Pertinent provisions of the latter instrument are those which granted to the United States a perpetual monopoly for the construction and operation of railway systems across the Isthmus of Panama, and all rights which the Republic of Panama then had or thereafter might acquire to the property of the Panama Railroad Company as a result of the transfer of sovereignty from the Republic of Colombia to the Republic of Panama. The construction of the railroad across the Isthmus was completed in 1855. The Panama Railroad Company operated under private control until 1881, when the original French Canal Co. acquired most of the 70,000 shares of its stock. This company and its successor, the New Panama Canal Co., continued to operate the railroad as a common carrier and also as an adjunct to their attempt to construct a canal, until 1904, when their stock, 68,888 shares, passed to the ownership of the United States as a part of the assets of the New Panama Canal Co., which were purchased for the sum of $40,000,000, as authorized by the Spooner Act of June 28, 1902. The remaining 1,112 shares were purchased from private owners in 1905. The policy of the United States, since the acquisition of the Panama Railroad Company in 1904, has been to make the company an adjunct, first to the construction of the Canal, and thereafter to the maintenance, operation, sanitation, government, and protection of the Panama Canal and the Canal Zone. The company also performs subsidiary but important functions as a service organization for the Army, Navy, and other Government organizations, and as a transportation facility serving the needs of the Republic of Panama and the Canal Zone. The operation of the Panama Railroad Company is conducted under the direct supervision of the Secretary of the Army, who nominates or approves the 13 directors who manage the Company, and who may himself serve as a director and does so at the present time. The Governor and the engineer of maintenance of the Panama Canal are President and Second Vice President, respectively, of the Company, as well as directors. By this means there is made effective the policy of coordinating the operations of the Panama Canal and Panama Railroad organizations, with a view to accomplishing the most effective operation of the Canal enterprise as a whole. When the Company was acquired by the United States Government in 1904, it had a virtual monopoly on traffic between the Atlantic and Pacific Oceans through Central America. Its net worth at that time was roughly $12,000,000. While traffic on the railroad itself is now made up of local commerce only, there has been a tremendous increase in the size and scope of the allied commercial enterprises of the Company which are required to meet the needs of the United States Government on the Isthmus of Panama. The Company is now worth more than $50,000,000, or more than four times its worth at the time of its acquisition by the United States Government. It has no bonded indebtedness. The $40,000,000 increase in net worth has been achieved entirely out. of the earnings of the Company. The United States has not appropriated funds for improvements or for the regular operations of the Company. Instead, the Panama Railroad Company has paid cash dividends into the Treasury of the United States totaling $22,494,905 during the past 44 years. The Company has thus quadrupled its worth and at the same time returned to the Treasury as dividends more than three times its capital value of $7,000,000 or an average return of 7 percent on that capital value. In addition to the railroad across the Isthmus, which in the peak year 1943 carried more than a million passengers and a million and a quarter tons of freight, the Company operates three modern passenger-cargo ships to handle Government traffic between the United States and the Canal Zone; docks and cargo-handling facilities at each end of the Canal; a chain of retail stores throughout the Canal Zone to supply the needs of Government employees; coaling plants for refueling vessels using the Canal or its terminal ports; the telephone system of the Canal Zone; and two hotels. Complete details of the financial and operating results of the Panama Railroad Company have always been presented in a printed annual report. Prior to 1945 the accounts of the Company were audited by a well-known firm of public accountants, but since that time they have been audited by the Corporation Audits Division of the General Accounting Office. The report of the audit for the fiscal years 1945 and 1946, recently released, attests the sound management of the Company and indicates that there are few criticisms with respect to its operations or finances. Recognizing the value and the advantage to the Government and the Panama Canal of having certain business operations related to the Canal conducted by the Company because of its greater flexibility as a corporation, the Panama Canal Act of August 24, 1912, providing for the opening of the Canal and for its operation, and for the sanitation and Government of the Canal Zone, by its section 6 (now Canal Zone Code, title 2, secs. 51 and 52; 48 U. S. Code, sec. 1323) authorized the President to establish maintain, and operate, "through the Panama Railroad Company or otherwise," numerous types of business activities related to the Canal. The operation of the railroad stems, as I said a few moments ago, from concessionary contracts subsequently modified by the Canal Convention of 1903 with the Republic of Panama. The terminals of the railroad being in the Republic of Panama, it is essential that terminal yards, stations, industrial trackage, and other property be held, maintained, and operated in the Republic of Panama. In the city of Panama the real property of the Company is owned by it in