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7- PANAMA CANAL PMISCEL' - US
HEA JNGS
BEFORE THED
SUBCOMMITTEE ON THE
PANAMA CANAL/OUTER CONTINENTAL SHELF
OF THE
COMMITTEE ON MERCHANT MARINE AND FISHERIES
HOUSE OF REPRESENTATIVES
NINETY-SEVENTH CONGRESS SECOND SESSION
ON
REPEAL PANAMA CANAL CODE-H.R. 5601 FEBRUARY 26, 1982
PANAMA CANAL COMMISSION AUTHORIZATION, FISCAL
YEAR 1983, AND OVERSIGHT APRIL 20, 1982
Serial No. 97-34
Printed for the use of the Committee on Merchant Marine and Fisheries
-lb
U. S..:GOVBRi ENT PRINTING:0F1FICE '
"97-.54 0 WASHING.TON: .1982' '2 J




COMMITTEE ON MERCHANT MARINE AND FISHERIES
WALTER B. JONES, North Carolina, Chairman
MARIO BIAGGI, New York GENE SNYDER, Kentucky GLENN M. ANDERSON, California PAUL N. McCLOSKEY, JR., California JOHN B. BREAUX, Louisiana EDWIN B. FORSYTHE, New Jersey GERRY E. STUDDS, Massachusetts JOEL PRITCHARD, Washington DAVID R. BOWEN, Mississippi DON YOUNG, Alaska CARROLL HUBBARD, JR., Kentucky NORMAN F. LENT, New York DON BONKER, Washington DAVID F. EMERY, Maine NORMAN E. D'AMOURS, New Hampshire THOMAS B. EVANS, JR., Delaware JAMES L. OBERSTAR, Minnesota ROBERT W. DAVIS, Michigan WILLIAM J. HUGHES, New Jersey WILLIAM CARNEY, New York BARBARA A. MIKULSKI, Maryland CHARLES F. DOUGHERTY, Pennsylvania EARL HUTTO, Florida NORMAN D. SHUMWAY, California BRIAN J. DONNELLY, Massachusetts JACK FIELDS, Texas W. J. (BILLY) TAUZIN, Louisiana CLAUDINE SCHNEIDER, Rhode Island THOMAS M. FOGLIETTA, Pennsylvania E. CLAY SHAW, JR., Florida WILLIAM N. PATMAN, Texas
FOFO I. F. SUNIA, American Samoa DENNIS M. HERTEL, Michigan
ROY DYSON, Maryland
JOSEPH F. SMITH, Pennsylvania
EDMUND B. WELCH, Chief Counsel
MICHAEL J. TOOHEY, Minority Staff Director
SUBCOMMITTEE ON PANAMA CANAL/OUTER CONTINENTAL SHELF
CARROLL HUBBARD, JR., Kentucky, Chairman
JOHN B. BREAUX, Louisiana NORMAN F. LENT, New York DAVID R. BOWEN, Mississippi EDWIN B. FORSYTHE, New Jersey THOMAS M. FOGLIETTA, Pennsylvania DON YOUNG, Alaska GLENN M. ANDERSON, California DAVID F. EMERY, Maine BARBARA A. MIKULSKI, Maryland WILLIAM CARNEY, New York JOSEPH F. SMITH, Pennsylvania JACK FIELDS, Texas W. J. (BILLY) TAUZIN, Louisiana GENE SNYDER, Kentucky WALTER B. JONES, North Carolina (Ex Officio) (Ex Officio)
JANIE LAWSON, Staff Director
JANA RUE OAKLEY, Clerk
ROBIN MCCLUNG, Minority Professional Staff BUD DRAGO, Minority Counsel
.......II)




CONTENTS
REPEAL PANAMA CANAL CODE
Page
Hearing held February 26, 1982 .............. ..................... 1
Text of H.R. 5601 ................................................. 3
Statement of:
Bauman, Robert, former member of the House of Representatives from
the State of Maryland ........ .................................. 46
Prepared statem ent .... ........................... .................................... 50
Bruer, Calvin R., president, Panama Canal Federation of Teachers ......... 60
Coakley, William F., Deputy Director for Compensation and Overseas
Employment Policy, Office of the Assistant Secretary of Defense for
Manpower, Reserve Affairs and Logistics ................................................. 16
Conahan, Frank C., Director, International Division, U.S. General Accounting O ffice ......................................... ... ....................................... ..... 63
Devine, Donald J., Director, Office of Personnel Management........................ 73
Gianelli, William R., Assistant Secretary of the Army (Civil Works) ........ 16
Prepared statement....... . . .. . .......................................... 20
Lent, Hon. Norman F., a Representative in Congress from the State of
New York .................... .. .................. ....... .... .......... 15
McAuliffe, Gen. Dennis P., Panama Canal Commission ................. 16, 34
Normandeau, Andrew, of Ragan & Mason law firm................. ... 65
Sear, Morey, U.S. district court judge, eastern district of Louisiana ............. 43
Prepared statement.......................................... 44
Simpkins, Talmage, executive director, AFL-CIO Maritime Committee ...... 58 Additional material supplied:
Benkert, W. M.: Claims pending before Panama Canal Commission for
marine accidents outside the locks ..............................102
Devine, Donald J.:
Document on the position of the Panamanian Members of the Board
of Directors of the Panama Canal Commission on Public Law 96-70
or Panama Canal Act of 1979. .................. ............ 74
Draft bill.....*s*........................................................................................................ 81
Gianelli, William R.:
Inclusion of working capital factor in toll base ......................................... 31
Proposed amendment to H.R. 5601 with analysis ...................... 29
Recovery of capital for plant replacement, expansion, and improvements ............................................................................................................... 25
Normandeau, Andrew:
Proposed amendment to H.R. 5601 ....... ...................... 66
The Seizure of the Panama Power & Light Co. and "Hijacking" of
Canal Zone Buses ........................................ 69
Communications submitted:
Benkert, W. M.: Letter of March 10, 1982, to Hon. Walter B. Jones ............. 100
Gianellie, William R.:
Letter of March 3, 1982, to Hon. Carroll Hubbard, Jr., with enclosure. 22 Letter of May 7, 1982, to Hon. Walter B. Jones with attachment......... 23
PANAMA CANAL COMMISSION AUTHORIZATION, FISCAL YEAR 1983, AND OVERSIGHT
Hearing held April 20, 1982 ....................................... 103
Text of H.R. 6196............................................................................... 105
Report from:
Panama Canal Commission ............................................................ 110
State Department......................................................................... 116
(III)




IV
Statement of:
Bjorseth, Walter D., Chief, Financial Management, Panama Canal Corn- Page
m ission .................................................................................................................... 118
Boatwright, Robert J., Chief, Budget Branch, Panama Canal Commission.. 118 Chism, Edward, staff assistant, Panama Canal Commission ........................... 118
Gianelli, William R., Assistant Secretary of the Army (Civil Works) ............ 118
Lent, Hon. Norman F., a Representative in Congress from the State of
New York ............................................... 104
McAuliffe, Dennis P., Administrator, Panama Canal Commission................ 118
Prepared statement ....................................................... 124
Rhode, Michael, Jr., Secretary, Panama Canal Commission ........................... 118
Schroeder, Myron A., Chief, Financial Planning Division, Panama Canal
Commission.............................................. 118
Additional material supplied:
Panama Canal Commission:
Address by Mr. Ricardo Alonso Rodriguez, Minister of the Presidency
and Member of the Panama Canal Commission Board of Directors
on March 25, 1982, Administration Building, Panama City ......... 206
Annex to address of Mr. Ricardo Alonso Rodriguez: Comments on
replies submitted by U.S. Representatives .............................................. 226
Capital changes ...................................................... 175
Changes in cost projection for fiscal year 1983 .... ................ 142
Comparative budget figures ....................................................................... 152
Dredge "Mindi" .......................................... 174
Fiscal year 1983 capital program priorities ...................... 171
Permanent and temporary employees ......................................................... 145
Pilot compensation .................................................. 144
Questions submitted by Mr. Bowen and answers .................. 180
Questions submitted by Mr. Hubbard and answers ................................. 177
Questions submitted by Mr. Jones and answers ......................................... 154
Questions submitted by Mr. Lent and answers ..................... 182
Additional questions and answers ......................................................... 202
Record of proceedings and inspection in case of M.V. Star Malmanger
and Tug U S. R ousseau ................................................................................ 235
Sum m ary of work force .................................................................................. 146
Trans-Panam a pipeline .......................................................... ............. 139




REPEAL PANAMA CANAL CODE
FRIDAY, FEBRUARY 26, 1982
HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON PANAMA
CANAL AND OUTER CONTINENTAL SHELF, COMMITTEE ON
MERCHANT MARINE AND FISHERIES,
Washington, D.C.
The subcommittee met, pursuant to notice, at 9:30 a.m., in room 1334, Longworth House Office Building, Hon. Carroll Hubbard, Jr. (chairman of the subcommittee) presiding. Present: Representatives Hubbard and Carney. Staff present: Merrill Whitman, Janie Lawson, Jana Oakley, Bud Drago, and Robin McClung.
Mr. HUBBARD. The Subcommittee on the Panama Canal and Outer Continental Shelf will now come to order. We appreciate the attendance of each of you. This hearing has been called to consider enactment of legislation regarded as necessary or desirable in the light of the expiration on March 31, 1982, of the transition period established by the Panama Canal Treaty of 1977 and experience in operation of H.R. 5601, introduced on February 24, by the distinguished chairman of the Committee on Merchant Marine and Fisheries along with the chairman and ranking minority member of this subcommittee. Copies of the bill in draft form, with a section-by-section analysis were made available when the hearing was announced and witnesses were invited to testify.
After expiration of the transition period on March 31, 1982, certain laws and regulations of the United States will cease to apply in the area made available by Panama for operation of the canal formerly referred to as the Canal Zone, and the courts of the United States in that area will cease to function. H.R. 5601 would repeal laws that no longer apply and provide for transfer to the U.S. district court for the eastern district of Louisiana of cases that remain pending in the U.S. courts in Panama at the end of the transition period. The bill would also vest jurisdiction in the eastern district of Louisiana in criminal proceedings on certain Federal offenses committed in Panama. Amendments to the provisions to the Panama Canal Act relating to accounting for Panama Canal funds and for adjustment of charges for the use of the canal continue the present plan of the Panama Canal Act that requires payment of all canal revenues into a special fund in the Treasury and limits expenditures from the fund to those authorized and appropriated by the Congress within the limits of the amount of revenues.
(1)




