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Mr. FUGATE. There is a report?

General NEWCOMER. No report has ever been made but a study was made of which the chairman has been given a copy. (This refers to Working Summary, Tolls Analysis.) We don't ask for a change in the tolls over $1. Maybe within 3 or 4 years it will be demonstrated that our estimates were not good and we don't have enough commercial traffic at the present tolls to pay the operating costs and the interest on the investment. I think that the directive for this committee is aimed at that type of thought.

Mr. THOMPSON. Perhaps we are a little sensitive to the tremendous amount of talk which is extremely heated as to the merits of one Canal over another, in Nicaragua, Colombia, and so forth. It led me to believe at first that some sort of radical change was imminent. I am beginning to retreat a little from that position. Perhaps it will operate substantially as is for a good many years. We would like to find out, if we can, what ideas the ship handlers, perhaps the sea captains, but I would think the pilots who pick up the ships and take them through, might have as to how they could handle ships as they handle planes over a fog-bound airport, stacking them up and letting them through at certain times. As I understand it, there has never

, needed to be any formal traffic handling in the Canal. It still could be done and the capacity materially increased by that.

General NEWCOMER. There actually is a very formal handling of traffic after it arrives at the entrance to the Canal. I have read somewhere the suggestion that shipping be controlled to the extent of insuring a fairly uniform flow of ships through the Canal, starting back at their point of origin. That would be completely out of the question. You can't control the departure of a ship from Rotterdam, say, to arrive here to fit in with a ship from Greece. If we want to delay the ship to the point of being able to accommodate it in the actual transiting of the Canal it might be gaged when it is between 24 to 48 hours away. In that way we could handle a larger number of ships. From a practical standpoint there is only a minimum amount of control that can be exercised.

Mr. THOMPSON. You are now prepared to handle peak load traffic when, as and if it arrives? To speed it to capacity?

Mr. DUNLOP. The only qualification is the additional personnel.

Mr. FUGATE. That's so far as the Atlantic side is concerned, there is practically no limit. On the Pacific side that is not true.

Mr. DUNLOP. I believe it would be fair to say that you could run up either side much higher but we figure in terms of the complete transit.

Mr. FUGATE. Your bottleneck is Gaillard cut.
Mr. DUNLOP. Generally, that is true.
Mr. FUGATE. That is my conclusion.

Mr. DUNLOP. You understand, of course, that the locks are a very rigid operation with respect to time. There is little leeway possible. It takes just so much time for water to run in and out. The only speed up we can do on the locks is to make the crew work faster in handling lines. So then we come to what can be done in the cut.

Mr. FUGATE. If you have a certain number of ships coming in and they assemble here on the Pacific side and then pass through the first locks at Miraflores and then Pedro Miguel then isn't right there where the slow-down comes?

Mr. DUNLOP. We attempt to schedule, upon their arrival, to get the northbound traffic out of the way and out of the cut before the south-bound traffic reaches it so that the passing is in the Gatun Lake section where we have the wider channel. That's dictated by the physical conditions.

Mr. FUGATE. But on the Atlantic side you can bring them through 24 hours a day. But you can't do that on the Pacific side. I still do not have clear in my own mind that that has anything to do with our particular assignment.

Mr. THOMPSON. I think not, but it is a fascinating subject. I do think that we will have to give some consideration as to the lack of any early improvements.

General NEWCOMER. Are not your particular problems what credit, if any, should be given in our capitalization to national defense and whether it is to continue to be the policy to earn 3 percent on whatever the investment is?

Mr. THOMPSON. That is right and whether we should go further and recommend some sort of an accounting practice that would provide for obsolescence and future needs, perhaps additional risks here and there. It gets back to the consideration of what is in prospectif it is a 27% to 5 billion dollar proposition. The only possible source of United States money to build anything of that kind would be the national defense budget. Now if we are going to improve by anything up to one-half billion dollars, then maybe we can and maybe we can't. Maybe that too is out of the commercial question and becomes national defense.

