requirement for action by the Congress to dispose of property of the United States and to make appropriations of public funds. The treaty language purports to convey property of the United States to Panama and to provide for payments to Panama without action by the Congress as the Constitution requires. These issues are addressed at length in a memorandum on the necessity for appropriations to authorize the payments to Panama presented at the subcommittee hearings on December 1, 1977, and in extensive hearings and briefings conducted by the Committee on Merchant Marine and Fisheries in the first session of the 95th Congress. A further hearing by the Committee on the constitutional issues is scheduled in January, 1978. Attachment. W. M. WHITMAN. AMENDMENT No. 19 In paragraph 3 of article III, at the end of the text immediately above subparagraph (a), add the following: "The operating revenues of the Panama Canal Commission shall be deposited in the Treasury of the United States of America". In the first sentence of paragraph 5 of article III, strike out "Panama Canal Commission shall reimburse" and insert in lieu thereof "United States of America shall reimburse, only after the amount of such reimbursement has been appropriated,". In the text of paragraph 4 of article XIII immediately above subparagraph (a), strike out “Panama Canal Commission" and insert in lieu thereof "United States of America, only after such amount has been appropriated,". In paragraph 4(a) of article XIII, strike out "Canal operating revenues" and insert in lieu thereof "the Treasury of the United States of America". In paragraph 4(b) of article XIII, strike out "Canal operating revenues" and insert in lieu thereof "the Treasury of the United States of America". In paragraph 4(b) of article XIII, strike out the last sentence. In paragraph 4(c) of article XIII, strike out "Canal operating revenues to the extent that such revenues" and insert in lieu thereof "the Treasury of the United States of America, if its receipts from the Panama Canal Commission". In the last sentence of paragraph 4(c) of article XIII, strike out “Canal operating revenues" and insert in lieu thereof "such receipts". PANAMA CANAL OPERATION Mr. SPARKMAN. Mr. President, I ask unanimous consent to have printed in the Record a letter and enclosure which I received from the Department of State on February 3 in reply to a request by the Committee on Foreign Relations for additional economic and financial data concerning the operation of the Panama Canal. There being no objection, the material was ordered to be printed in the Record, as follows: Hon. JOHN SPARKMAN, DEPARTMENT OF STATE, February 3, 1978. Chairman, Committee on Foreign Relations, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: Attached to this letter you will find some additional economic and financial data concerning the operation of the Panama Canal. We are supplying this data in response to the request made by the Committee as a result of the hearing held on January 20, 1978. We hope that this material helps to clarify some of the questions which arose during the hearing and stand ready to supply any additional information the Committee may need. Sincerely yours, DOUGLAS J. BENNETT, JR., ECONOMIC AND FINANCIAL IMPLICATIONS OF THE NEW Panama Canal TreATIES This paper summarizes research on the ability of the Panama Canal to be operationally self-sustaining until the end of the century and examines the implications of the Panama Canal Treaty on domestic and world commerce. Research performed by the U.S. treaty negotiating team, by independent consultants and by various U.S. Government departments indicates that: 1. The Canal enterprise can generate sufficient revenue under the basic treaty to cover all its costs. 2. Opportunities for toll increases substantially exceed the revenues which will be required. 3. Cost savings opportunities are substantial. 4. The impact of likely toll increases on domestic and world commerce will be minimal, if not negligible. CAN THE CANAL PRODUCE SUFFICIENT REVENUE UNDER THE NEW TREATY TO COVER COSTS? Since 1915 toll revenues have risen from $4 million to $165 million in fiscal year 1977. At current toll levels they will increase to $210 million in 1985 and to $224 million in 1990. With a modest 25 percent toll increase, revenues would increase to $251 million in 1985 and to $268 million in 1990. At the same time various estimates have been made of the Panama Canal Commission's operating costs. An exhaustive study on Panama Commission cost projects has just been prepared by Arthur Anderson & Company for the 1979-83 period. These projections conclude that Canal costs, including payments to Panama and including an inflation factor, will range between $241 million and $249 million in 1979 to between $237 million and $262 million in 1983. The most significant impact of the new Treaties on future Canal financial operations will be the several annual payments to Panama which will be funded out of Canal operating revenues as operating Canal expenditures of the new Panama Canal Commission. Article XIII of the Treaty specifies three annual payments to Panama from Canal revenues as an equitable return to Panama on the national resources it has provided the Canal. The first payment is calculated on the basis of 30 cents per Panama Canal ton for each vessel transiting the Canal. Five years after the Treaty goes into effect, this payment will be adjusted every two years to reflect changes in the wholesale price index. This payment should cost the Panama Canal Commission about $45 million in fiscal year 1979. This payment is a direct result of Canal traffic and would not, of course, be paid if the Canal were not operating. The Panama Canal Commission will also pay Panama a fixed annuity of $10 million out of Canal operating revenues. This payment is a fixed expense of the Company and is not a function of traffic. The Commission will also pay Panama a third annuity of up to $10 million only to the extent the Commission has a surplus. Should the Canal's revenues not produce a surplus sufficient to cover this contingent payment, the unpaid balance would be paid from future year surpluses. Any unpaid balance remaining at the expiration of the Treaty would not represent a liability to the United States. Since this payment is only a contingent obligation, the Panama Canal Commission is not required to reflect it in its budget or the toll base. In addition, Article III of the Treaty