retary of Defense nor the Secretary of the Army has at the present the departmental responsibility or the staff resources to deal adequately with policy issues of this character. Military-staff channels are not and should not be used for this purpose. In the absence of other staff facilities the Secretary of the Army has been compelled to rely almost exclusively on his administrative assistant, who has numerous other important duties, and the Washington Office of the Panama Canal for assistance on Panama Canal matters. Establishment of a special Panama Canal staff in either the Office of the Secretary of Defense or the Secretary of the Army would offer only a partial solution to the problem and might well further complicate coordination of transportation policy. The Commission on Organization of the Executive Branch of the Government recommended that— there be established in the Department of Commerce a grouping of all major nonregulatory transportation activities of the Federal Government. The Panama Canal would clearly come under the Commission's definition of a "transportation activity." Since the Secretary of Commerce is to be charged with coordination of transportation policy, it would be an entirely logical step to transfer to him supervisory authority over the canal and its adjuncts. The working out of a satisfactory relationship between the canal and the Armed Forces on the isthmus does not require that they report to the same department head. A clear-cut separation of civilian and military functions has already been accomplished in such highly strategic areas as Guam and the American zone of Germany. In some respects a separation would simplify the solution of differences between the two agencies. The governor under existing arrangements operates at a serious disadvantage when he attempts to persuade the Secretary of the Army to overrule his military advisers. Often the best he can hope for is no action. Some of these questions could undoubtedly be settled more expeditiously by across-the-board discussions between the Secretary of Commerce and the Secretary of Defense. It would only be on rare occasions that unresolved issues would have to be taken to the President. Suggestions that the canal be included in a Department of Overseas Affairs fail to recognize the unique status of the canal and the Canal Zone. There are significant differences between the Canal Zone and other Territories and possessions. The Canal Zone is unique both as to the purposes for which it was acquired and is maintained by the United States and its status under governing treaties and laws. It is essentially a United States Government reservation devoted to the purposes of the maintenance, operation, sanitation, and protection of the Panama Canal and its auxiliary works. From page 17: 4. It is recommended that responsibility for supervision of the Panama Canal and the Panama Railroad Company be transferred from the Secretary of the Army to the Secretary of Commerce. The Panama Canal and the Panama Railroad Company should be included with the other major nonregulatory transportation agencies which the Commission on Organization of the Executive Branch of the Government has recommended be grouped together under the Secretary of Commerce. It is essential that Panama Canal policies be coordinated with the objectives of national transportation policy and such coordination can best be achieved through supervision by the Secretary of Commerce. Staff facilities already exist in the Department of Commerce which could be developed to furnish necessary assistance to the Secretary of Commerce in fulfilling his supervisory responsibility with respect to the Panama Canal enterprise. Such facilities do not now exist in the Department of the Army and the Department of Defense and military staff cannot satisfactorily be employed for this purpose. In addition, the Department of Commerce is constantly engaged in studying business-management problems and is consequently in an excellent position to provide valuable assistance to the corporation in its conduct of the many varied commercial enterprises on the isthmus. The historical reasons for placing the Panama Canal under the Secretary of War's supervision no longer apply. The construction stage of the canal's operation has long since been completed, and the Department of the Army is no longer the agency charged with the responsibility for government of Territories and island possessions. In time of war or when war is threatened, the Panama Canal could be placed under military supervision and control as is now provided by the Panama Canal Act. EXCERPT FROM GENERAL ACCOUNTING OFFICE AUDIT REPORT FOR 1953 From page 20: The organization should be managed and operated primarily as a business enterprise. The canal is a commercial international waterway. We see no reason for continuing the regular operations of the canal under military domiDance. That the Governor is not intended to apply military judgment to canal operations is made clear in Executive Order 10398, dated September 26, 1952, which states: "1. As between the Commander in Chief, Caribbean, and the Governor of the Canal Zone, the views of the former shall prevail with respect to determinations as to whether any aspect of the protection of the Canal Zone pertains to its military security, protection, and defense, as distinguished from the protection afforded by the civil authorities. Should the Governor of the Canal Zone disagree with any specific decision of the Commander in Chief, Caribbean, under this paragraph, the said Governor may, through the Secretary of the Army or through the Board of Directors of the Panama Canal Company, as may be appropriate, appeal such decision to the President." A civilian governor could comply with the above order as well as a military governor and could deal in international affairs as well. In addition, an attitude of cost consciousness would contribute greatly to more economical operations, and civilian management would provide a continuity in key managerial positions which is not possible under the present system of relatively short assignments by personnel of the Armed Services. FROM STAFF MEMORANDUM No. 83-2-34 OF DECEMBER 31, 1954, OF THE SENATE COMMITTEE ON GOVERNMENT OPERATIONS ENTITLED "MAJOR DEFICIENCIES IN THE ORGANIZATION AND OPERATION OF THE PANAMA CANAL COMPANY AND CANAL ZONE GOVERNMENT" From part 4, (1) (c): Forty years have elapsed, however, since the completion of the construction of the canal, and the Canal Zone is now in precisely the same position as other Territories and island possessions. Although the Military Establishment is still responsible