March 1, 1978
Page 5161
Mr. MUSKIE. Mr. President, I thank the distinguished majority leader.
I rise because the Senate Budget Committee staff evaluating the cost of these treaties also had to interpret this language in the treaty.
I think the language of the treaty is even clearer than the language from the committee report which the majority leader has read.
I read this from page 211 of the Foreign Relations Committee report and I read it verbatim:
An annual amount of up to 10 million United States dollars per year, to be paid out of canal operating revenues—
I underline the term "canal operating revenues"—
to the extent that such revenues exceed expenditures of the Panama Canal Commission including amounts paid pursuant to this Treaty. In the event Canal operating revenues in any year do not produce a surplus sufficient to cover this payment, the unpaid balance shall be paid from operating surpluses in future years in a manner to be mutually agreed.
The treaty does not say it shall be paid by the U.S. Treasury or by U.S. taxpayers.
After the year 2000 only Panama will be operating the canal. If Panama wishes at that time to pay itself $10 million out of operating surplus in future years — I take it future years refers, as a matter of fact, to years beyond the year 2000 — as in the years preceding the year 2000, they are entitled to do so. I do not think language could be clearer than this.
It is on that basis that the Senate Budget Committee staff did not count the $10 million contingent payment as an obligation of our Government.
Mr. ALLEN. Will the Senator yield?
Mr. ROBERT C. BYRD. Yes.
Mr. ALLEN. I thank the distinguished majority leader.
Apparently, both Senators are not familiar with Mr. Staats' interpretation of this $10 million, he being the Comptroller General.
This is a report, I guess each one of us has his own bible. But the report from the Armed Services Committee on page 18, specific treaty provisions, Mr. Staats stated concerning the surplus payment of $10 million to Panama, and now I quote:
We noted the possible ambiguity concerning the treaty's specified payment to Panama of up to $10 million if operating revenues exceed expenditures. Under our interpretation — the GAO —
if no payments were made during the lifetime of the treaty, a lump sum payment to Panama of over $200 million could be required at the termination of the treaty.
That is Mr. Staats. That is not the Senators talking.
Mr. ROBERT C. BYRD. What was the date of that statement?
Mr. ALLEN. The date of the report is February 6.
Mr. ROBERT C. BYRD. The date of Mr. Staats' statement.
Mr. ALLEN. They reported almost immediately. I do not have the date of his statement. It is possibly here, but I do not have it at hand. The report was made February 7, 1978.
Mr. ROBERT C. BYRD. Perhaps the distinguished Senator is not aware of the letter sent to Senators, signed by Mr. Harold Brown, Secretary of Defense; Cyrus Vance, Secretary of State; and Clifford Alexander, Jr., Secretary of the Army, dated February 10, in which this question was specifically addressed in the following way—
Mr. ALLEN. None of these was a money man, was he? They were military men and policy men.
Mr. ROBERT C. BYRD. I think their opinions should be placed in the RECORD as well as the opinion of Mr. Staats.
Mr. ALLEN. Yes.
Mr. ROBERT C. BYRD. They said as follows in that letter:
The contingent $10 million annuity is payable only if operating revenues produce a surplus over expenditures, which include among others the variable annuity due Panama of $.30 per Canal ton and the fixed annuity of $10 million. The contingent annuity will not be figured in the calculation of the toll base.
If the surplus is insufficient to cover the entire payment of the contingent annuity, the shortfall is carried over to succeeding years. Since payment is contingent on available surpluses, the United States is not obligated to pay off on any accumulated unpaid balance in the year 2000. Panama's negotiators have acknowledged this fact.
Mr. ALLEN. That seems to be a little different from what Mr. Staats says, because he says, in response to a question whether this was a unilateral understanding on the part of the State Department concerning the $10 million contingent payment:
The Panamanians have a different interpretation with respect to it.
He concluded:
There should be a clear understanding with Panama on the treatment of this obligation.
I say further in answer to the statement of the distinguished Senator from Maine that there is no obligation to pay this deficit at the year 2000, that that is absolutely incorrect. If you bother to read the treaty, it says :
Upon termination of this treaty, the Republic of Panama shall assume total responsibility for the management, operation and maintenance of the Panama Canal, which shall be turned over in operating condition and free of liens and debts except as the two parties may agree.
So if they are going to turn over the canal free of debt, that would be debts of the Panama Canal Commission. If they had this debt accumulating at $10 million a year, that would be a debt that the U.S. Treasury would have to pay, be-cause that would be a lien against the Commission.
Mr. ROBERT C. BYRD. I yield to theSenator from Maryland first and then to the Senator from Maine.