2
The bill contains no permanent authorizations or appropriations, which will continue on an annual basis. The minor changes in the fiscal provisions of the bill are intended to reinforce the requirement of the 1979 act that all costs associated with the operation of the canal, including capital costs, are to be paid from canal revenues and not from the general fund of the Treasury.
The change in section 1313 of the 1979 act providing for audit of the Commission's accounts by the Comptroller General of the United States emphasizes that the Accounting and Auditing Act of 1950, applicable to agencies of the U.S. Government generally, is controlling.
A provision requiring a Government-wide audit of all costs of implementing the 1977 treaties is deleted in accordance with a recommendation of the Comptroller General who has found that records necessary for such an audit are not maintained on a Governmentwide basis and that the requirement in its present form interferes with the timely audit of the Commission's account.
The underlying position of the 1979 act limiting the amount of additional costs incurred to implement the treaty is not changed by the bill, and the necessity and desirability of providing effective controls, including appropriate audits, will be considered in oversight hearings of the performance of the requirements of the Panama Canal Act.
The bill also amends the provisions of the Panama Canal Act of 1979 and title 5 of the U.S. Code to make available to employees of the Department of Defense in Panama housing allowances in lieu of the traditional pay differential otherwise available under the 1979 act. Other amendments relate to collection of amounts due for services furnished to employees, and for two additional holidays for employees in Panama.
Changes are also made in the regulatory provisions of the Panama Canal Act made necessary by the end of the transition period.
[A copy of the bill follows:]




3
97TH CONGRESS
2D SESSION H. R. 5601
To amend the Panama Canal Act of 1979, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 24, 1982
Mr. JONES of North Carolina (for himself, Mr. HUBBARD, and Mr. LENT) introduced the following bill; which was referred to the Committee on Merchant
Marine and Fisheries
A BILL
To amend the Panama Canal Act of 1979, and for other purposes.
1 Be it enacted by the Senate and House of Representa2 ties of the United States of America in Congress assembled,
3 DELEGATION OF AUTHORITY
4 SECTION 1. (a) The Panama Canal Act of 1979 (22 5 U.S.C. 3601 et seq.) is amended by adding after section 3 the
6 following new section:
7 "DELEGATION OF AUTHORITY
8 "SEC. 4. Authority vested by this Act in the President 9 or the Secretary of Defense may be delegated to any other




4
2
1 officer of the United States but may not be redelegated by
2 such other officer.".
3 (b) The table of contents of the Panama Canal Act of 4 1979 is amended by adding immediately after the item relat5 ing to section 3 the following new item: "4. Delegation of authority.".
6 PAY AND ALLOWANCES
7 SEC. 2. (a) Section 1217 of the Panama Canal Act of
8 1979 (22 U.S.C. 3657) is amended9 (1) in subsection (c), by inserting "subsection (a) 10 of" after "under"; and
11 (2) in subsection (d)12 (A) by striking out "(d) Subchapter" and in13 serting in lieu thereof "(d)(1) Except as provided 14 in paragraph (2) of this subsection, subchapter"; 15 and
16 (B) by adding at the end thereof the follow17 ing:
18 "(2) In lieu of the additional compensation authorized by 19 subsection (a) of this section, if Government quarters cannot 20 be provided to an employee who was transferred to the De21 partment of Defense pursuant to the Panama Canal Treaty of 22 1977, or who is recruited outside of the Republic of Panama 23 after the date of the enactment of this Act for duty with the 24 Department of Defense in the Republic of Panama, the De25 partment of Defense may pay the quarters allowance pro-.




5
3
1 vided by section 5923 of title 5, United States Code, if the 2 employee is otherwise eligible for such allowance under ap3 plicable regulations.".
4 (b) Title 5, United States Code, is amended5 (1) in section 6103, by adding after subsection (c)
6 the following:
7 "(d) In addition to the legal public holidays listed in 8 subsection (a) of this section, the following are legal holidays 9 for officers and employees of the Panama Canal Commission 10 who are stationed or employed in the Republic of Panama: 11 "Good Friday.
12 "Panamanian Independence Day, November 3."; 13 (2) in section 5921(6), by striking out "the Canal 14 Zone,";
15 (3) in section 5924(4)(B), by striking out "Not16 withstanding section 5921(6) of this title, travel" and 17 inserting in lieu thereof "Travel"; and 18 (4) in section 8138(b), by striking out "Canal 19 Zone Government or the Panama Canal Company" 20 and inserting in lieu thereof "Panama Canal Commis21 sion".
22 MINIMUM ANNUAL INCREASE 23 SEc. 3. Section 1225(b)(2) of the Panama Canal Act of 24 1979 (22 U.S.C. 3665(2)) is amended to read as follows:




6
4
1 "(2) The rate of basic pay for each individual referred to 2 in paragraph (1) of this subsection whose basic pay is not 3 fixed in relation to rates of basic pay for the same or similar 4 work performed in the United States shall be increased each 5 year by an amount equal to not less than 2 percent of the 6 rate of basic pay for that individual in effect immediately
7 before the date of that increase.".
8 ACCOUNTING POLICIES
9 SEC. 4. Section 1311(b) of the Panama Canal Act of 10 1979 (22 U.S.C., 3721(b)) is amended to read as follows: 11 "(b) Regulations issued pursuant to the Accounting and 12 Auditing Act of 1950 which establish the basis of accounting 13 for the assets that are made available for the use of the Com14 mission may provide for depreciation of the net replacement 15 value of the assets which will ultimately require replacement 16 to maintain the service capacity of the Panama Canal. Such 17 regulations may also provide that depreciation of such, assets 18 be recorded ratably over their service lives.". 19 AUDIT BY THE COMPTROLLER GENERAL OF THE UNITED 20 STATES 21 SEC. 5. Section 1313 of the Panama Canal Act of 1979 22 (22 U.S.C. 3723) is amended to read as follows: 23 "SEC. 1313. Financial transactions of the Commission 24 shall be audited by the Comptroller General of the United 25 States pursuant to the Accounting and Auditing Act of 1950




7
5
1 (31 U.S.C. 65 et seq.). The Comptroller General shall submit 2 to the Congress a report of the audit conducted pursuant to
3 this section with respect to each fiscal year.".
4 INTERAGENCY SERVICES; REIMBURSEMENTS
5 SEC. 6. Section 1321(d) of the Panama Canal Act of 6 1979 (22 U.S.C. 3731(d)) is amended by adding at the end 7 thereof the following new sentence: "Collection of amounts 8 payable by persons for services referred to in subsection (c) of 9 this section that are provided to such persons shall be the 10 responsibility of the department or agency providing the serv11 ices involved.".
12 CONGRESSIONAL RESTRAINTS ON PROPERTY TRANSFERS 13 AND TAX EXPENDITURES 14 SEC. 7. Section 1344(b) of the Panama Canal Act of 15 1979 (22 U.S.C. 3754(b)) is amended to read as follows: 16 "(b) Prior to the transfer of property of the United 17 States located in the Republic of Panama to the Republic of 18 Panama pursuant to section 1504 of this Act the President 19 shall formally advise the Government of Panama that20 "(1) in fulfilling its obligations under the Panama 21 Canal Treaty of 1977, the United States shall make no 22 payments to the Republic of Panama derived from tax 23 revenues of the United States; 24 "(2) the United States retains full discretion and 25 authority to determine whether and the extent to




8
6
1 which tax revenues of the United States may be ex2 pended in exercising United States rights and carrying 3 out United States responsibilities under the Panama
4 'Canal Treaty of 1977 and related agreements;
5 "(3) no tax revenues of the United States shall be 6 made available for obligations and expenditure after the 7 effective date of this Act for purposes of implementing 8 the Panama Canal Treaty of 1977 and related agree9 ments, unless hereafter specifically approved by the 10 Congress through the authorization and appropriation 11 process; and
12 "(4) the total amount expended by the Commis13 sion from funds appropriated to or for the use of the 14 Commission shall not exceed the total amount deposit15 ed in the Panama Canal Commission Fund.". 16 BASES OF TOLLS 17 SEC. 8. Section 1602(b) of the Panama Canal Act of 18 1979 (22 U.S.C. 3792(b)) is amended to read as follows: 19 ',(b) Tolls shall be prescribed at rates calculated to pro20 duce revenues to cover as nearly as practicable all costs of 21 maintaining and operating the Panama Canal, together with 22 the facilities and appurtenances related thereto, including (1) 23 unrecovered costs incurred on or after October 1, 1979, (2) 24 interest, (3) depreciation, (4) payments to the Republic of 25 Panama pursuant to paragraph 5 of Article Ill and para-




9
7
1 graphs 4 (a) and (b) of Article XIII of the Panama Canal 2 Treaty of 1977, (5) capital for plant replacement, expansion, 3 and improvements, (6) reimbursements to the Treasury of the 4 United States for costs incurred by other departments and 5 agencies of the United States in providing educational, 6 health, and other services to the Commission, to the employ7 ees of the Commission and their dependents, and to other 8 categories of persons, in accordance with section 1321 of this 9 Act, and (7) any costs that are incurred in implementing the 10 Panama Canal Treaty of 1977 and related agreements and 11 that are associated with the maintenance and operation of the 12 Panama Canal. Tolls shall not be prescribed at rates calculat13 ed to produce revenues sufficient to cover payments to the 14 Republic of Panama pursuant to paragraph 4(c) of Article 15 XIII of the Panama Canal Treaty of 1977.". 16 OPERATING REGULATIONS 17 SEC. 9. Section 1801 of the Panama Canal Act of 1979 18 (22 U.S.C. 3811) is amended to read as follows: 19 "OPERATING REGULATIONS 20 "SEC. 1801. The President may prescribe, and from 21 time to time amend, regulations governing 22 "(1) the operation of the Panama Canal; 23 "(2) the navigation of the harbors and other 24 waters of the Panama Canal and areas adjacent there25 to, including the Ports of Balboa and Cristobal;




