EXTRACTS FROM MINORITY REPORT SUBMITTED TO THE HOUSE ON MARCH 20, 1912, UPHOLDING THE RIGHT OF THE UNITED STATES TO CONTROL THE PANAMA CANAL.

VIEWS OF THE MINORITY.

(To accompany H. R. 21969-the Panama Canal bill.)

Firmly convinced that the United States has the right to relieve American ships engaged in the coastwise trade from the payment of toll charges through the Panama Canal, the undersigned members of the Committee on Interstate and Foreign Commerce dissent from the report accompanying House bill 21969 submitted by the majority of the committee.

This bill, in so far as it provides for levying tolls upon vessels engaged in commerce between the States, is entirely new in American history. From the beginning of the Government to the present time, notwithstanding that we have appropriated $627,098,236.05 for the improvement of rivers and harbors and the construction of canals, exclusive of the Panama Canal, it has never entered into the conception of Congress to erect a tollgate in the path of our domestic trade, for the benefit of which these improvements have been made.

The minority enters an emphatic protest against the abandonment in this bill of our historic policy of free commercial intercourse between the States. This great canal, built for the American people by American money, genius, and enterprise, should be forever a free and untrammeled competing route with transportation by land. We can not emphasize too strongly the elementary proposition that tolls levied upon vessels engaged in commerce between our eastern and western seaboards increase the amount the transcontinental railroads may charge for the same service. If a vessel en route from San Francisco to New York through the canal were required to pay $10,000 in tolls, the transcontinental railroads would largely be the beneficiaries. This question affects every ton of domestic freight that passes through the canal and every ton that is carried across the country by the railroads.

The talk of “ subsidizing" the shipping interests at the expense of the American people is mere sophistry and only befogs the issue. The tolls imposed at the canal would be added to the freight and paid by the American people who consume the commodities. We hold this proposition to be fundamental; and viewed in this light, free tolls to our coastwise trade would not be a subsidy to shipowners, but a concession to the American people. Free tolls at the Panama Canal to our coastwise trade would be the same kind of a "subsidy" that was granted to 41,000,000 tons of shipping that passed through the Soo Canal in 1911. It is true that we levy no tolls upon Canadian vessels using the Soo Canal, but that is because American vessels are accorded the same treatment by the Canadian Government at the Welland Canal. By virtue of a reciprocal arrangement we receive our quid pro quo for passing Canadian vessels through the Soo Canal free of charge. We disclaim any antipathy against the railroads, but insist that this initial legislation for the government and management of the Panama Canal shall not take money from the pockets of the American people and give it to the great corporations that have already been munificently treated by the Federal Government.

In a comparatively few instances opposition to free tolls has developed in certain localities in the Middle West, based upon the erroneous assumption that any reductions in freight rates between the Atlantic and Pacific seaboards will give the Pacific, Gulf, and Atlantic coast cities an advantage over the Middle West cities in competing for the trade of the intermountain section of the West. There might be some ground for this assumption were it not for the fact that rail freight rates between the Middle West and the Pacific coast never exceed those between the Atlantic and Pacific seaboards and are frequently lower. Any reduction in rail freight rates forced by sea competition between, say, New York and San Francisco is contemporaneously applied between Chicago, St. Paul, St. Louis, Kansas City, and, in fact, every city of the Middle West on the one hand and every Pacific coast city or town on the other. This always has been so it always will be so. The selfish interests of the railroads serving the Middle West is the strongest possible guaranty of the perpetuity of this already well-established rate-making system. No road operating between St. Paul and Seattle will permit a lower rail rate to exist between New York and Seattle than exists between St. Paul and Seattle, otherwise St. Paul's trade would be captured by New York.

Therefore if, by reason of free tolls to vessels in the coastwise trade, freight rates between New York and Seattle are $1 per ton less than they would be if tolls were charged, they will by the same measure be less between St. Paul and Chicago and Omaha and St. Louis and Kansas City on the one hand and Seattle and Portland and San Francisco and Los Angeles and San Diego on the other. It is not for the merchants, manufacturers, producers, and consumers of the Middle West to do other than to heartily favor free tolls. It is to be expected, however, that the railroads serving the Middle West, and for that matter the entire country, will strenuously oppose free tolls and with equal strenuosity advocate the highest tolls possible, the only limit being those charged contemporaneously through Suez. Inasmuch as rates between the entire country east of the Missouri River on the one hand and the intermountain section on the other are based upon the coast-to-coast rates, it is obvious that free tolls would be equally advantageous to this section as to all other sections of the country. Free tolls can not but minimize rail freight rates on all the manufactures of the Atlantic seaboard and the Middle West, the products of the great Mississippi Valley, and those of the Pacific coast, to the ultimate advantage of the producers and consumers throughout the entire country. Nor are reductions in rail rates the only advantages which the people of the great interior of our country are to reap from free tolls. They have even a more direct interest.

