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rules" the words "all nations observing these rules" were substituted. With reference to this change, Lord Lansdowne made the following statement in the course of the negotiations:
His Majesty's Government were prepared to accept this amendment which seemed to us equally efficacious for the purpose which we had in view, namely, that of insuring that Great Britain should not be placed in a less advantageous position than other powers, while they [the United States] stopped short of conferring upon other nations a contractual right to the use of the canal.
Having thus briefly reviewed the development of the policy of neutralization as established in Article VIII of the Clayton-Bulwer Treaty and as understood by the parties in the later negotiations resulting in the second Hay-Pauncefote Treaty, it is convenient now to examine the argument which has been advanced by Great Britain to show that the policy of neutralization adopted by the United States in this treaty imposes upon the United States the obligation to treat British and United States vessels upon equal terms in the use of the canal. The argument briefly is that the word neutralization, as used in Article III, has the same sense as in the preamble of the treaty which recites that both governments are desirous of facilitating the construction of the canal "without impairing 'the general principle' of neutralization established in Article VIII" of the Clayton-Bulwer Treaty, which policy of neutralization is admitted to have comprehended both equality of treatment and the obligation to protect the canal, and that inasmuch as Great Britain has now been relieved from any responsibility for the protection of the canal, neutralization must therefore refer in the treaty to a system of equal rights; therefore the United States can have no more rights than other nations, and consequently is one of the nations required to observe the rules adopted by the United States, so that Great Britain and the United States are in the same situation, and British vessels are entitled to equal treatment with the vessels of the United States.
As stated at the outset, it is not the purpose of this paper to weigh the value of the arguments advanced on either side, but in any event. it would be premature to attempt to deal fully with the arguments on this point, because the Government of the United States has not as yet stated the arguments relied upon to support the position which it has taken in opposition to the British contentions. The reply of
the Government of the United States to the British argument so far has been confined to the statement by Secretary Knox, in the recent correspondence on the subject, that—
This Government does not agree with the interpretation placed by Sir Edward Grey upon the Hay-Pauncefote Treaty, or upon the Clayton-Bulwer Treaty, but for reasons which appear hereinbelow it is not deemed necessary at present to amplify or reiterate the views of this Government upon the meaning of those treaties.
The conclusion reached by Great Britain, as above stated, that the same treatment extended to American vessels should be extended to British vessels, has been made the basis by Great Britain for objecting to certain features of the Panama Canal Act adopted by Congress last year; and the views of the British Government in support of these objections have been fully presented in the recent diplomatic correspondence.
It appears from this correspondence that apart from a reservation made by Great Britain of the right to examine further one provision of the Act and to raise such contentions as may seem justified only three objections are made, which may be briefly stated as follows:
(1) That under the Act no tolls are to be levied upon ships engaged in the coastwise trade of the United States.
(2) That the Act appears to confer upon the President authority in fixing tolls to discriminate in favor of ships belonging to the United States and its citizens as against foreign ships.
(3) That the Act exempts from the payment of tolls the vessels of the Republic of Panama, pursuant to the provisions of Article XIX of the treaty of 1903 between the United States and Panama.
The reply of the United States to these objections has been fully stated in Mr. Knox's note on the subject, dated the 17th of January last. It appears from that note that the position of the United States with reference to the third of the objections above enumerated is that, for reasons which depend upon considerations outside of the terms of the treaty, this question is one which must be settled between. the two governments independently of the treaty provisions. The correspondence does not fully disclose what these reasons are, but apparently they rest upon some previous discussion and understanding between the two governments with regard to the subject which have not yet been made public, and it is therefore impossible to
discuss here the arguments in support of the position of either government on this point.
With reference to the other two objections, the United States has taken the position that, if it is right in its contention that Rule I does not apply to American vessels, then the exemption from tolls of its coastwise trade and its ships of war and even its ships of commerce engaged in foreign trade would not be contrary to its treaty obligation. As has already been stated, the argument of the United States in support of this position has not as yet been presented, because it appeared to the Government of the United States that even if Rule I should be regarded as applying to American vessels, nevertheless Great Britain had failed to show that under the provisions of the Canal Tolls Act and the President's proclamation there was or would be any discrimination against British vessels.
In regard to the objection that under the Act the President had discretion to discriminate in favor of ships of the United States or its citizens, the reply of the United States was that this as yet had not been done, and that it would be premature to discuss that question so long as it rested merely on a possibility of what might happen. rather than upon an announced intention to discriminate, or some specific act of discrimination.
