At the outset I should like to state that this industry, in laying its case before this committee, has also selected other witnesses who are here today and are prepared to comment in more detail and on other phases of the bill.

I will go on now to the first point of the bill commented on by Mr. Sinclair, which is transfer of the canal to the supervision of the Secretary of Commerce.

To facilitate consideration of the proposals by the industry, we have placed before you what we have labeled a so-called clean bill, and also a document entitled "A Comparative Print." This latter document is designed to offer committee members at a glance the wording of certain sections of the code if the Congress finds it possible to adopt the proposals of the industry in the "clean bill.”

The changes in the Canal Zone Code necessary to place the canal under the supervision of the Secretary of Commerce are found in the comparative print before you at page 1, lines 7 and 8 and 14 and 19, and page 2, lines 2 to 6 and 21 to 24. They are not technical in character and I don't think it is worth the time of the committee to read them now.

Therefore, without going into detail on them, their effect might be described this way: At the present time the supervision of the Canal Zone Government and the Panama Canal Company is under the President or such officer as might be designated by him. By Executive orders the President has designated the Secretary of the Army both as supervisor of the Canal Zone Government and as the stockholder of the Panama Canal Company, and thus as the top supervisory government officials for all canal activities.

Under the present law the President of the United States appoints the Governor of the Canal Zone who, by statute, also serves as President of the Panama Canal Company.

The proposal in S. 2167 would leave the appointive power in the President; it would continue top management at the zone in one man for both the Canal Company and the Canal Zone Government; but it would place top supervision in the Secretary of Commerce rather than the Secretary of the Army.

I should say that the proposal in S. 2167 as it is corrected by the "clean bill" would do those things.

I should like to emphasize that, as my testimony will develop, two leading Government agencies concerned with the problem of organization, namely the Bureau of the Budget and the General Accounting Office, as well as the Staff of the Government Operations Committee of the United States Senate, have already urged that the canal be transferred to civilian control.

The CHAIRMAN. Isn't there a Hoover Commission report, too, on that?

Mr. MAYER. Yes, sir; I regret to say that I cannot recall whether they recommended transfer to the Commerce Department or not. The CHAIRMAN. I don't either. We will get to that.

Mr. MAYER. I can furnish that information.

The operation of the canal, which is an international waterway, and its related business activities, fall directly within the area of the interest of the Department of Commerce. The organic act of the Department of Commerce provides this:

It shall be the province and duty of said Department to foster, promote, and develop the foreign and domestic commerce * * * shipping, *** and the transportation facilities of the United States.

By 1950, in which year Reorganization Plan No. 21 transferred the Maritime Administration to that Department, the transportation agencies of the Government were largely centered in the Department of Commerce, viz, the Civil Aeronautics Administration, the Maritime Administration, and the Bureau of Public Roads, and also the Weather Bureau and the Coast and Geodetic Survey, which provide vital services to transportation.

The President of the United States in that year, in his message transmitting Plan 21 to Congress, declared it to be his purpose "to look to the Secretary of Commerce for leadership with respect to transportation problems and for the development of overall transportation policy within the executive branch."

The President further asserted that the Commerce Department was "a sound and effective organization for the operating and promotional programs of the Government relating to transportation."

Plan 21 also created in the Department of Commerce the office of Under Secretary for Transportation, and that Department is the only one in the executive branch with so high an officer with responsibilities confined to the field of transportation.

Moreover, the Department of Commerce has the principal commercial and economic agencies of the Government, such as the Bureau of Foreign and Domestic Commerce, the Office of International Trade, and the Bureau of Business Economics.

In consequence there has developed in the Department of Commerce a business and transportation-minded personnel who are notably qualified to understand and deal with the administrative and policy problems of the Panama Canal, which is after all a major transportation facility of the United States serving the interstate and foreign commerce of the United States.

Despite the obvious qualification of the Department of Commerce, supervision of the Panama Canal is presently vested in the Department of the Army. Canal Company board members are appointed by and serve at the pleasure of the Secretary of the Army; he himself serves as a board member; the Governor and Company president has always been a high ranking Army officer; most of the principal subordinates are usually officers of the armed services, assigned by their respective agencies for terms of 3 to 4 years, and the board was in large part constituted in recent years, 1952 and 1953, by retired generals, former governors, or lieutenant governors of the zone, the Secretary of the Army, an Army Under Secretary, and administrative assistant in the office of the Secretary of the Army, a former Secretary of the Army, and a former Chief of Engineers of the United States Army.