Mr. SARBANES. I want to address this quotation of Mr. Staats that is contained in the report of the Armed Services Committee, which the distinguished Senator from Alabama read, quoting the report of the committee under "our interpretation," and then saying that the "our interpretation" referred to Mr. Staats' interpretation.
Mr. Staats' statement before the committee, his prepared statement, as it appears in the hearing record and his comments — this is at page 372 and again at page 379 of the hearing record of the Armed Services Committee. ComptrollerGeneral Staats said "under one interpretation." I know it is printed in the report with the phrase "our interpretation." But in his prepared statement in the hearing record and subsequently in the hearing record, Comptroller General Stoats says "under one interpretation" and deals with that interpretation. He does not identify that interpretation which he discusses as his own interpretation.
I want to bring that to the Senator's attention.
Mr. ALLEN. I appreciate that.
Mr. SARBANES. Because I think it is an important fact.
Mr. ALLEN. I am sure that the Senators, then, would have no objection to a small amendment clarifying it.
Mr. ROBERT C. BYRD. I yield to the distinguished Senator from Maine.
Mr. MUSKIE. I thank the majority leader.
With regard to the response of the distinguished Senator from Alabama to me, he has quoted from language in the treaty imposing an obligation upon the United States to see that the canal isturned over to the Republic of Panama free of debts. I think he said any unpaid $10 million contingency payment would be a debt against the Commission. That is not what the treaty says.
The treaty says:
The unpaid balance shall be from operating surpluses in future years.
If there are no operating surpluses, there is no debt. It is the operating surpluses that carry the burden. I do not understand how language could be clearer.
If the Senator from Alabama were being subjected to a claim made under language similar to that being discussed which would be a charge against him personally, I doubt that he would agree with his own interpretation of this language.
This is a charge against operating surpluses; and if therefore no operating surpluses, then I pose this situation. Suppose the treaty goes into force tomorrow. There is no operating surplus until the year 2000. Then Panama takes over operation. There is no operating surplus for the next 50 years.
I cannot accept an interpretation that suggests that in a situation which is supposed to be triggered by operating surpluses if there are no operating surpluses for the next 70 years, somehow a debt has been created. I find that incomprehensible.
Mr. ALLEN. That is what the Panamanians insist.
Mr. MUSKIE. I think the language of this treaty speaks for itself on this point.I have read it into the RECORD, so that the RECORD is clear on this point. I have read it so that those listening to this debate throughout the country can know what the treaty says, independent of the interpretations made.
If someone says to me, "The unpaid balance shall be paid from operating surpluses in future years," he does not say operating expenses in future years up to the year 2000. It does not say operating expenses in future years up to the year 1980. It says future years, with no limitation.
As long as there is a future, if there is an unpaid payment under this provision, surpluses in future years would be subject to the debt.
Mr. ALLEN. I say to the distinguished Senator from Maine that if that be his interpretation and if that be my interpretation, that is the way I would interpret it. But I am advised that the Panamanians interpret it differently. Would it not be the better part of wisdom, Mr. President, to work that out now and work out any possible ambiguity by an amendment? Would that not set the matter to rest?
Mr. MUSKIE. The distinguished majority leader has already read from a letter written by the Secretary of State.
Mr. ROBERT C. BYRD. That is right.There is no evidence that they disagree. It is even to the effect that the Panamanian negotiators have acknowledged this.
Mr. ALLEN. I have not seen any acknowledgment of that.
Mr. ROBERT C. BYRD. On top of that, I say to the distinguished Senator, there is nothing clearer than the language of the treaty itself, subparagraph (c) of paragraph 4 of article XIII. The language reads as follows:
An annual amount of up to 10 million United States dollars per year, to be paid out of canal operating revenues, to the extent that such revenues exceed expenditures of the Panama Canal Commission, including amounts paid pursuant to this treaty.
I repeat, to the extent that such revenues exceed expenditures. If the revenues do not exceed expenditures, the paragraph is rendered inoperable. It is just that clear.
Mr. ALLEN. That is when I came in to the picture.
Mr. GARN. Mr. President, will the Senator yield?
Mr. ROBERT C. BYRD. I yield.
Mr. GARN. I say to the distinguished majority leader that of those Senators debating this point, I suppose I am the only one who is a member of the Armed Services Committee and heard Mr. Staats' testimony.
What I would say about that testimony is that the Senator from Maryland is correct: He did not present that as his position. He presented two or three different positions. His point was that there were different interpretations, and I think that is what the Senator from Alabama is trying to point out.