Much of the commerce of the great Mississippi Valley will flow down the rivers which drain it to the Gulf and thence through the canal to the Pacific coast. Likewise Pacific coast products will, under free tolls, to a large extent eventually be distributed throughout the Middle West via her waterways. The completion of the Lakes to Gulf waterway project will make it not alone possible but practicable to exchange Pacific coast lumber for Lake Superior ore without either commodity touching the floor of a freight car. Every burden placed upon traffic through the canal impairs its usefulness as a competitive route and decreases its benefits to the American people.

While disclaiming any intention to interpret the Hay-Pauncefote treaty in favor of foreign shipping interests, the majority report proceeds to call attention to the rejection of an amendment offered in the Senate when the treaty was pending reserving to the United States the right to discriminate in favor of vessels of its own citizens engaged in the coastwise trade. It is a matter of record that this amendment, offered by Senator Bard, of California, was rejected by a vote of 27 yeas and 43 nays. On the same day, however, an amendment was offered (see S. Doc. 85, 57th Cong., 1st sess.) reserving the right to the United States to protect said canal in any way it might deem proper. This amendment was rejected on roll call-yeas 27, nays 44--and this was the fate of several other amendments similarly reserving to the United States the right to fortify the canal. It is unnecessary to call attention to the fact that fortifications are now being constructed. With further reference to the Bard amendment we have been granted authority to quote from a letter recently written by Senator Bard in the course of which he states:

When my amendment was under consideration it was generally conceded [the italics are his] by Senators that even without that specific provision the rules of the treaty would not prevent our Government from treating the canal as part of our coast line and consequently could not be construed as a restriction of our interstate commerce, forbidding the discrimination in charges for tolls in favor of our coastwise trade, and this conviction contributed to the defeat of the amendment.

We contend that our right to favor our own shipping in the matter of canal tolls can not be seriously questioned. The minority is not forced to offer profuse apologies for its position. The message of President Taft sent to Congress in December (H. Doc. 343, 62d Cong., 2d sess.) has the true American ring, and clearly states the case. These are the President's words:

I am confident that the United States has the power to relieve from the payment of tolls any part of our shipping that Congress deems wise. We own the canal. It was our money that built it. We have the right to charge tolls for its use. Those tolls must be the same to everyone, but when we are dealing with our own ships, the practice of many Governments of subsidizing their own merchant vessels is so well established in general that a subsidy equal to the tolls, as equivalent remission of tolls, can not be held to be a discrimination in the use of the canal. The practice in the Suez Canal makes this clear.

The minority disagrees entirely with the view of the majority that the HayPauncefote treaty makes it impossible for Congress to prefer our own vessels engaged in the coastwise trade. That portion of article 3 of the treaty which

it is claimed would be violated by preferring our coastwise trade reads as follows:

The United States adopts as the basis of the neutralization of such ship canal the following rules, substantially as embodied in the convention of Constantinople, signed the 28th of October, 1888, for the free navigation of the Suez Canal, that is to say:

1. The canal shall be free and open to the vessels of commerce and of war of all nations observing these rules on terms of entire equality, so that there shall be no discrimination against such nation or its citizens or subjects in respect of the conditions or charges of traffic or otherwise. Such conditions and charges of traffic shall be just and equitable.

It is manifest, from the reading of the treaty, that its purpose was to prevent discrimination against other nations. That free tolls to our coastwise vessels would not discriminate against the vessels of other countries becomes apparent when we reflect that under our navigation laws foreign vessels are prohibited from engaging in our coastwise trade. That being true, it is of no concern to foreign nations, their citizens or subjects, what treatment we accord to our coastwise trade.

Foreign nations have not considered that they were violating the rules for the neutralization of the Suez Canal by rebating tolls to vessels flying their own flag. The contemporaneous construction that the powers signatory to the convention of Constantinople have given that instrument supports the position of the minority that we have a perfect right under the Hay-Pauncefote treaty to favor our domestic shipping; and if we have the right to collect the tolls at the canal and repay them, we certainly have the right to remit them in the first instance. It is unnecessary to resort to a device or subterfuge in order to do indirectly what we have a right to do directly.

It will be observed that the treaty provides that "the canal shall be free and open to the vessels of commerce and of war of all nations observing these rules on terms of entire equality," yet this bill expressly reserves the right of the United States Government to pass its own ships of war through the canal without the payment of any tolls. We confess our inability to see the logic or consistency of the position of the majority that free tolls to ships of commerce would be a violation of the treaty, but that free tolls to ships of war would not be a violation of the treaty. The majority seek to justify the right to exempt war vessels of the United States from the payment of tolls under that clause of the treaty which provides that "the United States enjoys all the rights incident to construction as well as the exclusive right of providing for the regulation and management of the canal.?