General NEWCOMER. It seems to me as a rough approximation of an answer to that point that we might say that whatever new type of canal or improved canal is built, the cost of that in excess of what is needed to provide for this anticipated increased commercial use should be charged against national defense. That might be as much as 90 percent of the cost. Based on our studies, it seems to us obvious that we have to do something to take care of the expected increased commerical use of the canal. If we do more than that, it would, I believe,

, be properly chargeable to the defense feature of the canal.

Mr. FUGATE. Mr. Chairman, I think in that connection we are running head on into a very, very controversial matter in that it is particularly arbitrary. Everyone has a definite thought of what value the canal has to national defense.

General NEWCOMER. I think you are entirely correct and that is demonstrated by the very extensive debate that took place in Congress when they were considering building the Canal. There were as many who got up on the floor of the House and Senate and said that this was particularly a commercial venture as there were who said it was basically for national defense. The Commission that came down here in 1921 to consider the capitalization of the Canal came to the conelusion that it was impossible to ascribe any fixed value to an entirely intangible aspect of the Canal. They said that you could no more say it was worth $100,000,000 to national defense than you can

Mr. FUGATE. Nor $100,000,000. It is a question of what democracy is worth to the people of the world. It is a question of our system of government.

General NEWCOMER. And what part this Canal plays in the maintenance of that. You just can't say.

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Mr. FUGATE. I don't propose answering it.

General NEWCOMER. We have said for many, maay years that siene you can't answer that question and since the tolls based on the present policy of fixing this as a commercial undertaking are reasonable, that there is no justification for changing to some other line of thought.

Mr. FUGATE. I think we are confronted with two problems. First is whether or not we are going to set the Canal up as a business enterprise and put it on a sound basis so that it can be amortized over a period of years to liquidate its capital investment and, second, what does it mean in respect to the maintenance of our merchant marine if tolls are so high that our merchant marine in its intercoastal trade cannot profitably operate. Then we are forcing from the sea the American-flag ships which are essential to the maintenance of the markets. Those are our two problems.

Mr. WICKERSHAM. Another question at this point, there is one other matter that should be taken into consideration instead of trying to earn only the 3 percent each year. Should not an effort be made to regain the losses in the past?

General NEWCOMER. That is certainly a question of policy. We have said that if the tolls rate be fixed at the maximum now permitted by law, over a long period of time we would hope to recoup those losses and get back to something very closely approximating 3 percent earnings. I doubt very much whether it would be advisable to fix tolls for a temporary period that would mean rapidly recouping those losses.

Mr. WICKERSHAM. You mean over a period of long years to help recoup these losses over an equal number of years?

Mr. DREWRY. Governor, will you give us a statement or the brief history of the 3 percent which we seem to have solidly fixed since the Canal became a reality.

General NEWCOMER. I would like to have Mr. Dunlop pick this up here and give you something on that.

(Mr. Dunlop gave a brief résumé showing the 3 percent was established even before the Canal was opened to traffic and an off-the-record discussion ensued.)

Mr. FUGATE. Do you think the present set of rules for measurement is equitable?

Mr. DUNLOP. Yes, sir.
General NEWCOMER. We think it is perfect.

Mr. DREWRY. In one of the recent bills that came before the Panama Canal Subcommittee, there was a proposal that instead of the present authority which the President has, to have the Railroad Company operate certain functions for the Canal, that the Railroad charter be changed so that certain functions can be transferred from the Canal to the Railroad Company. Just in line with that point, the Tivoli Hotel is owned by the Canal. Is that a depreciable asset?

Mr. DUNLOP. It is depreciated out.
Mr. DREWRY. The rental is $3,000 a month, is that right?

Mr. DUNLOP. It was $3,000. It is paid in as a business receipt to the Panama Canal.

Mr. DREWRY. For the two hotels there was close to $1,000,000 gross revenue. What I had in mind was that the point was reached by the shipping people when this recent bill came up that it was unrealistic to have a fixed policy of the 3 percent and at the same

time be able to transfer profitable assets of the Canal to the Railroad Company which has no effect on the toll policies.