I think the majority leader is correct. It means out of surplus. But there are people who do not believe that. All we are saying is that it should be made very clear. I do not think we are in disagreement. In that Armed Services Committee testimony are differences of opinion as to whether or not it was clear.
Mr. ROBERT C. BYRD. Mr. President, I yield to the Senator from Maine first and then to the Senator from New Hampshire.
May I say that if any clarifying language is felt to be necessary, it can be added to the implementing language. It does not have to be added to the treaty.
Mr. MUSKIE. That suggestion has been made. I do not understand the argument that because differing interpretations are made of language, we must therefore amend the treaty. If we were to use that as a test, given the debate that has taken place on this floor over recent weeks, we never would have a treaty. There are differences of opinion about language that is clear on its face, differences of opinion about language that is asserted to be ambiguous on its face. But the mere assertion that language is ambiguous for the purpose of supporting an attack upon the treaty does not make language ambiguous which is clear on its face. I have heard that technique used over and over again in this debate.
All a Senator has to do is get up and say, "To me, that language is ambiguous." Then, from that premise, he argues that because it is ambiguous, or because somebody else said it was ambiguous, therefore we must have an amendment to the treaty that clarifies the ambiguity.
In this case all we have to do is read the language. I submit that the answer is not always as clear as in this case, but this language is as clear as the English language can be.
I have practiced law. I have written law in the State legislature. I have written it here in the Senate of the United States. I have been in conference committees arguing with the House over language. I have never seen clearer language than that on this particular point.
Mr. ROBERT C. BYRD. So there is no need to go behind the treaty; we can just look at the treaty itself. Is that not what the Senator from Maine is saying?
Mr. MUSKIE. The majority leader is absolutely correct.
Mr. ROBERT C. BYRD. Where the language is unequivocally clear in the treaty itself, there is no need to go back of it.
Mr. MUSKIE. If it were the intent to say that any unpaid payments under this provision shall be a charge against the Commission, then we might have a different situation. But when they say so clearly a charge against operating surpluses, I do not see any room for doubt as to what it means.
Mr. ROBERT C. BYRD. Precisely. I thank the distinguished Senator from Maine (Mr. MUSKIE) .
I yield to the distinguished Senator from New Hampshire (Mr. DURKIN) .
Mr. DURKIN. Mr. President, I thank the distinguished majority leader.
I agree with the statement of Senator MUSKIE. The language of the treaty speaks for itself. It is unequivocal. It is as clear as the nose on the face. But even beyond that, we were in Panama with the last delegation that went. This question came up, time and again: Was there a contingent liability that would have to be extinguished in the year 2000? We met with the planning director, Dr. Barletta. He assured us that they have no understanding, that there was absolutely no contingency, that if there were not an operating surplus, there would be no liability.
Mr. Bethancourt, one of the prime negotiators, made the same statement to us, that there was, under no circumstances. In fact, what they did say is they felt because it was only out of surplus, if the surplus exists, they felt that Panama was not going to get enough money out of the operating revenues, the 30 cents a ton and the other $10 million that the treaty provides. So even the Panamanians, aside from the fact that the treaty is as clear as the English language can make it, notwithstanding that, time and time again, assured the questioning Senators that they had no understanding, no idea that there was any sort of encumbrance or lien that would become due if that $10 million had not been met out of operating revenues over the 22 or 23 years.
Mr. ROBERT C. BYRD. I thank the able Senator.
In addition, there will be some recurring costs to the U.S. Government, if I may continue my statement.
On an annual basis, it is estimated by the Congressional Budget Office that these will amount to about $28 million. This sum would be offset by some annual costs which would no longer continue after ratification. The annual costs that would be discontinued are about $3 million for the Canal Zone Government and the $1.8 million net annual payment to the Republic of Panama.
The new annual costs would be $9.2 million for a Canal Service Commission early retirement program for employees and about $3.2 million for the incremental expense for Department of Defense schools and hospitals.
Another annual cost would be $20.1 million if the payment of interest on the U.S. net investment in the canal is discontinued. We have been receiving this interest payment from the Panama Canal Company since 1951, and Congress will have to decide whether it should continue.
These then are the costs which may be necessary in order to implement aspects of the new relationship between theUnited States and Panama if the treaties are ratified. They represent, as I have pointed out, both recurring and one-time costs. From 1979 through 1999, they would amount to between $600 million and $700 million, again according to the Congressional Budget Office estimate.
I continue to rely upon the Congressional Budget estimates because I believe that that is a very objective entity, and I think that we can rely upon its estimates as being fair and most reasonably accurate.
