Senator CASE. They may also be interested in moving American personnel out of the operation more rapidly than perhaps our Commission might be of a mind to do.

Mr. BAXTER. I can see that that is a possibility, indeed. The only solace which I can offer is that the treaties and customary international law do offer a basis for the United States claiming treatment for its citizens not only with the treaty but with customary international law as well. This is the oldest part of human rights law.

ARTICLE XII: DIFFERENCE IN PHRASING OF OBLIGATIONS

Senator CASE. Since our time is growing short and I am sure the chairman would like to get away, let me focus as my last point on article XII, I believe it is, which concerns a number of Senators.

It is said from time to time that we got an agreement from Panama. not to join with any other nation to construct a sea level canal between now and the year 2000 in exchange for our agreement in this article not to construct a canal any place except in Panama. Although the second part is very clearly spelled out in this article, as I read it, I wonder if you find in the language of article XII anything that really pins Panama down insofar as any obligation on their part not to join with another nation in building a sea level canal.

Mr. MOORE. Senator, could I take a shot at that one and perhaps get some other advice?

I think, like the very good lawyer, that you are, you have sensed what I would agree with, that from the language alone of article XII, simply a textual examination of it, that in fact the way the two obligations are phrase is different on the two sides. I don't think just from a textual examination of this language that the kind of thing you are talking about would be ruled out.

Senator CASE. Are we going to rely on anything other than what is in the treaty?

Mr. MOORE. No, I don't think we should. I think there are two other provisions, as I would look at this, on which I think I would be prepared to rely. One is, and this is not necessarily the most important, that in looking at article XII from a major purpose kind of underlying why we are trying to do it, what are all the statements that were made about it, the reciprocity that was said it underlie, et cetera, it seems to me that it would be an unreasonable interpretation of Panama to say that they could enter into an agreement with someone else.

The second point is the one that to me is more important in the real world. That is, even if that were a valid legal interpretation and the other party undertook this, the regime under 2(a) would clearly have to be in accordance with the provisions of this treaty.

So I am not sure of the situation in which Libya builds the second canal to be run by the United States, administered by the Panama Canal Commission, or in the years after 2000 a situation in which they aren't permitted to have any troops on the soil and the United States is the defending power under the agreement along with Panama. So that from a practical standpoint I think it is clear at least that the regime of any such canal would have to be one that all the terms of

both treaties would apply. I would argue beyond that from a major purposes as opposed to a textual analysis that it goes beyond the language of reciprocity in the two sides. You are quite right in the purely textual comparison of the two along.

Senator CASE. I can't find that Panama has any obligation here other than to study jointly the feasibility of the sea-level canal and in the event they determine that such a waterway is necessary-they could well determine that it is desirable, not necessary-they shall negotiate terms. You can't make anybody in advance agree to any particular terms. As long as they negotiate they can try to negotiate terms agreeable to both parties. I don't understand what they are obligated to do other than to go through the motions perhaps of negotiating with the United States about a sea-level canal and they can go about their business with anybody else that they want to.

Mr. BAXTER. Senator, I would not give it that reading. It seems to me if negotiations take place and it is not possible to arrive at terms agreeable to both parties there will be no construction. This gives us a veto power.

Senator CASE. It would have been very easy to say that.

Mr. BAXTER. It would have, I agree. It seems to me that is what it says.

Senator CASE. There is no reluctance to make it clear in a subparagraph (b) that during the duration of this treaty the United States of America shall not negotiate with a third state for the right to construct a canal or any other route in the Western Hemisphere except as the two parties may otherwise agree. They were capable of writing language that was clearly understandable. They didn't do it. You are implying in the other and resorting to what seems a little strange to

me.

Mr. BAXTER. I quite agree it would have been desirable to have spelled out semantically the same sort of obligation imposed on both parties of it. If it is not possible to obtain any further clarification in a piece of paper from Panama. I think it would be desirable to build a record that we understand this means that there will be no construction of a canal unless the terms are agreeable to both parties; that is to say, both to Panama and to the United States.

Mr. MOORE. Could I add for the record that that is certainly my interpretation of this on a major purposes look at the clause. Mr. OLIVER. Let the record be complete, I concur.

Senator CASE. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much.

Thank you, gentlemen. We appreciate your patience. We are trying to get some answers. We appreciate your help.

The committee will stand adjourned until 9:30 tomorrow morning. [Whereupon, at 4:50 p.m. the commitee adjourned, subject to the call of the Chair.]