10
8
1 "(3) the passage and control of vessels through 2 the Panama Canal or any part thereof, including the
3 locks and approaches thereto;
4 "(4) pilotage in the Panama Canal or the ap5 proaches thereto through the adjacent waters;
6 "(5) the licensing of officers or other operators of 7 vessels, belonging to or operated by the Commission, 8 which navigate the waters of the Panama Canal and 9 areas adjacent thereto, including the Ports of Balboa 10 and Cristobal; and
11 "(6) swimming in the Panama Canal and waters 12 adjacent thereto.".
13 JUDICIARY 14 SEC. 10. Title II of the Panama Canal Act of 1979 (22 15 U.S.C. 3831 et seq.; 93 Stat. 493-496) is amended to read 16 as follows:
17 "TITLE II-COURTS 18 "JURISDICTION OVER PENDING ACTIONS 19 "SEC. 2101. (a) The United States District Court for 20 the Eastern District of Louisiana shall, on April 1, 1982, 21 assume the jurisdiction of all actions that originated in the 22 United States District Court for the District of the Canal 23 Zone or in the magistrates' courts established pursuant to 24 section 81 of title 3 of the Panama Canal Code (76A Stat.




11
9
1 54) and that have not been finally disposed of as of March 31,
2 1982.
3 "(b) In disposing of the cases referred to in subsection 4 (a) of this section, the United States District Court for the 5 Eastern District of Louisiana shall construe the terms 6 'United States citizen employees', 'members of the United 7 States Forces', 'civilian component', and 'dependents' as 8 such terms are defined in the Panama Canal Treaty of 1977 9 and related agreements, and shall construe the term 'areas 10 and installations made available for the use of the United 11 States' to mean (1) the Panama Canal operating areas and 12 housing areas described in Annex A to the Agreement in 13 Implementation of Article I of the Panama Canal Treaty of 14 1977, (2) the Ports of Balboa and Cristobal described in 15 Annex B to that agreement, and (3) the defense sites and 16 military areas of coordination described in Annex A to the 17 Agreement in Implementation of Article IV of the Panama 18. Canal Treaty of 1977.
19 "FEDERAL JURISDICTION OVER NEW OFFENSES 20 "SEc. 2102. (a) Except as otherwise provided by law, 21 the district courts of the United States shall have original 22 jurisdiction of all Federal offenses committed in the Republic 23 of Panama by a United States citizen employee of the Com24 mission, a member of the civilian component, or a dependent




12
10
1 of such employee or member, or by a dependent of a member
2 of the United States Forces.
3 "(b) Except as otherwise provided by law, prosecutions 4 under this section shall be brought in the United States Dis5 trict Court for the Eastern District of Louisiana.
6 "(c) Subject to the provisions of the Panama Canal 7 Treaty of 1977 and related agreements, the provisions of title 8 18, United States Code, and of any other Federal-law the 9 violation of which is punishable by a criminal penalty shall 10 apply within the Republic of Panama, in the same manner 11 and to the same extent that such laws apply within the spe12 cial maritime and territorial jurisdiction of the United States, 13 to United States citizen employees of the Commission, to 14 members of the United States Forces and the civilian compo15 nent, and to the dependents of such employees and members. 16 "(d) As used in this section, the term 'Federal offense' 17 means a violation of Federal law other than chapter 47 of 18 title 10, United States Code (United States Code of Military 19 Justice), for which a criminal penalty may be imposed. This 20 section shall not impair any jurisdiction granted pursuant to 21 chapter 47 of title 10, United States Code. 22 "(e) As used in this section, the terms 'United States 23 citizen employees', 'civilian component', 'members of the 24 United States Forces', and 'dependents' shall have the mean25 ings referred to in section 2101(b) of this Act.




13
11
1 "REGISTRATION OF JUDGMENTS
2 "SEc. 2103. (a) The provisions of section 1963 of title 3 28, United States Code, shall apply to judgments entered in 4 the United States District Court for the District of the Canal
5 Zone.".
6 (b) The table of contents of the Panama Canal Act of 7 1979 is amended by amending the items relating to title II to
8 read as follows:
"TITLE H-COURTS
"2101. Jurisdiction over pending actions.
"2102. Federal jurisdiction over new offenses.
"2103. Registration of judgments.".
9 REPEALS
10 SEC. 11. The following provisions of law are repealed: 11 (1) The Panama Canal Code (76A Stat. 1 et 12 seq.), as redesignated by section 3303(b) of the
13 Panama Canal Act of 1979 (22 U.S.C. 3602 note).
14 (2) Section 14 of title 18, United States Code.
15 (3) The following sections of the Panama Canal
16 Act of 1979:
17 (A) Section 3(d) (22 U.S.C. 3600(d)).
18 (B) Section 1605 (22 U.S.C. 3795).
19 (C) Section 1701 (22 U.S.C. 3801).
20 (ID) Section 1702 (22 U.S.C. 3802).
21 (E) Section 3101 (22 U.S.C. 3861).
97-154 O-82----2




14
12
1 EFFECTIVE DATE
2 SEC. 12. (a) Section 11 of this Act and the amendments 3 made by sections 7, 9, and 10 of this Act shall take effect on
4 the date of the enactment of this Act.
5 (b) The amendments made by sections 1, 2, 3, 4, 5, 6,
6 and 8 of this Act shall take effect on October 1, 1982.




15
Mr. HUBBARD. Our witnesses this morning include: Hon. William R. Gianelli, Assistant Secretary of the Army (Civil Works), appearing on behalf of the Department of Defense.
Accompanying Mr. Gianelli is Gen. Dennis P. (Phil) McAuliffe, Administrator of the Panama Canal Commission, and Hon. Morey Sear, U.S. district court judge in the eastern district of Louisiana, appearing on behalf of the Judicial Conference of the United States; Hon. Robert Bauman, former Member of Congress from the State of Maryland; Talmage Simpkins, executive director, AFLCIO Maritime Committee; Calvin R. Bruer, president, Panama Canal Federation of Teachers.
We have also received reports on the bill, or appropriate provisions of the bill from the General Accounting Office and the Honorable Andrew Normandeau, Ragan & Mason law firm.
Another statement expected to be submitted for the record is from the Office of Personnel Management.
Without objection, these statements will be included in the record of the hearing after the testimony of the witnesses who are present.
Is there any objection?
Hearing none, it is so ordered that the statements referred to will be included in the record of this hearing after the testimony of the witnesses who are here today.
Congressman Norman Lent, the ranking minority member of the subcommittee from the State of New York wants his statement submitted for the record.
Is there objection to that?
If not, his statement is indeed included in the record.
[The statement of Mr. Lent follows:]
STATEMENT BY HON. NORMAN F. LENT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW YORK
Mr. Chairman, March 31, 1982, marks the end of the first phase of the Panama Canal Treaties of 1977. On that date the 30-month transition period will end. After that date there is no authority for continued exercise of U.S. law enforcement and judicial jurisdiction in the Republic of Panama and the concurrent application of U.S. criminal and civil laws with those of Panama will come to an end. Experience and testimony heard by the Panama Canal Subcommittee during this period indicate that amendments to Public Law 96-70 would facilitate U.S. management and operation of the Canal until the year 2000. In that regard I look forward to the testimony we will hear today on the bipartisan bill introduced this past week to amend the Panama Canal Act and repeal the Panama Canal Code. I am determined to make certain that the United States' responsibilities under the 1977 Treaties are exercised in accordance with the laws of the United States. In that regard I look forward to the testimony of the witnesses today. Thank you, Mr. Chairman.
Mr. HUBBARD. I call on Congressman William Carney, also from the State of New York, for any comment.
Mr. CARNEY. Thank you.
I think you summed up the reasons for these hearings and I look forward to hearing the testimony of the five witnesses today and look forward to smooth sailing to a markup of a bill that will accommodate everyone's needs, both down in Panama and, of course, the needs and wishes of the Members of Congress, so why don't we have our witnesses come forward.
Mr. HUBBARD. Thank you.




16
The first witness scheduled was to be the Honorable Morey Sear, the U.S. district court judge. He has graciously consented to go second in order that Hon. William R. Gianelli can get back to another meeting at the Department of Defense. We call on you first, Mr. Gianelli. He is representing the Department of Defense and has worked closely with me during 1981 and thus far this year relating to matters regarding the Panama Canal, and our relations with the Panamanian people and country.
STATEMENT OF WILLIAM R. GIANELLI, ASSISTANT SECRETARY OF THE ARMY (CIVIL WORKS), ACCOMPANIED BY GEN. DENNIS P. McAULIFFE, PANAMA CANAL COMMISSION; WILLIAM F. COAKLEY, DEPUTY DIRECTOR FOR COMPENSATION AND OVERSEAS EMPLOYMENT POLICY, OFFICE OF THE ASSISTANT SECRETARY OF DEFENSE FOR MANPOWER, RESERVE AFFAIRS AND LOGISTICS
STATEMENT OF WILLIAM R. GIANELLI
Mr. GIANELLI. Thank you very much.
I am William Gianelli, Assistant Secretary of the Army for Civil Works and also the Chairman of the Board of the Panama Canal Commission.
This is my first appearance before your committee, Mr. Chairman. I am delighted to be here.
Accompanying me at the table is Dennis P. McAuliffe, Administrator of the Commission, and with your permission, I would like to have my written statement for the record and I will make some verbal observations too.
Mr. HUBBARD. No objections, and we do appreciate also the appearance of Mr. Phil McAuliffe.
I admire him and appreciate the work he has done for our Nation in recent years with the Panama Canal Commission, and heis a dear friend and we appreciate his being here with you. Mr. GIANELL. I thought perhaps if it met with your approval, he might give a brief report after I finish my statement, concerning the operation of the canal this last year. At the outset, let me express to you and the rest of the committee my appreciation for the opportunity to appear to testify at this hearing concerning proposals for the revision of the Panama Canal Act of 1979.
I consider it to be of prime importance that there exists a close working relationship between the Congress and certainly especially this committee and my office in connection with the oversight of the canal operations.
I have initiated several steps such as timely information to the Congress concerning the Commission activities, which I believe has moved us toward our goal.
The Commission now has 28 months experience operating the canal under the terms of Public Law 96-70 and while I cannot say that this period has been problem free, I can say the agency has experienced no insurmountable problems in carrying out what I believe to be its mission.




