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isting in the Canal Zone, but also to pay some 3 percent interest on the capital costs involved.

Let's just consider the interest charge for a moment. We have something very similar in the Tennessee Valley Authority insofar as the use of Government money is concerned. I am not intending to criticize the TVA or to argue as to its desirability but merely to use it as the yardstick which it is so frequently claimed to be. The investment in the TVA is huge and it is free of interest insofar as the Federal Government is concerned. The Congress put up the money, without interest, so as to permit of lower utility rates to the residents and industries of the areas involved. This was a move to further the development and increase the prosperity in the TVA region. TVA could pay interest to the Federal Treasury but it would have to increase its charges to consumers to do so. Perhaps it is sound practice to let the inhabitants of this area enjoy low utility rates at the expense of all the people, but, if so, then why isn't it also sound to forget about interest on the capital involved in the Panama Canal? Lower tolls would make additional jobs for American seamen and shipbuilders and would pass on to the ultimate consumers of goods in intercoastal commerce a little of the benevolence of your Uncle Sam, a benevolence made possible by these same consumers' tax payments.

Mr. Chairman, I made the voyage around the world in the great white fleet sent westward by President Theodore Roosevelt, at a time when tension in the Pacific area had risen just about to the explosion point, due largely to certain Japanese exclusion policies adopted by State and local government agencies in California. When the then big battleships demonstrated their ability to go around South America into the Pacific as a unit, international tension eased at once and we had peace in the western ocean. If the Panama Canal, then under construction, had been in operation it is likely that the need for this sudden transfer of force would not have arisen. This exemplified why the money was spent at Panama and why the expenditure as a charge against the national defense was, and is, wholly justified.

Now, Mr. Chairman, my suggestion in this matter of toils at Panama is that the Congress authorize the whole capital cost of the Panama Canal to be written off the books as a national defense expenditure and that this sum be thereafter eliminated from accounting. This, I am sure, will save several thousands of dollars annually for it will reduce the bookkeeping charges which go on year after year, decade after decade, keeping up the voluminous records of these great sums of money which will never be paid to the Treasury, and which no realist, even in the wildest stretches of his imagination, expects ever will be paid. Yet, unless they are written off in one clean operation, they may go on for ever and ever like the agency for getting spruce out of the forests of our great Northwest during the First World War when spruce was so essential in the manufacture of aircraft. This agency proved the equal of any cat with nine lives for it was still in existence when World War II came along (although spruce had been long unheard of in combat aircraft). It may still be living comfortably under the wing of some paternal governmental agency insofar as I know.

They let us do a little figuring on what part of the tremendous service establishments in the Canal Zone really belong to the commercial aspects of the operation rather than to the military or the political.

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This should not be too difficult if an unbiased investigation were made. Certainly great parts of the educational, sanitary, hospital, supply facilities, and so forth, belong to the military aspects and would not be essential if only the commercial picture were considered. I am not advocating that the residents of the Zone he given less consideration or less facilities, although I do believe that we must guard against making this area into a complete welfare state in which the Government, represented either by the Department of Defense or the Canal Zone administration, does just about everything for the inhabitants. The allocation of a considerable part, possibly of the greater part, of expenditures for service activities to the national security would contribute much toward a well-deserved reduction of tolls for merchant vessels.

I appreciate some will say that the defense set-up in Panama exists for the defense of the Canal. That may have been true, quite literally, before the momentous changes brought about by two World Wars. Now, I believe the defense of the Canal is only one part of the spcture, and I doubt if it is even the major part. As I understand the triategic situation in the Western Hemisphere, the Canal Zone has become the hub of our defensive system in the Central American and Caribbean areas, and so the center of that same system guarding this Nation from attack from the south or the southeast. This condition has come about somewhat due to our continued maintenance of various bases and air stations obtained from Great Britain in exchange for the 50 World War I destroyers in the early phases of World War II— before the United States became an active belligerent. I believe that if the Panama Canal were no longer to operate as an interoceanic waterway, the United States would continue to maintain its military establishments in the Zone in almost undiminished strength. I think this is strategically sound and that it makes horse sense. We might as well recognize it and stop using the Canal as the paramount, and almost the sole reason for maintaining our defenses at the Isthmus at the level deemed necessary for the national security.

You will wonder, perhaps, what I believe should be charged to tolls in the operation of the Panama Canal. Well here is my approximate set-up for that purpose and please understand that this is approximate only as I do not have the facilities for a really accurate suggestion:

Cost of civil government in the Canal Zone.

Operating costs and maintenance of the Canal and of all equipment used in either the operation or maintenance of the Canal.

Costs of pensions and retirement pay for employees and their dependents.

Proportionate share of operation and maintenance of the various public services, such as, educational, hospital, recreational, and supply, deemed essential for the health and comfort of employees.

A reasonable part of the annual “rental” payment to the Republic of Panama.

It is my opinion that if these items alone were taken into consideration in determining costs chargeable to commercial shipping, the tolls could be materially reduced-perhaps even cut in half.

I realize that some will disagree with my opinions because foreign ships would profit equally with American ships if such opinions should prevail. Insofar as I know, there is no way to avoid this for it has been held that under certain treaty provisions our own shipping cannot be given preference in the matter of tolls.

