of the Council of the Americas on December 5, 1977 pointed out that because Panama's development plans are subject to its ability to act as a service center for regional trade activities, Panama would not endanger the volume of Canal traffic by requesting that the U.S. raise toll rates to an unreasonable level.

Panama's economic development planning, in our opinion, demonstrates a cautious and pragmatic approach to their problems. It is our belief that this responsible attitude will continue if the treaties are ratified and Panama increases its participation in the Canal enterprise.

The Council of the Americas supports these treaties because they are in the best interests of the United States. They are NOT special interest treaties, and they are NOT designed to "bail out" U.S. corporations. These treaties have been under negotiation since 1964, and Panama has experienced a very healthy increase in U.S. investment during this period.

These new treaties, with the appropriate clarifications, are not perceived as a weakening of the United States or as a threat to our national security. Our willingness to modernize our relationship with Panama is testimony to our belief in the sovereignty of nations, the right to self-determination, and our sincere desire for global cooperation. The Council of the Americas recognizes, as will the rest of the world, that the ratification of these treaties will be proof of our strength as a nation and as a world leader.

STATEMENT BY PATRICK N. HUGHSON

Mr. Chairman: I am Patrick N. Hughson and I appear today in my capacity as president of the Association of American Chambers of Commerce in Latin America, which is better known by its acronym, AACCLA. It is an honor for me to have been invited to testify on the Panama Canal Treaties now before your Committee, and I am pleased to have traveled to Washington from Santo Domingo for this purpose. I am a businessman and have worked for over 25 years in Latin America for the Aluminum Company of America. Accompanying me today is Mr. Keith L. Miceli, executive secretary of the Association.

AACCLA was founded by the American chambers of commerce in Latin America in 1967 to provide a means for them to collectively address new challenges created by the region's economic growth. The American chamber movement in Latin America, however, began in 1915 with the establishment of the chamber in Rio de Janeiro. Today, AACCLA consists of 16 American chambers whose underlying memberships represent over 17,000 U.S. and host country companies and individual businessmen located throughout the Hemisphere.

These businessmen and their companies are responsible for managing the overwhelming majority of the estimated $24 billion of U.S. foreign direct investment in the region as well as a large part of the $35 billion of total U.S.-Latin American trade. Through AACCLA, our members formulate positions on issues that critically affect the economic and commercial relations between the United States and Latin America.

The Panama Canal is clearly such an issue. For many years, most U.S. business leaders working in Latin America have recognized the importance for the United States to modernize its relationship with Panama vis-a-vis the Canal. When the current round of negotiations got underway, the initiative was noted by many of us as a timely effort to bring this 70 year-old arrangement into a form more in agreement with contemporary U.S.-Latin American relations, while preserving the U.S. national interests involved.

For this reason, AACCLA was the first U.S. business association, I am proud to say, to endorse renegotiation of the Panama Canal Treaty based on the TackKissinger "principles" agreed to in 1974. We support the U.S. commitment to seek a new and fairer arrangement with Panama and applaud the wisdom of four Administrations in working to protect our national interests by looking to the future and not to the past.

We believe that the "principles" provided a sound basis for safeguarding the national interests of both nations and we were convinced that the negotiations were being conducted on a basis of good faith since both nations share the primary objective of maintaining an open and efficiently operated canal. We therefore actively supported the negotiations process and have opposed Congressional initiatives which would have blocked progress.

Late last year, long and careful review was given by AACCLA to the terms of the draft treaties and to related arguments-both pro and con. On November 1, 1977, meeting in San Jose, Costa Rica, the AACCLA Board of Directors approved a policy urging Senate ratification of the Treaties. The text of our policy position is attached to my statement.

AACCLA supports ratification for two fundamental reasons:

First, the Treaties would bind the United States and Panama in a partnership committed to maintaining the Canal open, secure, and efficiently operated. We know, for example, that under the terms of the Panama Canal Treaty, the United States will continue to have primary operating responsibility for over 20 years or until the year 2000. During this time period, Panamanians, who now constitute 70

percent of the labor force, will be trained to assume the remaining administration and technical jobs.

As U.S. businessmen in Latin America, we are well aware of the competence of Latin Americans, including Panamanians, as many currently serve in high-level corporate positions, successfully managing large, complex, multi-million dollar enterprises. Therefore, we feel, and indeed have no doubt, that the Panamanians can, in such a time span, master the technical and managerial requirements for administering and operating the Canal.

Of great significance as a motivating factor for sound administration by Panama is the fact that the Treaties increase Panama's economic stake in the Canal. What Panama earns from this enterprise will be directly related to the level of traffic that moves efficiently through the Canal. It should be remembered that Panama derives approximately 12 percent of its gross domestic product, 18 percent of its foreign exchange earnings, and employs over 10,000 of its people in Canal-related activities. With the Canal being their most important economic resource, it follows that the Panamanians will be extremely motivated to keep the Canal open and efficiently operated.

Future Canal tolls are a consideration of importance to businessmen in the region. We feel the economic incentives I just mentioned, along with certain commercial factors, will have a moderating effect on the setting of tolls. The reason is that excessive increases would result in a decline of total revenues to Panama because of lessened demand. Like similar waterways elsewhere, the Canal operates in a competitive "market" where users can consider options. Such options to the Canal include: alternate routing, alternate modes of transportation, and alternate market sourcing for certain commodities. There is no doubt in my mind that the Panamanians are well aware that the levy of excessive tolls will make the Canal uncompetitive and market forces would result in the use of these "alternatives." I have no doubt that they are also aware that once such a process of using alternates is underway, the financial and organizational investment by the importers, exporters, and shippers involved is unlikely to be easily abandoned.