17
I can testify that the conversion to the appropriated fund form has been successfully accomplished with minimum disruption and without change in the efficient service which the canal agency has traditionally provided to worldwide shipping.
Because of this, the administration believed it unnecessary to propose major revisions in the Commission's fiscal structure as established by Public Law 96-70. The few changes recommended to the Congress were limited to those which are particularly important to the administration, the Commission, and to the U.S. Southern Command.
The proposed changes were in the nature of refinements or fine tuning of the organization, rather, at least as I view it, a departure from the basic thrust of Public Law 96-70.
As regards the Commission, the aim of the administration's proposal submitted to the Congress last October is to enhance the businesslike operations of the Commission without reducing the oversight role of the Congress in canal matters fixed by Public Law 96-70.
The proposed bill that we are addressing today is the one introduced by the chairman of the Merchant Marine and Fisheries Committee, Mr. Jones, and the chairman and ranking minority member of this committee, Mr. Hubband and Mr. Lent. I want to commend the authors of the bill for their successful effort to address needed revisions in the present law.
The administration is generally supportive of the proposal as presented. That bill basically follows the administration's proposals, except we believe the committee may wish to consider adding other items to assist us in our operations in Panama.
I hope to work with the committee before markup to provide a more detailed rationale.
I would like to state, Mr. Chairman, we had a very good meeting with the staff of the committee yesterday, and representatives of some of the Members, and I would like to continue that dialog, and it certainly is very helpful to us to be able to get their views and reflect directly to them some of our concerns.
I would like to address several topics of concern that are part of the administration proposal, but not included in the bill that is before us today.
The 1977 treaty requires that the Commission be supervised by a Board composed of five U.S. nationals and four Panamanians. Public Law 96-70 provides that a quorum for the conduct of business consists of a majority of the Board members of which a majority of those present are nationals of the United States.
I would like to suggest a change that would insert a provision authorizing the use of proxies for the purposes of establishing that quorum when necessary.
As the law now stands, an absence by any one of the U.S. Board members could make it impossible to have a meeting of the Commission, and as Chairman, I am required to have a majority of the Board present and a majority of those present must be U.S. nationals in order to convene a meeting, in order to take any action.
Presently I cannot have a meeting unless all five of the U.S. members are present. Thus far, all U.S. members have been present, but we have had to shift meetings for considerable periods in




18
order to find a suitable time when all U.S. members could be present.
We have had to shorten some meetings also because of a need of a Board member to leave unexpectedly. This change could be very helpful in the conduct of the Commission's business, and we discussed this matter at some length with your staff yesterday; and if there is some concern about unlimited use of proxies, I would like to welcome any limited proposal which the committee might want to suggest so long as we do have some flexibility to operate. I would like to comment that three of our members from the United States are public members, busy people, and it is very often difficult for them to find 4 or 5 days necessary to set aside for the conduct of the Commission's business. So, it would be very helpful to us if we could work with the committee and your staff with some sort of an amendment which would give us some flexibility in terms of how many people we might have to have at a meeting to conduct our business, and if there is some concern on behalf of the committee or the committee staff, we would certainly welcome any limitations you might want to place on us for the use of proxies so that we could have some flexibility in that regard.
Next, concerning the financial provisions of the bill, there are two changes we would like to see made with regard to the provision in the bill dealing with the formula for determining tolls.
As presently drafted, that provision could be misconstrued to require that the toll base include both the full cost of capital for plant replacement, expansion and improvements, as well as depreciation.
Such a requirement would impose, we believe, an unfair and unnecessary burden on the steamship owners and operators using the waterway and would be improper from an accounting standpoint.
Moreover, such an interpretation could result in a substantial profit payment to Panama which I think would be contrary to another provision of the law specifically prohibiting toll rates from being set at a level to produce profits which would flow to Panamaunder the treaty mandated contingency payment.
Let me comment, Mr. Chairman, if I could, that I think Mr. Whitman of your committee has a different view of the effect of this provision, and we discussed this thing at great length yesterday, and I am not sure there was a meeting of the mind.
I would appreciate the opportunity for the Commission staff to confer further with Mr. Whitman, and in addition, that we be allowed to prepare a staff paper which is our analysis of this section and if we could, I believe we could present that as part of your record, and we could have it to you early next week. I believe that perhaps it would at least give you our interpretation of how this would work, Mr. Chairman, and perhaps provide an opportunity for us all to carry on further deliberations, because I think our objectives are the same. It is just that we need to have a meeting of the minds with respect to how the provision would work and if you would allow us to do that, I would very much appreciate it.
Another concern is to provide the same educational travel benefits for dependents of employees of the Department of Defense in Panama as are available to employees in the Panama Canal Coinmission and DOD employees in other overseas areas.




19
There are also a few revisions needed to correct several problem areas that have arisen under section 1209 of Public Law 96-70 regarding the administration of the Federal Employees Compensation Act, the Civil Service Retirement Act, the Federal employees life insurance program, and the Federal Employees Health Benefits Act to non-U.S. citizen employees in the former Canal Zone.
There is also a need to clarify certain Department of Defense labor relations practices concerning the inclusion of supervisors and collective-bargaining units and to give flexibility to the Department of Defense to change personnel policies and practices affecting non-U.S. citizen employees in order to bring them into line with Panamanian labor law and practice as is required by the Treasury and we will be furnishing the committee further information for the record regarding these matters and we had quite a detailed discussion with the committee staff yesterday and it may be that some of these matters could be addressed by one of the other committees, if it is your pleasure, but at any rate, we would like to have the opportunity to have further dialog with you at the staff level and then to do whatever is necessary to make some of these changes.
I think the committee agrees with them.
It is a matter of how they would be implemented.
Let me also at this time, Mr. Chairman, address several of the proposals included in the bill before us.
First, section 1 of the bill pertaining to delegation of authority seems to restrict in great sense what the executive branch may do in regard to delegations of authority. The Secretary of Defense has delegated his authority to oversee the operation of the Panama Canal to my office through the Secretary of the Army.
As I understand the proposal and again, we had some discussions on this yesterday, this would change the delegation process and alter the present arrangement, and from a discussion with your staff yesterday, I am more than ever concerned that this proposal would require the Commission to radically alter the way in which it now operates and create a host of new problems which I don't believe the Commission needs to have at the present time.
Mr. Chairman, we doubt that this proposal would enhance the oversight responsibility of this committee and the administration recommendations that this provision be deleted from the proposal and again, we would be delighted to have further dialog because we are all* trying to go in the same direction and it is a matter of interpretation of what this would do and problems that it might create.
In addition, the amendment proposed to section 6103 of title 5 of the United States Code relating to legal public holidays should be expanded to employees of the Commission and also U.S. Government agencies operating in the Republic of Panama.
That is a matter of working it out to make sure other agencies are covered with the same rules that we have with respect to the Commission.
I would also like to make a brief comment on the need to have the jurisdictional provisions of your proposal in effect quickly and you will be hearing about that in a few moments.




20
A 30-month transition period which has been in effect since the 1977 treaty entered into force on October 1, 1979, will end at midnight on March 31, 1982, and when it does, the last vestiges of U.S. civilian law enforcement authority in Panama will disappear and with this removal of the U.S. court system in Panama, there will be a need for a forum in this country to dispose of any civil or criminal matters which may be still pending.
There will also be a need to have such a forum for new criminal matters over which the United States is given jurisdiction either by the treaty documents or by Panamanian waiver.
Finally, there will be a need, for a mechanism whereby judgments rendered by the U.S. courts which have been operating in the Canal Zone and Panama can be registered and enforced.
Accordingly, it would be helpful to have the legislation approved at an early date, particularly prior to April 1, if at all possible, so there will be no disruption in the administration of justice.
Mr. Chairman, in closing, I would like to reiterate my appreciation to you and to this committee for the opportunity to testify on the proposed changes to Public Law 96-70 and once again, I would like to say that I favor a very close and coordinated working relationship between the Congress and my office in Canal matters.
I think such a relationship is very important, and I look forward to working with you on these suggested changes and all future programs and policies directing the waterway and again, if it meets with your approval, I would like to suggest that the Administrator of the Panama Canal Commission, Mr. McAuliffe, give you a brief update on Commission operations and then both of us will be available for any questions you might have and we have some backup from staff if that is necessary.
Thank you very much, Mr. Chairman.
[The following was submitted:]
STATEMENT BY WILLIAM R. GIANELLI, ASSISTANT SECRETARY OF'THE ARMY (CIVIL WORKS) AND CHAIRMAN OF THE BOARD, PANAMA CANAL COMMISSION
INTRODUCTION
Mr. Chairman, members of the Committee, I am William Gianelli, Assistant Secretary of the Army for Civil Works and Chairman of the Board of the Panama Canal Commission. Accompanying me at the table today is Mr. Dennis P. McAuliffe, Administrator of the Commission.
At the outset, Mr. Chairman, let me express to you and the rest of the Committee my appreciation for the opportunity to appear and testify at this hearing concerning proposal for revision of the Panama Canal Act of 1979 (Public Law 96-70). I consider it to be of prime importance that there exist a close working relationship between the Congress-especially this Committee"and my office in matters connected with the oversight of Canal operations. As you are aware I have initiated several steps such as timely information to the Congress concerning Commission activities, which I believe have moved us toward that goal.
As the Committee is aware, the Administration sent a legislative proposal to amend P.L. 96-70 to the Congress last October. That proposal was staffed with every department in the Executive Branch which has an interest in the operation, protection and defense of the Panama Canal and contains input from each of them.
ADMINISTRATION 'S APPROACH
The Commission now has 28 months' experience operating the Canal under the terms of Public Law 96-70 and the agency has experienced no insurmountable problems in carrying out its mission during this period. Despite the change from a corporate entity to an appropriated fund agency, the waterway has continued to operate