for the defense of these areas, it has no responsibility either for their government or for the operation of commercial enterprises. (See Reorganization Plan No. 2 of 1939.) In the light of the foregoing, there appears to be much substance to the conclusion of the Comptroller General that the Panama Canal is a commercial international waterway which should be managed and operated primarily as a business enterprise. Although recognizing that the Military Establishment must retain responsibility for the canal's defense, as it does for all of the United States, its Territories and possessions, the Comptroller General observes that no reason exists why the regular operations of the Canal and its related and associated activities, including the Zone Government, should continue under military dominance. From part 4, (1) (d): In a recent survey of duplication of government activities and facilities, made by the Comptroller General, he found that they include commissaries, warehouse, post exchanges, theaters, steamships, motor pools, bakeries, laundries, hospitals, housing, docks and piers, cold storage plants, fire-fighting facilities, oil handling and storage facilities, shipwright shops for small craft repairs, various types of heavy construction equipment, asphalt, concrete and rock-crushing plants, photographic units, printing plants, office machine repair units, civilian personnel offices, and 17 miscellaneous retail stores. The Comptroller General points out that these activities and facilities which are presently carried on and maintained by the three commands of the Military Establishment (Army, Navy, and Air Force), in a majority of instances, duplicate those carried on and maintained by the Panama Canal Company and the Canal Zone Government. Furthermore, he states that, in many instances, each of the three sister services carries on activities and maintains facilities which duplicate one another. He notes further that although the Company has terminated a few of these activities, the military has, for the most part, done little or nothing with respect to consolidation and elimination of duplicating facilities. In commenting on the origin of this vast network of duplicating activities and facilities, the Comptroller General notes that prior to World War II, the facili ties of the canal organization were, in general designed to meet the needs of all Government agencies in the Canal Zone, including the Armed Services. To meet expanded needs during World War II, the Armed Services constructed or installed many facilities which duplicated those of the canal organization. With the end of the war and the reduction in military personnel in the zone, total facilities became excessive to total Canal Zone needs. Nevertheless, the Armed Services continued to operate many of their own activities, and the effects of this are reflected in the unit operating costs of the canal activities which are intended by the Congress to be operated on a commercial basis. The reduced volume of business without a corresponding reduction in cost of operating facilities results in increased unit costs, and, although the financial burden on the Company through loss in revenue and increased unit costs cannot be accurately determined, it is obviously substantial. Mr. MAYER. At present these activities operate at substantial losses. To some extent these losses are due to the duplication of facilities resulting from World War II, as has been noted in the audit reports of the Comptroller General and the staff memorandum of the Government Operations Committee to which I have already referred, and an excerpt of which is included in the exhibit submitted in support of this statement. Again, in fairness to the present administration at the canal, industry people who have visited the zone in the past 2 years and who have studied closely the annual reports of the canal have observed that there have been consolidations and elimination of duplications to some extent. These have been in bakeries and hospitals as examples, and there is currently a proposal for consolidation of firefighting forces. The proposal on page 7, lines 3 to 10, and page 9, lines 13 to 14, in the comparative print are an effort to limit the authorized activities. at the canal to those necessary for accomplishnig the mission there, "the economic and efficient transiting of vessels through the canal.' The language immediately following that would require that other operations, such as the railroad, steamship lines, ship-repair facilities, hotels, and so forth, be operated on a self-supporting basis according to usual business practice, and according to a formula set out in the text. Losses from these operations are now the subject of litigation, wherein the industry contends that they may not under the law be charged to tolls. We shall be glad to furnish you with copies of this complaint if you wish them, also copies of a brief which the complainants have submitted to the court. Part I of that brief outlines the reasons why we believe that under existing law the Panama Canal Company is acting wrongfully in charging the losses of the business activities against tolls. BLS pricing formula for employees: On page 7, lines 17 to 25, in the comparative print, it is provided that— all goods and services supplied by the Panama Canal Company and the Canal Zone Government to its employees shall be exempt from such self-support formula. This is proposed by the industry as being in compliance generally with American industrial practice for personnel living abroad. Personnel at the canal should be entitled to the same kind of living, as nearly as it can be supplied, at the same cost as it is obtainable by their fellow Government employees in the United States. They are there at the convenience of the Canal Company and their salaries are based upon United States standards. We do not expect them to be penalized for living there, neither should they expect to be placed in a position of advantage over their stateside counterparts with respect to living cost. I understand there is already a 25 percent differential in salary to canal employees, as well as certain home leave transportation privileges, both benefits being designed to compensate them for living in this area, just as there are similar benefits for Government employees in other overseas territories or foreign countries. I am informed by industry representatives who framed this language that it has been discussed fully with representatives of canal employees and with the Bureau of Labor Statistics, and seems to meet the needs of all concerned. Such representatives will testify before this committee and