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not sure whether or not we are going to sit right through. I would suggest, if it is agreeable to the committee, if you cannot get your statement ready before July 10, that, if you wish to prepare a statement, send it to the committee for our information, perhaps not to be made a part of the record. Would that be agreeable?

Mr. WEICHEL. Are you suggesting, Mr. Chairman, that he prepare and file a statement; and, if he does not appear before the committee to subject himself for examination on the statement, that it would not be considered; is that what you are suggesting?

Mr. FUGATE. Make it a part of the record when the record is prepared.

Mr. WEICHEL. Mr. Prince suggested filing a statement by July 10. Usually, if it is expected that the committee is going to consider a statement which is submitted, it is expected that the person submitting the statement come before the committee to be examined on the statement. Otherwise statements come in to the committee and they do not get much consideration-little, if any. So is the chairman suggesting that it just be filed and not considered? I do not know whether Mr. Prince desires that or not.

Mr. PRINCE. No, sir; I do not. I only want to file a statement if it is going to receive the consideration of the committee.

Mr. WEICHEL. Usually when a statement is sent into the committee the committee members want to question somebody with reference to what is in the statement. However, if a statement is just filed, there is no opportunity to question the person who submits the statement, and I do not know how much consideration it might be given by the committee. I think that is what the chairman was suggesting, that here is a piece of paper, Mr. Prince put it in, but he is downtown and not here before the committee for examination.

Mr. PRINCE. I would be very happy to return before the committee at any time for questioning.

Mr. WEICHEL. I think everybody on the committee should have an opportunity to question you just like we questioned people with reference to ship leases, and so forth. If a statement is simply filed with the committee, I do not know whether the committee would consider it very much when they did not have an opportunity to examine the person making the statement.

Mr. PRINCE. I wonder, in view of those facts, if I might make a statement at this time.

Mr. O'TOOLE. You may submit a statement; and, if we cannot incorporate it in the record due to the lack of time, we can assure you that the statement will be given every consideration.

(The statement referred to was subsequently supplied for the record as follows:)



As this committee well knows, the subject of Panama Canal tolls has received intensive study for the past several years. One phase of the study of this subject was an investigation made by a special subcommittee, under the chairmanship of Representative Thompson, of the House Merchant Marine and Fisheries Committee, pursuant to House Resolution 44, conducted in the first session of the Eighty-first Congress. As a part of that investigation there was a hearing at which testimony was presented by most of the witnesses who have appeared

before the Panama Canal subcommittee with respect to H. R. 8677. Two witnesses representing the Association of American Railroads appeared before the Thompson subcommittee, on June 14, 1949, and presented fully the views of the railroads with respect to the subject of Panama Canal tolls.

In view of the fact that H. R. 8677 is for the purposes of carrying out the recommendations made in the report of the Bureau of the Budget to the President and that such report by the Bureau of the Budget was made pursuant to a recommendation of the Thompson subcommittee, it is assumed that the record of the hearing pursuant to House Resolution 44 before the Thompson subcommittee is, as a practical matter, a part of the over-all record of the subject. Accordingly, it is not felt necessary to repeat here all the views of the railroads as stated at that hearing. However, in order that this committee may be advised of the scope of the previous presentation, there is here set forth at the outset a brief outline of the points therein covered.

The true nature of the proposal by the shipping interests that 50 percent of the Federal Government's investment in the Panama Canal be allocated to national defense was discussed. It was shown that the proposal would in essence amount to an annual subsidy and that the subsidy would be conferred in large part upon the operators of foreign vessels. It was also shown that the adoption of such a proposal would be in direct conflict with the national transportation policy declared in the Transportation Act of 1940.

