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Washington, August 8, 1955. Hon. WARREN G. MAGNUSON, Chairman, Committee on Interstate and Foreign Commerce, United States Senate,

Washington 25, D. C. DEAR SENATOR MAGNUSON: This is in further reply to your request for my comments on S. 2167, a bill to make certain changes in the administration of the Panama Canal Company, and for other purposes.

The main purposes of this proposal are to place the Panama Canal under the general jurisdiction of the Secretary of Commerce and to prescribe certain procedures for setting tolls.

Since this proposal involves administrative and fiscal considerations within the particular competence of other Federal agencies, I prefer to leave comment to those agencies.

The Bureau of the Budget advises that it has no objection to the submission of this report. Sincerely yours,

JAMES P. MITCHELL, Secretary of Labor.

MARCH 8, 1956. Hon. WARREN G. MAGNUSON, Chairman, Committee on Interstate and Foreign Commerce,

United States Senate, DEAR SENATOR MAGNUSON: Reference is made to your request for a report on the bill S. 2167, to make certain changes in the administration of the Panama Canal Company, and for other purposes.

This proposed legislation would make far-reaching changes in the organization, management, and fiscal operation of the Panama Canal Company. In the fiscal field its apparent objective is to eliminate certain costs of the canal enterprise from the costs recoverable from tolls charged vessels for the use of the Panama Canal.

Some of the proposals involve matters which, since the 1951 reorganization of the canal enterprise, have been the subject of differences in views and sometimes interests as between, principally, the Panama Canal Company which is charged with the administration of the enterprise, United States vessel operators who pay tolls for the use of the canal, employees of the Panama Canal Company and Canal Zone Government, and the General Accounting Office which conducts an annual audit of the enterprise. The fiscal provisions of the proposed amendments in the subject bill would resolve all controversial issues in favor of the tolls-paying users of the canal by placing these additional costs on the Treasury of the United States.

Many of the proposals have been given careful consideration by the Panama Canal Company and the Canal Zone Government on other occasions. After further detailed study, the canal agencies recommend against favorable consideration of the subject bill, for the reasons stated in the attached comprehensive analysis and discussion of the proposed legislation.

The Bureau of the Budget has advised that there are no objections to the submission of this report. Sincerely yours,

Governor of the Canal Zone,

President, Panama Canal Co. The CHAIRMAN. Because Mr. Mayer, president of the Pacific American Steamship Association, had a great deal to do with some of the preliminary discussions regarding this bill, representing not only the Pacific Steamship operators but many others who participated, what few are left in Intercoastal, I will ask him to be the first witness.



Mr. MAYER. Mr. Chairman, we had here last week, prepared to testify, Mr. James Sinclair, president of the Luckenbach Steamship Co. He wanted to come down today, but is required to be in district court in New York City today on another matter and could not get away.

Mr. Sinclair therefore asked me if I could present for him the brief statement that he wanted to put in at this hearing. I believe a copy of it is before you.

The CHAIRMAN. Yes. I regret that Mr. Sinclair didn't have the opportunity to testify last week. We will assure him that we will put his whole statement in the record, and the exhibits therein will be made a part of the file.

He proposes what he calls a new bill, a substitute, which has some changes in it.

Mr. MAYER. Yes, sir.

The CHAIRMAN. That should be printed in the record in full. But better than that, we will make a committee print of this bill, so we will have a so-called clean bill that we can all look at.

Then he proposes a comparative print of certain sections.

Mr. MAYER. That is for the purpose of facility of testimony, so that reference can be made to various sections.

The CHAIRMAN. We will place all of this in the record. You may proceed with your testimony.

Mr. MAYER. If I may go through a part of Mr. Sinclair's statement, I would like to.

In doing so, if those who want to follow Mr. Sinclair's testimony would have this print before them, they will see exactly what the new bill does.



Mr. MAYER. Mr. Sinclair's testimony commences with a recitation of the fact that his company was in the intercoastal trade since 1914; that they have paid altogether some $24 million in tolls; for the past 3 years their tolls have averaged about $800,000; that on a C-4 they average about $7,350, and about $7,000 for a C-3.

He comments that tolls are about 8 percent of the total voyage cost in the intercoastal trade, less, of course, vessel repairs or cargo expenses.

He then goes on with his testimony on page 2 in this manner: The American-flag steamship industry in the United States, represented by the American Merchant Marine Institute, Inc., Association of American Ship Owners and the Pacific American Steamship Association, have asked me to testify before your committee on the bill before you, possibly because the Luckenbach Co. might be considered as one whose welfare is rather directly concerned with the degree of economy and efficiency of the canal's operation.

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

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