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have exceeded all net appropriation expenses by 273.5 million dollars. The Canal has actually earned that sum of money after paying all expenses. Thus, even if we were to assume that commercial shipping should pay all of the costs of Canal operations, it appears that the toll charges have been higher than necessary. But we think that frank recognition of the fact that the Canal is a vital military facility that must be kept in operation irrespective of commercial shipping requires that the Government assume some fair proportion of the operating expense and we suggest as an equitable allocation that the Government and shipping should each bear a half of the cost of its maintenance and operation.

The present law relating to the levy of tolls (48 U. S. C. A. 1315) does not specify what items of cost are intended to be covered thereby. Thus we think that it prescribes inadequate standards for the guidance of the President in the exercise of his authority to fix the toll rate. All the statute does is to say that the rate shall not exceed $1 per net vessel-ton nor be less than 75 cents.

In view of the indefiniteness of the present law it would seem desirable for Congress to amend it in such manner as to indicate clearly what the revenue from commercial tolls is to cover and how much of the operating and maintenance costs of the Canal should be assumed by the Government.

The matter of Canal tolls is of great importance to shipping since at present rates the toll levy on a round voyage through the Canal for a C-3 type vessel amounts to about $15,000 which is roughly equivalent to the wages (including overtime) of the entire crew for 1 month. And it is of course, of particular concern to the domestic intercoastal industry, the plight of which is well known to this committee. Before the war there were approximately 150 vessels of 1,400,000 dead-weight tons employed in this trade. Even at that time intercoastal operations were not profitable, and the records of the Maritime Commission show that in the 5-year period 1935–39 the intercoastal operators experienced an aggregate operating loss of $4,000,000 during a time when they paid $25,000,000 in Canal tolls.

A short time ago there were only 54 ships in intercoastal operation, of which only 14 were privately owned. The remaining 40 were chartered from the Maritime Commission. The committee has some testimony there were a few more ships than that, but I have not checked on that. One thing seems sure.

If the intercoastal business cannot be revived under private ownership, Government operation is the only alternative. And under Government operation there would be no tolls revenue. It therefore seems that the financial interests of the Canal require that all possible encouragement and support be extended to intercoastal ships. A most effective way to lend the necessary encouragement would be through a reduction of Canal tolls.

That finishes, Mr. Chairman, the prepared statement. I do, however, have one or two comments, which, with your permission I would like to make about the testimony this morning. Mr. THOMPSON. Certainly.

Mr. MORGAN. The statements made this morning by Mr. Prince and Dr. Parmelee seem to have been made solely from the competitive viewpoint of the railroads. At least there was nothing in either of them to indicate any appreciation of or sympathy for our national





maritime policy or for the problems of the intercoastal steamship industry. If we follow the advice of this morning's witnesses where will we find the ready fleet of good ships in the domestic trades that should be available in the event of an emergency?

The intercoastal shipping industry has not been able to recover the position it occupied before the war in the national transportation system. It therefore seems unreasonable, if not contrary to the national interest, for the railroads to take a position that seems calculated to eliminate intercoastal shipping as a possible competitor.

Mr. Prince said:

It would seem to be beyond question that interest on investment, which is nothing more than the cost of capital, is just as legitimate and true a cost as the cost of current operations and maintenance of the project once it had been brought into being. The shipping interests have suggested that the item of interest on the investment be omitted from the costs to be covered each year by tolls and other revenue.

The issue should be faced squarely by recognizing that the suggestion of the shipping interests is nothing more than a request for a $15 000,000 a year subsidy

I should like to offer certair information obtained from the Interstate Commerce Commission. Changes in capitalization under the plans of reorganization have been approved by the Commission for certain railroads in reorganization proceedings. Apparently, the long-term debt of such railroads through such proceedings is being scaled down over 1.5 billion dollars. The extent to which equity capital is being similarly reduced is not clear but apparently substantial amounts of such capital are also being removed from future cost computations.

Apparently the total debt of the various railroads, both long and short term, are being reduced by more than 2.5 billion dollars. Their fixed charges are apparently being reduced by more than $111,000,000 annually. Such fixed charges include, in addition to fixed interest on funded debt and interest on unfunded debt, rent for leased roads and equipment, and amortization of discount on funded debt.

