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ticipate. It follows then that any toll concessions granted in this trade could not possibly be discriminatory to the vessels of other nations nor could the concessions in any way harm other foreign nations. Congress took the same view in passing the Panama Canal Act of 1912 which specifically exempted our intercoastal vessels from tolls. While these exemptions were rescinded in the Panama Canal Act of 1914, it is worthy of note that Congress took pains to reserve all treaty rights in future toll legislation.

CONCLUSIONS

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In considering the future of Panama Canal toll policy, the following three principles may be accepted as a useful guide:

1. We should accept the obvious fact that the Canal is at least as much military as commercial. On this basis a 40-percent cut in tolls to a rate of 54 cents per ton for laden vessels would still leave a safe margin to cover commercial operating costs.

2. The Canal today is adequate to meet the needs of commercial transits. Any additional investments in the military and political national interest should be clearly earmarked so that they will not become a future burden on commercial transits.

3. Unlike other United States transportation industries, the intercoastal industry is heavily burdened with the carrying cost of a large Federal project. For reasons of equity and national self-interest, intercoastal tolls should be forgiven.

Mr. MilLER. I have one on my desk.

Mr. MORGAN. I might add this, if I may: We do suggest in there the thought that insofar as the intercoastal trades are concerned, there certainly would be no violation of any treaty if the tolls were to be forgiven. That, I think, would be one way to assist the intercoastal trade.

For a C-3 type vessel, I think the tolls on a round trip would amount to $15,000, which in the light of the competitive situation with the railroads would not be insignificant and a help:

Mr. THOMPSON. I have an idea you would get a terrific howl from the railroads.

Mr. MORGAN. Maybe there is nothing in it.

Mr. THOMPSON. I think you will find that when that had been proposed before, one of the strongest objections and perhaps the one that has moved Congress to refrain from giving free passage to intercoastal ships, is the objection that has come from the railroads.

Mr. MORGAN. Of course, there is the problem of the domestic shipping industry, which is perhaps more important than what the railroads may think about it at one moment or another.

Maybe that is not the solution. Maybe it is something else.

Mr. MILLER. In that connection, if you can supply the committee-. this might not properly be in the record at this point, or as a part of your testimony-I believe we would be very much interested in a legal opinion, you might say, as to whether or not a different rate could be charged to American-owned coastwise shipping than that which is charged to seagoing foreign shipping, without violating treaty rights.

Personally, we had the impression-I think I have—that the treaty left it very doubtful as to whether we would not be violating an international agreement if we made a special rate for American coastwise shipping; and if we could do it without violating international law, it is something that I think we should certainly explore, even though I would not at this time want to say I was for it or against it.

It occurs to me that there is no reason why the American taxpayer should bear the whole burden of letting a foreign ship go from one sea to the other without getting some benefit at home for it if it can be legally done. At the time those treaties were made we were in a very different position from what we are today. Today most of the people that might object to it are either our very much beholden friends or our out-and-out cold war enemies, so we could probably change the policy, perhaps, but we would not want to go on record violating the law.

Mr. FUGATE. He goes into that in this statement, and takes a position.

Mr. MILLER. But does he give a legal authority?
Mr. MORGAN. No, sir. I am trying to work it out on that basis.

Mr. MILLER. How do you feel about that, Mr. Chairman? Would you be interested in the international law situation on that? There must be somebody who could give a qualified opinion as to what we could do if we wanted to without violating the treaty

Mr. MORGAN. What the treaty does is to guarantee that there shall be no discrimination as against any such nation, any foreign nation. In view of the fact that foreign countries, the flags of foreign nationals, ships of the flags of foreign nationals, are denied access to our domestic trade, it does not look to me as if there could be any discrimination.

If they are discriminated against they are discriminated against because they cannot come into intercoastal trade.

Mr. MILLER. I see your point. In other words, they are not in competition at all.

Mr. MORGAN. There is no competition whatsoever as far as the intercoastal trade is concerned.