Mr. DUNLOP. The Tivoli Hotel was not transferred to the Railroad from the Canal because it was profitable. During the war years there was a profit but during normal times we try to break even. There is a provision in the treaty that when Panama has adequate hotels we will quit operations. That point you raise there with respect to transfer of functions has caused a lot of misunderstanding, and I know that recently because of the discussion about transferring, both in the Government circles and with the man on the street, there is an opinion that we are going to just suddenly juggle everything down here. The Canal is too important and we take our responsibilities too seriously to do it that way. We just recently answered some of the Hoover Commission's reports along those lines. Don't be impressed with remarks that we are all going to simply shift things about like this.

Mr. DREWRY. There is some question, too, as to whether or not the Railroad Company should be considered as a part of the entire operation.

Mr. DUNLOP. The protests of the shipping companies over a year ago-in one of their papers they rolled the railroad operations right in with the Canal's financial results.

Mr. FUGATE. The Railroad is within itself a corporate entity. It is profitable at the present time. I got the impression that it was not, but apparently I was wrong.

Mr. DUNLOP. When we talk about profit we do not talk about profit in the sense that we will exploit an operation to get the most out of it we can. We must, if it is at all possible, make a reasonable return on the investment in whatever business facilities we operating. The Railroad in its various units has definite restrictions from commercial conditions. The Railroad Company embracing the hotels, etc., does not show a loss for total operations. It is subject to commercial demands. We can't control them in any way, shape or form. We will come out with a profit for the Company, but individual units will not always come out with a profit for their particular part of the Company's operations.

Mr. THOMPSON. Do ships under Panamanian registry transit the Canal free of tolls?

Mr. DUNLOP. No, sir.
General NEWCOMER. Only Panama Government ships.
Mr. DUNLOP. No commercial vessels transit free.

(Whereupon, at 11 a. m., the subcommittee recessed, subject to the call of the chairman.)

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INVESTIGATION OF PANAMA CANAL TOLLS

MONDAY, MAY 23, 1949

HOUSE OF REPRESENTATIVES,
COMMITTEE ON MERCHANT MARINE AND FISHERIES,
SPECIAL SUBCOMMITTEE ON PANAMA CANAL TOLLS,

Washington, D. C. The subcommittee met, pursuant to notice, in the committee hearing room, 219 Old House Office Building, at 10 a. m., the Honorable Clark W. Thompson, chairman of the subcommittee, presiding.

Mr. THOMPSON. Suppose we introduce the first witness this morning, Mr. Bailey, who will identify himself for the record.

STATEMENT OF FRAZER BAILEY, PRESIDENT, NATIONAL

FEDERATION OF AMERICAN SHIPPING-Resumed

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Mr. BAILEY. Mr. Chairman and gentlemen of the committee; my name is Frazer Bailey. I am president of the national Federation of Americn Shipping, who represent two-thirds of all the privately owned deep-water dry-cargo vessels under the American flag, and approximately one-half of the tanker fleet.

On February 28 the House of Representatives passed House Resolution 44. I will not take the committee's time to read it. You gentlemen, I know, are thoroughly familiar with it. It calls for a report by June 30 on the policy that should be used in the future in establishing and maintaining the toll system at Panama.

The passage of House Resolution 44 grew out of the fact that in response to a suggestion contained in the report of the Appropriations Committee on the Army civil functions appropriation bill for the fiscal year ending June 30, 1949, in the House of Representatives there was a suggestion that Panama Canal tolls should be increased, and as the Chairman said a moment ago, the question of an increase arose due to an increase in what appear to be the operating costs in the Canal Zone.

The President, in response to a recommendation from the Department of the Army, issued a proclamation, No. 2775, on March 26, 1948, increasing the applicable tolls from 90 cents to $1 per Panama Canal net ton for laden vessels. When this appropriation bill, H. R. 5524, was before the Senate, representatives of the shipping industry and Members of the Congress appeared before the Senate Appropriations Committee and pointed out that no testimony was made available to the Appropriations Committee of the House. They further testified as to the effect of such a tolls increase upon American shipping, the lack of justification therefor, and other matters relating to this subject.

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