changes; and what will be the procedures for approving any such plans?

In addition to the proposal for an alternative sea level Canal at a cost of $5 billion, there are less ambitious major projects that could improve the capacity of the existing Canal. The development of a set of third locks, for example, might cost in the neighborhood of $1.5 billion.

However, given recent declines in Canal use and the large cost of any major expansions, small projects to facilitate an increase in the annual number of ship transits to around 26,000, from the present nearly 15,000, might prove more practical since current projections suggest that 26,000 transits will be realized only in 2010.

Not enough is known about future patterns and trends in Canal use and what changes in Canal capacity might prove advantageous. The treaty should leave open options for needed alterations in the Canal.

8. COMPENSATION

In return for use of the Canal and other privileges in the Canal Zone, the United States has, over the years since 1903, provided economic benefits to Panama. The unresolved questions in the new treaty in the negotiations are the form and the amount of the benefits to Panama. Under terms of the original treaty, Panama was provided with an amount of $250,000 annually, which was raised to $1.9 million in 1955 and has since been adjusted for inflation to $2.3 million. United States and Panamanian officials agree that these amounts do not represent adequate compensation for the future, although recent economic aid levels over $20 million annually make aid to this country of less than 2 million people, on a per capita basis, very high.

While no agreement has been reached on this matter, discussions have occurred and, like a few other issues, settlement should be easier when the crucial rights and duration questions are resolved.

9. FUTURE OPERATIONS

While the new treaty relates more directly to U.S. rights and privileges for a fixed term of the new treaty, it will be in our interest to define in the treaty, or an annex, a mutually acceptable statement concerning the Canal's continued neutrality and nondiscriminatory operation beyond the duration of the new treaty. Such a statement of Panamanian intentions for the future, if it can be made with clarity and if a mutually acceptable formula can be found for its articulation, will serve a useful purpose. An open, secure and efficient Panama Canal is as much in Panama's interest as any other state and there are persuasive reasons for Panama to be specific in defining its long-term objectives.

WHAT ARE U.S. INTERESTS IN PANAMA?

Since the Panama Canal opened in 1914, it has proved an important economic and strategic asset to the United States and to Panama although its value and significance have varied as the world environment has changed.

The real interests of the United States in the Canal are to have a Canal that is open to the world's shipping and protected against international disputes, that operates efficiently and profitably, and that is defensible. Beyond that, we want fair treatment for the thousands of Americans who have served faithfully in the Canal Zone.

ECONOMIC IMPORTANCE

The Panama Canal has long been a vital artery for world trade. Of the total cargo tonnage transiting the Canal each year, about 35 percent goes to, or comes from, ports in the United States. Put another way, that tonnage in some years has represented about 17 percent of total U.S. export and import tonnage.

Panama also has benefited economically from the Canal. More than 30 percent of Panama's foreign exchange earnings and roughly 13 percent of its gross national product are attributable today to the Canal. In recent years the share of Panama's GNP attributable directly or indirectly to the Canal has shrunk, as other sectors of the Panamanian economy have expanded more rapidly. At one time, for example, over one-third of Panama's GNP was derived from the Canal.

Today the Canal continues to have significance for the United States, because of the extent to which our seaborne commerce uses it. This is true despite a declining need for the Canal in intercoastal trade and the existence of competing modes of transportation.

But the availability of the Canal for commercial shipping is even more important for several countries in Latin America and Asia whose economies are more dependent than the economy of the United States upon foreign trade.

Despite continuing commercial interests, two factors may affect the continued economic importance of the Canal for world trade. First, for the Canal to be economically viable tolls will have to be raised in the future. Tolls for the Canal, which had remained amazingly constant since 1914, were first boosted by 20 percent in 1974, but still other increases will be necessary. At some point, it will become more economical to use alternative routes for several commodities that now transit the Canal. In the United States, this could mean more transcontinental shipments.

In brief, what may make economic sense for covering Canal operations and generating more income for Panama may not keep Canal business and use at present levels. The number of Canal transits has already decreased in the last couple of years, a result, at least in part, of the worldwide recession.

If tolls are one factor in the future economic importance of the Canal, the size of ships is another. Neither supertankers nor large cargo ships with bulk cargo or containerized commodities can use the Canal. The economics of scale in shipping some commodities may mean that the Canal will become less important in the years ahead.

These possibilities, however, do not lessen the continuing economic significance of the Canal. No state knows better than Panama the importance of continuing to have an efficient, economically viable and

politically neutral Panama Canal. Any change in the character of the Canal or its closure could cause serious short-term disruptions to world trade and could be a serious blow to Panama.

Because so many peoples and nations share this interest, one can be hopeful that barring a calamity, the Canal will remain a valuable asset for years to come, whatever treaty arrangements exist between the United States and Panama.

MILITARY IMPORTANCE

The Panama Canal is also important to the security interests of the United States.

During World War II, the Korean war and the Vietnam war, the Canal made easier the shift of military forces and supplies from the Atlantic to the Pacific Oceans.

In recent years some factors have diminished the strategic importance of the Canal. Three are worth mentioning:

First, over the years the Canal has become more vulnerable to hostile attack. In any confrontation or armed conflict, the Canal could easily and quickly be closed for a period of many months by air attack or by sabotage. In an age of arms proliferation, international terrorism and large-scale demonstrations and riots, the Canal is subject to potential disruption by only a few skilled saboteurs.

The increasing vulnerability of the Canal has contributed to the development of alternative routes in global contingency plans for shifts of military forces and supplies.

The likelihood is that when we would need the Canal most, it is less likely to be available.