In this connection the United States raised the question of whether the objection under consideration was to be understood as applying to war vessels and government vessels of the United States, and the British position on this question has not yet been announced. The significance of this question is that if Great Britain admits that Rule I does not apply to United States war vessels it amounts to an admission that it does not apply to United States vessels of commerce, for vessels of war and vessels of commerce are put on precisely the same footing in Rule I. Clearly, however, there is no point in collecting tolls from the United States vessels of war, inasmuch as their payment would be merely a matter of bookkeeping in the government accounts. Moreover, Great Britain has already admitted that the rest of the rules adopted by the United States in Article III, which chiefly relate to war conditions, do not apply to the United States, and it is perhaps difficult for Great Britain to establish a distinction justifying the application of Rule I to the United States and the application of the rest of the rules only to other nations.
In reply to the first objection--that under the Act no tolls are to be
levied upon ships engaged in the coastwise trade of the United Statesthe position taken by the Government of the United States was that, in view of the fact that no foreign vessels were permitted to engage in the coastwise trade of the United States, an exemption of American vessels engaged in that trade was in no sense a discrimination against foreign vessels so long as this exemption was restricted to bona fide coastwise trade. Great Britain has admitted that the United States is at liberty to grant a subsidy to its vessels whether engaged in coastwise or foreign trade, and apparently has admitted in principle that a subsidy may be granted indirectly by an exemption from the payment of tolls if that should be done without producing an increase in the rate of tolls imposed upon British vessels; but it is contended by Great Britain that "if any classes of vessels are exempted from tolls in such a way that no receipts from such ships are taken into account in the income of the canal there is no guarantee that the vessels upon which tolls are being levied are not being made to bear more than their fair share of the upkeep." In making this contention the British Government apparently was under the impression that the President, in determining the rate of tolls, would not take into account the tonnage of American coastwise vessels, and therefore that the toll rate would be higher than if those vessels were subjected to the payment of tolls. That the British Government was under a misapprehension with regard to this matter has been clearly shown by the reply of the United States, which pointed out "that the tolls which would be paid by American coastwise vessels, but for the exemption contained in the Act, were computed in determining the rate fixed by the President," and the figures are given showing that the estimated net tonnage upon which the tolls fixed in the President's proclamation were based included the tonnage of American coastwise vessels.
For these reasons the Government of the United States contended that there had as yet been no discrimination, and that there was nothing in the situation to show that the United States intended to discriminate against British vessels, either by subjecting them to inequality of treatment or by imposing upon them unjust and inequitable tolls.
From the foregoing brief outline of the issues and arguments presented in the diplomatic discussion of this controversy it will be seen that it is still an open question as to whether the two governments
cannot harmoniously settle their differences with regard to this treaty without resorting to arbitration. Great Britain has proposed arbitration, and the United States has not as yet accepted that suggestion, but it has not refused to do so, having taken the position that the issues between the two countries should first be more clearly defined, and that arbitration at present would be premature, because the controversy has not yet passed beyond the stage when it could profitably be dealt with by diplomatic negotiation.
To sum up the whole situation, the United States and Great Britain differ as to the meaning and effect of the treaty in its relation to certain features of the Panama Canal Act. Great Britain has asked that these differences should be settled by arbitration, and the United States has replied that there is as yet no necessity for resorting to arbitration, for even under Great Britain's interpretation of the treaty it is believed that they have failed to make out a case showing any violation of treaty obligations. In other words, the United States in effect has interposed a demurrer to the British complaint and contended that even under the British interpretation of the Hay-Pauncefote Treaty the provisions of the Panama Canal Act, when taken in conjunction with the President's proclamation, are not in conflict with that treaty; and that the objections advanced by Sir Edward Grey do not present any questions which, under the terms of our arbitration. treaty with Great Britain, can fairly be regarded as requiring submission to arbitration at the present stage of the discussion.
The CHAIRMAN. The next matter interpolated into the printed program is a paper by Mr. Richard Olney, whom we all remember as the former Secretary of State. Mr. Olney's paper will be read by Mr. Walter S. Penfield, of the Bar of the District of Columbia.
PANAMA CANAL TOLLS LEGISLATION AND THE HAYPAUNCEFOTE TREATY.
ADDRESS OF HONORABLE RICHARD OLNEY, formerly Secretary of State.
In construing the Hay-Pauncefote Treaty it is necessary to remember that there have been several different phases of American opinion and American policy touching the ownership, construction, maintenance, and use of the canal. The canal has always been conceived of as a work of world-wide interest and importance, which all nations