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Mr. BAILEY. No toll charge has ever been suggested to cover the transit of these waterways by waterborne craft. We do not say this as a suggestion of free tolls at Panama. We only state it to show that it is not unusual for the Government to provide Čanal transit facilities.

Our suggestion concerning Panama, as already stated, is that without interest and after a proper allocation of those expenses which are properly allocable to its military defense characteristics are deducted, that the remaining cost and expenses incident thereto should be in the future covered by toll receipts.

The Canadian Government constructed the Welland Canal between Lakes Erie and Ontario at a cost of approximately $132,000,000. On these waterways no transit tolls are charged to either domestic or to foreign shipping.

Tha Suez Canal is 104 miles long. Its construction was begun in 1859 and it was opened to traffic in 1869. The corporate investment in 1911 represented approximately $127,000,000. The canal is open to all nations and free from blockade by the Convention of Constantinople, which was signed in 1888. The canal is operated by the Universal Marine Canal Co., of Suez, to use the anglicized term. It is a long French name here (Compagnie Universelle du Canal Maritime de Suez), with its administrative seat in Paris. It is privately owned and its closely held shares, which sell at 1,000 percent premium, are traded on the Paris exchange.

In 1879 Disraeli, then British Prime Minister, bought 176,000 of its shares from the Khedive of Egypt. The shares were numerically doubled in 1924, and His Majesty's Government as of 1947 held 238,000 capital shares and 115,000 preferred shares. In other words, the British holding is slightly less than half.

The corporation has 32 directors, of which 10 are British, 2 Egyptian, 1 Dutch, i American, and 18 French. In 1949 the Egyptian Government became a privileged partner in the Suez Canal, under which it will receive 7 percent of the company's gross profits, and its directors will be increased to 7. In 1948 the Canal earned over $44,000,000, and annual dividends have been as high as 33 percent of the cost of the stock.

We say that to show the complete lack of parallelism between Suez and Panama. The rates of toll on the Suez Canal are now eight shillings, or approximately $1.60 per Suez Canal net ton.

The Kiel Canal in Germany cost that government $132,000,000 prior to the war, and by the terms of the Versailles Treaty transit tolls on commercial vessels are limited to an amount which would cover the operation and upkeep, in an amount equal to about 6 percent of the amount presently charged at Panama.

The military aspects and value of the Panama Canal are obvious when it is noted that the Governor General of the Canal is a major general in the United States Army and he is under the supervision of and reports directly to the commanding general of the Caribbean area, and in turn to the Secretary of War, now the Secretary of the Army.

As the committee is aware, the rates of transit tolls at Panama are set by the President under a delegation of authority from Congress authorizing rates between certain minimum and maximum amounts. The President acts upon the recommendation from the Department of the Army. At the present time the rates of toll are 90 cents per net

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Panama Canal ton for laden vessels and 72 cents per ton Panama Canal tonnage on vessels transiting in ballast. The United States and Panamanian Government vessels and warships of the Republic of Colombia transit the Canal toll free. All other ships of all other nations pay the established rates of toll.

Canal revenues from tolls, civil revenues, and net profits on business operations are covered into the Treasury. Funds for current operating expenses and capital construction are appropriated by Congress and, for accounting purposes, are considered as providing from or offset against the tolls or other receipts covered into the Treasury.

Practically all receipts other than tolls, civil revenues, business profits—that is to say like rent of quarters, hospital receipts, and so forth-are repayable to Canal appropriations and may be re-expended. But the re-expendable receipts are insufficient to provide for over-all cost, and the Canal is therefore required to submit its expenditure program annually to the Congress.

An analysis of the accounts and reports on the Panama Canal as published by the United States Government and as analyzed by the Federation show these facts, so far as we can ascertain them from these documents:

(a) In the building, improvement, and operation of the basic canal to date no charge has been made against national defense.

