the measurement of every commercial vessel, domestic and foreign, that uses the Canal, and a change in rules which may be desirable from the standpoint of equalizing port dues actually changes the tolls of the Canal.

There is a footnote here that gives in very brief figures the net result at the present time.

"Instead of $1.20 per ton of Panama Canal measurement intended to be prescribed for laden vessels, there was actually collected in September of 1933 an average of $0.863 per ton for laden vessel", passing through the Canal that month.

(4) The United States has been deprived of revenue from the Canal. During the 17-year period, 1915-31, a total of $272,157,451 in tolls was collected. It is estimated that $59,000,000 more would have been collected during that period had the Panama Canal rules only applied. The analysis of this saving to ships shows clearly the fallacy of the argument presented by American shipowners and operators that American merchant marine benefits. Of this $59,000,000 loss to the Panama Canal and saving to ships, $27,000,000 was a saving to American-flag ships and $32,000,000 to foreign ships. Of the $27,000,000 saving to American-flag ships, $20,500,000 was to American coastwise vessels (a trade protected by law from foreign competition) and $6,500,000 to American vessels in foreign trade and therefore in competition with the foreign vessels, which saved $32,000,000.

Mr. PETTINGILL. You said that $59,000,000 more would have been collected during that period had the Panama Canal rules only applied, if you had had this bill in force all these years.

Governor SCHLEY. No; that bill reduces the tolls. It reduces the tolls to $1 from $1.20. The purpose of that is that the ships have enjoyed that reduction so long it is deemed advisable not to go back to $1.20.

This proposes a $1 charge on laden vessels and 60 cents on ballast vessels.

Mr. PETTENGILL. Have you any computations, then, as to how much this bill would have brought in over and above what we have received if it had been in force during this entire time?

Governor SCHLEY. I think that that is in some of the statistics. Mr. SMITH. It is in the statistics?

[NOTE. See first table in letter from Secretary of War of Feb. 6, 1934, above.] Governor SCHLEY. It is here. I will see if we have that. If not, there is attached to this digest two charts which show, year by year, what was collected and what would have been collected.

Mr. PETTENGILL. Under this bill?

Governor' SCHLEY. Under this bill; what would have been collected under the $1.20. All three of those are shown in these charts. Mr. PETTENGILL. All right.

Governor SCHLEY. On the other hand, the tolls on ships in ballast pay 40 percent less than the laden rate.

(5) A form of uncontrolled ship subsidy is created which not only affects different classes of ships differently but subsidizes foreign ships in a greater amount than United States ships.

(6) The administrative difficulties have been increased due to the necessity of making the measurements and computing the tonnage and tolls of each vessel under both systems and of applying the intricate rules for United States measurement.

It is evident that the remedy is legislation which will provide specifically that the Panama Canal rules alone shall be used. For 15 years an effort has been made to secure such legislation, but the American shipowners and onerators have been successful thus far in preventing it. The proposed remedial legislation has always contemplated a reduction in the unit charge per ton, and

this reduction was such during the early years of operation of the Canal, when it was adopted, that the total revenue to the United States would have been approximately the same under the proposed single system as under the dual system. As time went on, however, through the resourcefulness of shipowners and designers, new ships built have been so designed and existing ships have been so altered as to take advantage of the technicalities of the American registry rules, and further changes in rules and in interpretations thereof have been made by the Assistant Director of the Bureau of Navigation favorable to ships, with the result that today the proposed legislation, in spite of the unit reduction in tolls contemplated, would increase the revenue to the United States.

I shall here insert a footnote, not in the original text. This is a table quoted from the annual report of the Governor of this year, because it shows the progressive reduction which has been going on.

This progressive reduction in United States net tonnage in relation to the constant Panama Canal tonnage is well illustrated by a table which appears on page 86 of the Governor's annual report of the Panama Canal for the fiscal year 1933, giving for each year for the ships that transited the Canal the percentage which the aggregate United States registry measurement net tonnage formed of the aggregate Panama Canal net tonnage. The table is as follows:

That is the tonnage, and therefore, is exclusive of the rate that was charged per ton.

In 1917 it was 81.09 percent. That means that in 1917 all ships going through the Canal, measured under both systems, the total tonnage, United States registry system, was 81.09 percent of the total tonnage measure under the Panama Canal system.

