February 28, 1978
Page 4881
Mr. PERCY. The Senator from Illinois began a colloquy to question the distinguished chairman of the Budget Committee about the economic impact of the treaty, about an hour or more ago. I have yet to put that question. As the time goes on, I would like to know whether the Senator would permit the Senator from Illinois to respond to two points made by the distinguished Senator from Nevada and then, finally and immediately thereafter, put to my distinguished colleague, the chairman of the Budget Committee, the one question I have on the economic impact of the canal treaties.
Mr. MUSKIE. If I may first, because of the Senator's promise to include some historical references, add a couple of my own, just to make sure that this is documented.
This is from David McCullough's book,"The Path Between the Seas," which was written before these treaties were signed. It makes no reference to the current treaties, but it has been hailed across the country as an outstanding history of the Panama Canal.
First, this description of Philippe Bunau-Varilla on page 387 of the book:
The newly designated "confidential agent" of the Republic of Panama — a citizen of France who had not laid eyes on Panama for eighteen years — had waited out the birth of the nation in the privacy of his room at the Waldorf-Astoria Hotel. On first word of success from Dr. Amador — a leader of the Panamanian revolution — he had cabled an emotional reply hailing the infant republic ... and like proud fathers he and the banker Lindo had celebrated with a bottle of champagne in the Waldorf dining room.
Now, with respect to the two Panamanian delegates who were en route to Washington to participate in the negotiation of the treaty, this is what the book says on page 395:
The treaty had only to be ratified by the United States Senate and by the Government of Panama, and Bunau-Varilla was determined to obtain immediate ratification from Panama, before the treaty went to the Senate, a move the three Panamanians absolutely refused to be party to.
Now, those two Panamanians were the official delegates, and if the rest of their countrymen hailed this treaty, these delegates from Panama surely did not.
Now, I yield to my good friend from Illinois.
Mr. PERCY. Before I put the question I originally intended to sometime ago, I would first like to say again that the Senator from Nevada is performing an invaluable service to this country and to
this deliberative body. I think the questions he has continuously raised are the very questions in the minds of our constituents that for 10 days I listened to from one end of Illinois to the other, and if he had not performed the great service of asking those questions here and requiring those who have somewhat different views to answer them and respond, we would not have had a proper deliberation on this matter and it would have been, I think, an unsatisfactory exercise.
From the standpoint of, if I could just comment quickly, on the way the treaties came into being, because we spent a great deal of time on that in the Committee on Foreign Relations looking at the history and studying that and, second, on the drug aspect of it, a brief comment, the Foreign Relations Committee report clearly indicates the history of what really happened, part of which is repetitious, but I think it is worth repeating.
The treaty, which still governs the U.S. control over the Panama Canal, was negotiated for Panama by a French citizen who had not been in Panama for 18 years. The treaty was signed in the evening of November 18, 1903 only 15 days after the uprising, before any native Panamanian had a chance to read it; in fact the Panamanian negotiating team was on its way to Washington when the treaty was signed. They arrived two hours after Hay and Bunau-Varilla had officially signed the pact. Shortly afterward, Bunau-Varilla resigned his Panamanian diplomatic post and returned to his native France.
If I recall correctly, when he returned to Paris he proudly proclaimed, "I have served France well." He did not say anything about Panama at all. He had $40 million, they had $10 million. He obviously had served Panama well.
Mr. MUSKIE. France well.
Mr. PERCY. France well.
A Panamanian documentary concerning these events, filmed in the 1970s was succinctly entitled, "The Treaty That No Panamanian Signed."
When Panama considered rejecting this treaty, they were informed that if they did, the U.S. would withdraw its naval support and allow the Colombians to suppress the new revolutionary government. In addition, the U.S. always retained the implicit option of the Nicaraguan route. Under these conditions, Panama's provisional government junta ratified the treaty on December 2, 1903.
Now, certainly from the standpoint of drugs, I am extremely sympathetic with the concerns of our distinguished colleague from Nevada, as is my distinguished colleague from Maine.
For how long did we work together in the Governmental Affairs Committee to finally reorganize the Federal Government in such a way as to raise the drug abuse problem to the highest possible level? In the Governmental Affairs Committee we created, put in legislation to create, a Drug Abuse Office in the White House itself with the Director reporting directly to the President of the United States.
We created DEA, Drug Enforcement Administration, in the Department of Justice, now headed by Director Peter Bensinger, with 5,000 employees to go to work with the Department of Justice, and using all of their facilities, the FBI access and availability, Customs and everything else, to really make a massive effort.
Now, the testimony we have from that Department is that they have had good relationships in recent years with Panama despite the tremendous hostility and the atmosphere of unhappiness in Panama about their economic relationship with us and the political relationship on the Panama Canal itself.