21
efficiently. While I cannot say that the conversion from the corporate to the appropriated fund form has been problem-free, I can testify that the conversion has been successfully accomplished with minimum disruption and without change in the efficient service which the Canal agency has traditionally provided to world shipping.
Because of this, the Administration believed it unnecessary to propose major revisions in the Commission's fiscal structure as established by Public Law 96-70. The few changes recommended to the Congress were limited to those which are particularly important to the Administration, the Commission and to the United States Southern Command. The proposed changes were in the nature of refinements, or of fine-tuning of the organization, rather than a departure from the basic thrust of Public Law 96-70.
As regards the Commission, the aim of the Administration's proposal is to enhance the business-like operations of the Commission but without reducing the oversight role of the Congress in Canal matters fixed by Public Law 96-70.
CONTENTS OF BILL
The proposed bill that we are addressing today is one introduced by the Chairman of the Merchant Marine and Fisheries Committee and others. I want to commend the authors of the bill for their successful effort to address needed revisions in the present law. The Administration is generally supportive of the proposal as presented. That bill basically follows the Administration's proposal except that we believe the Committee may wish to consider adding other items to assist us in our operations in Panama. I should like to discuss some of these items briefly and would hope to work with the Committee before markup to provide a more detailed rationale.
First, I would like to address several topics of concern that were part of the Administration's proposal but not included in the bill before us.
Mr. Chairman, the 1977 Treaty requires that the Commission be supervised by a Board composed of five United States nationals and four Panamanians. Public Law 96-70 provides that a quorum for the conduct of business consists of a majority of the Board members of which a majority of those present are nationals of the United States. I propose a change that would insert a provision authorizing the use of proxies for the purposes of establishing that quorum when necessary.
As the law now stands, an absence by any one of the U.S. Board members could make it impossible to have a meeting of the Commission. As Chairman, I am required to have a majority of the Board present and a majority of those present must be U.S. nationals in order to convene a meeting. Presently, I cannot have a meeting unless all five of the U.S. members are present. Thus far, all U.S. members have been present, but we have had to shift meetings for considerable periods in order to find a suitable time when all U.S. members would be present. We have had to shorten some meetings also because of the need of a Board member to leave unexpectedly. This change would be very helpful in the conduct of the Commission's business.
Concerning the financial provisions of the bill, there are two changes we would like to see made with regard to the tolls formula. The first of these would expand on the elements to be included in the toll base and is intended to insure that the Canal continues to be operated on a self-sufficient basis. The second is really only a clarifying provision of the existing text and is designed to insure that shipping is not subject to a substantial and unnecessary increase in the toll rate, which I am sure was not intended.
Another concern is to provide for the same educational travel benefits for dependents of employees of the Department of Defense in Panama as are available in other overseas areas and to clarify certain Department of Defense labor relations practices.
Mr. Chairman, I also wish to address several of the proposals included in the bill before us.
First, section 1 of the Bill pertaining to Delegation of Authority seems to restrict-in great sense-what the Executive Branch may do in regards to delegation of authority. The Secretary of Defense has delegated his authority to oversee the operation of the Panama Canal to my office through the Secretary of the Army. As I understand the proposal, this would change the delegation process and alter the present arrangement. Mr. Chairman, we doubt this proposal will enhance the oversight responsibility of this committee and the Administration recommends that this provision be deleted from the proposal.
Second, the amendment proposed to Section 6103 of Title 5 of U.S. Code relating to legal public holidays should be expanded to cover employees not only in the Coin-




22
mission but also in the other U.S. Government agencies operating in the Republic of Panama.
I will also make a brief comment on the need to have the jurisdictional provisions of your proposal in effect quickly. The 30-month transition period which has been in effect since the 1977 Treaty entered into force on October 1, 1979 will end at midnight on March 31, 1982. When it does, the last vestiges of U.S. civilian law enforcement authority in Panama will disappear. With this removal of the U.S. court system in Panama, there will be a need for a forum in this country to dispose of any civil or criminal matters which are still pending. There will also be a need to have such a forum for new criminal matters over which the United States is given jurisdiction either by the Treaty documents or by Panamanian waiver. Finally there will be a need for a mechanism whereby judgments rendered by the U.S. courts which have been operating in the Canal Zone and Panama can be registered and enforced. Accordingly, it would be helpful to have the legislation approved at an early dateparticularly. prior to April 1 if possible, so there will be no disruption in the administration of justice.
CONCLUSION
Mr. Chairman, in closing, I would like to reiterate my appreciation to you and this Committee for this opportunity to testify on proposed changes to Public Law 96-70. Once again I would like to say that I strongly favor a close and coordinated working relationship between the Congress and my office in Canal matters: I think such a relationship is very important, and I look forward to working with you on these suggested changes and all future programs and policies affecting the waterway.
Mr. Chairman, if it meets with your approval, I recommend that the Administrator of the Panama Canal Commission, Mr. Dennis P. McAuliffe, offer a brief update on Commission operations and then both of us will be available for any questions the Committee might have.
DEPARTMENT OF THE ARMY,
OFFICE OF THE ASSISTANT SECRETARY,
Washington, D.C., March 1982.
Hon. CARROLL HUBBARD, JR.,
Chairman, Subcommittee on Panama Canal/Outer Continental Shelf U.S. House of
Representatives, Washington, D.C.
DEAR MR. CHAIRMAN: In the course of my February 26th testimony on H.R. 5601 before the Subcommittee on Panama Canal/Outer Continental Shelf, I indicated there are several modifications we would like to see made. At that time, I expressed my desire to work with the members of the Committee and staff to include these proposals in the bill. I believe our goals: to operate the waterway on a self-sufficient basis at no cost to the U.S. taxpayer and with no profit to accrue to the Republic of Panama, are the same. It is not our wish to circumvent the intent of the Congress in achieving these goals. Therefore, I ask your support in several areas of concern not presently included in the bill.
The first would clarify that the Commission is to continue to finance its capital program from funds generated from depreciation and, to the extent needed, by inclusion of a capital factor in the toll base. The second modification would allow the Commission to include a factor for working capital requirements in the base for calculating Canal tolls. (See attachments for detailed rationale.)
I also ask for your support for provision in the bill authorizing the use of proxies by the supervisory board. This is so that we might conduct necessary business and also provide some accommodation to the busy schedules of our members. This is particularly true with respect to our private sector members who, as you know, serve without pay. I will be willing to accept any proposal which will give us some flexibility while making certain the use of proxies is not abused.
We have proposed several amendments concerning personnel policies applicable to civilian employees of the Department of Defense and to clarify certain Department of Defense labor relations practices. No additional costs will be incurred to the Commission or Department Of Defense as a result of these proposals since these practices are currently applicable. The purpose of the amendments for Department of Defense is to permit continuation of these practices after repeal of the Panama Canal Code and to align conditions of employment for non-U.S. employees to conform with the general principles of Panamanian labor laws as required by Treaty implementing agreements.




23
Lastly, I want to reiterate our opposition to the provision of the bill that would restrict the Executive Branch with regard to delegations of authority. I do not believe such a limitation will contribute to the efficient operation of the Canal, nor will it enhance the oversight role of the Congress. As written, that proposal would be disruptive to the efficiency of administrative functions associated with the management of the Canal operation.
I affirm my desire for a close-working relationship with the Congress to achieve our mutual goals regarding Canal matters. From my perspective, I believe these changes to H.R. 5601 are necessary. I solicit your support.
Sincerely,
WILLIAM R. GIANELLI,
Assistant Secretary of the Army (Civil Works).
Enclosure.
BOARD OF DIRECTORS,
PANAMA CANAL COMMISSION,
May 7, 1982.
Hon. WALTER B. JONES,
Chairman, Committee on Merchant Marine and Fisheries, House of Representatives,
Washington, D.C.
DEAR MR. CHAIRMAN: During the markup session on March 16th in consideration of H.R. 5601, to amend the Panama Canal Act of 1979 and for other purposes, several amendments were adopted by the Panama Canal/Outer Continental Shelf Subcommittee. In my letter of March 3rd concerning H.R. 5601, copy attached, I affirmed my desire for a close working relationship with the Congress to achieve our mutual goal regarding Canal matters. I ask your support in several areas of concern regarding the bill as currently adopted.
The amendment pertaining to interest payments that would require interest to be calculated on the entire investment of the United States in the Canal, rather than on the net direct investment as is the present practice, would impose a significant additional cost burden on the users of the Canal. The payment of interest by the Canal agency commenced in 1952 with the formation of the Panama Canal Company. Since that time, the basis for interest was the capital contribution by the United States to the Canal and did not take into account any reinvestment of profits earned by the Canal. H.R. 5601, as amended, would require interest to be computed on the entire United States investment. Calculation of this amount would have to take into account $191.8 million representing reinvested earnings in addition to the net direct investment of the United States. Inclusion of these prior earnings from shipping into the interest base would impose an additional requirement for recovery from tolls of $17.6 million annually based on the interest rate in effect for 1982. The net effect would require shipping to pay interest to the United States Government on funds that were contributed by them. This requirement, in addition to the inclusion of full capital plus depreciation in the toll base, as I outlined in my letter of March 3rd, would impose a $37.2 million additional cost burden on the Canal that would have to be recovered through a toll rate increase.
The Subcommittee amendment adding a provision prohibiting payments to the Republic of Panama during any period in which there remains outstanding preTreaty claims due to expropriation of property held by United States citizens or corporations appears to be inconsistent with portions of Article III and VIII of the Paname Canal Treaty which require certain payments to be made to Panama. While the United States could probably withhold Treaty payments to offset claims of the United States Government against Panama, there is some doubt as to the propriety of withholding payments to compel action on claims by private interests from the United States. Since the purpose of H.R. 5601 is to amend Treaty implementing legislation and this amendment does not relate to the Treaty, this bill does not appear to be the proper forum to address the issue. Additionally, enactment of this proposal could have adverse impact on out ability to meet our Treaty Commitments.
Lastly, the Subcommittee amendment deleting Section 2102, Federal jurisdiction over new offenses, would result in precluding the United States from exercising jurisdiction over its citizens in Panama in all cases except when the United States is the victim. Such a limitation is, in my view, unwise and may not have been intended. The Panama Canal Treaty and implementing agreements give to the United States certain criminal jurisdiction over offenses committed in Panama by United States citizen employees or their dependents. There needs to be a provision in the