Very substantial authority was quoted to demonstrate that the primary purpose of constructing the Canal was as an aid to commerce. In support of this conclusion extensive quotations from a report by the special committee of three appointed by President Roosevelt in 1936 were included. The full importance of the Panama Canal from the standpoint of national defense was recognized. It was also pointed out that this special committee found that the service which the Canal renders to the United States Army and Navy vessels by allowing them to transit the Canal without charge might justly be regarded as but a partial compensation for the valuable service rendered by the Army and Navy in protecting the Canal and maintaining its neutral use by the vessels of commerce and war of all nations. It was recognized that the experience of the last war might justify a different treatment of the so-called forgiven tolls. By reason of the fact that commercial shipping under private operation came to a virtual standstill during the war and for several years thereafter as a result of the Government's assumption of the control and operation of such vessels, the view was expressed that the policy might be changed in this respect to require payment of tolls by Government vessels or the allowance of a credit for the transit of such vessels in calculating the tolls to be levied on commercial vessels.

It was also shown that for the period 1914 to 1948 the computed cumulative deficit amounted to approximately 1511/2 million dollars; that toll-free transits in this period amounted to approximately 6192 million dollars; and that the deficit after allowance of such forgiven tolls was approximately $87,000,000. (Those figures brought down through the fiscal year 1949 would be as follows: Total computed deficit, $166,800,000; toll-free transits, $ 67,000,000; and adjus deficit, $99,800,000.) A similar showing was made for the 10-year period 1939–48, which resulted in an adjusted deficit of approximately $79,000,000. It was also indicated that on the basis of the present methods of determining the level of tolls, modified to make allowance for toll-free transits, the toll rate would have to be increased from 90 cents a ton to approximately $1.35 a ton in order to place the operation of the Panama Canal on a self-sustaining basis.

These views as well as the views of shipping interests were before the Bureau of the Budget at the time they made their study and were explored in conferences between representatives of the Bureau and the principal parties in interest. After a full consideration of the evidence and conflicting views as to this vital issue the Bureau of the Budget concluded that there should be no allocation to national defense of any part of the capital investment in the Panama Canal.

Two previous studies, both of which are referred to in the report of the Bureau of the Budget, reached precisely the same conclusion. The report (H. Doc. No. 460, 81st Cong., 1st sess.) had the following to say on the subject, at page 9:

"Studies made by the Bureau of Eficiency in 1931 and by the special committee in 1937 determined that no major part of the capital costs of the Panama Canal should be allocated to national defense. The only additional feature of the Canal which might not have been included if it had been constructed exclusively for commercial use is the increase in the width of the locks from 100 to 110 feet. Actually the additional width has been an important factor in facilitating the approach to, and handling of commercial vessels in, the locks. There would

appear to be no significant added costs in the construction of the Canal attributable solely to national defense.

"The subsidy to national defense comes not from a failure to allocate capital costs but from the fact that military and other Government vessels do not pay tolls."

Thus the Bureau of the Budget recommends that no part of the capital investment in the Canal be arbitrarily allocated to national defense and, in lieu thereof, that tolls be paid for the transit of military and other Government vessels, or that credit be allowed on account of such transits. This amounts to a recommendation that all of the costs of the Canal be divided on a user basis. The recommendation of the Bureau of the Budget on this point is unquestionably sound and should be adopted..

This principle is contained in section 25 of H. R. 8677, which amends section 412 of title 2 of the Canal Zone Code. It is heartily endorsed by the railroads, and the committee is urged to make no change in this respect.

As recommended by the Bureau of the Budget, H. R. 8677, in section 18 (c),. provides that interest on investment shall be at a rate or rates determined by the Secretary of the Treasury as required to reimburse the Treasury for its cost. The Bureau of the Budget in its report estimated that the rate of interest presently required to reimburse the Treasury for its cost would be in the neighborhood of 2.3 percent. Under present procedures interest on investment is calculated at 3 percent.

Thus, it is apparent that immediately an advantage accrues to shipping interests by reason of the adoption of the theory of using the "going” rate of interest. Attention is also called to the fact that at various periods in the past the "going” rate of interest was higher than the flat 3 percent employed heretofore, and at such times an advantage accrued to shipping from the use of the non-fluctuating-interest rate. The point we wish to make is that the committee should make it clear in its report that its decision with respect to the treatment of the rate of interest to be charged on the capital investment is a determination based on principle not expediency, and that in the event the "going” rate of interest should go up in the future, the interest to be charged on the investment in the Panama Canal must also go up.

