1 Based on actual performance in fiscal 1976, from the annual report of the Panama Canal Company for that year. Similar percentages of Panama Canal traffic moved in U.S. import/export and domestic commerce in recent years prior to fiscal 1976, and it may reasonably be presumed that these approximate percentages of Panama Canal traffic will continue to move in U.S. commerce (excluding Alaskan oil) for the foreseeable future.

2 See app. B, footnote 2.

See app. B, footnote 3.

Note: It is presumed that 100 percent of the toil burden attributable to domestic U.S. traffic tolls on the U.S. economy. It is further presumed that 50 percent of the toll burden of U.S. import/export traffic falls on the U.S. economy, with the remaining 50 percent falling on the economies of America's trading partners regarding this traffic. Based on these assumptions, the U.S. economy bears a toll burden equal to 15.8 percent plus 2 of 54.4 percent, or 43 percent.

APPENDIX F.-IMPACT OF TAA RECOMMENDATIONS ON TOLL-INCREASE NEEDS, FISCAL 1979

1 Based on testimony presented by Governor Parfitt before the Panama Canal Subcommittee of the House Committee on Merchant Marine and Fisheries, Nov. 30, 1977; see app. D.

2 Based on 30-percent toll increase; see app. D.

3 See app. A.

*It is understood that implementing legislation now being drafted by the State Department provides for these cost elements to be eliminated, as TAA recommends. Accordingly, these adjustments have already been made in the Panama Canal Company's projections, and are not deducted here a 2nd time. Note that TAA has been unable to ascertain the dollar amount of costs, including depreciation, associated with the assets being transferred to Panama immediately upon ratification of the treaty by both nations.

5 See app. D for the 1-time transition costs. In footnote 4, Governor Parfitt notes that in the future capital costs in excess of depreciation will be incurred at the rate of approximately $7,000,000 to $10,000,000 annually; accordingly, the $9,700,000 transition costs have been regarded as a reasonable approximation of these future capital costs for years following the transition year.

Note: Based on these adjustments, a toll increase of only 22-23 percent, rather than 30 percent, would be required to generate the necessary added revenues. No account taken here of possible further adjustments through absorption by the U.S. Government of portion of the burden of treaty payments to Panama pro-rated according to the foreign policy benefits of the treaty accruing to the United States.

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TRANSPORTATION ASSOCIATION OF AMERICA BOARD OF DIRECTORS

NOVEMBER 1977. William E. Callahan-Chairman, Vice Chairman, International Harvester Company, Chicago, Ill. Paul J. Tierney-President, Transportation Association of America, Washington, D.C. John E. Adkins, Group Vice President-Transportation, Greyhound Corporation, Phoenix, Ariz.

Harold L. Albrecht, Vice President, Supply & Distribution, Reynolds Metals Company, Richmond, Va.

A. G. Anderson, Transportation Association of America, New York, N.Y.

Grant Arnold, General Traffic Manager, Ethyl Corporation, Baton Rouge, La. Dr. George P. Baker, Member, Board of Directors, Temple, Barker & Sloane, Inc., Wellesley Hills, Mass.

Frank E. Barnett, Director, Union Pacific Corporation, New York, N.Y.

W. J. Barta, Chairman, The Valley Line Company, St. Louis, Mo.

Henry Bartholomay III, Senior Vice President and Director, Alexander & Alexander, Inc., Chicago, Ill.

Theodore W. Brooks, Senior Vice President, The Chase Manhattan Bank, New York, N.Y.

Curtis D. Buford, President, Trailer Train Company, Chicago, Ill.

Vincent C. Burke, Jr., Chairman of the Board and Chief Executive Officer, The Riggs National Bank of Washington, D.C., Washington, D.C.

Carleton D. Burtt, Executive Vice President, The Equitable Life Assurance Society of the United States, New York, N.Y.

Walter F. Carey, Chairman of the Board, T.I.M.E.-DC, Inc., Bloomfield Hills, Mich.

H. T. Chilton, President and Chief Executive Officer, Colonial Pipeline Company, Atlanta, Ga.

Thomas T. Church, Vice President, Transportation, Bethlehem Steel Corporation, Bethlehem, Pa.

Lee Cisneros, Director of Corporate Physical Distribution, the Firestone Tire & Rubber Company, Akron, Ohio.

William H. Clausen, Weston, Conn.

Joseph A. Cooper, Senior Vice President- Marketing, Delta Air Lines, Inc., Atlanta, Ga.

Henry A. Correa, President, ACF Industries, Incorporated, New York, N.Y. Charles E. Coyl, Chairman, General American Transportation Corporation, Chicago, Ill.