If as Mr. Prince said, the shipping industry should squarely face the issue by recognizing that their suggestion as to interest on capital investment in the Panama Canal is nothing more than a request for $15,000,000 a year subsidy then it seems clear that the railroads must squarely face the issue that similar subsidies to them of more than $111,000,000 annually are provided in the reorganization plans.

Mr. Prince also complained that a reduction in Canal tolls would amount to a subsidy to foreign shipping interests. We do not think this is a particularly serious complaint, however, because so far as we know it has not been the practice of the railroads, as taxpayers or otherwise, to oppose foreign assistance. Nor do we think any of us should be unduly concerned about incidental benefits that might accrue to foreign shipowners from a reduction in Canal tolls, Foreigners are finding the dollar to be a commodity in extremely short supply and we think it would be just as well if the dollars that are available were spent directly for the products of American industry and for such necessary incidental services as railroad transportation instead of being required for Panama Canal tolls.

Mr. MILLER. Do you see any objection to subsidizing Russian ships going through the Canal?

Mr. MORGAN. I think the testimony showed there were only 10 going through the Canal. It does not seem to be a major item.

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Mr. THOMPSON. Any other questions?
Mr. FUGATE. No questions.
Mr. MILLER. No questions.
Mr. THOMPSON. Thank you very much.

Our next witness is Mr. Walter J. Jones, legislative representative, Canal Zone Central Labor Unit and Mutual Trades Council.



Mr. Jones. Mr. Chairman and members of the committee, I have had the pleasure of attending all of your hearings so far on tolls. I have heard Mr. Frazier Bailey of the American Shipping testify that the tolls should be lowered. Commissioner Mellen has testified that there should be no tolls for intercoastal shipping. The officials of the Government who are charged with the responsibility of administering the Panama Canal have stated that due to operating expenses the tolls should be raised. Also, an individual taxpayer, the former Governor of the Panama Canal, Governor Morris Thatcher, stated that the tolls should be raised. Now, this morning Mr. Prince and Dr. Parmelee have stated that in their views the tolls should be raised. I would like to say these few words before I read my prepared state

I will say this is the most complete hearing that has ever been held on the subject of the Panama Canal, and your committee should be commended on the splendid work you have done so far. I wish you success in your deliberation on the committee's report. Your job of deciding whether the Canal is for military use or a commercial use will not be as easy as that of King Solomon, when he had to decide which one of the two mothers the baby belonged to, for he had only two interested parties. I never knew so many people were interested in the Panama Canal until now. The Navy no longer has a district on the Canal Zone for they have removed the Fifteenth Naval District and also the submarine base. Some months ago the Navy came out on record and stated that the Canal was no longer important to them for they had a two-ocean Navy.

The Army, on the other hand, is no longer interested in the base that they had prior and during the war in the Republic of Panama. This, I know, will only add to your many problems that you will have when you decide whether the tolls are raised, lowered, or kept as they

So, with your permission, I would like to read a prepared statement signed jointly by the respective presidents of the Canal Zone Central Labor Union and the Panama Metal Trades Council giving you the employees' views on this subject. Now, I represent the employees who are going to be affected either

I way regardless of the tolls being raised or lowered.

A proposal for the elimination of the debt, commonly referred to as the invested capital of the United States Government in the Canal. All figures are quoted from "Hearings conducted by the Subcommittee of the Committee on Appropriations, House of Representatives, in charge of the Department of the Army civil functions appropriation bill for the fiscal year 1950 on Thursday, February 17, 1949.” And



are taken from the statement of Brig. Gen. F. K. Newcomer, Governor of the Panama Canal and president, Panama Railroad Company.

The entire cost of the Panama Canal to date is $718,000,000, which includes $69,887,854.08, the cost of special protective works, and $78,798,039.02 for third locks construction, which was not completed, and for other studies. Deducting these two items the invested capital of the United States Government in the Panama Canal is $516,332,328.23, which is used as a basis for computing interest payments to the United States Treasury.