I should like to refer to one other recommendation of the Bureau of the Budget. In discussing the method of arriving at the capital investment in the Panama Canal on which interest would be calculated, the representatives of the Bureau of the Budget suggested that there should be excluded from the amount of such investment figure first, the investment in national defense facilities, and second, the investment in civil government, health, and sanitation facilities. It was also suggested, as a third offset against the capital investment, that there be deducted the amount of the dividends which have been heretofore paid into the Treasury by the Panama Railroad Company, amounting to approximately $38,000,000.

No justification is seen for this third offset. The facts are that the operations of the Panama Railroad Company in the past have been successful and a substantial surplus has been accumulated from the conduct of its operations. On the other hand, the operation of the Panama Canal in the past has not been successful from a monetary standpoint and there has been accumulated a substantial deficit in the conduct of its operations. If the surplus accumulated by the successful segment of this new combined operation is to be deducted from the capitalization of the new organization, then certainly in all logic the accumulated deficit of the unsuccessful segment of the combined organization should be added to the new capitalization. As already shown, the accumulated deficit from the operation of the Canal, even after a credit allowance for toll-free transits, amounts to approximately $100,000,000. Thus the net effect of taking into account the past operations of both segments of the new combined enterprise would be to increase the capitalization of the new organization by $62,000,000. It is left to the wisdom of this committee and the Congress to determine whether to make a fresh start, using as the investment figure the net property investment shown on the books of the Canal, or whether to take into account the results of the past operations of the two principal segments of the combined enterprise. In no event, however, would it seem to be appropriate to take into account only the past operations of the Panama Railroad Company. Appropriate amendments to H. R. 8677 should be made to rectify this situation.

A major phase of the recommendations of the Budget Bureau had to do with the organizational aspects of the various activities conducted in the Canal Zone In this connection it was recommended that all of the functions of the Pan'

Canal except those relating to civil government, and sanitation, be transferred to the Panama Railroad company and that the railroad company's name be changed to the Panama Canal Company. Further, it was recommended that the new Panama Canal Company operate under types of controls designed to meet the needs of programs of a business character such as business type budget and commercial type audit. These recommendations would seem to be in accord with certain principles advocated by the Hoover Commission. The functions of civil government, health, and sanitation, would be lodged in an organization to be know as the Canal Zone Government. The result would be a division of the activities in the Canal Zone along functional lines.

In view of the requirement in paragraph (b) of section 412 of title 2 of the Canal Zone Code as it would be amended by this bill, that tolls be prescribed at a rate calculated to cover all costs of maintaining and operating the Canal, it seems clear that revenues from the railroad and other business activities of the new company are not to be used to subsidize the operation of the Canal itself. The reasons advanced for the realinement of the various activities in the Canal Zone would seem to be well-founded and the provisions of the bill would seem to be adequate to carry out these recommendations.

A large number of the provisions of H. R. 8677 relate to the codification of certain laws and regulations governing the operation of the Panama Canal. If tl:e other proposals contained in the bill are to be adopted, there would seem to be little question but that the codification provisions would be necessary.

Thus, in general, with the exception of the treatment of the Panama Railroad Company's past dividends as a deduction from the capital investment figure for the Panama Canal, the railroads have no objections to the principles of H. R. 8677 and believe that the enactment of the bill amended to take care of the point mentioned above will in many respects result in the establishment of a more sound policy with respect to tlie operation of the Panama Canal than exists under the present law and procedures.

In conclusion, two further comments would seem appropriate in the light of certain questions from members of the committee during the course of the hearing on this bill. First, it is respectfully suggested that under no conditions should policies be adopted with respect to the establishment of tolls at the Panama Canal which have for their purpose the using of the lerel of tolls as a means of controlling competition between the various modes of transportation. Tolls at the Panama Canal should be set with the view alone to the establishment of rates which will make the Panama Canal a self-sustaining enterprise.