Despite that hostility and unhappiness they have been cooperative. They have made arrests. We have worked jointly together with them, and we have had essentially cooperation, with the one instance that could be pointed out of the call that was made by the American Ambassador to General Torrijos, which is subject to a good deal of interpretation and question as to what the intention and purpose of that call was and what action flowed as a result of it. But that is one single instance.
Our present concern is simply that we create an atmosphere of cordiality, a partnership and, from the drug abuse standpoint, I should think if we approve treaties that will be satisfactory to both countries in the drug area our relationships should be even closer than they have been in recent years. There would be every incentive; whereas, if we reject out of hand and cast aside 14 years' work, and send our negotiators back to the bargaining table — and I doubt that they would ever get around a table again, the feeling of hostility would be so great — I cannot imagine that our drug abuse program would be enhanced by that.
We have had trouble in the past with other countries. We had trouble with France, a longtime ally of this country. The "French connection" was the route through which drugs poured into this country, and it was our American Ambassador who spent most of his time on this problem, Ambassador Arthur Watson, who finally convinced the French to really crack down and work on this, and in tandem and in partnership we resolved it.
We have problems in Mexico. We have tried to work those out with the Mexican Government, but we have not refused to do business with them, to enter into treaties. We just ratified a treaty with them on prisoner exchange, and we have done so even though our relationship in drugs is subject to improvement.
I think there could be nothing but improvement in the area of working with Panama if we work out a satisfactory arrangement that will guarantee a satisfactory, mutually advantageous partnership for the future.
If I may just put the one question the Senator from Illinois was concerned about to our chairman of the Budget Committee: The Senator from Illinois is concerned about the cost element. The Senator from Illinois is concerned about it because it appears as though the impression was left when this matter first became an area for public debate that there would be no cost to the taxpayer as a result of these new treaties.
Yet now our distinguished colleague has put together the best figures he could in the Budget Committee of the Senate, with the assistance and support and help of other agencies of the executive branch of Government, and as the Senator from Illinois understands it, although the estimates are subject to refinement as time goes on, the cost is roughly $700 million.
Now, what is not clear is that the original assertions made by the administration are still correct, that nothing is to be paid out of the U.S. Treasury and out of taxpayers' money as payments to the Government of Panama. These are costs involved in the whole process, over the life of the Canal Treaty, of implementing the two treaties that are before this body for ratification. About $700 million, as I understand it, is about the best estimate that the chairman of the Budget Committee can come up with at this time; is that correct?
Mr. MUSKIE. That is correct. Let me make it clear that this estimate reflects the budget impact of the changing U.S. role in Panama. I put a table in the RECORD detailing the budget impact.
Mr. PERCY. Right.
Mr. MUSKIE. Payments to Panama are not truly a cost; it is a redistribution of the revenues of the canal. I think it is that to which the President made reference in his statement. He definitely had the payments to Panama in mind when the statement was made on February 1.
The rest of the payments, which have budgetary impact, concern the changing role of the United States with relation to Panama, the reduction of the military role and eventually the pulling out of our defense installations in Panama, the retirement benefits for employees as they shift from Panama Canal Company employment to Panamanian employment, early retirement for those who wish early retirement, and the assumption of certain obligations for schools and hospitals. It is that sort of thing, related to the changing role of the United States, rather than any benefits that go to the Republic of Panama, that are reflected in the rest of these costs.
This budget impact, the total to which the Senator refers, includes two types of requirements. There are the annual requirements. That is the big chunk, looked at cumulatively over the next 21 years.
The smaller, one-time requirements include relocation of defense installations, transfer of health facilities and functions to DOD, transfer to the Panamanian social security system of retirement benefits of Panama Canal employees. Those are one-time costs added to the annual requirements.
Now, the contingent liabilities that are not included are the $40 million drawing rights and the continuance of the privilege given to the present Panama Canal Company. Those figures do not include any value set on the property.
Mr. PERCY. If the distinguished Senator, on the cost figures, would permit me to ask a few questions that I think can legitimately be raised now—
Mr. LAXALT. Mr. President, will the Senator yield for one question? Senator MUSKIE, in reconciling these figures, what liaison was there with the Armed Services Committee and their figures, given on this floor the other day by Senator STENNIS? As I recall, he came up with a
gross figure of $2 billion, and this would be substantially less.
Mr. MUSKIE. First of all, we, of course, have had access to and have studied the figures of the Armed Services Committee. They have had ready access to ours. The two professional staffs have a very good working relationship on this and other national security issues. I have watched the relationship grow over the last 2 ½ years.
