It is true, we had the Attorney General give an informal opinion that we could put our own stuff through free under the treaty, but I think it is pretty poor law, I think.

Mr. THOMPSON. General, we certainly appreciate your views. You have been most helpful, as you have always been.

Mr. BURDICK. Mr. Chairman, I wonder if I could just explain some statistics pertaining to American-flag vessels and foreign-flag vessels? General STEESE. I would like for Mr. Burdick to correct any figures that I gave which he might have.

Mr. BURDICK. I think Mr. Bailey misunderstood me when I said at the present time 58 percent are foreign-flag vessels, I believe, that is what the Governor told you last month. I don't question the figures that Mr. Bailey presented for 1947 or 1948, and I don't think it is of particular importance whether my figures are correct or his. I think they are both correct and they do show the relative amount at the present time.

I think Mr. Bailey misunderstood me, and I believe the record will show, that I did say that in early years of the operation, meaning after the official opening in 1920, there were several years in which the revenues exceeded the costs, including the interest on the investment. I was looking, at the time I was testifying, at that same table No. 24 which has been inserted in the record.

Mr. THOMPSON. Well, we will make all proper corrections.

Mr. BURDICK. On the question of when we will reach the capacity, I call the committee's attention to one or two paragraphs in the Governor's statement, indicating that we will probably reach the capacity along about 1970 instead of 1960, as estimated some 10 years ago.

Mr. THOMPSON. That was the capacity of the present Canal as is. Mr. BURDICK. The present Canal.

Mr. THOMPSON. Twenty years isn't so very long when you are establishing a national policy. We must be prepared to increase the capacity by some means. Now the reason I keep injecting that into our thinking is that I was trained as an accountant and I keep thinking in terms of reserve for obsolescence, reserve for new construction, and so forth. I think that ought to be taken into our consideration. Now if we face in 20 years the completion of the third locks project and some of the other projects that have been suggested from time to time such as the terminal lake plan, we had better know about it right now. Also, if we are going to construct an entirely new canal which must be paid for out of tolls, if that is going to cost in the neighborhood of 3 to 5 billion dollars, then we had better tear everything up and start over again, because I would be afraid to go on the floor of Congress and recommend such a thing to the taxpayers.

Mr. BURDICK. You know our position on that, I believe, Mr. Chairman, that unless the canal is built for commercial purposes, we would not advocate paying for it with commercial tolls. In other words, if it is necessary to increase the capacity for commercial purposes, as we think it will be, the costs might be 100 or 200 million dollars to adequately provide for commercial shipping for the next 50 years. On the other hand, the Congress might decide to convert to a sea-level canal. Our view of that would be, if they do, it would be for national security reasons, and therefore not properly chargeable against commercial tolls.

Mr. THOMPSON. Yes, I think your position is very clear on that, so we can dismiss that from our thinking.

Mr. BURDICK. On the traffic question, I call the committee's attention to the traffic study included in the Governor's report under Public Law 280. That study was made by Dr. Kramer, a professor of commerce and transportation at the University of Pennsylvania. Mr. THOMPSON. What was the date of that, do you remember? Mr. BURDICK. The Governor's report was submitted to the Congress by letter of December 1, 1947.

Mr. THOMPSON. Didn't that survey go back to prewar days?

Mr. BURDICK. This was a restudy, I believe, Mr. Chairman, of the whole question.

Dr. Johnson, who was a professor of transportation and commerce at the University of Pennsylvania, made the original studies in 1912. There were some other studies made, a number of other studies made, but the most important study was in connection with the work of the special tolls committee in 1936 and 1937, when Dr. Huebner of the University of Pennsylvania, who had previously worked with Dr. Johnson, made a study. That, as I say, was in connection with a study made by the special tolls committee and later by the congressional committees here. Then another study, of course, was the one made between 1945 and 1947, under Public Law 280.

Mr. THOMPSON. Well, then, unless there is someone who wants to go on the record right now, we will adjourn, subject to call, I hope, toward the end of this week; if not, as early as possible next week. Thank you very much for your attendance.

(Whereupon at 11:45 a. m., the subcommittee adjourned, subject to call of the Chair.)

INVESTIGATION OF PANAMA CANAL TOLLS

TUESDAY, JUNE 14, 1949

HOUSE OF REPRESENTATIVES,

COMMITTEE ON MERCHANT MARINE AND FISHERIES,

SPECIAL SUBCOMMITTEE TO INVESTIGATE PANAMA CANAL TOLLS, Washington, D. C.