which is discussed in greater detail below requires an annual payment of $10 million for specified public services furnished by Panama in Commission operating and housing areas. This reimbursement is for public services which currently cost the U.S. Government approximately $18 million to perform. Governor Parfitt, speaking for the Panama Canal Company, has suggested that an initial toll increase of 19.6 percent over existing rates would be required to meet these costs. However, the Governor pointed out a similar toll increase would be necessary by 1981 even without the treaties. American Management Services Commission has suggested an initial toll increase of 25 percent. The State Department in its initial estimates and testimony had suggested a toll increase in the neighborhood of 30 to 40 percent which subsequent study indicates was excessively conservative. A study on Canal traffic and revenue forecasts recently completed by International Research Associates offers estimates that are more optimistic than those developed by our negotiating staff during the actual treaty negotiations. The study concludes that: (a) Tolls could be increased up to slightly over 100 percent before revenues would begin to decline. (b) Toll rate increases ranging from 15 percent to 50 percent would result in losses of traffic, on a tonnage basis, ranging from 2.4 percent for a 15 percent increase to 11.8 percent for a 50 percent increase. Various studies concur in the finding that an initial toll increase is well within the ability of the Canal to generate revenue through tolls. This was our judgment during the negotiations. It is a judgment which has been supported by all subsequent analyses with which we are familiar, including the IRA study, a study of Commission costs by Arthur Anderson, and the findings of the Armed Services Committee consultant whose report was issued by the Armed Services Committee on February 1. WHAT COST SAVINGS WILL BE AFFECTED? Since 1951, the Panama Canal Company has been administered as a self-sustaining U.S. Government corporation. Currently, in addition to the Canal, annual costs funded by Canal revenues include the Canal Zone Government, Canal Company retail and commercial operations, an "interest" payment to the Treasury of $18 to $20 million and approximately $500,000 of the $2.3 million annuity paid to Panama under the 1903 treaty. In addition to the requirement to provide payments to Panama, the cost structure of the Panama Canal operation will be changed significantly by the new treaty. The costs of the Canal Zone Government (about $25 million per year) will disappear after a 30 month transition period. In addition, all commercial and retail facilities will no longer be part of the Canal operation. Costs of providing schools and hospitals for Canal Zone employees will be reimbursed from toll revenues, as is now the case. The new treaty provides that the Commission pay Panama $10 million per year in return for public services provided by Panama in the Canal operating and housing areas. This cost will be in contrast to the costs currently paid of approximately $18 million. The Executive Branch will specifically recommend to Congress that the legislation organizing the Panama Canal Commission not charge it with an annual "interest" payment to the Treasury of $18 to $20 million. Congress, however, can decide to include an interest payment in the cost base to be covered by increased tolls. The Congress should recognize that it has always been the policy of the United States to operate the Canal as a public service and that this interest charge is in some ways a departure from this concept. Beyond these cost savings, American Management Services has reviewed planning budgets for the Panama Canal operation and has considered reductions proposed in connection with the reduced scope of activity of the Panama Canal Commission versus the Panama Canal Company. The American Management Study reported that cost reductions, even larger than those envisioned by the Company, could be made. WHAT WILL BE THE IMPACT OF THE TREATIES ON DOMESTIC AND WORLD COMMERCE? Since 1914, the Panama Canal has served world commerce as an important transportation route. Canal traffic has risen from 5 million Panama tons in 1915 to 123 million Panama Canal tons in fiscal year 1977. The IRA study indicates that traffic will further increase to 201.9 million tons by the year 2000. Canal toll rates, however, have remained at low levels. They have changed very little over the years despite mammoth price changes for just about everything else. In 1914, tolls were set at $1.20 per laden Panama Canal ton, and changed to 90 cents per laden ton in 1937. Since 1974, there have been increases in toll rates of 50 percent. Tolls today are set at $1.29 per laden ton. A toll increase of 20 to 30 percent over existing levels will have a minimum, if not negligible, impact on our trade and economy. A toll increase of about 30 percent will involve a transportation cost increase of less than one percent. Users of the Canal would pay only about $50 million more in tolls per year on cargoes that have a value in excess of roughly $50 billion, or one-tenth of one percent. In most instances, it will be the foreign buyer of U.S. commodities transiting the Canal who is the ultimate payer of Canal tolls and not the seller or shipper. Therefore, of the $50 million, U.S. businesses and consumers will be the ultimate payers of only about $15 million. The overall impact of this on a $1.7 trillion economy is negligible on either our business or the purchasing power of the consumer. Obviously, there are uncertainties with respect to Panama Canal traffic and revenue, especially after 1990. The same is true of any projection of world or national economic conditions. These uncertainties would exist whether or not we undertake a new treaty relationship with Panama. The new treaty will provide a stable environment, while the alternative of continuing the present relationship could almost certainly involve greater costs and uncertainty for shippers. PANAMA CANAL TREATY Mr. CANNON. Mr. President, during the past several years the question of the Panama Canal Treaty has assumed greater and greater importance. In recent months it has become an emotional issue to the extent that my constituent mail is now almost totally against ratification. I have consistently told my correspondents that I prefer to wait until we held hearings in the Senate Armed 29-400 0 - 78 - 63 |