There are some other financial sums associated with the treaties which would have budgetary implications. First, there is the issue of providing new borrowing authority for the Panama Canal Commission. Under current law, the Panama Canal Company has borrowing authority for the Panama Canal Commission. Under current law, the Panama Canal Company has borrowing authority in the amount of $40 million. Congress will have to decide whether to extend similar authority to the Commission. Second, thereis the separate economic and military cooperation package of $345 million which has been discussed with the Panamanians. This package is not part of the treaties and would necessitate the development of programs in order to meet existing congressional criteria. Only about $5 million in appropriated funds would be required to support the repayment guarantees for the military credit program as a reserve fund; none would be paid to Panama.
Mr. President, these are the anticipated financial sums involved in the treaties or which would result from their ratification, and the purposes to which they will be put. I believe that when these sums and their purposes are reviewed by American taxpayers — as they should be by anyone seeking to understand the economic sense of the Panama Canal treaties — it will be recognized that the one-time and recurring costs are relatively modest and sound investments in the continued efficient operation of the waterway; and that the costs which would be paid from tolls are but fair and just recompense to Panama.
Mr. President, there are some who would like to portray the Panama Canal treaties as the perpetration of a great giveaway. Well, this phrase is a very catchy phrase, but it is not an apt one in this situation. Indeed, this concept of the "giveaway" must be faulted on two grounds, one political and the other economic.
As I said earlier, we cannot be accused of giving up that which we never had. The United States never had sovereignty over the Canal Zone. Since this is the case, accusations that these treaties will relinquish our sovereignty over the zone are patently absurd.
Applying the phrase "giveaway" to the treaties is not based on sound economic analysis. It shortsightedly emphasizes the limited costs we must pay rather than emphasizing our security, and our economic, military, diplomatic, political and commercial interests that are well served by these treaties.
The specific question: "Has the United States recouped its initial investment in the Panama waterway?" must be answered in the affirmative. The original cost of the canal and Canal Zone facilities and real property has been estimated by the Department of State at $993 million.
However, for decades we have reaped the commercial and economic benefits of the use of the Panama waterway. Furthermore, we cannot discount the security benefits that the canal has provided us in peace and in war. Such benefits cannot be valued monetarily.
We should also take a moment to consider the manner in which the canal has been operated over the years. We have never run the canal solely for our own benefit. We have operated the canal as an international public utility for the benefit of all nations.
On this point, the excellent study by International Research Associates of Palo Alto, Calif. notes that in setting toll levels the Panama Canal Company has not sought to obtain the maximum possible revenues. Rather, the Company has set tolls at the moderate level necessary to cover annual costs and interest on investment funds provided by the United States. The revenues generated have, as a result, been considerably less than they would have been if the canal were being operated for profit.
Another means of putting in perspective the costs attendant upon ratification of the treaties is to take a look at the economic impact that a closedown of the canal — however unlikely that might be — would have on the U.S. economy. According to a report prepared by C.A.C.I., Inc., the additional cost of goods resulting from such a closedown in 1974 would have been between approximately $200 million and $400 million; and by the year 2000 the cost could reach up to $600 million.
In conclusion, ratification of the Panama Canal treaties would not in any way signify a "giveaway". By providing for the continued maintenance of our troops and facilities in Panama for the next 20 years and for our continued use of the canal, these treaties represent a sound investment in America's future.
IV. THE FINANCIAL VIABILITY OF THE PANAMA CANAL
Mr. President, a frequently posed query — which must be answered — concerns whether the canal is now capable of generating sufficient revenue to cover operating costs. The answer is most emphatically yes. This conclusion has been reached by several research groups that have studied the situation.
The American Management Services study recently prepared for the Senate Armed Services Committee makes the following instructive points:
1. The Commission needs to raise its toll rates about as fast as its costs are rising (by cutting costs or increasing tolls). If it does this, there are ample opportunities for the Commission to remain solvent and to run a small surplus even if very pessimistic traffic projections prove correct.
2. If the Committee is permitted to increase toll rates to match inflation (for instance, by indexing toll rates to the U.S. Wholesale Price Index) without reducing projected costs there will be some deficits for the first few years. These early deficits could be eliminated by an immediate one-time toll increase on the order of 25 percent.
3. If the Commission adjusts toll rates to match inflation and reduces costs significantly, it will be self-sustaining even under pessimistic traffic forecasts.
These points are generally consistent with the findings reached in a study prepared by Arthur Andersen & Co. for the State Department. According to that study, a one-time toll increase of 19 percent to 27 percent — effective on or about the date the treaties enter into force — should allow for the financial viability of the canal for the period 1979 through 1983.
