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the corporation and to compel corporate action unlawfully withheld or unreasonably delayed—“is not judicial in nature and not appropriate for a court,” and asking that the proviso in lines 16-20 of page 11 be stricken from the bill.

Letter from the Treasury Department, dated March 8, 1956, objecting to the provision for reimbursement to the Canal Zone government for customs and narcotic law-enforcement functions, but otherwise withholding comment.

Letter from the Department of Labor, dated August 8, 1955, offering no comment.

They will all be placed in the record in full. If anyone wants copies of any one, they can have them. (The documents referred to above are as follows:)

THE SECRETARY OF COMMERCE,

Washington 25, D. C., March 16, 1956. Hon. WARREN G. MAGNUSON, Chairman, Committee on Interstate and Foreign Commerce,

United States Senate, Washington, D. C. Dear Mr. CHAIRMAN: This letter is in reply to your request of June 8, 1955, for the views of this Department with respect to S. 2167, a bill to make certain changes in the administration of the Panama Canal Company, and for other purposes.

S. 2167 would transfer to the Department of Commerce the Panama Canal Company and would provide generally for segregation of all expenses and costs of maintaining the Canal from all other unrelated costs and expenses.

The amount of tolls charged for use of the canal by merchant ships is a significant element in the total cost of transportation of the foreign and domestic commerce of the United States, and the tolls should accordingly be based only on he true cost of the operation of the canal, that is, apart from the military considerations for the maintenance and operation of the canal. The costs of defense should not enter into the necessary costs for maintenance and operation of the canal as a peacetime facility. This Department favors those provisions of S. 2167 designed to accomplish this separation. However, this Department is not now prepared to recommend transfer from the Department of the Army to this Department of jurisdiction over the Panama Canal.

We have been advised by the Bureau of the Budget that it would interpose no objection to the submission of this report to your committee. Sincerely yours,

SINCLAIR WEEKS, Secretary of Commerce.

FEBRUARY 15, 1956. Hon. WARREN G. MAGNUSON, Chairman, Committee on Interstate and,

Foreign Commerce, United States Senate. Dear Mr. CHAIRMAN : Reference is made to your request to the Secretary of Defense for the views of the Department of Defense with respect to S. 2167, 84th Congress, a bill to make certain changes in the administration of the Panama Canal Company, and for other purposes. The Secretary of Defense has delegated to the Department of the Army the responsibility for expressing the views of the Department of Defense thereon.

Among other things, this bill would place the Panama Canal Company under the Department of Commerce. It would make the Secretary of Commerce the sole "stockholder" in the Panama Canal Company. The bill would create an Administrator, who would be appointed by the President of the United States by and with the advice and consent of the Senate. Thus, the bill contemplates that the Panama Canal Company would be removed from the control of the Secretary of the Army.

The Department of the Army on behalf of the Department of Defense is opposed to the above-mentioned bill.

Under existing law, the United States as owner of the Panana Canal Company is represented by the President of the United States, who has delegated his authority to the Secretary of the Army. The Canal Zone is essentially a United States Government reservation, devoted to the maintenance, operation, and protection of the Panama Canal. Military security of the Panama Canal is a Department of Defense responsibility, which is charged to the commander in chief, Caribbean, who is the commander of the United States unified com. mand in the area. Since the Secretary of the Army is the head of the Military Department which is the executive agency of the Secertary of Defense for this unified command, numerous problems which affect both the Panama Canal Company and the Canal Zone Government) on the one hand, and the Department of Defense agencies in the area on the other hand, can far more readily be coordinated and resolved under the existing arrangement than would be possible if the Secretary of Commerce were the "stockholder” of the Panama Canal Company. The present organization facilitates coordination of the affairs of the Panama Canal Company, the Canal Zone Government, and the Department of Defense agencies. Any differences of opinion on the part of the heads of these agencies in the area are settled, if necessary, by the statutory civilian official (the Secretary of the Army) in whom is centered necessary responsibility and authority concerning these activities. The very fact that such a coordinating authority exists at an echelon immediately above both the civil and military authorities in the zone makes for prompt reconciliation of differing opinions.