First, the difference between the Armed Services' $1,023 million and our "about $700 million" results from Armed Services assuming a 22-year factor for the fiscal years 1979-99 life of the Panama Canal Treaty. We assume 21 years.
Second, the contingent payment to Panama, this $10 million a year, was considered by the Armed Services Committee as a commitment which we would have to pay until the year 2000. We did not treat it as such.
That is the biggest item that separates the two figures. There are other minor ones that I would be glad to identify, but that is the biggest one.
Mr. PERCY. As I understand the analysis made by the Budget Committee professional staff, I think it was a very good thing that they did go ahead and do this, because during the Lincoln Day recess, I found a great deal of confusion on the part of many of my constituents, and I sympathize with their confusion, because the administration has said that payments to Panama would come from tolls alone, and therefore many people concluded that the entire turnover of the canal would be cost-free. Charges were made that the administration, in a sense, was trying to pull the wool over someone's eyes.
Mr. LAXALT. Will the Senator yield?
Mr. PERCY. There was a feeling that there was deliberate underplaying of the costs involved. I am sure that has not been the intention of the administration, but there has been some misunderstanding. I think we are now in general concurrence with the administration on what these costs would be, and I would like to recapitulate what some of those costs are.
Mr. LAXALT. Mr. President, will the Senator yield?
Mr. PERCY. Yes.
Mr. LAXALT. Was there not misunderstanding throughout the country about there being no taxpayer expenditures involved, created by the statement of the President himself in his fireside chat that there would be no taxpayer costs involved in the implementation of these treaties?
Mr. PERCY. After going over that speech, I would have felt it would have been better if the costs had been laid out at that time, clearly indicating what still is true, that not a penny goes from the U.S. Treasury to Panama. They only get money paid out of toll revenues.
Mr. LAXALT. I understand that, but—
Mr. PERCY. But it would have been better at that time to have clearly indicated that there are certain costs involved, the details of which I will summarize to be certain that we are working from the same base; but in my judgment it would have been better at the time to have enunciated that, rather than have people discover later that additional costs will have to come from the Treasury.
It is the purpose of the Senator from Illinois to point out that he, for one, accepted the fact that those have to be charges to the Treasury. I do not want to see the American taxpayer pay those costs, and I would like to now see if we cannot think through the operation of the canal as a business for the next 22 years, considering these as liquidation costs, and see how close we can come to covering all the costs, so that the implications given to the American people that it will not cost a penny out of the Treasury can be somehow fulfilled; and I would like to try to work that out with the chairman of the Budget Committee.
Mr. LAXALT. That impression was created by the President in his fireside chat. I do not think it was intentional, but the impression was created by the President, through that fireside chat, that there will be no costs from taxpayer funds. I know, from the text of the President's fireside chat, that he was talking about payments going to Panama directly; I am aware of that.
Mr. MUSKIE. All of us as politicians have had the experience of having a statement we made misinterpreted, and then the misinterpretation given credence, whether from good motives or bad, to the point that we do not recognize our own statements.
Getting back to what the President said in his speech, what did he say in two one-sentence paragraphs? He told the American people on February 1:
Are we paying Panama to take the canal? We are not.
Under the new treaty, any payments to Panama will come from tolls paid by ships which use the canal.
Both of those paragraphs are absolutely accurate. He did not say anything which implied to anybody who reads the statement that the change in the role of the United States would involve no costs to the taxpayer. He made no such statement. He did not raise the subject.
Mr. PERCY. Will the Senator yield?
Mr. MUSKIE. To conclude what I have been saying—
Mr. PERCY. He raised the subject, though—
Mr. MUSKIE. No, he did not.
Mr. PERCY. Would it not have been somewhat better—
Mr. MUSKIE. He did not; I beg your pardon, Senator. I will reread the language.
He was responding here to a criticism that had already originated from the opponents. He put the question: Are we paying Panama to take the canal?
His answer :We are not.
Second, there is the following implied question:
Who is paying Panama?
In response to that implied question, the President said:
Under the new treaty, any payments to Panama will come from tolls from ships which use the canal.
Those are two accurate statements. My colleagues say he should have asked another question and answered it, that he should have asked the question:
Will implementation of the treaty in terms of the change of United States' role involve a cost?
Well, he did not ask that question and he did not answer it. But to conclude from the fact that he did not ask or answer it that he deliberately misled the country into believing there were no such costs, in view of the fact that everybody in this Congress who has had the experience of a base closing in a State knows that there are costs involved, raises the question, Why would the President try to deliberately mislead the country on that point?
And I would like to add this: Anybody who reads that 1903 treaty and the rights that were granted to the United State knows that the United States was given the authority to shape its own role in Panama.