Further supporting evidence is provided in a study by International Research Associates prepared for the Department of State and the Panama Canal Company. The IRA study concludes that first, tolls could be increased as much as 75 to 100 percent before revenues would begin to decline; and second, toll increases ranging from 15 percent to 50 percent would result in losses of traffic, on a tonnage basis, ranging only from 2.4 percent for a 15 percent increase to 11.8 percent for a 50 percent increase.
Mr. President, for the estimative future, it appears from these several studies that. canal revenue will be sufficient to cover costs as well as payments to Panama. At the same time, it should be pointed out that these studies cannot accurately forecast revenues for the period beginning in the later 1980's. As noted by American Management Systems, the level of Panama Canal traffic and toll revenues in that period would depend on a number of factors, most of which are unpredictable and would be outside the control of the Panama Canal Commission. Among the important factors which can be expected to influence toll revenues in those years are the rates of inflation, currency value changes, world trade growth rates, and specific areas of regional growth.
However, these factors will affect all facets of trade and commerce; there is no reason to expect an inordinate influence on the financial stability of the canal.
V. INCREASING PANAMA'S ECONOMIC STAKE IN THE CANAL
Mr. President, insuring the open and efficient operation of the Panama Canal is one of the primary objectives of the Panama Canal treaties. That objective would be served well by increasing Panama's stake in the canal. Accordingly, under the treaties, the major payment to which Panama is entitled is tied to the volume of tonnage transiting the canal.
The more efficient the operation and the greater the tonnage transiting the canal, the greater the size of this "variable payment" to Panama. This payment is designed to insure that the operation of the canal is in Panama's best interests, as it is in our own best interests.
The approximate amount that Panama would initially receive through this variable annuity system — some $40 million to $50 million a year — would significantly contribute to the size of Panama's economic stake in the canal.
The development of canal-related activities is one of the primary economic development goals of Panama, and is one in which Panama would be able to use the funds that it will receive. We can expect many of these activities to proceed following ratification of the pacts. Indeed, it is the consensus of observers that uncertainty over the future of the canal has held up such projects, thus putting a damper on Panama's economic growth.
In addition, the ratification of the new treaties will allow Panama to go forward with its national development plans. An important feature of these plans is the enlargement of Panama's role as a service center for shipping and regional trade. These plans would also increase Panama's interest in the efficient operation of the waterway. In this regard, the treaties do not "bail out" the Panamanian economy, but instead encourage its development along lines which Panama wishes to follow and which are also consistent with our own best national interests.
VI. BUSINESS SUPPORT OF THE TREATIES
In conclusion, Mr. President, I wish to point out that the American corporate community with business interests in Latin America understands the sense of the Panama Canal treaties. In terms of dollars and cents, they recognize that the toll increase will have but a minor impact. It is estimated, for example, that a 30 percent increase in tolls would be reflected in a net increase in transportation costs of less than 1 percent and an even smaller increase in the final sales price of any commodity. Users of the canal would pay only about $50 million in tolls per year on cargoes that have a value in excess of 100 times that amount, in other words $50 billion. In other words, the increased cost would be only one-tenth of 1 percent of total cargo value.
The Association of American Chambers of Commerce of Latin America supports the treaties. The executives of major American corporations with business activity in Latin America — such as Dow chemical, IBM, du Pont, and United Brands — support the treaties.
And I believe that the American people, as they become conversant with the provisions of the treaties, will recognize — as do these business entities — that the treaties make economic sense for this Nation and for all the nations of the world which want to assure an open and secure waterway through Panama.
(Mr. SASSER assumed the Chair.)
Mr. CURTIS. Mr. President, will the distinguished majority leader yield for some questions?
Mr. ROBERT C. BYRD. Yes, I will.
Mr. CURTIS. Is it true that the United States has paid the same tolls for using the canal as have all other nations in the years gone by?
Mr. ROBERT C. BYRD. That is the case, yes.
And may I say on that point that the tolls today are $1.29 as compared with $1.20 in the year 1914. There was a period during the thirties when the tolls for the Panama Canal went down to something like 90 cents or thereabouts. So this demonstrates that over the years the United States has not attempted to take advantage of the opportunities to make profit, but it has considered the canal a public utility and has acted accordingly.
Mr. CURTIS. I agree with the distinguished majority leader. He is correct in what he says, but I would like to point out that, if nations that had no investment in construction paid no more toll than the United States paid, then our use of the canal should not be considered as reimbursement for having built it.
Is that correct?