will be in a position to answer detailed questions as to this proposal. I believe these witnesses will want to clarify in some detail just what is sought to be accomplished by the BLS pricing formula at the canal. This concludes my comments on three of the major proposals in the bill. Other major proposals include a requirement that other Government agencies reimburse the Canal Zone Government for services performed by it which are the normal function of other agencies; a provision for mandatory tolls prescription and one for court review of tolls decisions. These will be commented on by other industry witnesses, which will follow me if that fits the committee's schedule. Industry witnesses will be pleased to answer questions that committee members may have, in any order that the committee desires. However, if convenient to the committee, we suggest that it might like to hear the full proposal of the industry from all of its witnesses before questioning, since the full recitation of our proposals will answer many questions that may occur to you and might permit of a more coordinated examination of these legislative suggestions. I request permission to submit at this time for the record the exhibit aforementioned, as well as the clean bill and comparative print. The CHAIRMAN. We will put those in the record, and I will have a committee print made of the changes. CANAL ZONE CODE "Comparative Print," March 8, 1956 COMPARATIVE PRINT OF CERTAIN SECTIONS AS THEY WOULD READ AFTER AMENDMENT BY S. 2167, WITH ADDITIONAL PROPOSED CHANGES "5. ESTABLISHMENT, ADMINISTRATION, AND FUNCTIONS OF CANAL ZONE GOVERNMENT.-The independent agency of the United States heretofore known as the Panama Canal shall hereafter "(1) be known as the Canal Zone Government; ((2) be administered, under the supervision of the President or such officer of the United States as may be designated by him Secretary of Commerce by a Governor of the Canal Zone; and "(3) be charged, except as otherwise provided by law, with the performance of the various duties connected with the civil government, including health, sanitation and protection, of the Canal Zone. Supervision by "6. APPOINTMENT, TERM AND SALARY OF GOVERNOR. The Governor of the Panama Canal shall be appointed by the President, by and with the advice and consent of the Senate, commissioned for a term of four years and until his successor is appointed and qualified. He shall receive a salary of $10,000 a year. (Aug. 24, 1912, eh. 390, see: 4, 37 Stat. 561 (U. S. Code, title 48, see: 1305).) also as "6. APPOINTMENT AND TERM OF GOVERNOR TO SERVE ALSO AS ADMINISTRATOR.-The Governor of the Canal Zone shall be Governor serves appointed by the President, by and with the advice and consent of Administrator the Senate, and shall serve also as Administrator of the Panama Canal Company." "246. INVESTMENT OF THE UNITED STATES.-(a) As of the beginning of business July 1, 1948, the corporation shall issue to the United States, and deliver to the Secretary of the Treasury, a receipt for $1 acknowledging the transfer to the corporation, under the provisions of section 251 of this title, of the net assets of the Panama Railroad Company, hereinafter referred to as the 'New York company,' a corporation created by an Act of the Legislature of the State of New York passed on April 7, 1849, as amended by an Act of that legislature passed on April 12, 1855, and which is wholly owned by the United States, and such receipt shall be evidence of the ownership of the corporation by the United States of America. In its capacity as owner of the corporation, the United States shall be represented by the Presi- Secretary of dent of the United States or such other officer of the United States as may be designated bu him Secretary of Commerce, hereinafter referred to as the 'stockholder'. Commerce made stockholder "246 (e) The corporation is further obligated to pay into the Treasury as miscellaneous receipts amounts sufficient to reimburse the Treasury, as nearly as possible, (1) for the annuity payments under article XIV of the convention of November 18, 1903, between the United States of America and the Republic of Panama, as modified by article VII of the treaty of March 2, 1936, between the said Governments, and (2) for the net costs of operation of the agency known as the Canal Zone Government. The net costs of operation of the Canal Zone Government, which are deemed to form an integral part of the costs of operation of the Panama Canal enterprise as a whole, shall not include interest but shall include depreciation and the reimbursement of other Government agencies for expenditures made on behalf of the Canal Zone Government: The payments into the Treasury, referred to in this paragraph shall be made annually to the extent earned, and if not earned shall be made from subsequent earnings unless the Congress shall otherwise direct. Provided, That the cost of providing immigration and custom service for the Republic of Panama and the cost of rendering goods and services which would otherwise normally be borne by other departments of the United States Government in its overseas trust territories and Government reservations, and such portion of the cost of operating and maintaining roads, highways, sewers, and other such facilities and services, as is represented by the use of military personnel and their families (such portion to be determined by the ratio that mili- of facilities tary personnel and their dependents, together with civilian employees of the military and other governmental agencies and their dependents, residing in the Canal Zone bear to civilian United States citizens in the Canal Zone and citizens of the Republic of Panama employed by Reimburse Canal Zone Government for services to Panama For military use the Panama Canal Company and the Canal Zone Government and For services of their dependents, residing in the Canal Zone), shall be borne by the other agencies respective Government agencies that would normally provide such services, and such agencies shall reimburse the Canal Zone Government annually for the services rendered on their behalf. In the event, however, that such reimbursement is not made as hereinabove set out, or is delayed beyond the end of the fiscal year, then for the purposes defined in section 412 (b) such cost shall not be included in determining the net cost of operating the Canal Zone Government: Provided further, That the Canal Zone Government shall require payment on a full cost basis for goods and services provided to individuals or their dependents, when such individuals are not employed by the Canal Zone For services to certain nonemployees |