Under any fair construction of the treaty, however, this language must be considered in connection with the rules that are adopted in the treaty for the regulation and management of the canal. In other words, under the treaty the United States enjoys all the rights incident to the construction as well as the exclusive right of providing for the regulation and management of the canal, subject, however, to the rules therein provided for its regulation and management. These rules, as we have already seen, provide that the canal shall be free and open to the vessels of commerce and of war of all nations observing these rules on terms of entire equality. If this language was intended to prevent preferring our own vessels, it must apply equally to both vessels of commerce and vessels of war. Such a construction is inconsistent with the very purpose of the canal, which was conceived primarily as a military necessity.

The majority dismissed the case of Olsen v. Smith (195 U. S., 332) with the remark that it has no application to the situation with which we are dealing, notwithstanding an examination of the case would have disclosed that on the question of discrimination it is on all fours with the subject we are now considering. In that case the treaty with Great Britain provided that no higher or other duties or charges shall be imposed in any ports of the United States on British vessels than those payable in the same ports by vessels of the United States."

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The court held that this treaty was not violated by either the Texas statute or the Revised Statutes of the United States, section 4444, exempting coastwise steam vessels from the payment of pilotage charges. In that connection, speaking for the court, Mr. Justice White, now Chief Justice, said:

Nor is there merit in the contention that as the vessel in question was a British vessel, coming from a foreign port, the State laws concerning pilotage are in conflict with the treaty between Great Britain and the United States, providing that "no higher or other duties or charges shall be imposed in any ports of the United States on British vessels

than those payable in the same ports by vessels of the United States." Neither the exemption of coastwise steam vessels from pilotage resulting from the law of the United States nor any lawful exemption of coastwise vessels created by the State law concerns vessels in the foreign trade, and, therefore, any such exemptions do not operate to produce a discrimination against British vessels engaged in foreign trade and in favor of the vessels of the United States in such trade. In substance, the proposition but_asserts that because by the law of the United States steam vessels in the coastwise trade have been exempt from pilotage regulations, therefore there is no power to subject vessels in foreign trade to pilotage regulations, even though such regulations apply without discrimination to all vessels engaged in such foreign trade, whether domestic or foreign.

If a treaty with Great Britain providing that "no higher or other duties or charges shall be imposed in any ports of the United States on British vessels than those payable in the same ports by vessels of the United States" is not violated by an exemption in favor of our own vessels engaged in coastwise trade from payment of pilotage charges, it must necessarily follow that the HayPauncefote treaty would not be violated by a similar exemption of our coastwise vessels from the payment of tolls at the Panama Canal.

The Panama Canal is being built on territory which was purchased by the Government of the United States. We will expend in its construction upward of $400,000,000, and are obligated by treaty to pay the Republic of Panama in perpetuity the sum of $250,000 annually. We occupy the position of sovereign proprietor of the canal and the Canal Zone, a relation that none of the nine powers signatory to the convention of Constantinople sustained with reference to the Suez Canal. The Hay-Pauncefote treaty should be construed in the light of these facts, and when so construed the minority can not escape the conclusion that in signing, ratifying, and proclaiming this treaty to the world we were merely agreeing to the terms and conditions upon which the United States, the sovereign owner of the canal, would permit its use by the other nations of the world, its citizens or subjects.

The minority believe in the religious observance of our treaty obligations as essential to the maintenance of our own self-respect and the confidence and friendly regard of other nations; but we refuse to assent to the mere suggestion, to say nothing of the bold declaration, that by the Hay-Pauncefote treaty we have, without consideration, bartered away to a foreign nation the constitutional power of Congress to regulate commerce between the United States and encourage the upbuilding and growth of cur domestic shipping.

Since 1884 we have consistently adhered to a policy enunciated in the river and harbor act of that year, section 4 of which provided:

No tolls or operating charges whatever shall be levied upon or collected from any vessel, dredge, or other water craft for passing through any lock, canal, canalized river, or other work for the use and benefit of navigation now belonging to the United States or that may be hereafter acquired or constructed.

The Secretary of the Treasury has recently sent to the Senate, in response to a resolution from that body, a letter transmitting information relating to expenditures for rivers and harbors from the establishment of the Government to the close of the fiscal year ending June 30, 1911. (See S. Doc. No. 382, 62d Cong., 2d sess.) This statement shows that the total expenditures upon rivers, harbors, and canals (exclusive of the Panama Canal) has reached the enormous total of $627,098,236.05. The whole country has borne the burden, and no one has suggested that it be placed solely upon American shipping. It has not been seriously urged that the cost of maintenance even be imposed upon commerce. For instance, $121,142,554.41 has been spent by the Government upon the Mississippi River, and it is now proposed to expend a greater sum to provide a deep waterway from the Lakes to the Gulf. Upon the Missouri River has been expended $11,425,056.90, while the Ohio River has been aided by the Government to the extent of $23,548,338.15. While it might be argued that the people of the Atlantic and Pacific coasts are receiving no direct benefit from these river improvements, they are not urging that those States and interests directly tributary to the Mississippi, Ohio, and Missouri Rivers be singled out to bear the burden of these enormous expenditures.

