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Mr. FUGATE. And I am asking you if you, with your lifelong con

, tacts and participation, could lay your hand on some phase of it which you think could be remedied to the end that the whole operation would be more successful.

General STEESE. Well, of course, I spent 6 years during the war just doing that very thing. I mean, I was on several wage boards. I was on several international Army-Navy-Panama Canal-Republic of Panama joint boards, and we were constantly trying to make adjustments. Our prices had to have some reasonable relation with prices in Panama.

Of course, right there there is a conflict. The Panama merchants would like for us to abolish our commissaries and buy all our merchandise in Panama, but that is an utterly hopeless thing to do. We sell only to our own people and to the Army and Navy. The Panamanians are always attempting to smuggle into the commissaries or smuggle stuft out. Some employees get fired every now and then for buying stuff and turning it over to Panamanians.

(Discussion was continued off the record.)

Mr. FUGATE. Let me ask you, are the transit rates being charged now considered by maritime nations to be equitable?

General STEESE. They are about the same as the Suez Canal rates. Mr. FUGATE. About the same?

General STEESE. About the same, yes. Oh, yes; the steamship companies, of course, will come into these hearings and protest any increase, but in their own hearts they know they are going to get an increase. The service is being rendered, and the costs of the service are readily obtainable. It is all in public records. The Governor's annual report shows all the figures, and that, with the appendixes, will lead you right to the individual vouchers, if you wish.

Mr. MEADE. General, I have heard the statement made somewhere that, for example, the hospital at the Panama Canal was being supported by toll funds from the Panama Canal, and that a great deal of money was being spent by the hospital each year in studies of tropical medicine and things like that, and in training doctors, and that was all charged against the tolls of the Panama Canal. Would you care to make any comment on that?

General STEESE. The health department has its separate appropriation from the United States Treasury for the sanitation. There is a lot of sanitary work done down there that is chargeable to the canal operations. But the hospitals get fees from the employees. For instance, if a wife goes up to that hospital and has a baby, the employee pays for that out of his own salary at a rate fixed by the hospital.

The hospital takes care of a great many Army and Navy patients, particularly the Army. And that is, of course, a source of revenue. Just where they divide the line between services that must be paid for and services like mosquito control and yellow fever control and quarantine, and so on, that are a part of the cost of any civic government, I cannot tell you offhand. But there is an appropriation from Congress for sanitation, and also the health department turns back some profits at the end of the year.

They are supposed to make their services pay for themselves, but they cannot charge fees against the employees to pay for all the spreading oil around the swamps that are a general health measure, so there again you come into a problem of accounting that I cannot tell you about offhand.

Mr. THOMPSON. That is one of the things we will have to check into.

General STEESE. The records are all available and can be made readily accessible to whoever is to interpret that phase of it. In the beginning of sanitation Panama was a pesthole, and we have made it a most healthy section. None of our big cities can compare with the health record of the Canal Zone. Malaria is a constant menace, and they have to still keep the grass cut and keep the ponds covered with oil, which is a general governmental expense. It is like police and fire protection, one of the costs of existence.

The hospitals do charge for operations; they charge a rate per day and so much for X-rays, plates, and everything of that kind. The rate is held as low as it can be, but it is revised from time to time.

Mr. THOMPSON. I have no desire to shorten this hearing, if we can call it that, but I also do not want to impose on the General. I will tell you this, that we could sit here with him all the balance of the day and he would give us the most interesting kind of information in the world about the Panama Canal and its various ramifications.

Mr. MEADE. It is a wonderful opportunity to get a good background.

Mr. FUGATE. I would say this is the foundation on which we can build.

Mr. THOMPSON. It certainly is. I am awfully sorry Mr. Miller did not get back, but I am going to suggest to him that he read the record.

General STEESE. As I told you, Mr. Chairman, my time is entirely at your service, and I have been living with this Panama Canal for 42 years. It was my first real job down there as a young engineer. I started out as a wiper on the Panama Railroad and worked up to Chief Engineer of the whole business.

Mr. FUGATE. When did you contemplate being back?

General STEESE. I sail on the French Line on the 11th of May, get back to New York about the 19th of May, and will be over here by the 25th of May. Mr. FUGATE. We might well use him again.