It decided how big a military establishment to have in the Canal Zone. It decided how many military bases to build. It decided how many troops to station there. It decided how many Americans to hire rather than Panamanians. Those decisions the United States made.
When these treaties require that the United States change the magnitude and the nature of its role in Panama, there are costs. But who triggered the costs? We did. Are they to be, therefore, imposed as a responsibility upon the Republic of Panama morally, ethically, or in anyway whatsoever? I do not believe so.
The President wanted to make clear with that speech that we were not paying the Republic of Panama to take over the canal. He was not saying that there would be no costs associated with pulling back our troop commitment, pulling back our military equipment changing management of the canal. He did not say that.
In the absence of a discussion of that subject it may to some, imply that he was. But it does not to me. That is all I can say.
Mr. PERCY. Would the Senator agree that now that we have determined there is cost involved, that we certainly have determined that one large component of the cost is $275 million for the civil service retirement system for early retirement of the canal employees, which would be $90.2 million per year, and $100 million per year in annual interest cost to the U.S. Treasury? The administration at least presently intends to recommend that this annual interest payment not be continued. I therefore feel that a loss of revenue is a cost. If we total all this up, it is about $700 million. It is a cost over some 21 years.
Would it be desirable for us to try now to work together to find a way to minimize that cost, reduce it, and, if possible, even have no cost to the U.S. Treasury and the U.S. taxpayer, if it is at all feasible or at all possible under the terms of these treaties?
Mr. MUSKIE. May I point out to the Senator, as I said earlier in my remarks, that the United States did not charge the Panama Canal Company any interest on its investment until the 1950's, and it did not do so because it had made the policy decision to subsidize the tolls paid by not charging interest. As a matter of fact, a minor increase on the order of 3 percent in toll revenues would long ago have retired that investment so there would be no interest charged today.
Why did the Government decide to charge interest in the 1950's? Because the Korean war had so increased traffic in the canal that it was beginning to produce a profit, and it had been U.S. policy not to run the canal for profit. But as long as profit was being made, we decided to tap it in the form of a $20 million annual interest payment. That is the reason interest was charged, and that is why now there are some who think that as revenues foregone in the next 21 years they represent a cost to us. But we did not charge it for 40 years. We charged it only as a way to trade off profits. Now they want to take it out of Panama's hide, I take it, by listing it as a cost for which they are responsible.
I find it very hard to buy that argument, frankly. What I really am persuaded by most of all is we could have very easily, in 1914, decided to charge tolls that would recover for us our investment and we did not do so. The traffic would have borne it. The debt would have been retired. We would not have had to charge anybody any interest on it. But we did not do it because it was our policy, and it has been our policy ever since, to run the canal on a nonprofit basis so that our benefits from it would come to us in terms of commercial benefits, business benefits, trade benefits, military benefits. So we, as a government, decided to forgo recovery of the investment and recovery of interest on the investment. Now we begin, for our own reasons, to demand an accounting.
Mr. PERCY. If the Senator from Maine will yield.
Mr. MUSKIE. I know what the Senator is getting at. I wanted to complete my answer.
Mr. PERCY. The Senator from Maine has put his finger on the very point the Senator from Illinois wishes to raise. That is, I propose here and now we begin the process of changing our policy. Our policy was adopted back in the fifties to start charging interest. But still we, in a sense, subsidized every shipment that went through.
If we look at the inflationary increases in cost in every other segment of the world economy from 1914, when we began the first passage through the canal, and now, probably the biggest bargain the world has ever seen was transit through the Panama Canal. We have continued to subsidize every single shipment that went through there.
Now it is different. Now we know if the treaties are ratified and we move into this new partnership we not only have increased revenues expected by Panama that hopefully can be earned to keep a good partnership, but also we have liquidation costs of our own that we never had before.
The Senator from Illinois, now putting on a business hat, which is a hat he has had on most of his life, now says with notification to the world that it is time we look realistically at this and start to recover some of those costs we are going to bear. They are either going to come out of the taxpayer and out of the U.S. Treasury, $700 million in the next 22 years, or they are going to be paid for by the shippers.
The feeling of the Senator from Illinois is that Panama, when it takes over the canal in the year 2000, will maximize revenue. They want that revenue. They desperately need that revenue. They will go the route of maximizing revenue.
As we warned General Torrijos, there is a ceiling. We know there is a ceiling that they cannot go above, because they start to lose that revenue as they start to lose tonnage. Certainly, we are not at that tonnage yet. We are not in the business of finding a way to recover through the Treasury Department and the taxpayers of this country the reasonable costs.