(6) The financial accounts in the Government books have been and are being charged with interest at the rate of 3 percent per annum on funds financed for the construction and improvement of the Canal, not only during the entire period of its operation but during the construction period as well.

(c) The Canal accounts show substantial charges for sanitation hospital, public parks, and playgrounds, which appear to be civic or civil government expenses, at least in part, and which are partly attributable to military, naval, railroad, diplomatic, or private interests on the Canal Zone.

(d) The United States Government vessels have been furnished free transits which, at the prevailing commercial rate, have a total value of approximately $64,000,000.

(e) Inadequate reimbursement is received from the Army, Navy, and other activities for certain functions performed for them by the Panama Canal authorities.

(f) Some revenues which otherwise would accrue to the Canal are paid over to an account called "Business operations” and the Panama Canal Railroad, both of which show separately reported profits.

(9) And this is an important one, gentlemen-If the interest on United States funds be excluded, then transit tolls paid by commercial vessels plus tolls forgiven on Government vessels have exceeded all the construction and improvement and operating costs of the Canal for transit purposes by $2,000,000 to date.

(h) Panama Canal toll policy has not been consistent with the policy adopted for all other waterways in North America. On the 12 principal waterways of the United States, including the “Soo" and Cape Cod canals and the Canadian Welland canals, no tolls are charged to either domestic or foreign shipping.

As an example of military expenses now charged to shipping, recurring statements in the reports of the Governor General of the Canal show that substantial increases in expenses of numerous activities of the Canal have been directly attributable to the increases in the number of military and naval personnel located at the Canal. In the annual report of the Governor for the fiscal year 1940, for example, it is stated, and I quote the Governor:

In the foregoing table it may be seen that there has been a net increase of 1,747 in the number of employees on the rolls of the Panama Canal and the Panama Railroad Company. This is an increase of approximately 50 percent, and with a few minor exceptions it may be seen in every unit of the organization. This is the direct result of the great volume of construction activity now being carried on locally in national defense programs. Because of the general increase in activity, it has likewise been necessary to increase the force in numerous other units not particularly engaged in construction, such as the accounting department, the health department, and the commissaries.

This statement is reiterated in the 1941 report of the Governor of the Canal.

In his annual report for 1941, the Governor of the Canal showed that the expense of schools in the Canal Zone was largely attributable not to shipping but to the military forces on the Canal Zone, and he said:

During the past year, careful surveys were made of the plans for the expected increase in population of the Canal Zone, both in military forces and in civilian forces engaged in the construction activities. The school administration keeps informed as to the anticipated changes and rearranges the plans for the expansion of educational facilities in accordance with such changes.

In the same report he says:

The recreational facilities provided by the playground section are used extensively not only by the civilian employees and their families but also by the United States defense forces stationed on the isthmus. Practically all the facilities are utilized to their capacity during the visit of units of the United States Navy.

The Governor, in his report of 1940 stated, of expense for the expansion and improvement of hospital facilities at Gorgas Hospital:

The increase in the Army and Canal Zone personnel makes the alteration and installation of necessary facilities imperative for adequate hospitalization.

Certain portions of the Canal, like the width and depth of the channel at certain points, have been constructed, maintained, and operated only because they are necessary to accommodate the beam and draft of certain war vessels. We have no large commercial vessels using the Canal. And yet the entire expense of their operation and maintenance is included in the net annual appropriation; as stated in the accounts of the Canal, "are considered as provided from the tolls and other receipts covered into the Treasury” (The Governor's 1946 report.)

. We suggest that a fair allocation of these expenses to the Army, Air Forces, Navy, Panama Canal Railroad and other activities unrelated to the operation of the Canal should be made and that tolls and other revenues should pay the remaining expenses of the Canal authorities.

The reported results of operations for the fiscal year 1948 were as follows without interest and before allocation of dual purpose services:

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Cash profit plus free transits toll value before interest.