PANAMA CANAL TREATIES

FRIDAY, JANUARY 20, 1978

UNITED STATES SENATE, COMMITTEE ON FOREIGN RELATIONS, Washington, D.C.

The committee met, pursuant to notice, at 9:57 a.m., in room 4221, Dirksen Senate Office Building, the Honorable John Sparkman (chairman of the committee) presiding.

Present: Senators Sparkman, Pell, Sarbanes, Case, Javits, Pearson, and Percy.

Senator SARBANES [presiding]. The committee will come to order. We apologize to the witnesses who arrived on time for the slight delay in beginning this hearing.

OPENING STATEMENT

This is the 14th day of full committee hearings with respect to the proposed Panama Canal Agreements.

This morning the committee will hear from a variety of witnesses who will focus their attention on the economic and financial considerations involved in the agreements which are now pending before the committee.

The witnesses include an array of economists, businessmen, and transportation experts, all from the private sector.

The first witness this morning will be Mr. Ely M. Brandes, president of International Research Associates of Palo Alto, Calif. Since 1964, Mr. Brandes has devoted a great deal of consideration to the question of the Panama Canal tolls. He and his firm have just revised an earlier study on the Panama Canal toll structure, dealing in particular, with the toll changes that may be required to carry out the provisions of the pending Panama Canal Agreements.

Mr. Brandes, we welcome you to the committee and ask you to come forward to the committee table.

Before you begin, however, I will ask Senator Pearson if he wishes to make an opening statement to the committee.

Senator PEARSON. Thank you, but I have no statement at this time. Senator SARBANES. Mr. Brandes, please go ahead. I should explain first that we are trying to adhere as roughly as we can to a 10-minute rule for the presentation of testimony and questions. The lights in front of me will flash on and off to indicate the time has expired.

In view of the list of witnesses scheduled for today, if you could summarize your testimony to conform reasonably to the time constraints, the committee would appreciate it.

(121)

STATEMENT OF ELY M. BRANDES, PRESIDENT, INTERNATIONAL RESEARCH ASSOCIATES, PALO ALTO, CALIF.

Mr. BRANDES. Mr. Chairman and members of the committee, my name is Ely Brandes, and I reside at 554 Madison Way, Palo Alto, Calif. I am an economist and president of International Research Associates, also of Palo Alto, a small economic research company.

I have worked on projects related to the Panama Canal since 1964. During the last 14 years, I have authored or coauthored more than 20 studies sponsored by the Panama Canal Company on such subjects as traffic projections, the sensitivity of canal traffic to toll increases, and the economic value of the canal, et cetera.

My most recent assignment on this subject was sponsored jointly by the U.S. Department of State and the Panama Canal Company and just within the last few days we completed a draft of our report.

PANAMA CANAL STUDY REPORT

Because of the relevance of our findings to the treaties being considered by this committee and by the U.S. Senate, I would like to present before this committee a brief summary of our report and an assessment of its significance. I also wish to say that my statement here this morning represents the first public release of any information concerning the results of our study.

Our study had three major objectives. First, we were asked to develop a comprehensive set of traffic and revenue projections for the Panama Canal covering the period from 1978 to 2000. Second, we conducted a sensitivity analysis to determine what effect toll rate increases of various levels would have on future traffic and revenues of the Panama Canal. As part of this exercise, we also made an estimate of the maximum amount of toll revenue that could be raised. Finally, we made an analysis of the likely effect of inflation on the canal's future ability to raise sufficient revenue to meet its costs.

FUTURE TRAFFIC, REVENUE PROJECTIONS

With respect to future traffic and revenues, our study projects that Panama Canal traffic will increase from about 123 million tons of cargo in 1977 to about 202 million tons in the year 2000. In terms of toll revenue, and assuming present rates, the increase will be from about $163 million to $182 million in 1978, to $197 million in 1980, and to about $264 million in the year 2000.

The projected growth rate in traffic for the 23-year period is slightly more than 2 percent per year. This is less than the growth rate in traffic experienced over the last 25 years when the canal benefited greatly from the economic expansion in the Pacific basin area.

Included in our projection of future Panama Canal traffic was a significant volume of North Slope petroleum which began to move through the canal last summer. The volume of this movement will grow sharply in the next few months. We estimate, for instance, that Alaska oil shipments will total about 25 million tons in fiscal 1979, and will contribute nearly $30 million, or 15 percent of all revenues,