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can Shipping, state that they recognize the dual purpose of the Canal for national defense and for commerce, they base their suggestion that there should be no further charge for interest on capital provided for the construction of the Canal on two propositions—first, that national defense considerations provided the major justification for the construction of the Canal, and, second, that no part of the cost of its construction or of its operation has heretofore been charged to national defense. We shall deal with those two propositions in that order.

A study of the history of the Canal shows that the commercial aspects of the project constituted an equal if not a more cogent reason for the construction of the Canal than national defense. For instance, in the very passage quoted by Mr. Bailey from the message by President Theodore Roosevelt to Congress, on January 4, 1904, President Roosevelt stated the well-recognized fact that the Panama Canal was “long acknowledged to be essential to our commercial development.”. In the light of this one statement alone it could hardly be argued logically that the principal purpose of building the Canal was for our national defense.

In view of the recognition of the authority with which President Theodore Roosevelt spoke on this subject, it might be well to consider the following from an earlier message of his to the Fifty-seventh Congress, in 1901, where he said:

No single great material work which remains to be undertaken on this continent is of such consequence to the American people as the building of a canal across the isthmus connecting North and South America. Its importance to the Nation is by no means limited merely to its material effects upon our business prosperty; and yet with view to these effects alone, it would be to the last degree important for us immediately to begin it.

In still another message to the Congress, on December 7, 1903, President Roosevelt had the following to say with respect to the construction of the Panama Canal:

For 400 years, ever since shortly after the discovery of this hemisphere, the canal across the isthmus has been planned. For twoscore years it has been worked at. When made it is to last for the ages. It is to alter the geography of a continent and the trade routes of the world.

Many other statements were made at the time consideration was being given to the construction of the Panama Canal which indicate that the Canal was considered vital to our commercial needs. Take for instance the following from the report of the House Committee on Interstate and Foreign Commerce on H. R. 2538 (H. Rept. No. 351, 56th Cong., 1st sess., February 17, 1900, p. 2), which would have authorized construction of the so-called Nicaraguan Canal:

If the provisions of the bill can be carried out, the United States will, within a few years (from 6 to 8), be in full ownership and control of a waterway connecting the oceans that it can defend, and that it can use in the interest of its Navy and its merchant marine as wisdom may dictate.

The subject of a canal connecting the waters of the Atlantic and Pacific Oceans is one that for more than half a century has engaged the attention of the American people. The desire for its construction seems to grow with the increase of our population, the development of our capacity of production, and the necessity for the expansion of our commerce.

Your subcommittee is not the first body which had undertaken to pass on the question of the purpose of building the Panama Canal. In an act of Congress, approved by the President April 13, 1936

(Public Law 516, 74th Cong.), provision was made for a report upon Panama Canal tolls and vessel-measurement rules. This brief statute provided as follows:

The President is authorized to appoint a neutral committee of three members, for the purpose of making an independent study and investigation of the rules for the measurement of vessels using the Panama Canal and the tolls that should be charged therefor and hold hearings thereon, at which interested parties shall have full opportunity to present their views. Such committee shall report to the President upon said matters prior to January 1, 1937, and shall make such advisory recommendations of changes and modifications of the Rules for the Measurement of Vessels for the Panama Canal and the determination of tolls as it finds necessary or desirable to provide a practical, just, and equitable system of measuring such vessels and levying such tolls.

Pursuant to this statute, President Franklin D. Roosevelt appointed a Special Committee consisting of Messrs. Emory R. Johoson, George H. Rock, and Arthur J. Weaver, to carry out the above statutory mandate.

If you gentlemen are not familiar with those three experts, and who they are, I would say for your information that Mr. Johnson is well recognized as one of the foremost transportation students and experts in this country and particularly well versed in matters pertaining to the Panama Canal. He was a member of the Isthmian Canal Commission from 1899 to 1904. He is author of numerous works dealing with the Panama Canal, its traffic, and its value as a commercial and industrial project.

Mr. Weaver was former Governor of Nebraska and presider t of the Mississippi Valley Association, and Mr. Rock was rear admiral, retired, of the United States Navy, and had been chief constructor with the Navy.

This was the three-man neutral committee selected by President Franklin D. Roosevelt to carry out the mandate in the statute which I have just read to you.