I. would simply refer to these studies that we made in the Foreign Relations Committee on Panama Canal rates opposed to Suez Canal rates. These are well-known to the distinguished chairman of the Budget Committee. I know he must have in mind that we ought to take a look at those and see what the traffic will bear, what is a fair and reasonable charge in view of all of these new costs that have now been heaped upon the U.S. Government for the next 22 years.
Current toll rates for Panama are $1.29 per Panama Canal ton for laden ships; $1.03 for ships transited in ballast. In contrast, the Suez Canal toll rates are $1.61 for vessel drawing rights and $1.98 for a Suez Canal ton generally equivalent to 1 bct for bulk cargo and tankers, $1.77for sdr, the equivalent of $2.17 per ton for general cargo.
Now, what a bargain the Panama Canal is as against what comparable waterways are charging. In fact, it is the lowest cost available. We know ourselves that in the inland waterway system, we are working toward a user's fee and we cannot go sky high, because you start limiting. There are alternate sources that you can use and alternate routes you can use.
Mr. LAXALT. Will the Senator yield?
Mr. PERCY. The Senator from Illinois is proposing now that we take a very careful look at it and have the chairman of the Budget Committee put on his Budget Committee hat, looking for revenue and trying to find new sources of revenue, looking toward what I hope are new sources of revenue, so we can have a balanced budget. Here is a source of revenue we have now to look at to at least make certain we cover costs. We are not talking about making a profit. We are not going to make a profit, ever, on the Panama Canal, but we can try to cover logically the costs that we have outlined.
Mr. LAXALT. Will the Senator yield?
Mr. PERCY. There are options open to Congress as to how we handle these costs. I am happy to yield to my distinguished colleague from Nevada.
Mr. LAXALT. On this point, is it not true that Ambassador Linowitz has made representations to the effect that substantial increases in tolls are already being anticipated, up to a $2 level? Or is that purely unauthoritative?
Mr. SARBANES. Will the Senator yield to me to answer that?
Mr. PERCY. Yes.
Mr. SARBANES. I say with respect to the figure the Senator from Nevada quoted, that he is correct when he characterizes it as unauthoritative. The figure used in the Linowitz testimony was a 25 to 35 percent range. There have since been studies done and testimony given, in part by Governor Parfitt, the Governor of the Canal Zone Government and the head of the Panama Canal Co. Governor Parfitt says that, without the treaties, by the year 2000, the tolls will increase a total of 95 percent. That is recognizing inflation, increased costs, and so forth, and is the expected increase in tolls without the treaties.
With the treaties, the tolls, by the year 2000, Governor Parfitt estimated will increase by 115 percent. So the increase required by the treaties in order to produce the revenues for the payments to Panama provided for by the treaties is an additional 20 percent — 20 percent in the tolls. That is the difference, according to that testimony, in order to carry out the treaties as contracted with the situation without the treaties.
Of course, what the treaties do is give Panama very deep and abiding interest in making this canal work and work efficiently and effectively as an open international waterway because they get a real stake in the operations of the Panama Canal. Now, that 20-percent figure for full increase is an eminently reasonable figure. It does assume that this interest payment that the Senator from Maine is referring to will not be required out of full revenues. If you add in that interest payment, then you have to change your percentage figures as to projected toll increase. But I think it is reasonable that the interest payment ought not to be a charge on toll revenues, ought not to be built into the toll base, because you have to balance a toll structure that produces the revenues needed to make the payment required by the treaty and a toll structure that accommodates our commercial interests, including the interests of the shipping community.
We had testimony before the Foreign Relations Committee from representatives of the American merchant shipping industry in support of the treaties, but experiencing some concern about the toll structure. They, in particular, were concerned that this interest payment — which, as the Senator from Maine has pointed out, was never required until the early 1950's — that this interest payment not be built in as part of the toll structure. The straightforward way to set this up is for the toll structure to cover the costs of operating and maintaining the canal and meeting the payments to Panama under the treaty which of course give the Panamanians a strong interest in the effective working of the canal. We ought not to be, at the same time, trying to extract out of the operations of the canal additional revenue that would flow northward into the United States.
I might point out to the Senator from Illinois, and it is a point that he has been very sensitive about, there is a continuing need to maintain the Panama Canal operation at the highest level possible. Those funds would have to be engendered through the toll structure. Therefore, we ought to have a toll structure that covers the items that really should be covered.
As to the other points made by the Senator from Maine, I particularly welcomed the point he made with respect to the accuracy of the statement made by the President to the Nation. It is a point I had previously made in this debate, that is, the President's statement was accurate with respect to the matters that he covered. He did not cover all matters, but it was not misleading, it was not a deception, as has been charged by some. As the Senator from Maine has pointed out, what has happened is that the President's statement has been mislabeled and misinterpreted to the American people; then that myth feeds upon itself and it becomes part of the folklore of this debate. It ought to be laid to rest.