Mr. ROBERT C. BYRD. Mr. President, I would say that what the Senator just said emphasizes exactly what we have been doing over the period of the last 64 years. We have indeed been subsidizing the merchant shipping of the world, and at considerable cost to the country of Panama.
Mr. CURTIS. I would like to ask another question. Plant and equipment, according to the testimony of the Governor of the zone, would have a replacement value of $4.6 billion. This includes only civilian installations relating to the canal and the Canal Zone Government. Would the Senator agree that the Government did place such a figure as a replacement value?
Mr. ROBERT C. BYRD. As a replacement value. But what is the present book value, I ask the Senator? It is a little over $500 million. What is it, $563 million?
Mr. CURTIS. $567 million.
Mr. ROBERT C. BYRD. So let us not just talk about the replacement value but let us look at the present book value.
Mr. CURTIS. The United States—
Mr. ROBERT C. BYRD. We are not anticipating replacing that facility.
Mr. CURTIS. But if you give somebody a piece of property, that has replacement value.
Mr. ROBERT C. BYRD. The value is its present book value.
Mr. CURTIS. No.
Mr. ROBERT C. BYRD. Not only that, may I say, but—
Mr. CURTIS. The book value might be zero or $1, having been all depreciated. But it would be very valuable.
Mr. ROBERT C. BYRD. Was the Senator in the Chamber when I made my statement?
Mr. CURTIS. Yes.
Mr. ROBERT C. BYRD. In its entirety?
Mr. CURTIS. I heard part of it in the cloakroom, but I heard it.
Mr. ROBERT C. BYRD. May I yield on this point to Senator MUSKIE?
Mr. MUSKIE. What is involved here in the case of the canal is not the buying and selling or replacement of the canal but its use.
Mr. ROBERT C. BYRD. Yes.
Mr. MUSKIE. Replacement value is a term that is used in connection with the calculation of real tax liabilities. The United States does not have a capital budget nor does it have recurring capital assets. It does not depreciate. It does not have any depreciable assets. It does not pay taxes on its property. Replacement value is a useful concept for purposes of those who own property, through the production of profits, through the production of revenues, subject to taxes by the Internal Revenue Code. That is the replacement value.
If one were to try to determine a capital value for the canal in its present form, probably the nearest valuation that would have any relevance to reality in the use of the canal would be the evaluation in terms of cash flows. That also is a method of valuation which is common in the private sector and can be applied to General Motors or to the Panama Canal, I suppose.
Under this approach, the value of any asset or entity is related to the capacity of that asset to generate cash returns over some future period of time. Under that method of calculation, one would get a much different and lower figure. I think it would come to something like $230 million in value.
Depending, again, upon one's projection of the revenue generating capacity of the canal in the future, there has been a lot of debate on the floor as to whether or not there would be any revenue above operating costs generated by the canal in the future. But the important point is, and this needs to be repeated — as I stated yesterday — that when this canal was built in terms of the 1903 treaty, the Panamanians granted us rights in perpetuity. We did not respond with any guarantee that we would operate a canal in perpetuity. In other words, we did not accept that responsibility.
I have listened all afternoon to Senators asserting that we should not give up the option of walking away from the canal when we, ourselves, found it is not profitable; that it no longer serves our national interests, as we define them, to operate it.
Under those circumstances, what did we build when we built the canal? We built something to be used, by us and by the entire world community — to be used. Apart from its use, the physical
property we placed on the surface of the Earth in the canal zone has no value. We cannot move it somewhere else. We cannot sell it to somebody else. It has no value except for its use.
I have been listening all afternoon to opponents of the treaty telling me that the potential profit or revenues above operating costs, especially above operating costs which they choose to say includes the payments to Panama, is very problematical.
If it is a use with declining revenue generating potential in the future, what value does it have? If we wanted to sell it on what basis could we sell it? We could sell it only to somebody who wanted to use it. We could not move it to the Soviet Union for them to use it there. It would have to be used in place. So it is use that is valuable.
In the Budget Committee analysis we looked at replacement value. We get a sky-high figure that nobody would pay. We would not pay that amount for it ourselves if it were offered. We would build a new canal. And we have been talking about that this afternoon.
We looked at cash flow value, which is probably the most sensible of the various methods that might be used.
We looked at book value. Well, that has some relevance, at least to what we invested in the first place. But beyond that it does not really tell us what value the canal would be as between a willing buyer and a willing seller. A willing buyer and seller are Panama and the United States. What we are trying to do in these treaties is not to sell and buy the canal; we are trying to assure the continued use of the canal.