This Special Committee made an elaborate investigation, giving interested parties all full opportunity to be heard and to submit briefs and other documentary data. It thereafter rendered a full and complete report, consisting of 150 pages and published as Senate Document No. 23, Seventy-fifth Congress, first session. Mr. Chairman, I have attempted to obtain copies of this so that I might have them here for each member of the subcommittee, but the Government Printing Office informs me it is out of print and no further copies are available. Perhaps this committee would have a supply, and I would certainly like to suggest it be incorporated by reference. However, I will leave with the committee this copy and as a matter of fact I would like to have that incorporated by reference in this record.

Mr. THOMPSON. We can certainly do that. I am under the impression we have some copies in this committee. Do you

have Burke?

Mr. BURKE. I was furnished with one copy. It is out of print.
Mr. THOMPSON. Is this your only copy?
Mr. PRINCE. Yes, sir.

Mr. THOMPSON. We will see to it that this is retained in the committee. It is a very worth-while document.

Mr. PRINCE. It is a very worth-while document and I commend it for your consideration. They held long hearings and spent about 9 months working on the problem.

any, Mr.

Mr. MILLER. Their problem was the method of measurement and establishing a scale rather than the rates, was it not?

Mr. PRINCE. Both questions. Perhaps the major question involved was the establishment of the Official Measurement Rules and that is set forth in their report.

Mr. MILLER. Is that the method that is still being followed today and the one that you recommend?

Mr. PRINCE. I believe so, but someone else may have to answer that.

Mr. MILLER. To that extent it has stood the test of time for 23 years.

Mr. PRINCE. Yes, sir.

Mr. THOMPSON. For the information of all of you who want to refer to this document it is Senate Document No. 23, Seventy-fifth Congress, first session, entitled “Panama Canal Tolls." You may want to refer to it.

Mr. FUGATE. Mr. Prince, that study was made in 1937, was it not?
Mr. PRINCE. That is correct; yes sir.
Mr. MILLER. Oh, in 1937?
Mr. FUGATE. Yes, sir.

Mr. PRINCE. I think quite a number of policies that they recommended with respect to tolls have also stood the test of time and are very sound, and I will refer to certain of them in my testimony.

Mr. THOMPSON. Very well.

Mr. PRINCE. I do not believe that any committee of Congress or any other body making an investigation of Panama Canal tolls and the policy with respect thereto could afford to do so without giving the most thorough consideration to this ably prepared document. That the principal question which this subcommittee is concerned with was thoroughly considered by the Special Committee is made clear by the following, from part I of its report, entitled “The Investigation-Its Purpose and Scope," at page 14:

, The study and investigation that the committee was required to make include the tolls that should be charged for the use of the Panama Canal. A recommendation as to the tolls or revenues that should be derived from the Canal must be determined, first of all, by giving weight to the purposes for which the Canal was constructed and is being operated and administered.

Immediately after the above statement the report gives as the considered view of the special committee on this question, the following:

The major purpose of the Panama Canal is to provide American and foreign shipping and commerce with a much-needed facility. It removes the barrier that restricted the commercial intercourse of the countries and ports of the Atlantic and Pacific. The Canal Zone concession was obtained, the Canal has been constructed, the Canal is being operated, and the activities incident to the operation of the Canal are being carried on in order, primarily, that the Canal may render a commercial service.

The cost of constructing and the expense of maintaining and administering the Canal are obligations that have been assumed primarily to provide a commercial facility. The capital and current expenses thus incurred may properly be borne by the shipping that is aided. (Pp. 14–15.)

There is no question, I think, from that quotation, as to how that special committee felt about the purposes of the Panama Canal.

In addition to the report of the special committee, which was unanimous, Mr. Weaver submitted a separate report in which he also

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discussed this question at some length. He first stated the question in the followingsmanner (p. 141):

15. The Panama Canal initiated, designed, and constructed for commercial purposes.—A full and fair consideration of the nature and purpose of the Panama Canal project, as well as the manner of its use in the 22 years it has been open for traffic, will answer the question so often raised as to whether the cost of the Canal, or any part of it, was for military purposes.

Then, after discussing certain of the evidence bearing on this question, he reached the following conclusion (p. 142):

(g) The evidence hereinbefore set forth, as well as other subject matter reviewed as to the purpose and nature of the Canal project, unquestionably leads to the conclusion that the Canal was conceived, constructed, and operated as a commercial project (with the single exception of the additional cost of $9,588,750 for widening the locks at the instance of the General Board of the Navy, and therefore strictly a national-defense item

*). There is no evidence that any other item for the purpose of national defense is a part of the present capitalization.