What the President said was that the payments to Panama which the treaty called for could be met out of the toll structure. That is an eminently correct statement. Under any reasonable analysis of what can be done with the toll structure and the revenues produced, it is eminently correct to say that the payments to Panama can be met out of the toll structure.
The President did not discuss some costs which the Defense Department will incur to relocate some of its facilities. I might point out that we will have facilities that fully meet every need that we can anticipate over the next 22 years. In fact, the Defense Department will concede that some of the consolidation which will take place because of these treaties is consolidation which they regard as desirable in any event as effectively strengthening their ability to carry out their defense mission. Nor did the President discuss the costs associated with early retirement for Americans who have been working in the Canal Zone.
Now, the cost of that package will eventually be determined by the Congress in the course of developing implementing legislation. I frankly would hope that Congress, in considering that matter, would recognize its responsibility to the people who have committed their lives to developing a career with the Panama Canal Co.
The statement which the Senator from Maine has made today, has made an enormous contribution to this debate, because he has analyzed carefully and thoughtfully and with precision what the economic aspects of these treaties are.
If there is any area in which there has been a smokescreen that has wafted through the land with respect to the provisions of these treaties, it is with respect to the economic provisions. I thank the Senator for laying it out very carefully in terms of what the treaties require, how those costs are to be met. We ought to address that issue in this debate in the careful and rational terms with which he has presented it to the Senate today.
Mr. MUSKIE. I thank my friend from Maryland and appreciate his contribution to an understanding of the toll structure as we envision it. I think that has helped clarify things.
Senator PERCY and I have been involved in trying to get to the Senator's bottom line for quite some time. I shall be delighted to yield to him.
Mr. PERCY. The time has come for me to give a report to the Republican Policy Committee, so I shall have to leave the floor now. But I should like to comment on the point of my distinguished colleague from Maryland on whether or not the President did, by his statement, in any way deceive the American public.
I have heard such statements and I denounce such statements, because I do not think there is any evidence of that whatsoever. My only comment today was that, looking back on this whole matter, it probably would have been just as well if the question had been raised in the President's speech that there would be other costs and our best estimate of the cost would be, if the figure is $700 million, say $700 million, and here is how we intend to meet that.
That is really the whole point of this colloquy, which I should like to continue, possibly, tomorrow and shall advise my distinguished colleague from Maine as to when the Senator from Illinois will take the floor to discuss that very crucial question: How do we intend to meet those costs? I, for one, at this stage, am totally unwilling, despite the State Department position to the contrary, to have the American taxpayer pay those costs. We have 22 years to see that those are recovered in a reasonable way, to the greatest degree we can recover them, from those who use the canal.
(Mr METZENBAUM assumed the chair.)
Mr. PERCY. The Senator from Illinois has a somewhat different constituency interest from that of my distinguished colleague from Maryland.
There are obviously shippers and products coming from Illinois that do use and transit the canal. But we do not have as many ships as would come out of Maryland using the canal and I know the shipping interests there are very keen to have the lowest possible cost.
We are together in not wanting the cost so high that they will go some other route and not wanting them so high we are noncompetitive in world markets.
So it is a question, as to the shipping, of reasonable cost.
The Senator from Illinois has done a good deal of thinking about this, talking with various agencies and departments of Government. When he takes the floor tomorrow, or some subsequent time, he would like to lay out what might be a reasonable program for the future.
But at this stage, I have come to the conclusion we should not accept $700 million as the cost, that we just reach into our pocket, nor do I accept the fact that the foregoing of $20 million of interest income is not a cost now that we know it no longer is coming.
If any individual family enters into, or a worker enters into an agreement to terminate his employment from which he has been getting $10,000 a year, the cost of termination is the loss of that $10,000.
The cost of doing these treaties is $20 million a year because no one ever conceived we would not continue to charge sufficient tolls to cover that $20 million cost which was deposited in the U.S. Treasury each and every year since 1950.
So to the Senator from Illinois, that is a cost out of the pockets of the taxpayers of this country and a cost that we will have to make up somehow by increased revenue that we would put into the budget, chaired by our distinguished Senator from Maine.
When the Senator from Illinois takes the floor tomorrow, I should like to explore further how we can recover those costs so we will minimize the cost to the Treasury and to the taxpayer, and I think also lessen the hostility with the two- to three-vote margin, whatever it is on the floor today. I think it is that close.
The economic issue and the feeling it is going to cost us $700 million might change one or two of our colleagues' minds on this matter. It could be that close.