Mr. THOMPSON. I think perhaps that is a good place for the legal adviser to check for us. Will you check that, Mr. Drewry, to see whether this committee could legally, if they concluded it was wise, recommend that there be no tolls on intercoastal shipping?

Mr. DREWRY. Yes, sir. I will bring up, right at this point, too, Mr. Chairman, a point which has been mentioned to me, a legal point in regard to the treaty, and within the interpretations of international law generally, that there is considerable opinion that the force and effect of treaties will expire as a result of change in circumstances. That will be an awfully hot potato to handle but it is an interesting point which I think we should explore here in connection not only with the intercoastal question but the whole question generally.

Mr. THOMPSON. At the expiration of the present treaty?

Mr. DREWRY. A treaty after a certain period of time, if the conditions are changed sufficiently, the treaty no longer needs to be followed unless there is some definite time limit set in it. That is a strange point to me but it was brought up by a lawyer of some considerable background in international law.

Mr. MILLER. It does seem to me that there is something fundamentally wrong about a situation where American shipping pays a profit to a private concern to go through the Suez Canal and yet we are giving the very people who may be drawing that—that is, Egypt may be the only one that does it as a nation, I do not know-at any rate, other people come along and use our Canal, the Canal we bled and died to create and protect. Maybe we charge them a fair return; maybe we do not. But at least our own people pay the very same price for using it that the people pay who have no interest in it, made no sacrifice for, or pay no taxes on, or anything else.

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What is fair for one nation ought to be fair for another. If the Suez Canal were run on a nonprofit, or pay a reasonable return basis, a 3 percent return on investment, or something like that, if that were the way all the waterways in the world were run, I would see some justification in it. But it does not seem to me that it is fair to try to treat it like you would the Soo Canal which is entirely our own proposition like a State road, or something.

I would like to know whether we can make such a recommendation and say it would not be violating international law.

Mr. THOMPSON. Will you find that out?
Mr. DREWRY. Yes, sir.

Mr. THOMPSON. If I understood you correctly, Mr. Morgan, your feeling is that our problem is to a considerable extent accounting.

Mr. MORGAN. I think so.

Mr. THOMPSON. And the segregation of the proper expenses of operating in commercial arteries of traffic. It might well be paid for in tolls. For instance, the cost of national defense. I think you mentioned that. And the share of the interest which should be chargeable to the national defense proportionately.

Mr. MORGAN. I was thinking primarily of the method that the accountants apparently have of charging the annual expense of the capital cost, that is, the interest, like world shipping, which traditionally the American industry pays about 60 percent of that, the intercoastal segment of the industry, a very substantial part.

I do not know at the moment just what the part is, but it is substantial.

Mr. FUGATE. Have you given thought to any plan whereby you could arrive at something that would be reasonable in making a division or separation of tolls?

Mr. MORGAN. This study that we did last year—and I am sorry to say that the author of the study is now the Director of Trade and Fiscal Policies for ECA and is not available to go on with his workhe said that he expects he will be finished with that job next month or the month after and will then be available again.

He has really much more detailed knowledge of the accounts and the available information than I have. He concluded that a 54 cent rate, 54 cents a ton, plus forgiveness of tolls for the intercoastal trade, would cover

Mr. FUGATE. That is on the basis of 40-60 percent?
Mr. MORGAN. No.
Mr. FUGATE. Sixty percent of ninety is fifty-four.
Mr. MORGAN. Yes.

Mr. FUGATE. Or a rate of 90 cents per ton. Fifty-four cents a ton would be 60 percent of your 90.

Mr. MORGAN. That is right.

Mr. FUGATE. How did he break it down into 40-60? Do you know on what basis he arrived at those figures? Was that purely an arbitrary figure or did he have a basis for it?

Mr. MORGAN. He had a basis, as I understand it, of excluding the interest expense. The 54 cents per ton would then cover the operating expenses of the Canal.

Mr. Miller. If you ignored the $15,000,000 entry charges.