But the economy and the national defense of the United States both demand a healthy and a numerous intercoastal fleet of modern ships. Such a fleet, taken in conjunction with an adequate coastwise commerce, will be the most available source of ships in the event of war or national emergency. These ships are at hand when needed while the greater part of our foreign-trade fleet will likely be in far-distant waters and subject to internment or to capture or destruction by the enemy. This domestic fleet was a lifesaver to us in World War I and a godsend to us in World War II. Now it is almost nonexistant. The national security requires that it be restored to vitality both in quantity and in quality. Here, in this matter of readjusting the basis for calculating Panama Canal tolls, is one of the surest means of resuscitating the intercoastal segment of the domestic fleet to such an extent that it may again become a reservoir of ships immediately available in the service of the Nation.

Let us put the charges where they belong and not expect one branch of industry to carry costs which reason would indicate should be allocated elsewhere.

Mr. Chairman, I thank you and the members of the subcommittee for the courtesy of this hearing.

Mr. THOMPSON. Thank you, Captain.
Any questions, Mr. Fugate?
Mr. THOMPSON. Mr. Miller?



Mr. HADDOCK. My name is Hoyt S. Haddock, executive secretary, CIO Maritime Committee.

Mr. Chairman, I have discussed this question with Mr. Bailey and we are in complete agreement with the suggested differential between charges for commercial shipping and other means or other sources that he has covered in his statement. We are particularly anxious that the charges for other services be allocated to these services in the correct proportions and that the commercial vessels cover that share of the expenses that should normally accrue to them as a result of the operation of the Canal.

I particularly want to emphasize the desirability of charging off such expenses as should accrue to the general public and Federal Government in the operation of such things as post offices, cemeteries, parks, and schools in the area. Congressman Miller has raised that subject. We have given a lot of thought to it. We certainly think that all of those services should be available to the personnel down there, but they should be available to that personnel on the same basis that they are available to people here in the United States. We pay for parks. We pay for them out of tax money. Cemeteries are paid for out of private funds. Post offices are paid for out of Federal taxes, and schools are paid for out of both Federal and local taxes. We think that those things should accrue in the same manner to the people who use them down there as they accrue to people here in the United States.

That is all I have, Mr. Chairman.

Mr. THOMPSON. Thank you. Are there any questions, gentlemen? [None.)

Gentlemen, that seems to conclude the hearing this morning. I do want to note the presence here of a very distinguished gentleman, formerly a Governor of the Panama Canal Zone, and I believe the only surviving member of the Isthmian Commission. Former Governor Maurice Thatcher. We will be very glad to hear from you if you have any observations, either on or off the record.



Mr. THATCHER. Well, Mr. Chairman and gentlemen, I am not here in the interest of any activity. You were kind enough to invite me here to the hearing and to make any statement that I might wish to make.

I might make just a few general observations. What I say I say as a citizen, and as one who had some contact during the construction period.

I have always felt that the formula that has obtained concerning the levying of tolls was a substantially fair formula. I am not prepared to say that all of the details that have entered into the accounting have been properly appraised or placed. It may be that there ought to be certain exclusions. I don't know. Those things are matters of detail, matters at which your committee will look very carefully.

But this occurs to me about tolls. We are running now about 50/50, as I understand it--about 50 percent American bottoms going through the Canal and about 50 percent foreign. Before the World War, as it was brought out in the testimony here, the American shipping fell as low as 35 percent. Whatever you do in increasing or reducing tolls affects foreign shipping too, and I do think that foreign shipping ought to bear its proportionate part of this burden of tolls based on this general formula: Operation and maintenance, and a fair return on the fair investment for purely commercial purposes. It might be that the interest rate should be reduced to what the Government could borrow the money for at this time.

Of course we all have every sympathy with American shipping. In the old days I personally favored the exemption of coastwise shipping, but a different policy was finally written into the law, so they were on all fours with the foreign shipping.

But my thought is this, that if your committee finds that there should be some favor shown American shipping, that it be shown in some other

way than in the reflection of toll charges. It may be there should be some compensation to American shipping, but except that this Canal is an international waterway in its practical aspects, it is different from an inland canal, which is purely domestic. It is an international waterway, and we do want the foreign ships to bear their fair proportion of the costs and charges incident to the operation and maintenance of this great waterway and to the cost of construction so far as the purely commercial aspects are concerned.

It may be that other features that are now charged out to be charged to national defense. I don't know.' Those are questions of detail. But as a question of policy, it seems to me that when your committee determines what shall be the policy on which the tolls shall be based, then you can work out the details as to what may seem fair to all concerned.

I think that because of this international aspect we have to consider wbat are fair tolls witbin the limits of the law. I am not undertaking to say what are fair tolls, because that is a question of detail, and then, if it appears that an undue burden is imposed on American shipping, personally I would favor some adjustment in other directions to compensate American shipping for that situation.

Those are the general observations that bave occurred to me in the course of the testimony here this morning.

Mr. THOMPSON. Thank you very much, Governor.

Mr. THATCHER. If you permit me, I want to expand that just a little in the revision.

Mr. MILLER. I suggest that he be permitted to revise and extend his remarks, Mr. Chairman.

Mr. THOMPSON. That may so be done, and anyone else who has testified here this morning is, of course, accorded that same privilege. You may revise and extend your remarks.

Mr. HADDOCK. I should just like to make one observation for the information of Governor Thatcher and the committee. I think the committee is familar with it. At the present time there are operating in intercoastal service 15 American-owned vessels, owned by private interests, as compared with prewar in the neighborbood of 125 or 126, to be exact, and a $6,000 toll on each trip is one of the reasons why those vessels are not operating today.

Mr. THOMPSON. If there are no further observations, the bearing will stand adjourned, subject to call.

Thank you all very much.

(Whereupon, at 11:45 a. m., tbe hearing was recessed, subject to the call of the Chair.)

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