latent threat of condemnation which alarms capital and discourages enterprise.

III. LAND GRANTS FOR FORTIFICATIONS

The specific point of additional land grants is now particularly important as the two countries are discussing the occupation of part of a Panaman island, that of Taboga, for the erection of permanent fortifications there. Panama regards as serving the vital interest of the two countries, the idea of giving to the Canal the greatest measure of protection and admits in principle the necessity of fortifying Taboga, but it maintains at the same time that article II of the treaty does not authorize the occupation of land on the continent or in islands for fortifications and other purposes through the mere declaration or one-sided action of the United States,

The Government of Panama declares its readiness to conclude a special convention relative to the fortifications and defenses of the Canal and to grant in return for equitable compensation, such land as may be needed for the purpose, unless the Government of the United States prefers to acknowledge that the question of fortifications is included in article XXV of the treaty, which specifically refers to the purpose of insuring the protection of the Canal and maintaining its neutrality.

IV. CONDEMNATION OF LAND FOR THE PANAMA CANAL

Article VI [VII] of the Canal treaty authorizes the United States to acquire through condemnation all the land and properties needed and suitable for the construction, maintenance, operation and protection of the Canal.

The Government of Panama insists that the clause in article VI of the treaty which provides that "the appraisal of said private lands and private property and the assessment of damages to them shall be based upon their value before the date of this convention" (1903), is to be applied with the understanding that the basis of a value is not the value itself, and that lands and properties acquired 17 years or later after the date of the treaty cannot be paid for by way of compensation at the price they commanded in 1903 without infringing on the most universally respected principles concerning property rights. The price or value of 1903 must be taken as a basis or starting point for the appraisement to be made.

The Attorney General of the United States, Mr. J. C. McReynolds, now Associate Justice of the Supreme Court of the United States, discussing article VI of the treaty of the Canal, in an opinion he handed down on October 13, 1913, said the following:

"That clause was agreed on in 1903 and undoubtedly refers to property which the United States intended immediately to occupy and as a matter of fact the properties needed for the immediate construction of the Canal were promptly occupied and the indemnities relative thereto were ordered paid by the first commissions.

Now, ten years later, the Government has extended its occupancy to other lands and those additional lands recently occupied are those upon which the commission has rendered awards. It would surely be a very harsh and unjust interpretation to apply that clause in a way that would deny compensation for the improvements made in the ten years during which the government has not occupied the property for public utility purposes.

Again, the Honorable Robert Lansing, former Secretary of State, in a letter addressed to the American members of the Mixed Commission, on February 19, 1915, said:

"It is to be noted incidentally that the Department is of opinion that a fair basis for awards in claims presented to the Commission would be to pay damages for the value of the property, including the buildings, up to the date of the expropriation without, however, taking into account the increased value given to the property by the Construction of the Canal. As the Department understands the question, this would conform to the opinion of the Attorney General given to the Secretary of War on October 13, 1913."

The Government of Panama wishes that an understanding be reached on this point based on the foregoing opinions of the Attorney General and of the Department of State.

V. THE PANama Railway COMPANY

The grants and condemnations of land have not been the only source of difficulties arising between the two countries on account of conflicting interpretations of the clauses of the treaty. Controversies that have never been satisfactorily settled have arisen over economic, commercial, and fiscal matters that are of paramount importance to Panama and which to the United States are really of very small consequence. The Panaman Government believes that those differences spring from the very character of the treaty which was concluded with a view to a canal to be built and which did not and could not foresee all the contingencies, necessities and problems of a canal already built and in operation.

The treaty, for example, authorized the United States to secure by purchase the Panama Railway as being an indispensable auxiliary element for the construction of the Canal, but the purchase was made, leaving in existence, through a legal fiction, the company that owned the railroad. Out of this there has arisen a dilemma of juridical conditions and situations which the treaty could not intend to cause or allow. When there is a question of Panama demanding of the

railroad company compliance with the national law to which every company in the country is subject, then it is alleged that the railway is United States property; if anybody complains that the Government of the United States may not engage in certain pursuits, such as renting houses or engaging in certain transactions, or commercial or industrial business, then it is alleged that the business is conducted by the railway company.

The principal difficulties with the railway company are as follows: A. Lands in the city of Colon

The lands of Manzanillo Island, on which stands the city of Colon, are the property of the Republic under a judgment of the Supreme Court of Colombia which recognized only the right of usufruct for a period of years as belonging to the Panama Railway Company. Those lands were to return to Panama as soon as the Canal treaty was approved as provided in article VIII and the Panaman Government has claimed that right and insisted on a delivery of the lands.

The steps taken by Panama to obtain such restitution have thus far proved unavailing and it has even been unable to obtain from the railway company the payment to the Republic of Panama of the taxes which in our country are levied on city lots.

