When they looked at what this was going to cost them, they had very serious reservations. Almost without exception they have expressed their opinion that the way the United States has operated the Canal over the past decades has been fair and equitable. MULTILATERAL VERSUS BILATERAL APPROACH General Sumner also pointed out that the other Latin American nations had been ignored in attempting to solve the Panama Canal problem-even though the canal is so important to them that it should be called "The Canal of the Americas." He suggested that in times past when the bilateral approach to international plans had failed, that it was sometimes helpful to call in all parties with a direct interest to find a mutual solution. Pointing out that the Inter-American Defense Board already had a structure to work together on the common defense of the hemisphere, he agreed to sound out members of the Board as to constructive solutions to the canal problem. General Sumner's testimony points up the deep flaw in the argument that the giveaway of the Panama Canal will usher in a new era of good feeling in Latin America. On the contrary, just the opposite is likely to happen. The giveaway of the canal to a small and unstable nation is likely to inspire distrust, or at best indifference. Moreover, it is incongruous to pretend that the way to establish closer ties to Latin America is to ignore the direct interests of these nations in the canal for 14 years, to consult with no one, and then to hand the canal over lock, stock, and barrel to one nation whose political institutions inspire confidence in no one and which is allied in a show of friendship with the one Latin American pariah nation, Communist Cuba. Insulting and demeaning diplomacy never makes friends. COSTS OF MILITARY RELOCATION There is not the opportunity here to go into the additional military costs which would be imposed upon the taxpayers of the United States if the canal were closed to the U.S. naval fleet. Ship construction, relocation of communications and intelligence facilities, and higher costs of resupply would all have to be considered; but it is difficult to speculate on the future designs of potential enemies. However, the committee received good estimates of the costs for the relocation of present U.S. military facilities in the Canal Zone. A number of these facilities will be turned over to the Panamanian National Guard as soon as the treaty goes into effect, and brandnew consolidated facilities will have to be constructed at other sites for the use of U.S. forces. This construction is totally unnecessary, except for the implementation agreements adopted pursuant to the treaties. Lt. Gen. D. P. McAuliffe, U.S. Army, testified that this construction would cost the taxpayers $42.9 million. All the new facilities will be turned over to Panama by the year 2000. ECONOMIC ASPECTS OF THE TREATIES The economic aspects of the treaties reflect the chaos and disarray of the negotiating process. It is difficult, even at this date, to assess the economic impact of the treaties. The facts simply are not available. Consider the following problems: A study by American Management Systems, consultant to the committee, concludes that the two major systems of methodology for projecting traffic and revenues are inadequate and based upon guesswork, resulting in wide disparities in the extant professional projections. A study commissioned by the Department of State and the Panama Canal Company by International Research Associates-a study which was supposed to be definitive-was strongly criticized by the president of the Panama Canal Company for being overly optimistic on its projections of revenues from North Slope oil. The study is not yet available to Congress. The implementing legislation establishing the structure of the Panama Canal Commission, its accounting practices, and the range of labor benefits was promised for last October, but is still being withheld from Congress. Basic financial issues yet remain to be negotiated with Panamaissues involving millions of dollars annually-and Governor Parfitt and other witnesses testified that the United States and Panamanian positions stand at opposite poles. Millions of dollars of costs associated with implementation of the treaties do not appear in the Panama Canal Company budget or the projected Commission budgets because these costs will be transferred to other accounts as yet unselected-for example educational facilities may be transferred to the Department of Defense budget, and then again they may not. Panama Canal Company projections are based upon unrealistic inflation assumption-for example 5 per annum as against actual 6.7 percent today-and upon the forgoing of interest to the U.S. Treasury and of agreed-upon payments to Panama out of "surplus." The Comptroller General of the United States estimated that deficits the first year could range from $37 million to $79 million, depending upon which set of assumptions as to accounting practices is used. The Panama Canal Commission will lose 58 percent of the land available to the present company for operating the canal, 43 percent of its present U.S. employees, 52 percent of its present Panamanian employees, and 69 percent of its nontoll revenues-35.6 percent of all revenues. Although some of these employees may transfer to other United States or Panamanian entities, there is considerable doubt that present pay rates and job benefits will be preserved. There is agreement on one thing, however; the American taxpayers will be paying billions of dollars in appropriated funds for the luxury of giving the canal to Panama. Although the language of the treaties suggests that payments will be paid to Panama out of tolls and other income by the Panama Canal Commission, the fact is that the Commission ought to be a U.S. Government corporation, if legal precedent is followed. As such, the Commission can pay no revenues to Panama; they will be paid into the U.S. Treasury-as the Panama Canal Company does at present-where they become funds belonging to the U.S. taxpayer. According to the U.S. Constitution, no money shall be drawn from the U.S. Treasury but in consequence of appropriations made by law. Payments to Panama must therefore be