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the Republic of Panama, all should be included in the capital base on which commercial tolls should be fixed so as to pay all operating costs plus 3-percent interest on this capitalization. In recent years the 3percent interest has been charged on around $516,000,000 to $525,000,000 of capitalization.

That the Canal is of tremendous value to national defense cannot be denied. If it were not there, the additional cost of the Navy due to lack of mobility of its Pacific and Atlantic fleets probably would run annually into several times the total cost of the Canal at our present rate of defense expenditure. One could make a logical argument that the savings in naval and war-shipping costs during World War II alone would justify writing off the entire investment in the Canal as a national-defense expenditure.

On the other hand, it could be argued that Canal tolls might be doubled or quadrupled without destroying completely the use of the Canal and thereby a very large profit returned annually to the Treasury. Presumably as long as toils were substantially below the cost of taking a ship around the Horn, ships would use the Canal and pay the toll. Our domestic intercoastal trade undoubtedly would be liquidated by such a course of charging all the traffic would bear, but in 1948 the intercoastal shipping accounted for only 15 percent of the total tonnage going through the Canal, and even less in 1949, so that as a strictly profit-making enterprise the Canal could increase its revenues to the maximum by raising tolls to the limit traffic would bear. United States commerce, of course, would pay two-thirds of the additional cost.

But it is perfectly apparent that the Panama Canal is not that kind of purely commercial enterprise. For one thing, no commercial concern could have negotiated the various treaties with Panama under which the Canal Zone was ceded to the United States and the Canal constructed. I might interpolate there to say that if a commercial company were to run the Canal I doubt whether all of these expensive costs of civil government would ever have run anywhere nearly as high as they have.

Somewhere between these two extremes of charging off the Cana! completely to national defense or treating it as we do our river and harbor improvements, and a purely commercial approach aimed at making the maximum profit to the Federal Treasury lies the sound solution.

As has been pointed out, it is a fruitless undertaking to attempt to go back 40 years and determine whether commercial or defense considerations were uppermost in the minds of those who were responsible for the Canal project. Furthermore, it is not necessary. The Canal has demonstrated its tremendous value in our defense in two

Its value to our over-all commerce is shown in the annual reports of the Governor. It is for Congress to determine what portion of the cost of the Canal properly should be charged off to those two purposes. Different persons undoubtedly can arrive at different conclusions from the same set of facts, but our association believes that a minimum of half of the capital cost of the Canal should be so allocated.

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Our association strongly urges this subcommittee, and the full committee, to rewrite the new subsections 412 (b) and (c) proposed by H. R. 8677, beginning on line 24 of page 20, so as to do five things:

1. Require that a fair proportion of the cost of operating and maintaining the Canal be allocated to national defense, preferably specifying a minimum percentage to be so allocated in the law. The proportion of United States Government vessels transiting the Canal indicates that the very least percentage of cost so allocated should be 10 percent.

2. Require that a fair proportion of the capital cost of the Canal and its ancillary facilities be allocated to national defense, again specifying a minimum percentage to be so allocated in the law. Our association believes that minimum percentage should be at least 50 percent.

3. Specify that the interest rate to be paid the Treasury on the capital allocated to commercial operations shall not be greater than the average rate of interest borne by all interest-bearing, long-term public issues of the United States at the time toll rates are fixed. While section 246 (b) of the Panama Canal Code may cover this particular issue, we believe it would be safer to spell it out in the section dealing with the fixing of Canal tolls.

4. Require that the net costs of civil government in the Canal Zone be distributed among all business-type operations in the Zone, including Government commissaries, in proportion to their gross revenues. This appears to our association to be the only fair and equitable way of distributing these costs, which are in lieu of the taxes these businesstype operations otherwise would pay. As we have pointed out, the proposal in this regard in H. R. 8677 is completely unfair in that it applies these Government costs to gross revenues of the Canal but only to net revenues of other business-type operations.

5. Retain a maximum toll rate for laden commercial vessels in the law, preferably at the present maximum of $1 per ton. I realize that this is perhaps putting an extra padlock on the gate. But our association is vitally concerned with the intercoastal trade, and any substantíal increase in Canal tolls at this time would be a most serious burden to that trade, which is facing enough difficulties in surviving as it is.

