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FOURTH SESSION

Friday, April 25, 1913, 8 o'clock p.m.

The Society was called to order in the Red Room of the New Willard Hotel at 8 o'clock p.m., with Mr. Scott in the chair.

The CHAIRMAN. We are to have the very great pleasure this evening of listening to a gentleman who has. been engaged for many years in the professional examination of the question upon which he is to speak, the United States Special Commissioner on Panama Canal Traffic and Tolls, Professor Emory R. Johnson, who will speak upon the subject, "What is the effect of the exemption of American coastwise shipping upon Panama Canal revenues?"

I take great pleasure in presenting Professor Johnson.

WHAT IS THE EFFECT OF THE EXEMPTION OF AMERICAN COASTWISE SHIPPING UPON PANAMA CANAL

REVENUES?

ADDRESS OF PROFESSOR EMORY R. JOHNSON, University of Pennsylvania, Special Commissioner on Panama Traffic and Tolls.

In recommending tolls for the Panama Canal it was stated that the charges should be so adjusted as to fulfil three conditions: The rate of toll should be low enough to enable the canal to compete actively with alternative and rival routes; the rate should not be so high as unduly to burden or seriously to restrict the usefulness of the canal; and the rate should be high enough to yield revenues that will make the canal commercially self-supporting.

These principles were adhered to in formulating the schedule of charges that were recommended to the President in August and which were established by the President by the proclamation of November 13, 1912. The charges fixed by the President were as follows:

1. On merchant vessels carrying passengers or cargo one dollar and twenty cents ($1.20) per net vessel ton-each one hundred (100) cubic feet-of actual earning capacity.

2. On vessels in ballast without passengers or cargo forty (40) per cent less than the rate of tolls for vessels with passengers or cargo.

3. Upon naval vessels, other than transports, colliers, hospital ships and supply ships, fifty (50) cents per displacement ton.

4. Upon Army and Navy transports, colliers, hospital ships and supply ships one dollar and twenty cents ($1.20) per net ton, the vessels to be measured by the same rules as are employed in determining the net tonnage of merchant vessels.

The amount payable by the owners of vessels for the use of the canal will, of course, depend both upon the rate of tolls and upon the number of tons upon which the charges are levied. The President's proclamation of November 13, 1912, directs the Secretary of War to "prepare and prescribe such rules for the measurement of vessels and such regulations as may be necessary and proper"; and the rules to determine the tonnage upon which tolls shall be paid are now being formulated.

It is essential to bear in mind that the charges that have been fixed by the President for the use of the Panama Canal are not the highest rates that might have been imposed without restricting traffic, nor are the rates such that higher charges would have lessened the revenues from the canal. The tolls are neither all the traffic would bear nor have they been fixed with a view to securing maximum possible rev

enues.

The inference or deduction that may be drawn from this is that the rate of tolls is a factor that may be varied at will with reference to the revenue which it is or may be deemed necessary to collect from those who use the Panama Canal.

The other revenue factor that may be varied at will is the share of the tonnage that shall be required to pay tolls or shall be exempted from charges. With a given rate of tolls, the revenues will be larger if all vessels using the canal are charged tolls, and will be smaller if any class of vessels, as the American coastwise shipping, is exempted from the charges.

Conversely, it is also true that if it be desired to secure an income of a definite amount, as, for example, revenues that will cover outlays for operation, maintenance, interest, and amortization-revenues that will make the canal commercially self-supporting-the rate of tolls must be increased proportionately with any reduction of the tonnage resulting from the exemption of any class or classes of shipping from the payment of the charges.

These statements are, of course, mere truisms. There will be noth

ing new or unusual about the Panama Canal finances. If the canal does not support itself, the taxpayers must support it. The amount required to meet the current expenses and capital costs of the canal can be derived only from the tolls paid by those who use the waterway or from the taxes paid by the public who own the canal; and, as regards the income from tolls, the sum received must be affected both by the rate of charges and by the share of the tonnage that is subject to or exempted from the charges.

It is estimated that $19,250,000 will be required annually to make the canal commercially self-supporting. This total is made up of $3,500,000 for operating and maintenance expenses, $500,000 for sanitation and Zone government, $250,000 which is the annuity payable to Panama under the treaty of 1903, $11,250,000 to pay 3 per cent on the $375,000,000 invested in the canal, and $3,750,000 for an amortization fund of 1 per cent per annum upon the cost of the canal.