24
law to establish statutory authority for the United States courts to permit prosecution under the Treaty. The enclosed fact sheet provides a more detailed rationale.
I solicit your support in seeking to correct these areas of concern in addition to those issues previously addressed relating to the Capital Program, a provision for proxies for Board, and the proposal to restrict the Executive Branch with regard to delegations of authority. Please contact me if I can provide any further information.
Sincerely,
WILLIAM R. GIANELLI,
Chairman.
Enclosure.
FACT SHEET
SUMMARY OF PROBLEM
Article VI of the Agreement in Implementation of Article IV of the Panama Canal Treaty vests the United States with primary jurisdiction over U.S. citizen civilian employees of the U.S. Forces and the dependents of both military and civilian employees for any offenses punishable by U.S. law committed on Defense sites. The agreement also vests the U.S. with primary jurisdiction over offenses committed by such persons outside Defense sites when the victim of the offense is another member of the Force, The civilian component, or a dependent of either. Section 2102, "Federal Jurisdiction Over New Offenses" of H.R. 5601, which was eliminated by the Subcommittee, provided the necessary statutory authority for the U.S. to exercise this treaty given authority. Except for offenses in which the United States is the victim, there is no current statutory authority for U.S. courts to exercise jurisdiction over U.S. citizens for crimes committed outside the United States.
A provision similar to former Section 2102 is essential if the United States is to exercise its full treaty authority in Panama and if the U.S. is to preserve and extend procedural and substantive due process to U.S. citizens serving in Panama.
As the Honorable Morey L. Sear identified in his testimony, subsection (b) of the former Section 2102 is not essential. Current legislation amply provides for the venue or forum before which U.S. citizens accused of crimes outside the U.S. may be brought for trail. However, nothing in former Section 2102 provided for the assimilation of a corpus or body of criminal law to be enforced and applied by the U.S. District Court with proper venue and jurisdiction. Federal criminal statutes do not define the multitude of common criminal offenses subject to the jurisdiction of the U.S. courts. Such crimes are assimilated by virtue of 18 U.S.C. 13 (The Assimilated Crimes Act). Ordinarily U.S. courts enforce the criminal laws of the U.S. state or territory within which the offense occurred. In Panama, however, there is no body of law which U.S. courts may assimilate and enforce. Therefore, H.R. 5601 should provide such a body of law.
RECOMMENDATIONS
1. That former Subsections 2102(a), (c), and (d) of H.R. 5601 be reinserted.
2. That a new subsection be added providing the "Criminal offenses, not otherwise defined or punishable under Title 18, United States Code, shall be those offenses set forth in the criminal code of the State of Louisiana."




25
RECOVERY OF CAPITAL FOR PLANT REPLACEMENT, EXPANSION, AND IMPROVFENTS
Section 1602(b) of Public Law 96-70, which prescribes the elements to be included in the toll base, provides in part, that:
"Tolls shall be prescribed at rates calculated to
produce revenues to cover as nearly as practicable all
costs of maintaining-and operating the Panama Canal,
together with the facilities and appurtenances related
thereto, including unrecovered costs incurred on or after
the effective date of this Act, interest, depreciation,
payments to the Republic of Panama pursuant to paragraph 5
of Article III and paragraph 4(a) and (b) or Article XIII of the Panama Canal Treaty of 1977, and capital for plant
replacement, expansion, and improvements."
Tbe Comission has interpreted this provision to mean that tolls shall produce revenues to- cover: (1) All costs of operating and maintaining Ie Canal; arid (2) capital for plant replacement, expansion, and improvements. In other words, toll revenues should be sufficient to ensure the Canal operate on a self-sufficient basis, to include financing of its capital program.
Under that interpretation, funds generated from the inclusion of
depreciation in the toll base are used as the principal source for financing the capital program.!! To the extent the funds generated from this source are insufficient to cover the capital funding requirements, a capital factor to make up the difference is included in the toll base. For example, the toll rate increase that was implemented on Octcber 1, 1979 included in its base $18 million in depreciation and a capital factor of $7 million for covering a projected $25 million capital program.
ibis method not only ensures the recovery of funds each year sufficient to finance the Canal's capital programs, but is consistent with the provisions of section 1341(e) of Public Law 96-70, covering payments to the Republic of Panama. That section provides, in part, that:
1/ It should be recognized that although depreciation is included as a cost
in the toll base, it is an expense item not requiring an expenditure
of funds or appropriations. Thus, the revenue generated from this
item represents a net inflow of cash for the Canal.




26
"Moreover, no payments may be made to the Republic of
Panama under paragraph 4 (c) of Article XIII of the Panama Canal Treaty of 1977 unless unexpended funds are used to pay all costs of operation and maintenance of the canal,
including but not limited to (1) operating expenses
determined in accordance with generally accepted accounting
principles, (2) payments to the Republic of Panama under
paragraphs 4(a) and 4(b)of such Article XIII and under
paragraph (5) of Article III of such Treaty, (3) amounts-in
excess -of -depreciation-and amortization -which -are
programmed -for-plant- replacement, -expansion, -and
improvements, (4) payments to the Teasury of the united
States under section 1603 of this Act, (5) ....
(Bnphasis -added.)
This provision was included in Public Law 96-70 to ensure that funds generated by the capital factor would be retained by the Canal and not flow to Panama as profit. From the wording, it is clear that the amount to be programmed for capital in the toll base is the difference between depreciation and the total
capital program cost.
Under the existing provisions for capital recovery in the tolls formula, the Oommission has been able to finance its complete capital program requirements, amounting to some $54.8 million for 1980 and 1981.
Section 8 of H.R. 5601 would modify the existing statutory tolls formula in such a way as to be construed to require that the toll base include both the full cost of capital for plant replacement, expansion, and improvements as well-sdepreciation. Such a requirement would generate recoveries well inexcess of the funds needed by the Oommission to cover the cost of its capital programs and, by so doing, impose a substantial additional cost burden on the users of the waterway, which would be both unnecessary and unfair, and which could over the longer term, jeopardize the financial viability of the Canal. Of equal importance, the requirement to recover full capital plus depreciation is inconsistent with the sense of Public Law 96-70, as well as certain provisions therein. Some of these points are developed below.
Cost impact on toll-rates. The cost impact of section 8, as presently drafted as compared to the practice applied under the existing law, can be illustrated in terms of the Commission's FY 1983 budget, as follows:




27
Capital Full
Factor Capital
Concept Concept
(In milions)
Recovery from tolls:
Capital $ 9.4 $ 29.0 Depreciation 19.6 ) 19 6
Total recovery 29.0 48.6
Funds needed for capital recovery (29.0) (29.0)
Overrecovery of costs $ 0 $ 19;6
From the above, it can be seen that continuation of the capital factor concept would produce cash inflows exactly equal to the funds required to finance a $29 million capital program. However, under the full capital concept required by section 8 of H.R. 5601, the Commission would be required to recover $19.6 million more cash than is actually needed for the capital
program or for repaying the Treasury for appropriations received. This treatment would serve to impose an additional 6.8% increase in toll rates over that which will otherwise be needed in FY 1983.
Inconsistency -with -sense of- Public-Law 96-70. The sense of the Congress in acceptance of the Treaty and passage of the implementing legislation was that the Canal operate at no cost to the U.S. taxpayer. while expressing this sense, nowhere in Public Law 96-70 or elsewhere did it express its intent that the U.S. investment be repaid. Yet, Sec. 1602(b), as revised by section 8, would go a long way toward accomplishing that. In other words, the Canal would be required to generate funds in excess of its needs, in amounts approximating over time the total U.S. equity in the waterway. It is doubtful this was intended. In the first place, the legislation would have clearly spelled out such a requirement. Secondly, it would not have allowed the initial property transfers to be made to Panama without providing for some consideration to be payable by the Commission. Thirdly, to require repayment through tolls of the U.S. equity in the Canal would be grossly unfair to shipping, who contributed through prior tolls some 36% of it.
Profit payment to Panama. If section 8 is. allowed to stand as drafted, without further revision of the Panama Canal Act, the result will be to generate a profit payment to Panama each year. In other words, instead of the overrecovery going to the U.S. Government, it would flow to Panama. This is so because section 1341(e) of P.L. 96-70 precludes payment to Panama under paragraph 4(c) of Article XIII of the Treaty of "amounts in excess of depreciation and amortization which are programmed for plant replacement, expansion and improvements." This provision was included in the public law to ensure that funds generated by the capital factor would be retained by the Canal and not flow to Panama as profit. Unless changed, the inclusion in the toll base of full capital plus depteciation would result in an automatic profit payment to Panama equivalent to annual depreciation, since only that capital amount programmed in excess of depreciation could be deducted before payment to Panama. This can be illustrated as follows:




28
Capital Full
Factor Capital
Ooncept Concept
(In millions)
Recovery from tolls:
Capital $ 9.4 $29.0 Depreciation 19.6 19.6
Total recovery 29.0 48.6
Less: Allowable deductions for
calculating profit payment payment to Panama:
Depreciation (19.6) (19.6) Capital in excess of
depreciation (9.4) (9.4)
Profit payment due Panama $-0- $19.6
Because of the foregoing reasons, and particularly because of the
substantial additional cost burden that would be imposed on shipping, it is recommended that section 8 of H.R. 5601 be modified to allow the Cormission to continue its present practice of financing its capital program through a combination of depreciation and a capital factor.