Second, even though the Canal was originally advocated for reasons of naval mobility, the United States has relied less on naval mobility and more on the development of fleets that could operate separately in the Atlantic and Pacific Oceans.

The contribution of the Canal to naval mobility continues, as the Vietnam war demonstrated, but its significance may be less than it once was. Nevertheless, if the Canal became unreliable, or were closed for indefinite periods, significant changes in naval planning and ship requirements could result.

A third factor impinging on the importance of the Canal for naval purposes is the growing importance of aircraft carriers and nuclear submarines. Large aircraft carriers cannot use the Canal and nuclear submarines would have to surface during any transit and are therefore not likely to use the facility under any circumstances. This factor would tend to diminish the importance of the Canal for strategic purposes, but not necessarily for logistic flexibility.

Despite these considerations, the Canal still represents a facility of considerable military and strategic significance for the United States.

U.S. MILITARY FACILITIES AND PRESENCE IN PANAMA

The United States also has military forces and facilities in the Canal Zone that form an important part of our overall activities in Panama.

There is today in Panama an American military presence of approximately 22,000 persons, including dependents. The actual military force, both combat and support, of some 9,400 is both too large and too small for most military contingencies, either in Panama or in another country in the region. It is too small for most contingencies involving a military invasion in the region or for the protection of the entire Canal from hostile fire or sabotage.

It is sufficiently large that it has the potential of creating several peacetime problems in our relations with Panama.

Our forces in Panama have access to an extensive series of facilities in the Canal Zone-several airfields, naval facilities, communications centers and an advanced military training school for officers who come to Panama from friendly states throughout South and Central America. While many of these facilities are essential for the military to carry out its mandate in Panama of protecting the Canal, others are not used and appear marginal for our needs. These facilities represent a substantial investment, reaching into the hundreds of millions of dollars. Several of them could be consolidated without adversely affecting our ability to defend the Canal.

If under a new treaty, arrangements are made for the close coordination of United States and Panamanian military activities for the defense of the Canal, the military needs of the United States in Panama will be changed dramatically and the character and deployment of U.S. forces in the present zone or a new zone will be very different.

While the Panamanian National Guard, Panama's only military or constabulatory force, cannot today protect the Canal and perform its various critical functions in Panama, it can, with modernization, develop the capability of playing a greater role in the defense of the Canal. It is in our interest to play a major role in the training and development of the national guard.

THE PANAMA CANAL COMPANY AND ITS OPERATIONS

The engineering miracle of the Canal and its efficient operation are the work, in large part, of the Department of Defense and the Army Corps of Engineers. The corps and its senior representative, the Governor, run the Panama Canal Company and administer the Canal Zone. The Panama Canal Company is responsible for less than 4,000 American employees and their roughly 7,000 dependents, most of whom live in the Canal Zone. Some of these employees' families have been residents of the Canal Zone for almost three generations.

Those persons who maintain this remarkable operation and help run the Canal Zone Government can be proud of their unique achievement. Their efforts have served the national interest of the United States over a long period of time and under varying and changing circumstances.

The interests of these Americans require careful consideration in the current negotiating process. Above all, a new treaty should address explicitly the immediate economic and job-security concerns of these citizens who, in some cases, have already given their best and most productive years to the Panama Canal Company and who fear what may happen to themselves under a new treaty.

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These Americans have the right to expect that their best interests will be represented in all discussions between Panama and the United States but they should also recognize that there will be change in the coming years and that the lifestyle they have enjoyed may be altered significantly in the future.

Many of the economic and social disparities that currently distinguish the Canal Zone from Panama will be altered under any new cooperative arrangement, especially at those areas where the Canal Zone presses against, and curtails the normal growth of, Panama's two largest cities, Panama City and Colon.

Over the years, the Panama Canal Company and its civilian employees have maintained the Canal. Under any mutually beneficial new treaty, the continued help, expertise and management skills of American personnel will be essential for the smooth operation of the facility. The human skills in the Canal Zone are even more important than the facilities themselves. While the percentages of Panamanians in the Panama Canal Company and the number of higher level positions occupied by Panamanians will increase in the coming years, none of the current employees should be dropped without adequate compensation and job alternatives because of a new treaty arrangement.

In short, the Panama Canal Company and its employees are an important interest of the United States which should be protected in a new treaty. The Panama Canal Company's employees will be essential in the future to run and maintain the Canal, train qualified Panamanians for future positions, and preserve our national interest in Panama. At the same time, these Zonians, American residents of the Canal, must realize that our national interest and purpose in Panama today includes a mutually acceptable new treaty for the operation and defense of the Canal and the development of a new and mature relationship with Panama.

RESULTANT POLITICAL INTEREST

A critical need in protecting our interests in Panama is the preservation of close relations between the United States and Panama based on mutual respect and trust.

Over the years, since 1903, the original Panama Canal Treaty has served to undermine gradually American-Panamanian goodwill. We have seen that goodwill erode to the point of brief, hostile, and bloody encounters several times. Each time we run greater risks in protecting our interests and friendships in Panama and throughout the Americas. The Panama Canal issue involves, not just the United States and Panama, but all of Latin America, and the shipping countries of the world.

The continued operation of the Canal, in many respects, is related to the degree of cooperation or animosity which exists in Panama. A viable Canal operation in the future depends in large part on the confidence of Panama in our bilateral relationship. From the Panamanian viewpoint, that trust and confidence will depend on the development of a new treaty.

There is, therefore, no reasonable alternative at this time to trying to negotiate a new mutually acceptable treaty for the continued operation and defense of this vital artery. In the process, it is hoped that we develop a more modern and mature relationship with one of our best friends in Latin America.