fee, and consists of the railroad yards and stations, together with certain industrial trackage. In the city of Colon the real property of the Company is held by the present corporation under the concessionary contract of 1867, subject to "revision" to the United States at the expiration of the concessionary period of 1966. Such real property in Colon includes not only yards, stations, and trackage, but also the extensive areas of the city known as New Cristobal, Colon Beach, and the de Lesseps area, which are used in connection with the Canal enterprise. The continued holding and administration of these lands is essential. As heretofore pointed out, the railroad across the Isthmus, steamship line, harbor terminal and warehouse facilities, coal-handling facilities, commissaries, hotels, laundries, and telephone system are essential to the operation, maintenance, sanitation, civil government, and protection of the Panama Canal and Canal Zone. Considering the nature of these facilities as well as that of the additional facilities which may hereafter be committed to operation by the Panama Railroad Company, and considering the necessity at all times, and particularly during periods of national emergency, for managing these facilities so as best to aid and facilitate the operation, maintenance, sanitation, civil government, and protection of the Canal and Canal Zone, it is necessary that they continue to be operated as public, rather than as private, business enterprises. Operation by a Government corporation, rather than by an agency other than a corporation, is necessary for those functions of the Company which are tinged with an international character-i. e., its functions as international carrier-and is highly desirable in the public interest for the remaining functions, which require the flexibility of operation provided by the corporate form for their proper perform ance. The powers essential to the successful management of large business enterprises, such as those of the Company, can be most readily conferred through use of the corporation, which also provides the most suitable method of application of the principles of business efficiency developed in the private field. The corporation's flexibility permits it to adapt its operations without delay to the changing needs of the organizations and interests which it serves, including in this instance the Panama Canal, the Army, the Navy, the Republic of Panama, and vessels using the Canal. For example, a decision during the war to base in the Canal Zone a large fleet of tankers engaged in traffic of vital importance to the war effort, required the Company on extremely short notice to assume the responsibility for furnishing all food, clothing, and other necessities required by these vessels, including many items of special nature—a task equivalent in magnitude to supplying an additional population of considerably more than 15,000 persons, and involving heavy increases in expenditures. Because of its flexibility the Company was able to accomplish this suddenly imposed task without disrupting its other operations and to the entire satisfaction of the War Shipping Administration and the Navy. Similar emergency action has been required on numerous occasions in the past, particularly during the war. A corporation normally possesses the unrestricted right to sue and be sued. It is felt that a business corporation of the Government should be subject, equally with other business enterprise, to liability to suit, and that it should have the right, whether in the position of plaintiff or defendant, to enter into desirable settlements. An agency other than a corporation does not have these necessary capacities, even since the enactment of the Federal Tort Claims Act. That act would not, for example, permit suit in tort for negligent acts committed in the Republic of Panama unless the plaintiff happened to reside in the Canal Zone; and in no event would that act permit the maintenance of suits in the Republic of Panama against a governmental agency other than a corporation. In view of the operations of the Company in the Republic of Panama it is believed essential that it retain the right to sue and be sued in the Republic of Panama. If the Company were an agency other than a corporation, resort to the courts of Panama in actions either by or against it would not be feasible. A draft of bill has been prepared which would render the Federal Tort Claims Act inapplicable to operations of the Panama Railroad Company. We understand that the bill in reference to that has been referred to the Judiciary Committee. Senator MORSE. Mr. Burdick, I would like to identify and make it part of the record now a letter which will be marked "Exhibit No. 2," dated March 1, 1948, and addressed to the chairman of the Armed Services Committee, signed by Harry B. Mitchell, setting forth the position of the United States Civil Service Commission on S. 2002. (The letter, dated March 1, 1948, was marked for identification as "Exhibit No. 2.") (Exhibit No. 2 is as follows:) UNITED STATES CIVIL SERVICE COMMISSION, Hon. CHAN GURNEY, Chairman, Committee on Armed Services, United States Senate. DEAR MR. CHAIRMAN: The Commission refers to your bill S. 2002 to amend the Canal Zone Code for the purpose of incorporating the Panama Railroad Company. It is noted particularly that section 248 (e) of the proposed amendment contains the following authority: "May, without regard to the civil-service laws and regulations or to the Classification Act of 1923, as amended, appoint such officers, agents, and employees as may be necessary for the conduct of the business of the corporation, As stated by the President in his Executive Order 9691, authorizing the Commission to resume operation under the civil-service rules, it is in