29
PROPOSED AMENDMENT TO H.R. 5601
A BILL TO AMEND THE PANAM CANAL ACT OF 1979
AND FOR OTHER PURPOSES
Sec. 8. Section 1602(b) of the Panama Canal Act of 1979 is amended to read as follows:
"(b) Tolls shall be prescribed at rates
calculated to produce revenues to cover as nearly as
practicable all costs of maintaining and operating the
Panama Canal, together with the facilities and
appurtenances related thereto, including (1)
unrecovered costs incurred on or after October 1, 1979,
(2) interest, (3) depreciation, (4) payments to the
Republic of Panama pursuant to paragraph 5 of Article
III and paragraphs 4(a) and (b) of Article XIII of the Panama Canal Treaty of 1977, (5) additional capital for
plant replacement, expansion, and improvements, (6)
reimbursements to the Treasury of the united States for costs incurred by other departments and agencies of the
united States in providing educational, health, and
other services to the Commission to the employees of
the Commission and their dependents, and to other
categories of persons, in accordance with section 1321
of this act, (7) working capital, and (8) any costs
that are incurred in implementing the Panama Canal Treaty of 1977 and related agreements and that are
associated with the maintenance and operation of the
Panama Canal. Tolls shall not be prescribed at rates
calculated to produce revenues sufficient to cover
payments to the Republic of Panama pursuant to
paragraph 4 (c) of Article XIII of the Panama Canal
Treaty of 1977."
Note: Additions and changes are underlined.
97-154 O-82---3




30
ANALYSIS OF PROPOSED AMENDMENT TO
SECTION 8 OF H.R. 5601, BASES OF 1DLS
The proposed amendment would modify section 8 in two ways. First, it would clarify that the commission is to continue to finance its capital
program requirements from funds generated by depreciation and, to the extent needed by inclusion of a capital factor in the toll base. As the section is presently drafted, it could be construed to require that the toll base include both the full cost of capital for plant replacement, expansion, and improvements as-well-as depreciation. Such a requirement would generate
recoveries well in excess of the funds needed by the Commission to cover the cost of its capital programs and, by so doing, impose an unfair and unnecessary burden on the steamship owner and operators using the Canal. Moreover, such an interpretation could result in a substantial annual profit payment to Panama, which would be contrary to another provision of law specifically prohibiting toll rates from being set at a level to produce
profits that would flow to Panama under the treaty-mandated contingency payment.
The Commission's predecessor agency was prohibited by law from including in the toll base a factor for financing capital improvements. As with most business enterprises, the former Canal Company utilized its profits and depreciation to finance its capital programs. In recognition of the fact that the 1977 treaty requires profits to be paid to Panama, the drafters of Public Law 96-70 included a provision in that law allowing capital to be taken into account in -fixing the toll base. Through this provision, the Commission is able to continue to finance part of its capital program through funds generated by depreciation, with the balance derived from the capital factor in the toll base.
The proposed modification would make it clear that the Commission has the authority to include capital in the toll base but only to the extent needed to cover the capital financing over and above the funds generated by depreciation.
The second modification would allow the Commission to include a factor for working capital requirements in the base for calculating Canal tolls. The present tolls formula in Public Law 96-70 does not provide authority for recovery of this item and, yet, the Canal--like any other business enterprise--is faced with an ever increasing demand for funds to finance inventories and accounts receivable due to inflation. Such funding requirements must be financed through Canal tolls if the Commission is to remain self-sufficient and cover the appropriations drawn for that purpose.
Along with such a provision, the bill should also contain a companion
amendment which would insure that funds recovered as working capital would not be included as part of the profit payments to Panama called for by the Treaty. This has been proposed ag a new section to H.R. 5601 between sections
6 and 7.




31
INCLUSION OF WORKING CAPITAL FACTOR IN IOLL BASE
ihe second modification to section 8 of H.R. 5601 that we believe is necessary is the inclusion in the toll base of authority to recover working capital requirements of the Commission.
Normally, one would not expect an appropriated-fund agency to encounter working capital problems since such needs would be covered by appropriations. In the case of the Commission, however, not only must the appropriations be repaid, but the level of appropriations themselves are dependent on the Canal's capability to produce revenues. In essence, then, the Commission is liken to a commercial enterprise in that it must be able to finance its working capital requirements.
In the ultimate analysis, a regular commercial firm must be able to
finance working capital needs from profits, although its periodic needs may be met through the sale of stock or borrowing. Since the Commission is, for all practical purposes, precluded from making a profit (by both the tolls formula and the contingent payment to Panama) it will, over the long term, be unable to finance the appropriations needed for this purpose, unless it is authorized to include a factor for working capital in the toll base.
At the end of 1981, the commission had inventories of $40.3 million,
orders outstanding for operating supplies and services of $11.1 million, and accounts receivables of $12.7 million. Additional investments in all of these items can be expected over the long term. The dollar requirements for inventories and outstanding orders can be expected to increase with inflation and to meet the needs for additional replacement parts needed for more sophisticated equigent, particularly in the Transit functions for tugboat and towing locomotives. Accounts receivables arising from services provided to other U.S. Government agencies, the Republic of Panama, shipping firms and others can be expected to increase with general inflation and workloads. Assuming an annual rate of inflation of 6%, the Comission will need to expend $3.8 million additional each year to finance the three working capital items above, i.e. inventories, orders outstanding, and accounts receivable. Over the long term, this will impose a significant financial burden on the Cobrission which it will be unable to meet unless financing is authorized through tolls.
A simple example can be used to illustrate how inflation imposes a funding problem for inventories. ihe example assumes a constant level of inventory with purchases during the year exactly equal to the units of inventory used or sold. be only difference is that the replacement stock had to be purchased at a higher price than the year before because of inflation.




32
Beginning balance, 10,000 units at $1.00 $10,000
Purchase during year, 10,000 units at $1.50 15,000
Total investment in inventory $25,000
Less: Cash received for inventory used
during year 10,000 units at $1.00 (10,000)
Dnding inventory 10,000 units at $1.50 $15-000
As can be seen, although the sale of inventory during the year brought in $10,000 in cash, $15,000 had to be expended to replace the stock at higher prices. The $5,000 differential represents working capital requirements which must be financed from some source.
The statutory tolls formula provide the basis for the Canal to operate on a self-sufficient basis. It is complete in that respect except for working
capital, which is the important missing link. Along with such a provision, the bill should also contain a companion amendment which would insure that funds recovered as working capital would not be included as part of the profit payments to Panama called for by the Treaty.




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PROPOSED AMENDtMEENT TO H.R. 5601
A BILL 1 AMEND THE PANAMA CANAL ACT OF 1979
AND FOR OTHER PURPOSES
Add a new section between sections 6 and 7, as follows:
PAYMENTS TO THE REPUBLIC OF PANAMA
Sec. ....... Section 1341(e) of the Panama
Canal Act of 1979 is amended by striking out "and (6)
any costs of Treaty implementation associated with the maintenance and operation of the Panama Canal."
and inserting in lieu thereof (6) amounts,
programmed to meet working capital requirements of
the Commission, and (7) any costs of Treaty
implementation associated with the maintenance and
operation of the Panama Canal."
ANALYSIS OF AMENDMIENTS TO H.R. 5601 ADDING A NEW SECTION AMENDING SECTION 1341(e OF THE PANAMA CANAL ACT OF 1979 DEALING WITH PAYMENTS TO THE REPUBLIC OF PANAMA
This section would amend section 1341 (e) of the Panama Canal Act of 1979 by adding to the list of costs of operation of the Canal which must be paid before any payment is made to Panama pursuant to Article XIII, paragraph 4(c) of the Panama Canal Treaty of 1977 amounts programmed to meet the Commission's requirements for working capital. This is a companion amendment to the
modification made to section 8 of H.R. 5601, which would authorize for inclusion in the toll base a factor for recovery of working capital. This companion provision is necessary to ensure that amounts recovered from tolls for working capital are retained for that purpose, rather than being paid to Panama as profit.




34
Mr. HUBBARD. Thank you, Mr. Gianelli.
Indeed your request that you outlined during your remarks is granted.
We will cooperate with you next week. You can present any additional material you wish. We do have a markup on this bill, as you know, scheduled for this time next week.
We appreciate your comments, and we will be asking you questions after we hear from the Honorable Dennis P. McAuliffe.
Since October 1, 1979, Phil McAuliffe has been the Administrator of the Panama Canal Commission, and October 1, 1979, is when the Panama Canal Treaties went into effect.
I have commended him on many occasions for the job he continues to do in this sensitive position, and I have said publicly before, that I am very happy the current administration has seen fit to continue the work of this outstanding gentleman who began his efforts during the previous administration.
We are glad to have you and we will hear you now.
STATEMENT OF DENNIS P. McAULIFFE
Mr. MCAULIFFE. Thank you very much.
It is a pleasure to participate in this hearing.
Last year, fiscal year 1981, was the most successful year in the history of the Panama Canal, measured in business terms.
Oceangoing transits totaled almost 14,000, carrying a record cargo of 170 million long tons.
We moved one more vessel per day than in 1980, itself a highly successful year. Statistically, that additional vessel was of large beam, requiring more tug and locomotive assistance and other support than the smaller ships.
We have begun to see the beneficial effects of the capital improvements, the tugboats, locomotives, and other projects which the Congress approved in 1980.
Financially, we are operating at no cost to the U.S. taxpayer. All the costs of operating and maintaining the canal, as well as capital improvements, are being covered by revenues.
Particularly noteworthy is the teamwork among our American and Panamanian employees, which is evident every day along the canal.
It is healthy, and growing stronger all the time. It is effective. Our transit records show this. And that teamwork provides the framework in which training takes place, where the skilled men and women of tomorrow learn and gain experience in the canal today.
All in all, we have improved service to our customers, the steamship firms of the world, and we are dedicated to continue to do so. Thank you very much.
Mr. HUBBARD. Thank you, Administrator McAuliffe.
Mr. Secretary, what is the cost of the several provisions for employee benefits recommended in your statement? Can you be exact? Mr. GIANELLI. We have a representative from the Department of Defense here, Mr. William Coakley, and with your permission I would like to have him come forward and perhaps he could help us on this one.