Under the tolls formula proposed in H. R. 8677 as it stands, an increase of 30 cents or more per ton in commercial tolls would be certain, depending on the volume of Government vessels transiting the Canal and the percentage of civil government costs allocated to the Canal operation. Such an increase, which would amount to $2,000 to $2,500 for each transit of the Canal by a C-type vessel, would be a considerable burden on American-flag operators, and particularly on the intercoastal lines, which already are having a difficult time keeping their costs low enough to compete with the railroads.

In conclusion, our association again emphasizes that our use of the Canal in two World Wars as well as its tremendous value in serving the over-all trade and commerce of the United States amply justifies Congress in allocating a substantial part of the original cost of the Panama Canal to national defense and we strongly urge adoption of an amendment to H. R. 8677 along the lines we have proposed. I thank you for this opportunity to present our views.

EXHIBIT A

Association of American ShipownersFigures on origin and destination of

cargo transiting Panama Canal in fiscal year 1949 from Annual Report of the Governor of the Panama Canal

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Beginning with line 24, page 20, strike out through line 23 on page 21, and insert:

(b) Tolls on merchant vessels and yachts shall be prescribed at a rate or rates sufficient, under normal traffic conditions, to cover but not exceed (1) such part of the expense of maintaining and operating the Canal (in no event more than per centum of such expense) as is fairly allocable to non-nationaldefense purposes of the Canal, plus (2) interest on such portion of the depreciated capital cost (not in excess of — per centum of such cost) of the Canal (including improvements) as is fairly allocable to non-national-defense purposes of the Canal, such interest to be at a rate not greater than the average rate of interest borne by all interest-bearing long-term public issues of the United States at the time such toll rate or rates are prescribed, plus (3) that part of the net costs of operation of the agency known as the Canal Zone government which bears the same ratio to the total net costs of such agency as the estimated gross toll revenues of the Canal bears to the estimated total gross revneues of the corporation from all business-type operations, including commissaries. For the purposes of this section, the allocation of expenses and costs between national defense and non-national-defense purposes of the Canal shall be made on the basis of the relationship between the value of the benefit of the Canal as a military asset to all of the people of the United States and the value of the benefit of the Canal as a commercial asset to shippers of goods. The rate of tolls on laden merchant vessels shall not exceed $1 per net ton as determined under the rules for the measurement of vessels for the Panama Canal. In addition to the tolls based on measurement or displacement tonnage, tolls may be levied on passengers at rates not to exceed $1.50 for each passenger. As used in this subsection the Canal includes only the Canal itself and its ancillary facilities and equipment for vessel-transit purposes.

"(c) Public vessels of the United States, including warships, naval tenders, colliers, tankers, transports, hospital ships, and other vessels owner or chartered by the United States for transporting troops or supplies may be transited through the Canal free or be required to pay tolls, in the discretion of the President."

Mr. O'TOOLE. Are there any questions?

Mr. FUGATE. Based on the proposal that you suggest there of meeting the situation by providing capitalization on the 50–50 basis, what do you think the tolls would be under H. R. 8677?

Mr. BALL. I think they would wind up at about 80 or 90 cents.
Mr. FUGATE. That is why you want to put a maximum on them of $1 ?

Mr. BALL. I think if tolls went very much over $1, it would be a very severe burden on the intercoastal lines which are having a very difficult time as it is now.

Mr. FUGATE. You have made a very fine statement, Senator.

Mr. O'TOOLE. Mr. Lichtenwalter, Mr. Thompson, and Mr. Barrett, do you have any questions?

Mr. THOMPSON. No, Mr. Chairman.
Mr. O'TOOLE. Thank you, Senator.

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STATEMENT OF L. BLAINE LILJENQUIST, WASHINGTON REPRE

SENTATIVE, WESTERN STATES MEAT PACKERS ASSOCIATION, INC.

Mr. O'TOOLE. Mr. L. Blaine Liljenquist, Washington representative of the Western States Meat Packers Association, desires to present a statement.