John A. Creedy, President, Water Transport Association, New York, N.Y. Robert H. Cutler, Chairman of the Board, ICX Truck Lines, Inc., El Paso, Tex. Thomas E. Darnton, Vice President-Procurement and Production Control, General Motors Corporation, Detroit, Mich.

William H. Dempsey, President and Chief Executive Officer, Association of American Railroads, Washington, D.C.

N. C. Dunn, Traffic Manager, Supply Department, Exxon Company, U.S.A., Houston, Tex.

J. Donald Durand, General Counsel, Association of Oil Pipe Lines, Washington, D.C.

William M. Fairhurst, Executive Vice President, Dana Corporation, Toledo, Ohio. Peter Fanchi, Jr., Chairman, Federal Barge Lines, Inc., St. Louis, Mo.

Richard J. Ferris, President and Chief Executive Officer, United Airlines, Inc., Chicago, Ill.

John P. Fishwick, President and Chief Executive Officer, Norfolk & Western Railway Company, Roanoke, Va.

Sam H. Flint, Vice President-Corporate Operations, The Quaker Oats Company, Chicago, Ill.

Charles W. L. Foreman, Vice President, United Parcel Service, Greenwich, Conn. Jack R. Frost, Jr., Director of Transportation, Uniroyal, Inc., Middlebury, Conn. Dr. Gayton E. Germane, 1907 Foundation Professor of Logistics, Graduate School of Business, Stanford University, Stanford, Calif.

David E. Gile, Senior Vice President, Marine Midland Bank, New York, N.Y. G. Zan Golden, Senior Vice President, North American Van Lines, Inc., Fort Wayne, Ind.

Allan Grant, President, American Farm Bureau Federation, Park Ridge, Ill.

R. C. Grayson, Chairman of the Board and President, St. Louis-San Fransicso Railway Company, St. Louis, Mo.

Donald G. Griffin, Vice President-Distribution and Transportation, PPG Industries, Inc., Pittsburgh, Pa.

Frank L. Grimm, Chairman of the Board and Chief Executive Officer O'Boyle Tank Lines, Inc., Rockville, Md.

Harold F. Hammond, Senior Advisor, Transportation Association of America, Washington, D.C.

John E. Harris, Jr., Vice President, Petroleum Supply Division, Phillips Petroleum Company, Bartlesville, Okla.

Richard Haupt, Director, Transportation and Traffic, Ford Motor Company, Dearborn, Mich.

Frank L. Heard, Jr., General Counsel and Director, Exxon Pipeline Company, Houston, Tex.

J. W. Hershey, Chairman of the Board, American Commercial Lines, Inc., Houston, Tex.

Richard D. Hill, Chairman of the Board, The First National Bank of Boston, Boston, Mass.

Eugene Holland, Jr., Executive Vice President, Continental Illinois National Bank, and Trust Company of Chicago, Chicago, Ill.

J. Robert Hoon, General Manager of Transportation, Aluminum Company of America, Pittsburgh, Pa.

Paul R. Ignatius, President and Chief Executive Officer, Air Transport Association of America, Washington, D.C.

James E. Isbell, Jr., Director of Transportation, FMC Corporation, Philadelphia, Pa.

George P. Jenkins, Chairman of the Board and Chairman of the Finance Committee, Metropolitan Life Insurance Company, New York, N.Y.

William B. Johnson, Chairman and Chief Executive Officer, IC Industries, Chicago, Ill.

Vernon T. Jones, President, Williams Pipe Line Company, Tulsa, Okla.

Edward G. Gordan, Chairman and Chief Executive Officer, Consolidated Rail Corporation, Philadelphia, Pa.

John M. Kinnaird, Vice President-Government Relations, American Trucking Associations, Inc., Washington, D.C.

Jack R. Kruizega, President, Union Tank Car Company, Chicago, Ill.

James O. Leet, Executive Vice President, Corporate Services, Pan American World Airways, Inc., New York, N.Y.

Richard A. Lempert, Vice President and General Counsel, American Airlines, Inc., New York, N.Y.

Arthur D. Lewis, President and Chief Executive Officer, American Bus Association, Washington, D.C.

Ira D. Lewis, Senior Vice President-Finance, Farrell Lines, Inc., New York, N.Y. James C. Malone, Vice President, Union Carbide Corporation, New York, N.Y. Donald L. McMorris, President, Yellow Freight System, Inc., Shawnee Mission, Kans.

James J. McNulty, Chairman of the Board, Emery Air Freight Corporation, Wilton, Conn.