Mr. MORGAN. A 40-percent cut. I am not advocating that, because I do not know really what you gentlemen will find out wben you get down there and get into the accounting. I do not know whether the attitude of the War Department is the same today as it was last year, but they volunteered no information.

When Frazer Bailey sent over his figures they looked them over and said we do not find any particular thing wrong with them. But that is the extent of the information the industry was able to get from the War Department. We have operated under a considerable handicap.

Mr. MILLER. While we are on that subject I would like to mention something to you that we mentioned to Mr. Bailey: His testimony indicated that he had information to the effect that, barring national defense needs or wartime peaks or so on, the facilities of the Canal were adequate to accommodate the reasonably foreseeable demand. That is directly contrary to what I was told in Panama a few weeks ago by the officials there who said that the Canal would reach the saturation point on an estimated increase in travel and so on within a matter of a few years. As a matter of fact, they said 1960.

If you have any position on that I think we would like to hear from them, too, would we not, Mr. Chairman?

Mr. THOMPSON. Yes, indeed.

Mr. MILLER. To my mind I think we all agree that is an important question as to whether or not we have to take into consideration necessary improvement, necessary increased facilities over the immediate future, or whether we do not.

Mr. MORGAN. That point was covered in our study, and our study confirmed what Mr. Bailey said. You have larger and fewer ships. With less traffic today you are able to handle more tonnage.

One of the difficulties, I think, is that with this present method of charging the entire capital cost of the Canal to the shipping industry, that shipping just actually oppose any increased expense, like this Nicaraguan canal, increased locks, and what not, because the shipping industry figures they are going to be asked to pay for it.

Mr. DREWRY. Mr. Chairman, in addition to the problem of whether the accounting system is proper, and as to whether a fair amount is being charged, we have the problem of revival of intercoastal shipping: I wonder if Mr. Morgan's association or members of it have worked out any estimates of whether the removal of the tolls, for instance, would be a boost to start the revival of the intercoastal shipping, which it seems to have done at the present time.

Mr. MORGAN. I think it would be a material help, yes. Of course, there are all sorts of problems there. If we want to talk about that, could we talk about it off the record ?

Mr. THOMPSON. You might like to gather some brief and concise opinions as to the effect on intercoastal shipping of the elimination of tolls, and we will file it right here in the record if you like.

Mr. MILLER. Mr. Chairman, my thought about the thing is this and I will give it for what it is worth: The policy as between the railroads and the coastal shipping or between coastal shipping and transatlantic shipping, none of those things, it seems to me, are particularly within our province as to policy.

In other words, if we could recommend a series of rates that would help the coastal shipping, no matter what it did to the railroads, it would seem to me that that is what we should do, then perhaps the Interstate Commerce Commission or some other committee would

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come along and say in order to keep the balance we want you to still keep the rates up, or what not.

But I think we ought to tackle it from purely the Canal angle, do Mr. THOMPSON. Yes.

Mr. MILLER. I mean regardless of whether it would be good for business or not good for business.

Mr. THOMPSON. I think that is our job.

Mr. MILLER. That is the only reason that I would hesitate to say go ahead and tell us about the intercoastal trade situation.

Mr. THOMPSON. I see what you mean. The reason I suggested that was so that if there is later developed a reason to recommend a sliding scale of a certain amount, or perhaps no toll at all, in intercoastal shipping, we would have some basis for it.

Mr. MILLER. Perhaps we are thinking pretty close on the same line, except that my thought is if we could make such a recommendation properly insofar as the Canal tolls are concerned, that we perhaps maybe should make such a recommendation of what effect it might have on the other economy, because it could be taken care of by taxes or by public service regulations, or something else, and it is not our concern to know what effect it would have on the railroads or the airlines or somebody else.

That was all I had in mind. I was trying to limit our field.

Mr. Thompson. I think the point is well taken. I do not know that we can develop anything more from this discussion.

I do not want to cut it short. If there are any other questions or observations you want to make, you may do so. On the other hand, I do not want to detain any of you.

(Thereupon, at 3:45 p. m., the committee recessed, subject to the call of the chairman.)

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