In answer to those who hold that the Government should at least obtain a revenue from the canal sufficient to cover the operating expenses, which they fear would be impossible if we remitted tolls to American ships in the coastwise trade, we will show from the evidence that tolls can be remitted and a revenue obtained with a toll of $1.20 per net register ton upon ships other than

those engaged in interstate commerce sufficient to pay double the expense of operation, maintenance, sanitation, and civil government.

At the hearings before the committee, Prof. Emory R. Johnson, employed by the Government especially to make traffic computations, and whose estimates are generally regarded as very conservative, reported that the net register tonnage of vessels that might have advantageously used a Panama Canal in 1909–10 ws 8,328,029 net tons. We quote the statement of Prof. Johnson, found on page 698 of the printed committee hearings:

L It was found in 1899-1900 that 5,000,000 tons net register of shipping was then available for the use of the Panama Canal. The increase during the 11 years ending June 30, 1910, was 663 per cent, or at the rate of 59 per cent per decade. That rate of increase, projected to 1914-15, would mean an increase of 26.8 per cent during the five years following 1910, which would bring the total of 8,328,000 to 10,500,000 tons at the time of the opening of the canal.

Of this total it is estimated that but 1,160,000 net register tons will be coastto-coast traffic. (See statement Prof. Johnson, committee hearings, p. 705.) We have shown that since 1899 all the estimates of possible canal traffic have been understatements, and in our opinion this is due to the fact that few have anticipated the wonderful growth in ocean steam navigation. When the Suez Canal was opened in 1869 the world's shipping comprised 16,042,498 net tons sail vessels, and only 2,793,432 net tons steam vessels. In 1911 the world's tonnage comprised 22,338,549 net tons steam vessels, and only 6,152,977 tons sail vessels. The canal, as constructed, can handle, according to the estimate of Col. Goethals (committee hearings, p. 413), 80,000,000 tons a year.

No estimate has been or can be prepared which will give its business for 1915 at less than 8,000,000 net tons, and we are inclined to the view that Prof. Johnson's estimate of 10,500,000 net register tons is very conservative. * * * The majority report (p. 4) states that "it will require $4,000,000 or $5,000,000 a year to maintain and operate the canal and administer its adjuncts.”

The careful and detailed estimates of Col. Goethals show that the total annual cost of the operation and maintenance of the canal, including the cost of sanitation and civil government, will not exceed $4,000,000, and that it is hoped to realize a profit from the sale of supplies, etc., to bring this down to $3,500,000. (See committee hearings, pp. 410, 411, 415, and 417.) Analyzing the figures of Prof. Johnson, we find that a toll of $1.20 per net register ton would bring in a total annual revenue during the first year, exclusive of passenger tolls, of $12,600,000. Subtracting the interstate commerce traffic (American coastwise), which Prof. Johnson estimates at 1,160,000 tons, we would still have an annual revenue of $11,208,000, more than double the operating expenses, with the tonnage annually increasing.

We resent the charge contained on page 6 of the majority report that "this small shipping interest has secured recommendations from some trade organizations in various coast cities of the country on the erroneous theory that shippers would secure the benefits of the remitted tolls." These "trade organizations," which are spoken of so sneeringly, are not all located in coast cities. For instance, the Lakes-to-the-Gulf Deep Waterways Association, which unanimously passed the following resolutions, is not a coast organization:

The policy of free waterways is fundamental with the American people, and hence this association declares that this principle should be extended to our coastwise trade through the Panama Canal.

The 1,200 delegates attending the National Rivers and Harbors Congress, which convened in Washington last December, were not influenced by the "small shipping interest." We might likewise mention the Boston Chamber of Commerce, the National Board of Trade, the Navy League of the United States, the Philadelphia Chamber of Commerce, the New Orleans Progressive Union, the New York Board of Trade and Transportation, the Merchants' Association of New York, the Maritime Association of the Port of New York, and various other representative bodies, these resolutions being appended as a part of this report.

We contend that no better opportunity was ever offered for the development of an American merchant marine and the establishment of a fleet of naval auxiliaries, which would be available in time of war.

There is no doubt that the founders of the Government and the framers of the Constitution intended to provide for free and unrestricted commerce between the States. Certain it is that such has been our national policy from