I think it ought to be pointed out in terms of Panamanian trade the canal does not have much utility. Panama does not have much trade. The United States has trade, and 12 percent of our trade goes through the canal. So it is valuable to us in terms of promoting our trade and commercial interests. But as a tangible asset to be bought and sold I think speculation about its value is almost irrelevant to the debate.
We are talking, frankly and candidly, about turning the operation of the canal over to Panama for political reasons, economic reasons, fairness reasons, security reasons, all the reasons which have been stated, and about which there is controversy. That is what we are talking about, turning over the management. The use will continue, hopefully, as it has continued for 75 years. There is no buying and selling, no giving and taking. There is no way for us to give this canal to anybody. There is no way for Panama to give it to anybody. It is there in place on Earth.
Whether or not it is used is really not going to depend totally upon the United States and Panama. It is going to depend upon other nations. They, more than we, will determine the value of the canal in the future. Will it have sufficient value for 70 countries on the Earth to continue to send their shipping and their commerce through the canal? They will decide what it is worth. They may well decide by the year 2000 that there are alternative methods for moving their goods which are more valuable to them, and, at that point, the canal will not be worth a red cent.
So I think the only purpose that this talk about the value of the canal serves is the rhetoric of those who oppose the treaties. They want to suggest to the taxpayers of this country that we are giving away something — that horrible phrase "We are giving away something."
We also like them to forget — and I hope we can remind them of it — and that is that we took it away from Panama in 1903. We took it away from them, in exchange for their land, in exchange for their resources, in exchange for their major river system, in exchange for their sovereign right to tax, to impose tariffs, in exchange for their right to use the resources of their country to develop an industrial base, an economic base, for their people.
They gave us their major transportation routes, railroad, canal, highway options, and in exchange for that we agreed to pay them $250,000 a year, a munificent sum, and now there are those who are saying, "What is the value of what we are now giving to Panama?"
I ask them what was the value of what we took from Panama. If we are going to set up an accounting sheet, a balance sheet, let us begin at the beginning.
If we are going to try to figure out what the value of this asset is in 1999 or the year 2000, let us figure out what the value of what they gave us in 1903 was, and let us get that put on the sheet first. I have not heard a word from the opponents of the treaty on that. They apparently believe we were utterly fair with them. They do not share the position of Dennison Kitchell, who opposes the treaties, but who wrote in his book "The Truth About the Panama Canal," that there never was such a treaty as this. If we had been on the other end of it we would have described it as unconditional surrender, so let us begin this balance sheet there. What was the value of what we took away from Panama, and then the question of what the resources are worth today or in the year 2000 will be relevant. Until then any speculation by whatever method you use, replacement value, book value, cash return, cash loan value, may have some relevance. You have got to compare it to something, and I guess that is all I can contribute at this point.
Mr. RIEGLE. Mr. President, will the Senator yield at that point?
Mr. ROBERT C. BYRD. Mr. President,I want to thank the distinguished Senator from Maine, who is the chairman of the Senate Committee on the Budget, for his incisive observations here and his responses to the questions that have been asked by Mr. CURTIS.
I yield now to the Senator from Michigan (Mr. RIEGLE) .
Mr. RIEGLE. If I might ask the Senator from Maine (Mr. MUSKIE), who is still here, I think he makes a very powerful point: Is it not true as well that in the intervening 75 years, the fact is that we have held this piece of territory and this facility has been of enormous value to the United States? I have not heard anyone who has spoken against the treaties say one word about trying to assign a value to what the unrestricted use of this land area and facility has meant to our country and, in a sense, partly at least at the expense of Panama for 75 long years.
I think if one were to try to assign a value to that that would be a sum if not in the hundreds of millions, probably in the billions of dollars in value in terms of our capacity to develop our own country, to use this as a shipping channel to move between our own two coasts, and we have got enormous investments, the United States has, and private investors of the United States do have, all in Latin and South America, and the fact that those investments have been developed and facilitated by the use of the canal has been of enormous benefit and value to the United States.
Now, if anyone were to suggest that we in any way compensated, if you will, Panama for really the right to have access to this facility, which has produced this profound gain for our country, not one word is said about that.
I agree with you if we were to reconstruct a balance sheet here that is accurate and really reflects gains and losses to both parties, I think the Senator from Maine is absolutely right. We have to start with what the grant of these rights was worth to the United States in the beginning, but then we have 75 years' worth of value and worth of use and worth of service that also would have to be calculated and added up to reach the present time, and I think that sum is something that clearly the opponents of the treaties do not speak about.
I thank the Senator for yielding.
Mr. CURTIS addressed the Chair.