Second, the level of rates of tolls should never be employed as a means of subsidizing water carriers. The issue of the necessity of subsidies for carriers by water, either in domestic or foreign commerce, should be met squarely and considered separately. In the case of air carriers, for instance, the issue of subsidy has been greatly confused by reason of the payment for the transportation of mail being used as a vehicle for conferring subsidies. In that situation it has been clearly recognized by the President of the United States, the Secretary of Commerce, the Hoover Commission, several committees of Congress, and numerous impartial students of the problem, that there must be a separation of compensation for transportation of mail and subsidy to the airlines. Under no circumstances should confusion be introduced into a new area of transportation by any such step in the wrong direction. Nothing contained in H. R. 8677 would lend itself to the establishment of a rate of tolls at the Panama Canal designed to accomplish the unsound objectives referred to above, and it is respectfully requested that no amendments be considered which would do so. Respectfully submitted.

GREGORY S. PRINCE, Assistant General Counsel, Association of American Railroads. Mr. PRINCE. I appreciate that, Mr. Chairman.

I wonder if it would be appropriate and if I might make some remarks at this time without a prepared statement which would indicate our views on certain parts of the bill and then you would have an opportunity to ask questions in regard to that phase of it. Would that be agreeable, Mr. Chairman?

Mr. O'TOOLE. I do not see any objection to that, unless some other members of the committee have objection.

Mr. WEICHEL. Do I understand that Mr. Prince will go ahead now and then file a statement which will not be a part of the record ?

Mr. FUGATE. Not a part of the printed record.

Mr. PRINCE. Perhaps I misunderstood the chairman. I thought he indicated that the statement we would file would be considered as a part of the record and that I would proceed now to outline certain of the points on which we are prepared to state our position at this time.

Mr. WEICHEL. He said that it would not become a part of the printed record. Is it satisfactory if it is not a part of the printed record ?

Mr. PRINCE. Two witnesses appeared for the Association of American Railroads in connection with the investigation made by a special subcommittee, of which Mr. Thompson was the chairman, pursuant to House Resolution 44.

At that time we stated rather fully our views with respect to the toll question in particular.

Mr. BARRETT. Mr. Chairman, I am wondering if Mr. Prince could give us his general views as to what the association thinks of the bill before he prefaces his remarks relative to the language he might be desirous of submitting to us in his report.

Mr. PRINCE. That is what I propose to do in a moment. I merely wanted to state that our full views on the question of tolls have been submitted before, and then I wanted to deal with certain particular points that have been raised in this discussion and hearings before this committee, and state our views with respect to certain points in the bill and certain of the principles established in that bill. I propose to get to that right away. I will state it at the outset, if you wish. .

Mr. BARRETT. Is it your desire that after you make your oral statement you will supplement that with the report of your association ?

Mr. PRINCE. That is my desire—that, in the event we desire to add additional material to what I say today, we will have the right to file for your personal consideration a statement setting forth more fully our position on certain points.

Mr. BARRETT. Is it possible to give him a deadline on filing his written report in order that it may be in the printed record ?

Mr. O'TOOLE. It is impossible to state at this time when the deadline would be, because I do not know what the House is going to do.

Mr. WÉICHEL. With reference to anyone who is going to testify on this bill and with reference to any statements that they are going to file I think that they should be made a part of the printed recordpart II or something—because they will not mean much if they are not made a part of the printed record.

Mr. O'TOOLE. The committee has decided that we will give all witnesses an opportunity to submit any supplementary reports they desire up until the 9th of July.

Mr. PRINCE. Thank you very much.
Mr. O'TOOLE. Now, do you care to make a statement at this time?

Mr. PRINCE. I think perhaps it might be advisable to make a short statement, if that is permissible, on one or two points.

Mr. BARRETT. Is that up to and including the 9th of July?
Mr. O'TOOLE. Up to and including.

Mr. PRINCE. Our fundamental and basic premise, as we expressed it in our testimony under House Resolution 44, was that the Panama Canal should be self-sustaining and that as a consequence no subsidy

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