F. A. Mechling, Chairman of the Board, Union Mechling Corporation, Pittsburgh, Pa.

Louis W. Menk, Chairman of the Board and Chief Executive Officer, Burlington Northern Inc., St. Paul, Minn.

Frank L. Merwin, Vice President, ASARCO Incorporated, New York, N.Y.
Thomas A. Micali, President, Pullman Trailmobile, Chicago, Ill.

G. Russell Moir, Chairman of the Board and President, Transway International Corporation, New York, N.Y.

Giles Morrow, President, Freight Forwarders Institute, Washington, D.C.

James F. Morse, Seattle, Wash.

Edwin F. Mundy, Harrington Park, N.J.

John A. Murphy, Chief Executive Officer, Gateway Transportation Co., Inc. LaCrosse, Wis.

Allen E. Murray, President, U.S. Marketing & Refining Division, Executive Vice President, Mobil Oil Corporation, New York, N.Y.

Frank A. Olson, President and Chief Executive Officer, The Hertz Corporation, New York, N.Y.

Roy E. Olson, Director of Transportation and Distribution, American Paper Institute, Inc., New York, N.Y.

D. H. Overmyer, President, D. H. Overmyer Company, Inc., New York, N.Y. Adrian B. Palmer, Chairman, Rollins Burdick Hunter Company, Chicago, Ill.

Michael Papadopoulos, General Manager, Transportation and Distribution, Shell Oil Company, Houston, Tex.

V. L. Petersen, Vice President, The Goodyear Tire & Rubber Company, Akron, Ohio.

John E. Phelan, General Traffic Manager, Anheuser-Busch, Inc., St. Louis, Mo. Robert W. Prescott, President and Chief Executive Officer, The Flying Tiger Line, Inc., Los Angeles, Calif.

William J. Quinn, Chairman of the Board, Chicago, Milwaukee, St. Paul & Pacific Railroad Company, Chicago, Ill.

C. B. Ramsdell, Vice President-Group Executive, Transportation Systems Group, Westinghouse Air Brake Company, Pittsburgh, Pa.

John S. Reed, Chairman, President and Chief Executive Officer, The Atchison, Topeka & Santa Fe Railway Company, Chicago, Ill.

James E. Reinke, Vice President-Government Affairs, Eastern Air Lines, Inc., Washington, D.C.

James J. Reynolds, President, American Institute of Merchant Shipping, Washington, D.C.

W. Thomas Rice, Chairman of the Board, Seaboard Coast Line Industries, Inc., Richmond, Va.

Ronald G. Ross, Senior Vice President, Bank of America N.T. & S.A., Los Angeles, Calif.

Paul Schuster, Chairman of the Board, Schuster Express, Inc., Cochester, Conn. Henry E. Seyfarth, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, Ill.

R. R. Smith, Chairman and Chief Executive, Smith's Transfer Corporation, Stauton, Va.

W. K. Smith, Vice President-Transportation, General Mills, Inc., Minneapolis, Minn.

Wilbur S. Smith, Chairman and Chief Executive Officer, Wilbur Smith and Associates, Columbia, S.C.

Lee R. Sollenbarger, Chairman of the Board, Transcon Lines, El Segundo, Calif. William I. Spencer, President, Citibank, New York, N.Y.

Edwin F. Stadelman, General Traffic Manager, J.C. Penney Company, Inc., New York, N.Y.

W. Stanhaus, Chairman and Chief Executive Officer, Spector Industries, Inc., Bensenville, Ill.

Stoney M. Stubbs, Chairman of the Board, Frozen Food Express, Inc., Dallas, Tex. L. D. Thomas, Vice President-Operations Planning & Transportation, Amoco Oil Company, Chicago, Ill.

Richard L. Thomas, President, The First National Bank of Chicago, Chicago, Ill. Robert E. Thomas, Chairman of the Board, MAPCO, Inc., Tulsa, Okla.

George F. Tidmarsh, Vice President-Physical Distribution and Transportation, Sears Roebuck and Company, Chicago, Ill.

John L. Tormey, Chairman of the Board, Roadway Express, Inc., Akron, Ohio. Kenneth L. Vore, Vice President-Traffic and Transportation, United States Steel Corporation, Pittsburgh, Pa.

Charles J. Waldelich, President, Cities Service Company, Tulsa, Okla.

Michael J. Walsh, Jr., Vice President-Transportation and Distribution, St. Regis Paper Company, New York, N.Y.

Hays T. Watkins, Chairman of the Board and President, The Chessie System, Cleveland, Ohio.

William G. White, Chairman of the Board, Consolidated Freightways, Inc., San Francisco, Calif.