The subcommittee met, pursuant to notice, at 10 a. m., Hon. Clark W. Thompson (chairman) presiding.

Mr. THOMPSON. I think we will go ahead. Mr. Miller will be here very shortly, and we do have a quorum present.

The first witness this morning is Mr. Gregory S. Prince.

STATEMENT OF GREGORY S. PRINCE,

ASSISTANT GENERAL

SOLICITOR OF THE ASSOCIATION OF AMERICAN RAILROADS, WASHINGTON, D. C.

Mr. PRINCE. Mr. Chairman and gentlemen, my name is Gregory S. Prince. I am assistant general solicitor of the Association of American Railroads, for which organization I appear here today.

In addition to myself there will be testimony presented by Dr. Julian M. Parmelee, who will follow me and take up in somewhat more detail certain features which I shall not attempt to go into in my testimony.

The issue before this subcommittee under House Resolution 44 as drawn by the shipping interests who have already appeared is a comparatively narrow one, but, at the same time, a very fundamental one. In effect, what it amounts to is a request on the part of the shipping interests for a subsidy at the expense of the United States taxpayers.

The nature of the subsidy requested, however, has the unique feature of being applicable to foreign ship owners as well as to American ship owners. This is unavoidable and inherent in the situation because under existing treaty obligations the United States Government is obliged to operate the Canal on terms of entire equality for the shipping of all nations. Not only would each foreign ship owner partake of the largess of the American Government to the same extent as each American ship owner, but, as already disclosed by figures presented to this subcommittee, the total amount of subsidy to foreign shipowners would today exceed that to American shipowners, and, judging from past experience, might in normal times amount to as much as double the subsidy to American shipowners, if Congress were to adopt the recommendations made before this subcommittee by American shipping interests.

Certainly it is sound policy to limit our grants-in-aid which are for the benefit of other than American citizens to grants to foreign

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governments through such means as are provided by the Marshall plan and ECA, and not to indulge in supplemental subsidies to individual citizens of foreign nations.

The most important feature of the recommendations made to this subcommittee by the shipping interests is the elimination of interest on investment in the Canal by the United States Government from consideration as a cost of the operation of the Canal. The adoption of this recommendation alone would amount to a subsidy of $15,000,000 a year. That the elimination of interest on investment as a cost to be met by tolls is a subsidy and the lack of justification for any such action will be dealt with at greater length later. But accepting for the moment our position that it would in fact constitute a subsidy, I wish to call attention briefly to the interest of the railroads in this matter. Our most direct interest is as a form of transportation in competition with shipping concerns employing the Canal in intercoastal operations which would share in the subsidy in the same manner as all other shipping concerns.

The grant of a subsidy to domestic water shipping is directly contrary to the national transportation policy declared by Congress in the 1940 amendments to the Interstate Commerce Act. That declaration reads in part as follows:

It is hereby declared to be the national transportation policy of the Congress to provide for fair and impartial regulation of all modes of transportation subject to the provisions of this act, so administered as to recognize and preserve the inherent advantages of each.

The essential point of the congressional declaration is equality of treatment for all forms of transportation, in all respects. The granting of a subsidy no matter in what form or how disguised to one mode of transportation serves to defeat the aim of preserving the inherent advantages of each.

The choice of shippers and travelers among competing transportation services is largely determined by relative charges for the service rather than by relative costs of performing them. Unless, therefore, the rates charged by each mode of transportation reflect its true costs, we cannot hope for an economic distribution of traffic among the various modes, and it is only through an economic distribution of traffic among them that there can be any hope of developing and preserving the inherent advantages of each, as envisioned by the national policy. To some extent in the case of all types of carriers, and to a marked degree in the case of the railroads, the unit costs of their services vary inversely with variations in the volume of their traffic. The inherent advantage of one type of transportation may thus easily be destroyed through loss of traffic to a less efficient type as the result of a wholly artificial advantage enjoyed by the latter because of Government aid. Such a situation must inevitably result in increasing the Nation's total transportation bill.

The second basis for our opposition to this unsound proposal of the shipping interests is as a taxpayer. The railroads of this country paid into the Federal Treasury in the form of income taxes alone approximately $450,000,000 last year, which certainly gives them a real and substantial interest in seeing that the Federal Government does not squander money in pursuance of unsound policies.

While the shipping interests, in the principal statement made on their behalf by Mr. Bailey, president, National Federation of Ameri