I want to remove that possibility by trying to think through how we can recover that cost through a very careful, judicious process of pricing the services that we offer, which are invaluable services, but which can be replaced by an alternate routing, if we get too high.
We should have a reasonable cost and a reasonable toll, but one that will maximize our income, and no longer have it the policy of this Government that we shall be making a gift to every shipper that goes through a part of the costs because we do not attempt to recover the costs.
With the new treaties, I think it is only right and wise to try to recover those, and really a favor to Panama, who I think if we did continue to subsidize it would precipitately raise those rates in the year 2000.
I think we can avoid that problem imposed upon them by testing the market, and testing the water in the meantime, to determine what is the right level of increase, gradually facing up to a rate at the year 2000 that could be sustained by Panama when it takes over the canal.
I wish to thank my distinguished colleague from Maine very much, indeed, for the invaluable contribution he has made to the dialog on the Panama Canal Treaty.
Mr. MUSKIE. Mr. President, I thank my friend from Illinois. I will do my best to try to be on the floor when he resumes his discussion.
Mr. SPARKMAN. Will the Senator yield?
Mr. MUSKIE. Yes, to my good friend from Alabama.
Mr. SPARKMAN. Let me say, there appeared in the press sometime ago the statement showing that, as I recall, it would cost us $700 million.
When I saw that, I hoped that that would not be right. I asked Secretary Vance. I gave him the story just as it appeared in the press, and asked him to comment on it. His comment, in fact, is a letter from him, the Secretary of Defense and the Secretary of the Army. I think every Senator has been supplied with a copy of this.
Mr. President, I ask unanimous consent that a copy of that correspondence may be printed in the RECORD at this time.
There being no objection, the correspondence was ordered to be printed in the RECORD, as follows:
DEPARTMENT OF STATE,
Washington, D.C.,
Feb. 10, 1978.
Mr. SPARKMAN,
U.S. Senator.
DEAR SENATOR: As debate begins on the Canal Treaties, questions have arisen about the financial viability of the Canal under the new arrangements and also about financial obligations the United States will incur as a result of the new Treaties. Enclosed are answers to some of the principal questions which have been raised.
In the last analysis, the U.S. security and commercial interests these new Treaties are designed to serve cannot be measured in dollars. Under the past arrangements, the benefits that we have received from the Canal have far outweighed the costs of construction, security and the nominal annuity paid to Panama. We feel the costs associated with U.S. operation of the Canal between now and the year 2000 will be more than offset by the benefits derived from our continued use of the Canal during an orderly and efficient transition to Panamanian management, and from the continued maintenance of U.S. troops and facilities in Panama for the next 22 years.
With best wishes.
Sincerely,
CYRUS VANCE,
Secretary of State.
HAROLD BROWN,
Secretary of Defense.
CLIFFORD L. ALEXANDER, Jr.,
Secretary of the Army.
ATTACHMENT
Question. Can the Canal really meet its costs on the basis of tolls alone?
Answer. All the studies relating to the costs of operating the Panama Canal, and to the possibility of increasing Canal tolls, indicate that revenues will meet expenditures, including the payments to be made to Panama under the new Treaties.
Since 1915 toll revenues have risen from $4 million to $165 million in FY 1977. Traffic is projected to increase at an average annual rate of 2.2 percent until the end of the century. The best available studies project revenues as follows:
Canal revenue
[Dollars in millions]
1980 1983
Toll Increase 10% $197 $205
Toll Increase 25% $243 $248
Toll Increase 30% $250 $254
Various estimates have been made of the Panama Canal Commission's operating costs. An exhaustive study on Panama Canal Commission cost projections has just been prepared by Arthur Anderson and Company for the 1979-1983 period. These projections conclude that Canal costs, including payments to Panama and taking into account inflation, will range between $238 million to $247 million in 1980 and between $237 million and $262 million in 1983.
Our negotiators made their calculations on the basis of a toll increase of 30 percent. Our studies indicate that even larger toll increases could be applied if necessary, to produce additional revenues. While the range of uncertainty increases for the later years of the Treaty period, we believe it is reasonable to expect that the Canal enterprise can meet all its operating costs, including payments to Panama required by the Treaty.
Q. Won't toll increases mean less traffic and less income?
A. A study of Canal traffic and revenue forecasts recently completed by International Research Associates concludes that substantial increases in tolls will produce a substantial increase in total income despite some drop-off in traffic. A 30 percent toll increase would generate 27 percent additional revenue in the first year, dropping to a stable 22 percent increase after seven years. A toll increase of 75 percent would increase revenues 58 percent in the first year, dropping to a maximum attainable stable increase of 40 percent after7 years.