Another aspect is that in time of national emergency or war it is considered essential that the military commander have full and sole responsibility for the operation, control, and protection, as well as the military security of the Panama Canal. The Panama Canal is an all-important adjunct to our national defense. It is necessry for the rapid transit of naval combat ships and other vessels engaged in military logistical support of both the United States and its allies. The canal is equally necessary for the transit of commercial-type vessels carrying raw and industrial strategic materials essential to our war effort. In view of the speed with which hostilities may be commenced, the potential weight of an attack which may be launched without warning, the isolated position of the Canal Zone, and the vulnerability of the canal, it is fundamental that we be organized so that the transition to war standards can be accomplished with minimum loss of time and change of organizational arrangements. It is believed that the present relationship between the Armed Forces and the management of the Panama Canal Company and the Canal Zone Government, under the authority vested in the Secretary of the Army as the President's designated representative, is entirely consistent with that fundamental principle.

The Deparment of Defense is strongly opposed to that portion of section 3 of the proposed bill, which provides for amendment of section 246 (e) of title 2 of the Canal Zone Code, with the apparent intent of requiring each military department to reimburse the Canal Zone Government for certain goods and seryices, including the "cost of operating and maintaining roads, highways, sewers, and other such facilities and services.” The effect and purpose of this new provision are not entirely clear, since the services in question are not precisely enumerated and the degree to which the military services would "normally provide such services” is subject to wide variation in various parts of the world, depending upon local conditions and arrangements. Assuming that the language of the proposed bill were perfected, so as to make clear that services were reimbursable by the military departments, and to what extent, the Department of Defense would still oppose the intent of this section. The Canal Zone has, from its inception, been a clearly defined geographic area in which the civil functions of government have been regarded as a necessary concomitant to the operation of the Panama Canal. In view of this situation, efforts to make prorated determinations of indirect support provided by one Government agency to others, and the processing of reimbursement transactions in accordance with such determinations, would appear to be an expensive, profitless undertaking, not compatible with the public interest, and not in consonance with existing practice in the United States.

For the foregoing reasons, the Department of the Army, on behalf of the Department of Defense, strongly recommends that the bill not be favorably considered.

With respect to that part of section 3 of the proposed bill which obligated the Panama Canal Company to pay into the Treasury amounts sufficient to reimburse the Treasury for the annuity payments to Panama under provisions of certain treaties with Panama, it should be noted that the proposed language would not require the Panama Canal Company to reimburse the Treasury for the amount of the increase in the annuity ($1,500,000) which was agreed to in the treaty signed January 25, 1955. Whether the increase in the annuity to Panama should be reimbursable to the Treasury by the Panama Canal Company, or whether it should be an obligation of the United States Treasury without regard to reimbursement by the Panama Canal Company, appears to be a matter of United States Government tax and economic policy and not a matter of primary interest to the Departent of Defense. Accordingly, no recommendations are submitted on this question.

In view of the lack of clarity of the language of the bill mentioned above, the Department of Defense cannot foresee the fiscal effects of this proposed legislation at this time.

This report has been coordinatd within the Department of Defense in accordance with procedures prescribed by the Secretary of Defense.

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

WILBER M, BRUCKER,
Secretary of the Army.

merce.

COMPTROLLER GENERAL OF THE UNITED STATES,

Washington 25, August 1, 1955. Hon. WARREN G. MAGNUSON, Chairman, Committee on Interstate and Foreign Commerce,

United States Senate, DEAR MR. CHAIRMAN : Reference is made to your letter of June 8, 1955, forwarding for our comments S. 2167, entitled "a bill to make certain changes in the administration of the Panama Canal Company, and for other purposes." The bill is identical with H. R. 7239 presently under consideration by the House Committee on Merchant Marine and Fisheries.

The bill proposes amendments to sections 245, 246, 247, 248, 249, and 253, title 2, Canal Zone Code, as added by section 2 of the act of June 29, 1948, 62 Stat. 1076, as amended, and to sections 411 and 412, title 2, Canal Zone Code, as amended by sections 11 and 12, respectively, of the act of September 26, 1950, 64 Stat. 1042.

Section 1 would amend section 245 of the Canal Zone Code to designate the Panama Canal Company as a corporation in the Department of Commerce, Section 2 would amend subsection (a) of section 246 of the Canal Zone Code to provide that the corporation shall be represented by the Secretary of Com.