In this regard it is important to keep in mind that use of the Canal is relatively much larger for many Latin American countries than for the United States. For example, Nicaragua, El Salvador, Chile, Colombia, Guatemala, Peru, and Costa Rica use the Canal for transiting anywhere from 30 to 80 percent of their international trade. These countries will not hesitate to remind their Latin American "sister" nation about the vital importance of reasonable tolls for their economic well-being. The second reason that AACCLA supports ratification of the Treaties is that their acceptance will remove a major issue used by those who espouse anti-American feelings throughout Latin America. It will demonstrate to the developing world, including Latin America, that the United States is willing to seek new relationships with smaller countries in keeping with today's world where power alone does not guarantee right.

We must understand that, just as the Canal's construction came to symbolize the resourcefulness and ingenuity of the American people, the 1903 Treaty is a symbol to the Panamanian people and Latin America as well-one which unnecessarily invokes the old image of U.S. paternalism and interventionism.

For years, Latin American governments and peoples have urged the United States to conclude a more just and equitable treaty with Panama.

That Latin America has approved the long-awaited Treaties is evidenced by the media coverage which I have collected:

A columnist in the nationalistic Mexican newspaper Excelsior wrote, "On very few occasions has there been so wide a consensus in the Hemisphere as in the case of supporting the Panamanian cause

The conservative Brazilian newspaper O Estado de Sao Paulo declared that the Treaties "represent a great success for American diplomacy. This success, however, will be complete and total only if approved by the U.S. Senate The Canal represents the last residue of American colonialism.'

The liberal El Tiempo of Bogota, Colombia, while noting the respect won by the United States "all over the world" declared, "It is regrettable that many of the treaty's critics rely on distortion of what the accord actually signifies in order to avoid conceding the elemental justice it calls for."

The English language Daily Journal of Caracas, Venezuela, saw it as "a great achievement that the Government of the number-one world power and the Government of one of the world's weakest nations could peaceably reach ・・・ an agreement on such a difficult historic issue."

The independent La Republica of San Jose, Costa Rica, declared, "The signing of the new treaty turns a dream into reality. At the same time it shows the way to a

new road. It has come about because of good will on the part of the United States, responsibility from the Panamanians and solidarity of all the countries belonging to the OAS☀

The independent Listin Diario of Santo Domingo, Dominican Republic, asserted that, "The U.S. now can have the satisfaction of knowing that its child out of wedlock has been legitimized as the precious resource of Panama, to be ** * for the service of Panamanian development

The conservative La Segunda of Santiago, Chile, stated that if the Treaties fall Senate ratification, it would "be the equivalent of Woodrow Wilson's failure to obtain approval of the League of Nations treaty in 1920. But if the Senate gives its approval, it will be a great success for the U.S.

Regarding the September 7 treaty signing ceremony in Washington, the independent El Universo of Guayaquil, Ecuador, praised President Carter for courage and said the occasion "can signify, if he continues his policy, a historic change for the Hemisphere with a new sense of equality and respect prevailing in future interAmerican relations *

And, the El Expreso of Lima, Peru, declared that "for all the countries of America, Wednesday was a day of jubilation and renewed hope in fraternal ties within the Hemisphere"

Given views such as these, which are common throughout Latin America, ratification of the Treaties will be seen as a reaffirmation of our American values of justice and national self-determination-the principles upon which our country was founded.

With respect to the national security aspects of the Treaties, our Board members accept the assurances by President Carter, the Secretaries of State and Defense, and the Joint Chiefs of Staff, that the terms of the Treaties provide the necessary guarantees for the secure, peaceful, and expeditious transit of our ships in peace and war. We found that the Carter-Torrijos "Statement of Understanding" prompted, in part, by your Committee hearings, further clarified those Treaty provisions. In the event that the Treaties are not ratified by the U.S. Senate, I believe that our relations with Panama would be shattered and our relations with Latin America damaged. More importantly, I believe that it would provide extremists on both ends of the political spectrum throughout the Hemisphere-particularly the leftists-a tailor-made issue with which to whip-up anti-American feelings. It would create a highly charged emotional environment in which the Canal itself might be jeopardized, along with other symbols of the United States-including American companies throughout Latin America.

In conclusion, the AACCLA policy position in support of ratification of the Treaties, adopted by AACCLA's Board of Directors, on behalf of the American chambers of commerce throughout the Hemisphere, is based on practical considerations. It is founded in our belief that: (1) the Treaties propose a feasible means for safeguarding future U.S. commercial interests in the Canal, and (2) ratification of the Treaties will be the most important U.S. action taken in recent years leading to improved relations with Latin America.

The policy position of AACCLA follows:

AACCLA POLICY POSITION ON THE PANAMA CANAL TREATIES ADOPTED AT THE V MID-YEAR MEETING IN SAN JOSE, COSTA RICA, NOVEMBER 1, 1977

The Association of American Chambers of Commerce in Latin America in 1975 endorsed the need for a renegotiated treaty which would protect the national interests of Panama and the United States and assure effective operations of the Canal as an international commercial facility.

It is the consensus of the Board of Directors of the Association of American Chambers of Commerce in Latin America that the terms of the Panama Canal treaties of 1977 are (1) consistent with its earlier support of the Statement of Principles of 1974; and (2) that the treaties provide a basis for safeguarding the national interests of both nations in the Panama Canal as a reliable and secure international commercial facility.

Goodwill between the two nations is an essential element for the effective implementation of any agreements and, in the opinion of the Board, ratification of the treaties would generate such goodwill with Panama as well as throughout the hemisphere.

Therefore, AACCLA urges ratification of the Panama Canal treaties.