the interest of economy and efficiency that positions in the classified (competitive) civil service be filled in times of normal competition on a permanent basis by the best qualified persons as determined through competitive examination. The Commission feels that every effort should be made to make the fullest possible use of present existing facilities, particularly at this time; and as its regional offices and civil-service boards throughout the country are in constant touch with all sources of employment information for every kind of qualification, it sees no reason why it should not be able to recruit promptly the personnel necessary to carry out the duties proposed. The rules and regulations governing the appointments of persons within the civil-service system are sufficiently flexible to give the appointing officer as much discretion in the appointment of his officials as is consistent with the Veterans' Preference Act of 1944. The Commission, therefore, urges that this bill be amended to place all appointments under the civil-service requirements. This may be accomplished by substituting the words "in accordance with" for the words "without regard to" in line 25 on page 4. The Bureau of the Budget advises there is no objection to the subinission of this report. By direction of the Commission: Very sincerely, HARRY B. MITCHELL, President. Senator MORSE. The letter speaks for itself, but the Chairman would like to refer to the following paragraph of the letter: The Commission feels that every effort should be made to make the fullest possible use of present existing facilities, particularly at this time; and as its regional offices and civil-service boards throughout the country are in constant touch with all sources of employment information for every kind of qualification, it sees no reason why it should not be able to recruit promptly the personnel necessary to carry out the duties proposed. The rules and regulations governing the appointments of persons within the civil-service system are sufficiently flexible to give the appointing officer as much discretion in the appointment of his officials as is consistent with the Veterans' Preference Act of 1944. The Commission, therefore, urges that this bill be amended to place all appointments under the civil-service requirements. This may be accomplished by substituting the words "in accordance with" for the words "without regard to" in line 25 on page 4. Of course, this letter from the Civil Service Commission refers to the original draft of S. 2002 and I am not asking for your comment on it at the present time, except in answer to this question. Am Lcorrect in assuming that the substitute bill follows the original bill in that it does not require the personnel on the staff of the Panama Canal Railroad Corporation to be necessarily civil-service employees, or am I mistaken about that? Mr. BURDICK. The redraft of the bill, I believe, is the same as the original bill, S. 2002. Senator MORSE. Therefore, Mr. Mitchell's objection to the bill, we would be safe in assuming, would apply also to the substitute bill? Mr. BURDICK. Yes, sir. I have some comments which I can give now or when we reach that section of the bill. Senator MORSE. You may make them later when we reach them. Also, at this time I would like to mark for purposes of identification and receive into the record a letter dated January 14, 1948, and addressed to the chairman of the Armed Services Committee and signed by the now Secretary of the Army, Kenneth Royall, setting forth the Army's position in support of the original S. 2002. (The letter is as follows:) (Letter from Hon. Kenneth C. Royall, Secretary of the Army, dated January 14, 1948, to Hon. Chan Gurney, chairman of the Committee on Armed Services, United States Senate, was marked "Exhibit 3.") Hon. CHAN GURNEY, DEPARTMENT OF THE ARMY, Washington, D. C., January 14, 1948. Chairman, Committee on Armed Services, United States Senate, Washington, D. C. DEAR SENATOR GURNEY: I submit herewith a draft of bill to amend the Canal Zone Code for the purpose of incorporating the Panama Railroad Company, the preparation of which was required by the provisions of the Government Corporation Control Act. Section 304 (b) of the aforesaid act prohibits the continued existence, as an agency or instrumentality of the United States, after June 30, 1948, of any wholly owned Government corporation created by or under the laws of any State; and requires the proper corporate authority of every such corporation to institute dissolution or liquidation proceedings before that date, with the proviso, however, that any such corporation may prior thereto be reincorporated by act of Congress for such purposes and term of existence and with such powers, privileges, and duties as authorized by such act, including the power to take over the assets and assume the liabilities of its respective predecessor, corporation. The following explanatory statement has been made by the president of the Panama Railroad Company (who is also Governor of the Panama Canal) under whose supervision the draft of bill was prepared: THE PRESENT CORPORATION The Panama Railroad Company is the oldest wholly owned Government corporation, and the only such corporation that was originally organized as a private corporation. It was incorporated for the operation of a railroad across the Isthmus of Panama, and related activities, by the act passed by the Legislature of the State of New York on April 7, 1849, and later amended by an act of that legislature passed on April 12, 1855. By a contract executed in the year 1867 between the United States of Colombia and the Panama Railroad Company (reformative of an earlier contract of 1850 between the Republic of New Granada and the company) the concessions 81227-48- -3 |