In 1918 it was 80.55; almost 85 percent. In 1919, 84.80; 1920, 82.95; 1921, 81.85; 1922, 80.59; 1923, 80.44; 1924, 80.15; 1925, 79.33; 1926, 78.52; 1927, 78.41; 1928, 77.61; 1929, 76.39; 1930, 75.66; 1921, 74.10; 1932, 72.84; and 1933, 71.72.

The legislation proposed can be understood from the following quotations. The first four sentences of the third paragraph of Section 5 of the Act of August 24, 1912, as amended, read in part as follows:

That has already been placed in the record. (The quotation referred to is as follows:)

Tolls may be based upon gross or net registered tonnage, displacement tonnage, or otherwise, and may be based on one form of tonnage for warships and another for ships of commerce. The rate of tolls may be lower upon vessels in ballast than upon ships carrying passengers or cargo. When based upon net registered tonnage for ships of commerce the tolls shall not exceed $1.25 per net registered ton, nor be less than 75 cents per net registered ton. * * * If tolls shall not be based upon net registered tonnage, they shall not exceed the equivalent of $1.75 per net registered ton as nearly as the same may be determined, nor be less than the equivalent of 75 cents per net registered ton.

Governor SCHLEY (continuing reading). "The most recent remedial legislation suggested provides that the first five sentences of the third paragraph of section 5 of the Panama Canal Act, as amended,

be amended so as to read as follows:"

I will not read it. That

is the draft recommended by the Secretary of War which resulted in this bill. That, however, differs somewhat from the bill promoted, or remedial legislation proposed, by the Bureau of Efficiency, which wrote this report.

(The matter last above referred to is as follows:)

Tolls on merchant vessels, Army and Navy transports, colliers, hospital ships, supply ships, and yachts, shall be based on net vessel tons of actual earning capacity, determined in accordance with the " Rules for the measurement of vessels for the Panama Canal" prescribed by proclamation of the President, November 21, 1913, as amended from time to time by order of the President, and shall not exceed $1 per net vessel ton so determined, nor be less than 75 cents per net vessel ton so determined, on laden vessels, and on vessels in ballast without passengers or cargo shall be 40 percent less than the rate of tolls for vessels with passengers or cargo; Provided, That no charge shall be made for deck load, which is defined, for the purposes of this act, as cargo situated in a space which is at all times exposed to the weather and the sea and which space is not included in the net tonnage determined under the "Rules for the measurement of vessels for the Panama Canal" hereinbefore referred to. Tolls on other floating craft shall be levied on displacement tonnage at rates to be prescribed by the President. In addition to the tolls based on measurement or displacement tonnage, tolls may be levied on passengers at rates prescribed by the President, but not to exceed $1.50 for each passenger. The levy of tolls is subject to the provisions of article XIX of the convention between the United States of America and the Republic of Panama, entered into November 18, 1903, and of article I of the treaty between the United States of America and the Republic of Colombia, proclaimed March 30, 1922.

SEC. 2. That this act shall take effect and be enforced on and after 9 months from its passage.

(NOTE. The foregoing is not the form in which remedial legislation suggested by the Bureau of Efficiency was worded but the effect intended is the same; the above form is a revision intended to express more directly the changes desired.)

Governor SCHLEY (continuing reading):

There will now be presented two examples of the advantages which are taken of the technicalities of the present system, one illustrating the exemption of passenger space, and the other the exemption of shelter deck spaces.

The Empress of Britain, a large British passenger ship, reduced its tolls for each transit through the canal by the sum of $4,148 by converting a small cloakroom into a so-called “stateroom” by the simple expedient of removing the coat racks, et cetera, and putting in their place a small bed, a chiffonier and a portable wash stand, which resulted in exempting from tolls measurement an entire deck devoted exclusively to social purposes. This is made possible by the wording of the American rules. Under the Panama Canal rules, not only would this space but also a large additional passenger space be included for tolls, amounting in total to $9,375 more in tolls for a single transit. This ship now pays tolls to the Panama Canal of $18,941, while it pays to the Suez Canal $30,741, plus $1.93 per passenger.