It has been ascertained by a detailed study of the traffic that might advantageously use the Panama Canal and of the rate at which that commerce is increasing that, during the first year or two of the canal's operation, that is in 1915, the ships passing through the canal will have an aggregate net tonnage of about 10,500,000 tons. Of this initial tonnage about 1,000,000 net tons will consist of shipping employed in the trade between the two seaboards of the United States. The evidence as to the past rate of growth of the world's commerce justifies the estimate that by the end of the first decade, that is, in 1925, the total net tonnage of shipping passing through the canal annually will be about 17,000,000 tons, of which at least 2,000,000 tons will be contributed by the coastwise shipping.

The shipping using the Panama Canal may conveniently be subdivided into three classes: That engaged in the coastwise commerce between the two seaboards of the United States, American shipping employed in carrying the foreign commerce of the United States, and foreign shipping carrying the commerce of the United States and foreign countries.

The probable volume of each of these three classes of shipping during the first year or two of the canal's operation and during 1920 and 1925 is shown by Table I.

TABLE I.-CLASSIFICATION OF ESTIMATED NET TONNAGE OF SHIPPING USING THE PANAMA CANAL IN 1915, 1920, AND 1925.

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The gross revenue that might be secured from the Panama Canal if tolls of $1.20 per net ton were levied upon all merchant vessels is shown by the following table. The table also indicates what share of the total receipts would be secured from American coastwise shipping if those vessels were not exempted from the payment of tolls.

TABLE II.-CLASSIFICATION OF ESTIMATED REVENUE OF THE PANAMA Canal at A TOLL OF $1.20 PER NET TON.

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It is thus possible that about $12,600,000 per annum might be secured from tolls during the first two or three years of the canal's operation, if all vessels, American and foreign, were required to pay the tolls fixed by the President in his proclamation of November 13, 1912. If the Panama Canal Act stands unamended and the coastwise shipping is exempted from tolls, the initial receipts from the canal will probably amount to less than $10,500,000 per annum.

The total traffic in 1925 will presumably amount to about 17,000,000 net tons; but in all probability the rate of tolls will by that time have

been reduced to $1.00 per net ton upon merchant vessels. It will not be wise to charge higher tolls at Panama than are levied at Suez. The tolls at Suez are now $1.20 per net ton and they have been reduced four times during the past decade. It is probable that the prophecy of de Lesseps will be realized and that the Suez tolls will, within a few years, be brought down to 5 francs, about $1.00 per net ton. There is thus a possible aggregate revenue of $17,000,000 per annum in 1925, obtainable from canal tolls, if all ships are required to pay the dues. The exemption of the coastwise shipping will reduce the revenue in 1925 to about $15,000,000 a year, or to less than the estimated annual outlay for operation, Zone sanitation and government, the Panama annuity and the interest on the amount invested in the canal. The revenues would yield no surplus for betterments and nothing for the amortization of the $375,000,000 or more which the people of the United States will have paid for the canal. These calculations indicate clearly that the United States will need to collect tolls from the owners of the ships engaged in the American coastwise trade in order to secure revenues large enough to meet the canal's current expenses and its capital charges.

Doubtless most if not all persons will agree that the Panama Canal ought not to be a continuing burden upon the general taxpayers of the country. It should be made commercially self-supporting, if that can be done and it can be done within two decades-without unduly restricting the usefulness of the waterway to the commerce of the United States and to the trade of the world. The canal will have cost the people of the United States at least $375,000,000. The interest and principal of this investment must be paid either from the funds secured by general taxes or from the revenues derived from canal tolls. Political prudence as well as sound methods of public financiering make it advisable to require those who derive immediate benefit from the Panama Canal to pay a reasonable toll for the use of the waterway.

The United States should conserve its revenues. They are required in ever larger amounts for the promotion of the public health, for public works and for the maintenance of the military power and naval prestige of the United States. Taxes must inevitably increase, and it does not seem in accordance with political wisdom or social justice that the burden of carrying the Panama Canal should be thrown upon the Federal Treasury and the taxpayers of the country

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