Bennett C. Whitlock, Jr., President, American Trucking Associations, Inc., Washington, D.C.

George K. Whitney, Partner, Massachusetts Financial Services Company, Boston, Mass.

William C. Whittemore, Senior Vice President and Treasurer, John Hancock Mutual Life Insurance Company, Boston, Mass.

Frederick C. Witsell, Jr., Vice President, Morgan Guaranty Trust Company, New York, N.Y.

Hugh E. Witt, Director-Government Liaison, United Technologies Corporation, Washington, D.C.

STATEMENT OF JAMES J. REYNOLDS

Mr. Chairman and members of the Committee, I am James J. Reynolds, President of the American Institute of Merchant Shipping, commonly known as AIMS. AIMS

is the national trade association of the American-flag oceangoing merchant fleet and includes in its membership companies which own or operate independent or proprietary American-flag tankers, chemical carriers, liquefied gas carriers and dry bulk carriers. Many of our members utilize the Canal in their operations.

The primary interest of shipowners is in the continued safe and efficient operation of the Panama Canal for reasonable toll charges by an entity which recognizes, and strives to maintain, this waterway's commercial viability. AIMS has not adopted a position on ratification of the treaties under consideration today and cannot intelligently do so until very critical matters bearing upon future toll structure and operation of the Canal are clarified. Our concern is that the Administration has failed to take into account the diversion of traffic which is likely to result from toll increases of the magnitude mentioned by Treaty Negotiators in testimony before this Committee.

It is true that the technologically advanced American-flag liner vessels which currently use the Canal realize significant savings in so doing because of their relatively high daily operating costs and the disadvantage of using much longer alternative routes. Unless tolls are handled rationally with only moderate increases, however, this situation will change and the economic commitment made to Panama in the proposed treaties may become an empty promise. Vessels carrying bulk commodities to or from the United States and the Far East via the Panama Canal are particularly toll sensitive and any increases in charges may well price these commodities out of present markets unless they are carried on very large slow-speed bulkers around the Horn or eastward over the South Atlantic and around the Cape of Good Hope. We respectfully urge this Committee to examine carefully the economic projections which have been made with regard to the Canal in light of our testimony today.

The Canal has been very useful to world commerce. In fiscal year 1977, 122.9 million tons of commercial cargo traversed its fifty-one miles between two great oceans. This cargo figures importantly in the commerce of the United States and that of our Central and South American neighbors. The long-term trend has been for Canal traffic and tolls revenue to increase continually, although the deficits experienced in fiscal years 1975 and 1976 demonstrate the relevance of world economic conditions to Canal usage. The Canal can handle considerably more traffic than it presently does and projections submitted to this Committee last year by Secretary of Transportation Brock Adams show transits increasing from 13,201 in 1976 to 21,300 in 2000, out of a theoretical Canal capacity of 26,800. We submit that if such projections are to be realized the toll structure must be characterized by reasonable stability and a rational procedure be established for their adjustment when necessary.

One very recent favorable development in Canal transits and toll revenue has arisen from the start up of crude oil from the Alaskan North Slope through the port of Valdez. From the passage of the first tanker shuttling North Slope oil through the Canal from VLCC's off Balboa to Gulf port on August 31, 1977 through the end of November, $2,327,000 in new tolls revenue already has been generated by this activity, with $36.5 million annually expected as shipments reach their projected maximum. Unfortunately, this movement through the Canal may be relatively short lived depending on the availability in a few years of alternative pipeline transportation, for which necessary State and Federal approvals are now pending. Despite these generally optimistic statistics, we cannot emphasize too strongly, the fact that the continued commercial attractiveness of the Canal to American and foreign-flag vessels alike depends to a considerable extent on keeping tolls reasonable. If, on the other hand, tolls are permitted to escalate sharply as has been suggested by Administration witnesses, freight surcharges will become necessary and much of the cargo now moving through the Canal will either cease to move or shippers will seek alternative routes. Indeed some U.S. and foreign flag operators in reaction to a series of toll increases in recent years totaling more than fifty percent are already_redirecting their vessels carring Atlantic coast and Gulf cargoes to distant Far Eastern Ports by way of the Suez Canal or via the South Atlantic down around the Cape of Good Hope.

Our intercoastal and East-Orient trades are particularly susceptible to shipper reaction to higher costs and if tolls are unreasonably increased cargo will increasingly find its way across the continental United States by rail. The resultant decline in transits will place a burden of still higher tolls on those operators and cargoes for which there is no alternative to using the Canal. The land and mini bridges will become even more attractive to shippers of goods, to the detriment of a strong U.S. Merchant Marine and to the detriment of an economically viable Canal.