The exemption of "shelter decks" originated in the British service from such open and exposed spaces as "awning decks" for cattle and other spaces so open as to be unfitted for cargo. This exemption resulted in the development of the well-known shelter deck type of vessel. Great Britain has prevented undue advantage from being taken of this exemption by requiring inclusion in the tolls measurement of such part of this space as is actually occupied by "timber, stores, or other goods." The American registration rules do not include this protection, and, as stated above, the rules and interpretations of the Commissioner of Navigation require compliance with elaborate technicalities in order to exempt the space, but such compliance leaves the space in no way exposed to the elements, but in fact as much protected as the other cargo parts of the ship. The American Hawaiian Line has recently made relatively minor changes in 18 of their fleet of ships using the canal in order to gain the benefit of this exemption, with the result that about $1,200 is saved to that line on each transit, or over $200,000 a year. (This

"saving" is not due to economies of operation, but to a technicality which, without reducing the cargo capacity of the ship, deprives the Government of revenue for service rendered to the ship.)

These examples of technical compliance with regulations show the difficulties which are inevitably occasioned by departure from sound principles.

There then follows a table of tolls in million dolars for the years from 1915 on from the opening of the canal, to 1931. It has not been brought up to date. That is the intercoastal trade, tolls paid, tolls computed by the Panama rules; foreign trade, same subheads and totals, United States vessels and foreign vessels.

From that table the charts have been prepared which accompany this.

In conclusion, then, I want to suggest two fundamentals involved: The first is that it is essential, in my opinion, that control over tolls be returned to the President, where it does not now reside, but is in the hands of the Assistant Director of the Bureau of Navigation, since his rules are final on United States net registry, which are now in force the computation of tolls; second, that we return to the principle that ships shall pay according to their capacity to earn. Mr. LEA. Any questions?

Mr. PETTENGILL. You say that repeated efforts have been made to secure the anticipated benefits of this bill. What have those efforts consisted of? Have there been bills introduced in previous Congresses?

Governor SCHLEY. Nineteen bills were introduced in Congress, three of which passed the House.

Mr. PETTENGILL. Nineteen similar bills?

Governor SCHLEY. Yes.

Mr. PETTENGILL. What happened to them over in the Senate; are they always defeated over there?

Ι

Governor SCHLEY. Yes; so far as I know. I cannot say, but those I am familiar with have not been reported out of the committee. Mr. PETTENGILL. What is it-may I ask this question—is the legislation designed to raise more money from ship tolls without regard to the service rendered to the ship, on account of passage through the Canal, or is it designed to put the Panama Canal on a paying basis? What is the real purpose of the bill?

Governor SCHLEY. The real purpose of the bill is, what I attempted to make clear at the end of the reading of this paper, first, to return to the President control over tolls; secondly, to reestablish what was intended; that is, not only that the President should have control but that the tolls should be based on capacity to earn. That is the purpose. The rate of $1 was selected, as this report states, at a time when it would have produced exactly the same revenue to the United States as the dual system did at that time. In fact, a little bit less, just a shade less; but due to the further change in ships to take advantage of United States registry rules, and further changes in the rules, resulting in lower computation of tonnage, those have now varied from each other somewhat and we would have a slight increase in revenue if this bill is enacted.

May I show you this chart [exhibiting chart to Mr. Pettengill]? Mr. PETTENGILL. May I ask, for general information, what is the fundamental basis for making any charge at all? Is it to recover the cost of the operations of the Canal and a part of the original investment for digging the Canal, and so forth?

Governor SCHLEY. The present policy is to pay the cost of operations, plus interest on the investment, at 3 percent.

Mr. PETTENGILL. At 3 percent?

Governor SCHLEY. Three percent. We did that in 1929 when business was brisk.

Mr. PETTENGILL. That is, you did earn 3 percent on the original investment?

Governor SCHLEY. Yes.

Mr. PETTENGILL. And paid all operating expenses?

Governor SCHLEY. All operating costs.

Mr. PETTENGILL. Is that the only year in which that has been done? Governor SCHLEY. No: it has been done in other years.

Mr. PETTENGILL. Where it has earned as much as 3 percent? Governor SCHLEY. Where it has earned as much as 3 percent. Mr. PETTENGILL. In other words, the Panama Canal, then, up to date has been run at a loss?

Governor SCHLEY. I think the figure was read in here.

Mr. PETTENGILL. At a deficit, which the American taxpayers must pay.

Governor SCHLEY. Reading again from the letter of the Secretary of War:

Since the Canal was opened for use and operation the deficit to June 30, 1933, has amounted to $17,343,666.48, the deficit for the years 1932 and 1933 being over $4,000,000 each.