The reasons that the canal is an Army responsibility are historical. The canal was originally built by the Corps of Engineers—and let me say they did an excellent job, succeeding where the French had failed. And from 1898 to 1939 the Bureau of Insular Affairs, which had responsibility for the administration of our overseas possessions, was in the War Department.

Neither of these reasons apply today. The canal has now been built. It is no longer primarily an engineering problem. With

respect to dredging and the physical maintenance of the canal as a waterway, the Army engineers would still have responsibility and authority under the Rivers and Harbors Act, despite a transfer of supervision to the Secretary of Commerce.

The second historical reason, namely, the location of the Bureau of Insular Affairs in the War Department, is similarly no longer applicable. By Reorganization Plan No. 2 of 1939 that Bureau was transferred to the Department of the Interior, and that Department, it is my understanding, now supervises the administration of our overseas possessions other than the Panama Canal. In these other overseas possessions the Armed Forces have nevertheless large installations, yet there has proved to be no incompatibility between the dominance of the Armed Forces with respect to military protection and civilian administration of ordinary governmental affairs.

Executive Order No. 10398, issued by the President on September 26, 1952, provides, with respect to the canal, that the views of the Commander in Chief, Caribbean Command, shall prevail over those of the Governor of the Canal Zone with respect to determinations as to whether any aspect of the protection of the Canal Zone pertains to its military security, protection, or defense, as distinguished from the protection afforded by civil authorities. Thus we have a military control superimposed upon military control. The necessity for Executive Order No. 10398 shows that primary military responsibility should be vested in the Commander in Chief, Caribbean, rather than in the Governor of the Conal Zone, despite the military character of that officer and the fact that he is supervised by the Secretary of the Army.

Moreover, when in September 1939 the outbreak of World War II convinced the President that the Panama Canal was in some danger, by Executive Order 8232 he subjected the Governor of the Canal Zone to the Commander in Chief, Caribbean Command.

I therefore urge the national defense aspect of the Panama Canal has been adequately recognized by these powers of the commander in Chief, Caribbean, and that the day-to-day operation of the canal and its related business activities can safely be entrusted to civilians.

Moreover, even within the Armed Forces there would seem little reasons for locating the canal with the Army. Under present conditions the responsibility for the defense of the canal would fall on the Navy and Air Force operating hundreds of miles from the canal to intercept enemy ships and bombers. The principal user of the canal among Armed Forces-and it is at times a very large user-is the Navy, with its warships and military sea transportation service. As I have already mentioned, the proposal and the reasoning which I advanced today follow closely the views of the Bureau of the Budget, the General Accounting Office, and the staff of the Government Operations Committee of the Senate. Of particular importance is the recommendation of the Bureau of the Budget, expressed in House Document 460 of the 81st Congress.

I attach as an exhibit to my prepared statement excerpts from that report in which the Bureau squarely urged that the Panama Canal be transferred to the Department of Commerce. As I have done today, the Bureau's report emphasized the responsibility of the Secretary of Commerce for national transportation policy and the exist

ence of staff facilities for assisting the Canal Company both in transportation and business-management problems. The views of the General Accounting Office have been expressed in its various audit reports, especially those for the years 1953 and 1954, fiscal years in both cases. I include an excerpt from the 1953 report in the exhibit. The views of the staff of the Senate Committee on Government Operations are found in staff memorandum No. 83-2-34, issued on December 31, 1954, and entitled "Major deficiencies in the organization and operation of the Panama Canal Company and Canal Zone Government as disclosed by audit reports of the Comptroller General of the United States." I also include excerpts from that report in the exhibit.

One thing we might add, is that our proposal does not imply any criticism of the good faith of the military. What I mean is we do not have usual commercial customer relationship. Industry people who have studied the canal's operation under its present administration and under Public Law 841 have observed the accomplishment of some worthwhile economies at the canal in recent years. There remain, however, certain differences as to basic policy and interpretation of the Canal Zode Code which have led to litigation which I shall later mention briefly.

We believe that in time of peace the canal is mainly a commercial enterprise, providing transit for commercial vessels. This is indicated clearly by the $33.9 million in tolls collected from commercial vessels during fiscal 1955 as against $1.2 million credited to the Company for the transit of Government vessels, both military and nonmilitary. The converse is of course true in time of war.