4, 446, 993. 75

. 20

These figures alone lay a basis for the reduction of tolls by 20 cents per ton for laden vessels if interest is eliminated and if shipping is to pay tolls at rates which will pay without profit or loss to the Government the operating expenses of the Canal.

A reasonable allocation of expenses to dual-purpose activities would result in a further reduction of tolls.

Now we come to the effect on United States shipping, which is where this originated, other than the House appropriations bill when they talked about additional cost of operating the Canal. We recomment this as a fair and equitable basis for all. Tolls are a real burden on shipping. The cost of an 8-hour transit through the Canal is approximately $6,600 for a C-3 freighter, more than $800 per hour. It is greater than the entire cost of operation of the vessel for the 47-day trip from the Canal to New Orleans.

On an intercoastal round trip it is approximately equal to 1 month's wage bill on the ship.

It would seem that a policy of setting tolls at amounts which would cover the cost of operation of the Canal and all services reasonably accessory thereto will be fair and equitable to shipping and to the Government, and would be an aid to the American merchant marine. Such a policy would be of particular assistance in the intercoastal trades, which are having a difficult fight for revival. Transit tolls in Panama constitute an important item in the operating expenses of those American ships continuously trading between the Atlantic, Gulf, and Pacific coasts of the United States. These intercoastal ships under normal conditions are frequent and large users of the Canal. Before World War II about 185 large oceangoing ships plied these routes and constituted a substantial segment of the American merchant marine. Those are the intercoastal ships, as differentiated from the domestic ships, which are coastwise on each coast and do not use the Canal.

In the early days of the last war these vessels were requisitioned and this trade was suspended. Due to changed economic conditions, the American shipping companies have not found it possible to restore these services except in a small way. Today only 67 vessels, compared with 165 in 1939, are operating between these ports, a large majority of which are chartered Government tonnage at a special low charter rate in order to maintain the minimum service and to minimize operating losses.

Soon after World War II, in order to provide some shipping service for commercial useage between these coasts, these operations were restored to public useage by the Maritime Commission. It was found, however, that actual operating expenses exceeded the income revenue by so large an amount that it was unnecessary to terminate such operations. The actual losses sustained by the Maritime Commission between December 1, 1945, and December 31, 1946, without any charge for the capital cost of the ships or their insurance, amounted to $9,532,000, or approximately $600,000 per month.

Seven American companies are now waging a struggle to maintain that service. I think it is only fair to say that of course the economic conditions are not as severe now as they were when the Maritime Commission initiated the service, because private companies could not stand any such loss as $600,000 a month.

Today American ships pay approximately one-half of all the Panama Canal tolls, and constitute about one-half of the tonnage which transits the Canal. Panama Canal tolls add approximately $10,000,000 per annum to the operating expenses of American ships. A reduction of tolls in accordance with our suggestion would not result in any burden on the United States for the operation and maintenance of the Canal and its necessarily related activities, and I might add there that as we see it, to take care of the problem which the Governor has in fluctuating costs, our suggestion is that the tolls schedule should fluctuate with the costs. If the costs go up, why then the toll rate will have to go up to cover it. We are talking now about all the costs, whatever are necessary and proper, being defrayed out of the tolls collections or offset against it, as the Government books provide.

It would simply amount to a fair recognition, in our opinion, of the national security characteristics and a proper reduction of the costs heretofore assessed against commercial shipping.

Mr. Chairman, we leave that with you, if we may, as a suggestion, respectfully submitted for the consideration of the committee, with the idea that there should be a fair and equitable distribution of these costs. We have no desire to shift our responsibilities to the Government, but we think it will be only equitable to have the Government recognize the national defense characteristics, as did the statesmen who were the originators of the project, and that national defense should pay its portion of it, and that commercial shipping should pay whatever is found to be a proper and fair share for them to pay.

Thank you very kindly.

Mr. THOMPSON. Thank you, Mr. Bailey. Your presentations are always very concise and very interesting. Sometimes we do not agree all the way, but we always enjoy hearing from you.

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