Q. What about the hidden costs of higher tolls to the American consumers?
A. A toll increase of 20 to 30 percent over existing levels will have a minimum, if not negligible, impact on our trade and economy. A toll increase of about 30 percent will involve a total transportation cost increase for Canal shipments of less than 1 percent. Users of the Canal would pay only about $50 million more in tolls per year on cargoes that have a value of roughly $50 billion or one-tenth of 1 percent. Of the $50 million, U.S. business and consumers will be the ultimate payers of only about $15 million. The overall impact will therefore be negligible both in terms of American businesses and the purchasing power of the consumer.
Q. How can we be sure the Panamanians will maintain the Canal so it can, in fact, stay open?
A. Under the new Treaties, Panama's self-interest will give that country every incentive to maintain the Canal and operate it as efficiently as possible. Furthermore, over the next 22 years, the United States will be working with Panama toward this end. Pursuant to Treaty provisions, we will establish training programs and provide on-the-job experience at all levels. Under our guidance, Panamanians will increasingly participate in management. Approximately 80 percent of the current work force is Panamanian, and there is every reason to believe that by the year 2000 Panama will be fully capable of operating the Panama Canal.
Q. Will the Treaties require any appropriated funds?
A. Payments to Panama under the Panama Canal Treaties will be made from Canal revenues, not tax dollars. Moreover, all operating expenses of the new entity will be paid from Canal revenues.
Administration spokesmen have testified on several occasions before Congressional Committees that the transition from our present role to our proposed role under the new Treaties would entail some costs in the U.S. budget. One major cost would be relocation of Defense installations, estimated at $43 million for the first three years. Another would be an early retirement program for Canal enterprise and certain other employees. The Canal Treaty provides for an optional early retirement program as an employee security assurance for these employees. The design of the program, however, will be at U.S. discretion. The programs which have been discussed within the Administration range in cost up to $150 million. There will be additional DOD costs resulting from a merger of the Canal Company and DOD activities, and assumption of any non- reimbursable costs for health, education and other support functions. The total appropriation impact over 21 years based on present information is unlikely to be much more than $350 million. None of the appropriated funds for these costs would go to Panama.
Q. Are there other budgetary implications?
A. Although not required by the Treaty, the Administration will recommend that the Treasury cease collecting annual interests payments from the Canal Company which have been paid since 1951 and which are currently averaging $18-$20 million. It will be up to Congress to decide whether to accept the Administration's recommendation. The Administration's recommendation is based on the fact that we have always treated the Canal as a public utility, the use of which benefits the country as a whole in peace and war.
A separate economic and military cooperation package of $345 million over five years — all in repayable loans, credits or guarantees — is planned. This package depends on development of programs to meet existing Congressional established 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.
Q. What about the contingent $10 million payment? Will we be obligated to pay off on that in the year 2000? Will it be part of the toll base?
A. 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.
Q. What is the value of property to be transferred to Panama under the terms of the Panama Canal Treaties?
A. Canal Company and Canal Zone Government property which will be transferred to Panama during the life of the Treaty had a net book value in 1977 of $96 million. The Canal, its related installations and other facilities which will be transferred upon termination of the basic Treaty are expected to have a net book value in the year 2000 of $98 million. Thus the monetary grand total of existing Canal Company and Canal Zone Government property to be transferred to Panama by the terms of the Canal Treaty is $194 million. Panama would also receive capital improvements to the Canal and its facilities made during the Treaty's lifetime which the Canal Company, based on planned capital improvements, currently estimates at $454 million. The true value of the Canal and its related assets, however, cannot be measured in terms of cash investments. The true value to the United States is measured in terms of our ability to continue to use the waterway.
The approximate acquisition and improvement costs as of FY 1978 of military facilities to be turned over to Panama:
Million
Treaty starting day $ 27.5
Other facilities to be turned over sometime during the Treaty term 33.5
On termination of the Treaty 291.9
Total cost of military facilities 352.9
Q. What will be the military relocation costs to meet the requirements of the Treaties? Why should we bear any costs?
A. Lieutenant General McAuliffe, Commander-in-Chief, United States Southern Command, has made an initial estimate of the costs required for the first three years:
Million
Relocation of Albrook (east of the runway) AFB facilities $19.9
Relocations from Ft. Amador 17.4
Relocation of Curundu Antenna Field 5. 3
Rehabilitation of postal facilities .3
Total $42.9
These are preliminary figures which have not yet been subjected to any budget review process. Some costs are still understudy and not available; e.g., those involving the exchange service warehousing complex, costs associated with surveying boundaries, installation of fencing. lights, etc.
The Treaty provides that we will maintain a military force in Panama until the end of the century. With or without the Treaty some relocation would be recommended in the interest of efficiency.