Our proposal is based on the simple principle that a revenue-producing agency of this type, providing a service to industry, should be under the supervision of that Department of the Government which has the responsibility in matters related to the commerce of the Nation. That concludes Mr. Sinclair's remarks on the first point, that is, transfer to the supervision of the Secretary of Commerce. Mr. Sinclair also wanted to comment on the provisions in the bill requiring a self-support formula for the business activities. His statement goes on this way:

Changes proposed to accomplish self-support of these activities are found at the following places in the comparative print of the proposed new code sections that have been placed before you:

Page 7, lines 3-25.

Page 9, lines 13-14.

While I do not think we should take the time to read the other one, this one I think we should read. It is short language. It commences on page 7. So we can have it in focus I will read that section.

SEC. 248. (a) GENERAL PURPOSE OF CORPORATION. The corporation shall have, as its major objective, the economic and efficient transiting of vessels through the Panama Canal. In effecting such major objective the corporation shall operate the Panama Canal, including the locks, channels, towing facilities, and other facilities used in actual transit and to the extent found necessary to accomplish such purpose, it shall also operate facilities not used in actual transitand this is where the self-formula comes—

but such additional facilities shall be operated in a manner to be self-supporting; the corporation shall allow as cost the items of overhead, maintenance and operation, depreciation, interest on investment, and a proportionate share of the net cost of the Canal Zone Government: Provided, however, That all goods and

services supplied by the corporation and Canal Zone Government to its employees shall be exempt from such self-support requirement. The Administrator shall, at least annually, take whatever action is necessary to establish consumer prices in the Canal Zone on such a level as to establish a cost of goods and services in the Canal Zone equal to the current cost of equivalent goods and services in Washington, D. C., as established by the Bureau of Labor Statistics.

We will comment in considerable detail later on the Bureau of Labor Statistics pricing formula.

The language on page 9 is mechanical in character and is not important. It just makes another section.

The CHAIRMAN. We will put in the record in full the excerpts from the Bureau of the Budget study, and the excerpts from the General Accounting Office report, and from the staff memorandum of the Senate Committee on Government Operations.

(The excerpts are as follows:)

EXCERPTS FROM BUREAU OF THE BUDGET STUDY TRANSMITTED BY THE PRESIDENT TO CONGRESS ON JANUARY 31, 1950 (H. Doc. 460 OF THE 81ST CONG.)

From pages 10–12:

SUPERVISION OF THE PANAMA CANAL AND PANAMA RAILROAD COMPANY

Supervision of the Panama Canal and the Panama Railroad Company has been vested from the very beginning in the Secretary of War and his successor, the Secretary of the Army. President Theodore Roosevelt's letter of May 9, 1904, cites two principal reasons for requesting the Secretary of War to act as his representative in supervising the construction of the canal and the government of the Canal Zone:

(1) the War Department is the Department which has always supervised the construction of the great civil works for improving the rivers and harbors of the country and the extended military works of public defense; (2) the War Department has from time to time been charged with the supervision of the government of all of the island possessions of the United States, and continues to supervise the government of the Philippine Islands. Neither of these reasons would apply with equal force today. Construction has become incidental to the maintenance and operation of the canal. The War Department is no longer the agency which supervises the government of our island possessions. Reorganization Plan No. II of 1939 transferred all remaining functions of the War Department's old Bureau of Insular Affairs to the Department of the Interior.

Excellent reasons existed for not considering any change with respect to the Panama Canal at the time when the War Department was relieved of its remaining responsibilities over Territories and possessions in 1939. It was in September of that year that the President found it necessary to invoke the provisions of the Panama Canal Act by placing the canal under the direct command of the Army. To have placed the canal under any official other than the Secretary of War in 1939 and the ensuing war years would have been illogical and resulted in a divided command.

When Executive Order No. 8232 is rescinded, however, the organization status of the Panama Canal and the Panama Railroad Company should be reappraised. The intent of the Panama Canal Act that in peacetime the canal and its adjuncts should be under civilian control is unmistakable. The canal itself, which has been aptly described as a great international public utility, is fundamentally a commercial waterway for international commerce. Operation of a vast commercial enterprise such as the canal and its adjuncts and the civil government of the Canal Zone is not necessary for the performance of the basic mission of the Department of Defense.

At the policy level the programs of the Panama Canal and the Panama Railroad Company have their most significant impact in the transportation area. Actions taken by the canal may vitally affect not only world trade and shipping but also intercoastal trade and transcontinental railroads. The question of tolls rates, for example, raises important issues which should be reviewed in the light of the objectives of national transportation policy. Neither the Sec