The Governor of the Panama Canal in his opening statement to the Appropriations Committee said:

The Panama Canal is essentially an international public utility, which aims at recovering all costs, including 3 percent interest on the net capital investment, It is our belief that this statement is partially true and partially not so. It is true the Canal acts as an international public utility in that it transits ships of all nations from ocean to ocean for a fixed charge per ton, and has returned to the Treasury a gross of $609,000,000. Of this sum $335,000,000 has been appropriated by Congress for operation and maintenance in the 35 years of operation, leaving $274,000,000 in interest payments on the invested capital or commercial value of the Canal.

In the sense that it is not true is the fact that as a defense measure to the United States the Canal is of inestimable value. It would weaken the United States in its position the world over if it were not for the fact that all nations know that even though we possess a two-ocean navy, it is possible with the Panama Canal to have every ship in a given place in very short order. The canal has served the United States faithfully during two world wars with never a single failure of transit.

During the First World War the entire Pacific Fleet was moved through the Canal and merchant vessels for shipping from the east coast of the United States to Europe, of which we have no way of knowing the number of or value to the war effort.

During World War II no one would try to dispute the value of the Canal to our country, not only in the thousands of free transits, but in all of the other things that are not commonly realized. At the start of the war, tankers supplying the fleet in the Pacific were required to transit to Aruba for oil, but after the construction of pipe lines across the Isthmus these tankers then came only to the Pacific entrance to be loaded, so that thousands of loads of fuel and Diesel oil and of motor and aviation gasoline sent to the fleet from the Canal do not show in the free transits.

This fleet of some 280 tankers was maintained by the Mechanical Division of the Canal and, never at any time, did the Army or Navy call for oil or gasoline, but that the Mechanical Division had tankers always available for delivery; never getting below three available at any time and, the records will prove that once when the Navy sent to the San Francisco area for oil the order had to be relayed to the Canal, because there were no tankers in proper repair on the west coast to fill the order.

Besides this there are countless other things, such as repair of troop transports, Army and Navy tugs and freighters, the regular naval vessels that stopped for repair to both ships and armaments—the use of the Canal as an ammunition supply base and for replenishing food stocks. The only thing that can be shown in black and white is the free transits, which in the 10-year period from 1939 to 1948, inclusive, amounted to 23,907 with a Panama Canal net tonnage of 37,915,274, or a little over $35,000,000 in nonpaid tolls in 10 years. We do not have the time or the records available to ascertain the total free tonnage but there is some at all times.

Since the 1st of January 1947, all prices have been increased. Rent varying from as little as 50 cents per month on the older, less desirable dwellings, to as high as 70 percent on the most desirable. A furniture rental charge has been placed on each piece of furniture furnished by the Canal quartermaster. This was formerly included in the rental cost of the quarters.

A refinishing charge has been added, irrespective of how long rent has been paid on the furniture or whether it needs refinishnig or not. In fact, in some cases the furniture is so old it is just thrown away and the tenant of the house is still charged for refinishing.

The houses are practically never repainted inside except at the occupants' expense. An increase has been placed on rental of electric stoves for cooking although most of the stoves have been in use for over 10 years. Charges for electric current and water have been increased and the medical charges at dispensaries and clinics have all doubled.

Charges have been put on where there never were charges before even though the book called Manual of Information–The Panama Canal Service, revised August 15, 1945, on page 13, under the heading “General” states:

Employees are allowed leave of absence with pay and free medical attendance.

And again in the book called Employment Information and Personnel Policies-January 1949, on page 15, under the heading "General” states:

Medical treatment is provided by the Government to employees without charge, except for subsistence and for private rooms in hospitals.

Of course the prices of all commodities in the commissaries have risen as high as those in the United States and, in a good many instances, higher. We have read in the papers of a slight decline in some prices in the United States yet most things are still on the upgrade in the Canal Zone.

In this connection it is worthy to note that a certain percentage of the shoes and clothing, especially work clothing, sold in the commissaries are seconds. Also a good many inferior brands and qualities of merchandise are handled. The cost of transportation to and from the United States on Panama Railroad steamships has gone up and we understand it is to be raised agian. The price on transportation of our cars to and from the United States has been increased. In all, prices have risen so much that a man with a family must live quite frugally if he is to be able to return to the temperate zone once every 2 years for an extended vacation, as recommended by all health authorities. The average 60-day vacation for a man and wife, including transportation of their car, so as to have the use of it while on vacation, is never less than $2,000, and for each child it is relatively higher.

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