Under present legislation, the Secretary of the Army is the designee of the President of the United States to supervise the activities of the Panama Canal Company and the Canal Zone Government. See Executive Order No. 9746, dated July 1, 1946, as amended by Executive Order No. 10595, dated February 7, 1955. Since the proposed legislation only pertains to the activities of the Panama Canal Company there would be the possibility that jurisdiction over the company and the Canal Zone Government would be divided. This possible division of jurisdiction would not, in the opinion of our Office, be conducive to efficient operation of the enterprise as a whole. While it is our position that the operation of the canal is essentially a civilian function and consequently administration should be civilian and not military, we also feel that the functions of the Panama Canal Company and the Canal Zone Government should be performed by a single independent agency. Recommendations relative thereto are set forth in our report on audit of the Panama Canal Company and the Canal Zone Government for the year ended June 30, 1953, House Document 473, 83d Congress, 2d session (pp. 16–20). Also see recommendation No. 4 of the report and recommendations of the Bureau of the Budget with respect to the organization and operations of the Panama Canal and Panama Railroad Company as set forth in House Document 460, 81st Congress, 2d session.

Section 3 would amend subsection (e) of section 246 in two respects. The first, by the addition of the word "annual” preceding “net costs of operation," at page 2, line 10 of the bill. The need therefor is not apparent since net costs are computed under the present legislation on an annual basis. The amending language in the second respect adds a proviso which would require that the cost of providing services and goods to Federal agencies and the Republic of Panama be borne by the recipients of such services and not by the Company or the Canal Zone Government. In the event reimbursement is not made or is delayed beyond the end of the fiscal year, provision is made, for the purposes defined in section 412(b), that such cost shall not be included in determining the net cost of operating the Canal Zone Government and the revenues of the Panama Canal Company. It has consistently been our position and we have so recommended in our audit reports for the fiscal years 1952, 1953, and 1954, that the cost of services and goods furnished by the Panama Canal Company and the Canal Zone Government to Federal agencies and others should be reimbursed by the recipients. Our view is that the various agencies should include amounts in their appropriations and pay the Panama Canal Company for tolls and other services rendered. See generally sections 105 and 107, Civil Functions Appropriations Act, 1955 (68 Stat. 335).

While no change is proposed in section 3 with respect to amending section 246(e) of the Canal Zone Code to provide for the inclusion of interest in the net costs of operation of the Canal Zone Government, we recommend that such amendment be made since, as pointed out in our 1953 audit report, exemption of interest on the investment in Canal Zone Government has the effect of giving financial benefits to ship owners, half of them foreign, and others, including Government employees, at the expense of the American taxpayer. Such change could be accomplished by deleting the last three words on line 14, and the first four words on line 15, page 2 of the bill, and inserting “shall include interest and” in place thereof.

No provision is made in section 3 concerning reimbursement to the Treasury of any increase in annuity payments arising out of treaty agreements entered into subsequent to March 2, 1936. The treaty signed January 25, 1955, by representatives of the United States and the Republic of Panamá would increase the annuity from $430,000 to $1,930,000. It does not appear that the amount of such annuity when considered in the light of the revenues from the operations of the canal can be said to be so disproportionate as to require its assumption by the Federal Government. We are of the view that the annuity should be recovered from the tolls.

Also, section 3 provides that the Canal Zone Government shall bill the Republic of Panama for the cost of providing schools to its citizens, and that in the event such bills are unpaid, the Canal Zone Government shall be credited as if paid. Serious consideration should be given to the effect of this provision upon our relations with the Republic of Panama, particularly in the light of the recent treaty.

Section 4 would amend section 247 of the Canal Zone Code to vest the management of the corporation in an Administrator, a Deputy Administrator, and an Advisory Board of seven members. It is similar in all material respects to the management of the St. Lawrence Seaway Corporation (68 Stat. 92, 93). Under the amendment as proposed, however, there is no assurance of elimination of the Secretary of the Army's supervision over the Canal Zone Government or of coordination between the Canal Zone Government and the Panama Canal Company. The present legislation vests management of the corporation in a Board of Directors with the Governor of the Canal Zone as Director and President of the Board. In our opinion administration of the Canal Zone Gov. ernment and the Panama Canal Company as a single independent agency is necessary to assure appropriate coordination of activities.