We submit that no case has been made or can be made for this subsidy on the ground that national defense considerations provided the major justification for the construction of the Canal.

On the basis of our study of the history of the construction of the Panama Canal, we think it clear that the Canal probably would have been constructed for commercial purposes regardless of any other consideration. It is also clear that it has great military value. However, who can say with certainty whether the Canal would have been constructed solely as a commercial enterprise or solely as a defense measure? Certainly at the time no one was faced with such a decision because admittedly the construction of the Canal had great value from both standpoints and it was only necessary to decide whether its over-all value warranted the expenditure of the money involved. Furthermore, it seems wholly unnecessary for this committee to attempt to reach any such decision. It is only necessary that this subcommittee clearly recognize the dual nature of the value of the Canal, and this, we submit, has been demonstrated beyond question.

This, quite logically, brings us to the question of how the cost of the Canal is to be borne when considered in the light of the purposes for which built and the dual use to which it is put. From the beginning it has been the established policy of the Panama Canal administration that the Panama Canal enterprise as a whole should be self-supporting, This was the intent of Congress when it authorized the construction of the Canal and provided for the levying of tolls and is of course a sound policy. So far as we can determine, no one before has ever questioned the soundness of this policy. From the report of the Special Committee it would appear that no one who appeared before it even suggested such a startling departure as has been advocated before this committee. The Special Committee merely stated the long-established policy as a simple conclusion that the "Panama Canal enterprise as a whole should be self-supporting” (p. 84). Elaborating upon this, the report of the Special Committee went on to say:

The rates of toll levied upon vessels using the Canal should be such that the receipts from tolls, together with the other revenues of the enterprise, will be sufficient to cover interest on the investment and current operating expenses and to provde a property depreciation reserve and a surplus fund for normal replacements and betterments of property. Future additions to capital investment should be made only to cover the cost of extraordinary additions to property.

Furthermore, the tolls referred to were tolls on commercial vessels alone, without allowance of any credit for use by Army and Navy or other Government vessels, which was in accord also with the estab.. lished policy of the Canal administration. The shipping interests have recommended that this policy be modified by allowing a credit for the use of the Canal by toll-free vessels. The same suggestion was made to the Special Committee in 1937 and that Committee concluded that the necessity or advisability of adopting the suggestion was not evident. In this connection the Special Committee said (pp. 78-79):

The service that the Canal renders to the United States Army and Navy vessels by allowing them to transit the Canal without charge may justly be regarded as but a partial compensation for the valuable service rendered by the Army and Navy in protecting the Canal and maintaining its neutral use by the vessels of commerce and war of all nations.

This position would appear to be sound in principle, but it will be remembered that this report was rendered before the Second World War. At that time the committee thought that the prospects for growth of commercial traffic were such that a toll of 90 cents a ton on commercial vessels alone would yield sufficient revenues to make the Canal enterprise self-supporting.

With the advent of the war the use of the Canal by commercial users greatly decreased and the use by Government vessels greatly increased. The fact that Government use is toll-free threw out of line the Special Committee's estimate of revenues and resulted in the showing of a very sizable deficit for the wartime period.

Had a credit been allowed for the use of the Canal by Government and Navy vessels during the war, the financial results of operations during that period would still have shown a deficit but it would have been principally a reflection of the tremendous increase in operating costs. As it was, the financial operations of the Canal showed a deficit which in addition reflected the effect of the enforced reduction in the use of the Canal by commercial vessels as a result of the war. Thus the crediting of forgiven tolls as part of the revenues of the Canal is perhaps a more realistic policy for it would eliminate the necessity, when establishing a toll rate for the future, of attempting to foresee wars and their probable effect on commercial traffic.

Accordingly, we feel that the suggestion to this effect made by the shipping interests at this hearing has a certain degree of justification and we would have no objection to a change in the policy with regard to the establishment of tolls in this manner. Certainly if this were done there would be no possible justification for further consideration of the suggestion to leave out interest on investment or any other cost when determining the rate of tolls. What could be fairer in the case of a dual-purpose project than a policy under which all of its costs are met by all of its users and in proportion to their use?

Under such a method, during peacetime when the use of the Canal by military and naval vessels of the United States is but slight, most of the costs of the Canal would be borne by the predominant users, namely, commercial vessels. On the other hand, in a period of war when the relative use of the Canal by naval and other Government vessels is much greater, commercial users would meet a much lesser portion of the total cost of the Canal. In this way, effect is given to.

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