Mr. MUSKIE. May I say—
Mr. ROBERT C. BYRD. I yield to the Senator from Maine again.
Mr. MUSKIE. I would suggest to those who want to suggest some order of magnitude of the value of the canal to Panama when Panama takes it over they might take into account the $10 million direct payment to Panama under the treaty, the 30 cents per Panama Canal ton that would be paid, and those two sources would produce, I gather, between $40 million and $50 million a year. If they want to use that as a cash flow projection for the year 2000 they could come up with a cash flow value for the canal. That to me would have whatever relevance such speculation might have, and there are those who might find it useful.
But to talk about replacement, we know, we have got these estimates on what it would cost to build a sea level canal in Panama or in Nicaragua, and those two estimates run as high as $5 billion to $6 billion, and I think those estimates are very conservative. I suspect if we were to begin planning for a sea level canal and make the commitment to do so, and then begin turning the Earth, that by the time it was finished we would be close to the end of this century, and I suspect the costs would be several times $5 billion.
There are Senators in this Chamber who speculated very positively about it, the Senator from Michigan (Mr. GRIFFIN) very positive, who said, "Of course, we will build another canal," and what will it be worth? What will this canal then be worth to Panama if they are right, Senator GRIFFIN and Senator MAGNUSON, if they are right, that it is inevitable that we build a sea level canal somewhere else, and I do not know what their preference is, Panama or Nicaragua. If there is doubt that the present canal will attract traffic sufficient in order to pay the operating costs and to justify the continued operation of the Panama Canal? What will happen to the Panama Canal traffic if such a new canal is built? If such a new canal opened, what then will the Panama Canal be worth to Panama or to anybody else?
The treaty makes no provision, and the 1903 treaty makes no provision, for protecting Panama against that contingency. If that should happen, the United States should walk away from the Panama Canal, whether or not these treaties are approved, there is no provision in the1903 treaty, and Panama would be left with the hardware with its major system harnessed to it, and without the resources to operate it.
Mr. ALLEN. Mr. President, will the Senator yield?
Mr. MUSKIE. Now we speculate about what it is worth. What is it worth? What contingencies are you going to project? Are you going to put the whole burden for uncertainty on Panama? That is what we have been doing for 75 years.
I yield, the Senator from West Virginia willing.
Mr. ROBERT C. BYRD. Mr. President,I yield to the Senator from Maine for the purpose of yielding to the Senator from Alabama.
Mr. ALLEN. The Senator points out there is nothing in the 1903 treaty that requires the United States to operate the canal in perpetuity. I would like to ask a question if there is anything in the treaties before us now that requires that Panama operate the canal in perpetuity.
Mr. MUSKIE. No, but neither are we holding their land in perpetuity. In other words, these treaties will right the balance of the 1903 treaty, where we took from them in perpetuity and gave them nothing in perpetuity.
Mr. ALLEN. They could quit operating the canal.
Mr. MUSKIE. With these new treaties, you know, nobody tries to foresee perpetuity.
Mr. ALLEN. But they could quit operating the canal.
Mr. MUSKIE. There is no commitment on our part in these treaties to assure Panama that our commerce will go through the canal.
Mr. ALLEN. There is no commitment on Panama to continue operating the canal, is there, after it is turned over to them in the year 2000?
Mr. MUSKIE. No, sir.
Mr. ALLEN. The same with the 1903 treaty.
Mr. MUSKIE. Since we have tied up their natural resource, I cannot imagine that they would give up whatever economic benefit that resource will bring to them for any arbitrary or irrational reason.
Mr. ALLEN. You are saying it is getting obsolete.
Mr. MUSKIE. It may be getting obsolete, of course.
And then when the Senator says that the United States would not be — if that is the Senator's point?
Mr. ALLEN. Both treaties are silent
Mr. MUSKIE. Yes. I agree with the Senator on that point.
Mr. ALLEN. Will the Senator yield to me now in my own right?
I would like some time to ask a question as to timing, and the distinguished majority leader recalls that when we agreed on a time certain on the voting on the pending amendment, that was an hour and a half or so ago, and we agreed on a 5:30 time and we have not had one single minute of discussion of the pending amendment.
I wonder if, in light of these circumstances, the distinguished majority leader would think it might be well to extend this order in order that we might set a later time, or else agree we might vote at an early hour tomorrow?
Mr. ROBERT C. BYRD. Mr. President, I am prepared to yield the floor.
I think I should, in deference to the Senator from Alabama, but before I do so I want to yield to the distinguished Senator from Nebraska for not to exceed 3 minutes.