Section 5 would amend section 248 of the Canal Zone Code to clarify the general purpose of the corporation and to require that the facilities not used in actual transit be operated in a manner to be self-supporting. We have endeavored, through recommendations in audit reports on the operations of the Panama Canal Company and the Canal Zone Government, to aid in effecting reductions in losses in the operation of business activities not used in actual transit. However, the practicability of a legislative mandate requiring operation of such facilities on a self-supporting basis is questionable since many of the business activities obviously necessary in the operation of the Canal enterprise are basically unprofitable due to the insufficient volume of business to support them economically. We believe that these losses should be reduced to a minimum but that the resultant losses, if any, represent a cost of operating the canal enterprise and should be included in the basis for determining tolls.

Section 6 would amend section 249 of the Canal Zone Code to make its provisions consistent with the change in management as proposed by section 4 of the bill, and no comment thereon appears necessary.

Section 7 would amend section 253 of the Canal Zone Code to limit the corporation's retention of funds to amounts sufficient to cover necessary working capital requirements, together with reasonable foreseeable requirements for authorized plant replacement and expansion, for 1 fiscal year. Any amount in excess of the final year need would be paid into the Treasury as dividends. Such proposed amendment is consistent with recommendation No. 12, page 17, of our Report on Audit of the Panama Canal Company and the Canal Zone Government for the year ended June 30, 1954. Also see our 1953 audit report, House Document No. 473, 83d Congress, 2d session, page 30.

Section 8 would amend section 411 of the Canal Zone Code, which pertains to the prescription of measurement rules for vessels and rates of tolls, to provide for public hearings in accordance with the Administrative Procedure Act and to rest exclusive jurisdiction in the Court of Appeals of the Second Circuit to review the acts of the corporation under this section and to compel corporate action unlawfully withheld or unreasonably delayed. Under present legislation the rules of measurement and toll rates prescribed by the corporation, and approved by the President, are final and conclusive. Current toll rates have been in effect since 1938 and the apparent purpose of the proposed amendment is to afford a means whereby the rates may be reviewed. No objection is perceived to the proposed amendment.

Section 9 of the bill would amend subsection (b) of section 412 of the Canal Zone Code by adding the word “directly” after "facilities and appurtenances." We interpret existing legislation as embracing this concept. We are not in agreement, however, with the concept for the reasons set forth herein and in our 1954 audit report. Also, section 9 would amend section 412 (b) to require that the determination of the proportionate share of the net costs of operation of the Canal Zone Government be based upon the ratio of estimated gross revenues from tolls to the estimated total gross revenues of the corporation, exclusive of certain items presently excluded. Under existing legislation rates are calculated on an appropriate share and in determining such share the corporation is required to give substantial weight to the ratio of estimated gross

The term "substantial weight” is subject to various interpretations and the corporation used different formulas in the years 1952 and 1953. See page 24, Report on Audit of the Panama Canal Company and the Canal Zone Government for the year ended June 30, 1953, House Document No. 473. The proposed amendment is apparently intended to eliminate any such deviation in the future and it would appear sufficient to accomplish that purpose. However, see our recommendation No. 7, page 23 of the above audit report, and recommendation No. 2, page 14 of our audit report for the year ended June 30, 1954, which suggest, respectively, that the allocation of the share of the net costs of Canal Zone Government to transiting activities be on the basis of gross investment in fixed properties, and that losses sustained by the Panama Canal Company in the operation of business activities be included in the basis for determining toll rates.

We are of the firm view that losses on business activities should be kept to a minimum and that prices for service functions should be such as to recover costs wherever possible. Any losses still remaining would be for recovery through tolls. With appropriate recovery of costs from other agencies there is nothing to indicate that all costs of operation of the Panama Canal together with recovery of the Government's investment could not be accomplished under the present toll structure.

In addition to the foregoing comments, the committee might wish to consider our recommendations for legislative changes as set forth in our audit report for fiscal year 1952, House Document 207, 83d Congress, 1st session, pages 17–27; audit report for fiscal year 1953, House Document 473, 83d Congress, 2d session, pages 31-32; and audit report for fiscal year 1954, page 14. This report is submitted in triplicate, as requested. Sincerely yours,

JOSEPH CAMPBELL, Comptroller General of the United States,

revenue.

UNITED STATES CIVIL SERVICE COMMISSION,

Washington 25, D. C., March 16, 1956. Hon. WARREN G. MAGNUSON, Chairman, Committee on Interstate and Foreign Commerce,

United States Senate. DEAR SENATOR MAGNUSON: Your letter of June 8, 1955, asked for our comments on s. 2167, a bill to make certain changes in the administration of the Panama Canal Company, and for other purposes.

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