B. Water rates with regard to the railroad lots

Under article VII of the Canal treaty the United States has installed in the cities of Panama and Colon a complete service of water works, paving and sewerage, and it was agreed that the cost of those works would be reimbursed by the Republic of Panama out of the interest accruing to it within 50 years.

The cost of those works and the interest thereon could be paid out of the water rates within the stipulated term and even before; but the extraordinary expenses on account of investments made in the building of streets, sewers, and aqueducts in a large part of the city of Colon which the railroad company claims to own, have been charged to the Republic of Panama and consequently have increased considerably the cost of those public services to the injury of the Republic and for the exclusive benefit of the said company which is collecting large amounts in rent of lots that have been made part of the city, and, as above stated, refuses to pay taxes by alleging a right that does not belong to it. The question hinges on the decision of the principal claim concerning the ownership and transfer of the lots, already mentioned in the foregoing point. C. Duties and taxes

Under article XVIII of the contract entered into in 1867 between the railroad company and the Republic of Colombia, the company is exempted from the payment of duties and taxes, whether national,

municipal or any other kind, on the railroad, its warehouses, piers, machinery, and other works, things and effects of every nature whatsoever belonging to it and, in the judgment of the executive, needed for the service of the said railroad and its dependencies.

It is therefore beyond question that the Panama Railroad Company is bound to pay taxes and duties on any other pursuits or property, commercial or other, in which it has been engaged for sometime past, such, for instance, as rents, stables, city express, etc., that are not connected with the company's service as a common carrier, which is the only service proper to it.

If the doctrines upheld by the railroad company were admitted by the Republic of Panama, the concern might engage in all kinds of business in the country without paying duties or taxes into the national treasury, and that argument leads to an illogical conclusion. D. Differences in rates to the detriment of the commerce of Panama

In dealing further with the circumstances which enable the Canal commissariats to sell cheaper than the trades people of Panama, I call attention to the minimum rates charged on their merchandise. Rates are those charged to the commissariats by the railroad company, and it does not seem fair that they are not also granted to our tradesmen, thereby enabling them to sell as cheaply as the commissariats and actually putting a stop to smuggling.

VI. COMMISSARIATS

A. Introduction of articles of luxury

These establishments import all kinds of articles of luxury contrary to the provisions of article XIII of the Canal treaty which confines those imports to what are necessary and convenient for their employees. That practice is injurious to the trade and government of the Republic, especially in regard to tobacco. The Government of Panama deems that imports of that kind should be stopped as being contrary to the letter and spirit of the Canal treaty, and that in that manner the commercial and fiscal interests of our Republic will be protected without injury to those of the United States.

B. Smuggling

The system adopted of late years to sell coupons for cash to the employees of the Canal and Panama Railroad, with which to make purchases in the commissariats is one of the things that have largely contributed to the enormous unlawful traffic carried on between those employees and private residents of the cities of Panama and Colon. In evidence of the extent of the harm done us by those establishments, I wish to state that the commissariats yearly import for a population of about 25,000 more merchandise than does the Republic

of Panama that has 450,000, with the circumstance added that the imports of the commissariats have been increasing year after year although the population of the Zone has been decreasing since the work on the Canal was completed.

This system permits employees to purchase, without restriction of any kind, since no record is kept by the Canal authorities of the sales for cash of those coupons, and, furthermore, it permits those coupons or the merchandise purchased with them to be handed over to private persons, from whom the money for the purchase has been obtained, either as a favor for a friend or simply as a matter of business that pays well.

The commissariats sell more cheaply, not so much on account of the financial power of the Government of the United States to buy in large quantities for cash, as because of the exemptions from customs duties, the facilities they enjoy, and the minimum rates that are charged to them. The prices for their articles are often lower than those that prevail in business institutions of the United States. With respect to tobacco and chewing tobacco, the smuggling is such that the importation of chewing tobacco into the Republic of Panama has ceased, and that of the other kinds has decreased to an amazing degree.

The Army post-exchanges and commissariats, which also import tobacco, have had a notable part in making the situation worse because the soldiers purchase there large quantities of that staple with the intention of smuggling it into our country.

Lastly, the Canal authorities have instituted the practice of granting permits to persons who are neither employees of the Canal nor diplomatic officers, to purchase at the commissariats, although both. the treaty and the Taft Agreement positively provide that merchandise can only be imported duty free for the Government of the United States and its employees.

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In view of the evils above set forth, it is to be hoped that the Government of the United States, animated by a sentiment of justice towards the Republic of Panama, will order a discontinuance of the sale of coupons for cash and continue to enforce only the system of supplying coupons on pay-roll deduction as was done in the first years of the building of the Canal; and lastly that the right to purchase at commissariats be confined to employees of the Canal and members of the diplomatic corps exclusively.

C. Sales to vessels passing through the Canal

Under article XIII of the Canal treaty, the right given to the United States to import articles duty free into the Canal Zone is for the exclusive purpose of providing its employees with necessary

'See Foreign Relations, 1904, p. 640, and 37 Stat. 560.