Mr. LILJENQUIST. Yes, sir.
Mr. O'TOOLE. Proceed, Mr. Liljenquist.

Mr. LILJENQUIST. Mr. Chairman and gentlemen of the committee, my name is L. Blaine Liljenquist, Washington representative of the Western States Meat Packers Association.

The Western States Meat Packers Association is a trade association of independent meat-packing companies in the 9 Rocky Mountain and Pacific coast States of Montana, Idaho, Utah, New Mexico, Arizona, Nevada, California, Oregon, and Washington. Its president and general manager is Mr. E. F. Forbes, of San Francisco.

We are interested in the bill H. R. 8677 because we believe this proposed legislation, if enacted into law, will result in a reduction in the Panama Canal rates for commercial shipping.

We favor a reduction in the Panama Canal rates for commercial shipping for the following reasons:

Commercial ships passing through the Panama Canal are charged tolls for the entire upkeep of the Canal, its school system, highways, and other costs, while ships owned by the United States pass without charge. The cost for commercial shipping is so excessive that shipping by water between the west and east coasts of the United States is at a minimum. An equitable reduction in the toll charges for commercial ships will increase intercoastal and foreign shipping to and from the west coast to the extent that it will prove very helpful to western industries and western business.

Increased passenger and freight traffic through the Panama Canal will provide an expanding market for meat and other products produced in the Rocky Mountain and Pacific Coast States.

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We have observed that railroad rates tend to be lower wherever there is competition with water transportation. Reduced rates through the Canal will stimulate transport by water. This, in turn, will provide a greater incentive for the overland railroads to practice economies and reduce costs so that east-west railroad rates can be lowered.

Water-borne commerce is essential to the economic welfare of such west coast cities as Los Angeles, San Francisco, Portland, Tacoma, and Seattle, and the decline in commercial traffic through the Panama Canal has been very costly to these cities and to the entire Pacific coast area. The excessive tolls are one of the greatest factors causing a reduction in the volume of cargo handled in west-coast ports.

It is evident that a thriving intercoastal shipping industry in California, Oregon, and Washington is of vital importance in our national economy, as well as in our national defense. As the population of the West continues to soar above the national average, it becomes increasingly important to provide new jobs and new business opportunities. A sick shipping industry has been putting the brakes on job expansion.

The help of this committee is needed to correct this unjust and dangerous situation. We therefore urge that you base the tolls on commercial shipping through the Panama Canal on the true cost of providing transit to commercial vessels, and that you charge the Military Department for all expenses allocable to national defense. Equitable rates for commercial shipping will provide the answer to one of our most important problems on the Pacific coast.

Mr. O'TOOLE. Off the record.
(Discussion off the record.)
Mr. O'TOOLE. Are there any questions?
Thank you very much for your contribution Mr. Liljenquist.
Mr. LILJENQUIST. Thank you, sir.

Mr. O'TOOLE. Mr. Hoyt S. Haddock, executive secretary of the CIO maritime committee

(No response.) STATEMENT OF HERBERT BUCKLEY, VICE CHAIRMAN OF THE

BOARD OF DIRECTORS OF THE INTERCOASTAL LUMBER DISTRIBUTERS ASSOCIATION AND CHAIRMAN OF THE TRANSPORTATION COMMITTEE

Mr. O'TOOLE. Mr. Herbert Buckley, representing the Intercoastal Lumber Shippers Association, and the West Coast Lumbermen's Association.

Mr. BUCKLEY. Yes, sir.
Mr. O'TOOLE. Proceed, Mr. Buckley.

Mr BUCKLEY. My name is Herbert Buckley, vice chairman of the board of directors of the International Lumber Distributors Association and for the past 14 years chairman of the tronsportation committee of that association. That association is affiliated with the West Coast Lumbermen's Association of Portland, Oreg. The difference between the two being that the Intercoastal Lumber Distributors Association is the distributing end of the business on the Atlantic coast and the West Coast Lumbermen's Association is comprised of some one thousand producing lumber mills on the west coast.

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