appropriated by Congress every year by law. Although the appropriations doubtless will be established according to the treaty arrangements, the funds still represent funds which could have accrued to the benefit of U.S. taxpayers. Moreover, extraordinary expenses of the Commission-removal of major slides, damage caused by war, and so forth-will still be the responsibility of the U.S. Government. Governor Parfitt also testified that any debts or liens remaining to the Commission by the year 2000 would have to be made up by the United States. The reality of that liability hinges upon the interpretation of an ambiguous section of the treaty, the clause promising contingent payments to Panama out of surplus earnings. Problems involve the following: Whether or not the toll base should include the $10 million "surplus"; that is, should tolls be set high enough to produce a surplus? Whether or not the treaty obligation to roll over the contingent obligation to the next year that a surplus is earned ends in the year 2000; that is, if no contingent fees are paid for 22 years, do we owe Panama $220 million in the year 2000? Whether or not the Commission should pay interest to the U.S. Treasury on the U.S. investment; for example, is the projected amount of interest of approximately $20 million each year to be a donation by the U.S. taxpayers to the Commission's operation? The total is a minimum of $440 million over 22 years, yet the Panama Canal Company's projection of only a 19.5-percent initial toll increase is based upon forgoing the interest payment. Whether or not the entire U.S. investment should be recouped through accelerated depreciation by the year 2000; for example, should the taxpayers make an additional gift to Panama of facilities with a current book value of $618 million, but a replacement value of $4.6 billion? Comptroller General Staats testified that recovery of the U.S. investment would require another $23 million per year to recover the book value. OTHER HIDDEN COSTS In addition to the above unresolved problems, there are hidden costs as well. These include: The $8.9 million that the Republic of Panama has refused to pay for services rendered by the Panama Canal Company, some of the debt going back as far as 1955. Early retirement costs to be charged to the Civil Service Commission of some $7.5 million a year for 22 years, that is, $165 million total. Costs of benefits for dependents of certain personnel transferred to DOD-mainly schooling-$5 million annually for 22 years, that is, $110 million total. Complete inventory of all assets of the Panama Canal Company and Canal Zone Government, $2 million-the last inventory was in 1950-51 and cost $750,000. Indirect subsidy to Panama of $6.6 million a year for at least 3 years. totaling $19.8 million, through the annual payment of $10 million for "services." Many of these services-for example fire-will be dupliIcated by the Commission to insure reliability; but even so it is estimated, that Panama, with its lower wage base, will provide the serv ices at a cost of $4.4 million per year. After 3 years, the treaty provides that the payments will be adjusted on the basis of actual costs, but no definition of actual costs is provided. SUMMARY OF UNEXPECTED COSTS It is not certain by any means that all of the unexpected costs of the Panama Canal treaties have yet been discovered. Those discussed above, however, may be summarized as follows: Military base relocation____. $42, 900, 000 Foregoing of interests due to US. Treasury: $20 mil. p.a. X years_ Foregoing of depreciation to recoup U.S. investment: $20 mil. p.a. X 22 years...- 440, 000, 000 Panamanian interpretation of amount due under article XIII Arrears of Republic of Panama for services rendered by Panama Subsidy to Panama for fire, police protection over Panamanian Early retirement costs charged to U.S. Civil Service Commission: $7.5 mil. p.a. X 22 years.. Benefits for dependents of certain personnel transferred D.o.D.: $5 mil. p.a. X 22 years--. Cost of taking complete inventory--. Total unexpected costs---- 440, 000, 000 220, 000, 000 8,900,000 19, 800, 000 165, 000, 000 110, 000, 000 2, 000, 000 Estimated annual tonnage fees due to Panama: $50 mil. p.a. X 1, 100, 000, 000 220, 000, 000 1, 320, 000, 000 2,768, 600, 000 All costs are expressed in constant dollars without inflation factors or treaty provided upward revisions included. THE HASTY TREATY The committee hearings did not touch upon the grave constitutional issues, such as the role of Congress in the disposal of U.S. territory and property under article IV, section 3; or the role of the House in the appropriation process under article I, section 7. Nor did the committee hearings touch upon the important issue of national sovereignty and the national will. But within their true scope, they revealed that the negotiators completely bypassed the practical issues of military defense and economic stability in their search for a pseudo-political solution to a nonproblem. Perhaps a small clue to the tenor of the negotiations which produced these treaties may be found in the testimony of Governor Parfitt when he was asked if Ambassador Sol Linowitz had ever consulted him directly about the operational problems. The Governor testified that the Ambassador had not; and in fact, to the Governor's knowledge, the Ambassador had never even come into the Canal Zone. Mr. President, I hope that at later stages of the debate on the treaties we will have a substantial number of Senators here. I count about six in the Chamber at this moment, including the distinguished Presiding Officer, which means that the statements by the distinguished Senator from Nevada, the distinguished Senator from Idaho, and others will pass like a ship in the night. I commend the distinguished majority leader and the distinguished minority leader, who suggested this morning that Senators stay on the floor and participate in the debate and hear the opposing views, so that they will have some understanding of what is at stake in this matter. If Senators do not do that, if they voted a mishmash, then this Nation will suffer. I thank the distinguished Senator from Nevada for yielding to me, and I thank the distinguished occupant of the Chair. |