Mr. THOMPSON. I do not think there is any doubt about it. I wonder if you would be kind enough to let me know when you return.

General STEESE. Yes, sir. I will have that in mind. I am perfectly free here, either on the record or off the record, to answer any collateral questions that may occur to you. I am sorry time is so short, but it was totally unanticipated on my part.

Mr. THMOPSON. If there are no other questions, gentlemen, I suggest that we adjourn. We certainly do appreciate your coming here.

(Whereupon, at 12 noon, the subcommittee recessed subject to the call of the chairman.)

INVESTIGATION OF PANAMA CANAL TOLLS

WEDNESDAY, APRIL 6, 1949

HOUSE OF REPRESENTATIVES, COMMITTEE ON MERCHANT MARINE AND FISHERIES, SPECIAL SUBCOMMITTEE TO INVESTIGATE PANAMA CANAL TOLLS,

Washington, D. Ć. The subcommittee met, pursuant to adjournment, at 3:15 p: m.,

. in room 308, House Office Building, Mr. Clark W. Thompson, chairman of the subcommittee, presiding.

Present: Messrs. Thompson, Fugate, and Miller.
Mr. THOMPSON. The committee will come to order.

In a previous informal meeting Mr. Frazer Bailey expressed his views to the committee. At the suggestion of the committee he has now written these views and they will be placed in the record at this point.

(The views expressed by Mr. Frazer Bailey were made a part of the printed record at this point.)

STATEMENT OF FRAZER BAILEY, PRESIDENT, NATIONAL FEDERATION OF

AMERICAN SHIPPING

Numerous statements at the time of the construction of the Canal and subsequently indicate that the Canal was constructed for the dual purpose of defense and commerce. Many of these statements indicated that the primary reason for construction was national defense. Notwithstanding the dual purposes of the Canal, no part of the basic expense of its construction or maintenance has been charged to defense. On the contrary, the Canal accounts included computed interest, charged in accordance with policies established by Congress, at the rate of 3 percent on the entire cost of the basic Canal. It is suggested that a reasonable charge to national defense would be the waiving of interest in the future in connection with tolls policy and that, after excluding such interest, tolls should be established at rates which would bear all proper operation and maintenance expense of the Canal for transit purposes together with all overhead properly attributable to such operation and maintenance without profit or loss to the Government or the taxpayer.

The attached statement of the results of operations in 1948 shows that if all present operating costs are offset against tolls and other revenues a basis exists at the present time for a reduction of tolls to the extent of about 20 cents per ton. Certain items of expense included under utilities and services, sanitation and civil government should properly be eliminated in establishing tolls policy, which would result in further reductions.

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STATEMENT OF GEORGE W. MORGAN, PRESIDENT, ASSOCIATION

OF AMERICAN SHIPOWNERS, NEW YORK, AND WASHINGTON, D. C.

Mr. MORGAN. My name is George W. Morgan. I am president of the Association of American Shipowners, 90 Broad Street, New York, and 1713 K Street, Washington.

Our association is composed of the principal intercoastal steamship operators and of other shipowners who are active in the foreign trades, and incident to their operations are users of the Panama Canal. We were concerned last year when the Appropriations Committee in the first instance recommended, and when the President, acting upon that recommendation, ordered an increase in the Canal tolls to the legal dollar limit. It seemed to us that there is a great deal more than we could know than we now know about the accounting of the Canal revenues and the use of the Canal authorities made of the appropriations that are made for the Canal.

One thing that does seem clear is that there is charged as an operating expense of the Canal 3 percent interest on the capital invested in the Canal, and that item of expense, which exceeds $15,000,000 a year, is expected to be borne by the American shipowners and foreign shipowners who use the Canal.

Our investigation of the subject indicates that only about 40 percent of the Canal revenues are contributed by foreign shipowners and about 60 percent by the American shipowners. If it is sound to say that the Canal was not built just as an aid to commerce, but as a primarily if you like, or largely if you like, or to some extent, if you like-national-defense asset, then it seems that some portion of that interest charge should be charged to national defense and not against shipping, whether it be world shipping or American shipping.

It seems so me that the answers to the problem will become more readily soluble when we have a better understanding of the accounting

. practices. We did prepare last year a study of the Canal tolls problem which I think is not bad on the basis of the information that was available to the industry.

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