35
Mr. COAKLEY. We will have to furnish that for the record.
Mr. GIANELLI. He indicates he does not have that, but he will be glad to furnish it for the record.
Mr. HUBBARD. Identify the problems that might arise from the section of the bill limiting delegation of authority by the President and the Secretary of Defense.
Mr. GIANELLI. Yes, I would be pleased to do that, Mr. Chairman.
As I indicated, we had quite a long discussion with staff on this provision yesterday and the way the system now works is that the delegation comes to me through the Secretary of Defense and the Secretary of the Army. As I understand the changes proposed, it would be necessary for the President to delegate, if, for example, he wanted my office to carry out its present responsibilities, to delegate directly to me specific responsibilities and to bypass the Secretary of Defense and the Secretary of the Army.
In addition, it is my understanding that it would be necessary also for the President to delegate directly to the Administrator of the Commission which areas of responsibility he would be charged with carrying out and then both myself, if I were the person designated as chairman, and the Administrator, would be limited by those specific delegations.
There would be no need to delegate further, and I think this might create some problems with respect to how the Commission operates. We have been delegating down those things which we think are appropriate and I think this would in effect be very much of a restriction.
There is one other provision which came out yesterday, and perhaps if I don't explain it correctly, Mr. Whitman might be able to help me, but it is with respect to a delegation could never be made to a non-U.S. citizen.
One of the ways, as I understand the Commission is structured, is that in 1990, the Administrator of the Commission becomes a Panamanian, but until 1990 it is a U.S. citizen.
In 1990, the role is shifted and a Panamanian would become the Administrator of the Commission, and as I understand the amendment then, because that person would be a Panamanian, it would be impossible for him to function under the delegation that had been given prior to Mr. McAuliffe and it seems to me for the person who acts as the manager or the Administrator of the Commission, this would present a very difficult situation.
So I am concerned about that proposal because of the way I understand it would work, and the main thing that would trouble me is, if it is designed to improve the oversight of the Congress, I am not quite sure that it would actually perform that function, and so what I guess I am concerned about is whether or not the provision as drafted included would accomplish the objective perhaps that the committee had in mind but in addition, that it would present some real difficult problems in connection with the actual administration of the Panama Canal Commission by both the chairman and by the Administrator.
Mr. HUBBARD. You have seen House bill H.R. 5601 introduced by Chairman Jones, Mr. Lent, the ranking minority member of our subcommittee, and by myself as chairman of this subcommittee.
What amendments are you recommending?




36
Mr. GIANELLI. Well, two or three things, Mr. Chairman. First of all, with respect to this matter we are now discussing, I think it is our hope that the committee would see that that particular provision was not necessary, that it would not accomplish the desired results and create some problems, so we are hopeful that that particular part would be eliminated. We are asking also that the provision that I alluded to earlier would be added with respect to proxies, and this would be in addition to the present bill.
We also suggest that there be some modification of the provision with respect to the tolls formula, so it won't operate in a way we don't want it to operate, and that it won't be duplicatory in nature and cause an unnecessary increase in totals to the shipping industry and result in additional benefits to Panama.
Maybe the staff should work together on this, and we should have some sort of a modification of the language to be sure that this does not take place. Then the other changes are largely of concern to the Department of Defense, and probably should be either modifications of the language for clarification oil perhaps some additions, to make sure that there is uniformity amongst the other governmental agencies in Panama. Those are the main changes.
I would consider them, as I say, somewhat minor in the light of all of the realm of things which we have to consider, but we would urge that the committee give those things special attention, please. Mr. HUBBARD. Thank you very much, and I assume that you will be contacting members of the subcommittee regarding those amendments?
Mr. GIANELLI. Yes, and we will continue to work with the staff. Mr. HUBBARD. You were correct earlier when you said all of us, the members of the subcommittee and the staffs, are working in the same direction, although we may see differently on a few issues.
Congressman Carney.
Mr. CARNEY. Thank you very much. Thank you for appearing today.
I have one question on the proxies. Would you assign your proxy to someone else? Mr. GIANELLI. We talked about this yesterday, and we have not provided for any absence of the chairman. We have not assumed that that would be a major problem. Our primary problem is with the public members. I haven't given any consideration to that part. If you provide some provisions for proxy, we should provide for the point that you are raising.
Mr. CARNEY. How do we cover the congressional intent that we set up with the Board by having members from the various sectors, the public sector that are impacted by what would happen in the Panama Canal, people from the shipping industries, how do we cover them by proxies when you are down there? Mr. GIANELLI. At the present time, we are not able to have a meeting if all of those folks aren't present and they have been present, but the point I was trying to make yesterday with the staff is that, on occasion, these are busy people, and it requires almost a




37
week of their time to spend with Commission business each time we have a meeting.
One of the problems we have had is that one of the persons may have to leave early or something comes up in the conduct of private business, so as a result of that we have been unable to finish the Commission's business.
Mr. CARNEY. Perhaps the way that we can solve that problem and still carry out the intent of this Congress is to assign people to the Commission who have the time and have the willingness to serve their country.
Presently the Commission is meeting four times a year. It seems strange that we cannot get four people that can dedicate that type of time to carrying out this task.
Mr. GIANELLI. Wait a minute, let me comment on that.
I think that the people who are being considered for the Commission, particularly the public members, are people who are doing it without any charge, free of charge. They get no salary for it except their travel expenses. They are busy people, and the shipping people are busy people.
Even though they might schedule four times a year several days, perhaps something would come up and require their presence somewhere else in the conduct of their personal business.
We have been very fortunate thus far, but the thing I am concerned about is that we run into a situation where one of them has to leave and then the Commission can't conduct any further business.
Let me just say, I want to be sure that you are clear on this. I am not trying to circumvent any thought at all that those people will not have full participation with the Commission activities. That is not my intent, and if the committee would like to put whatever strings it wants on our ability to use the proxy, that is perfectly satisfactory to me.
I just hate to see us put in the position where we have all of the members of the Commission present to conduct business and some one of the members of the United States has to leave for some unexpected reason and we are not able to finish the Commission's business and I would hope you would see some way to give us, limit it any way you want in terms of the use of proxies, but give us a little flexibility to take care of that kind of problem.
Mr. CARNEY. We have limited you in the use of proxies by not allowing you to use proxies and that was the intent of the subcommittee, the full committee and the full Congress of the United States, and I feel that it still is the intent and that is why it is not written into the bill right now by the authors.
I am not a cosponsor of the bill, and you are aware of that, I am sure, but this is of concern to the Members of Congress.
We are talking about four people. We can't get four people to stay together at a meeting. It seems incredible to me.
Weighing the intent of the Congress against the inconvenience of our people not being able to stay at a meeting, it just does not fall out the way you would like it to.
Mr. GIANELLI. Supposing you have a meeting in Panama which lasts very often 4 days and suddenly one of the, after everybody has assembled after the second day, one of the members becomes




38
ill or he has to go somewhere, it seems to me not to be a useful, or to use the time efficiently of all of the other members of the Commission who are down there not to be able to conduct or finish the Commission's business and we are not trying to avoid participation by those people.
All I am asking for is what I consider to be a little reasonable flexibility in the conduct of our business and you can tie us any way you want, but it seems to me, to require every member to be present all of the time is a very difficult burden for us to bear.
Mr. CARNEY. What about establishing a quorum?
Mr. GIANELLI. What about it?
Mr. CARNEY. If you had proxies, would you use the proxies in the absence of someone who was present and had to leave prematurely or use the proxies to establish a quorum?
Mr. GIANELLI. The situation I presented to you, we would use a proxy to establish the quorum.
Mr. CARNEY. This committee is not allowed to use a proxy to establish a quorum, and no committee in the Congress can use a proxy to establish a quorum. Why should you be able to?
Mr. GIANELLI. We have to have every member of the U.S. delegation present before we conduct any business. You don't have to have every member present to conduct business.
If you can figure out some other way to try and help us out on the problem that I have described to you, we would really appreciate it, keeping in mind what the Congress had in mind in wanting to have all those people present and all I am trying to do is to appeal to you for a little reasonableness in allowing us to conduct our business in a situation where we might have an emergency.
Mr. CARNEY. All I am trying to do is to try to carry out the intent of the Congress. If you could address the question of your proxy, as to whether you would give your proxy to another member that might help a little bit, before we go to markup.
Mr. GIANELLI. I will indicate that the chairman would not be able to give his proxy to anyone, if that is your desire.
Mr. CARNEY. The totals, the chairman has stated that he would like, and so would I, for your folks to sit down before next Friday with our staff.
Mr. GIANELLI. We will have a supplemental paper to you which tries to explain how we see this thing working and we would be glad to have further dialog on it.
Mr. CARNEY. I am going down step by step the things you brought out in your testimony, the educational and travel compensation.
Are we talking about civilian employees and if we are, what agencies are these civilian employees involved with?
Mr. GIANELLI. Largely the civilian employees of the Department of Defense and we are suggesting that they be accorded the same privileges with respect to this matter, travel benefits, as are the civilian employees of the Panama Canal Commission and those employees in other parts of the world.
Mr. Coakley can help us out here, but it is my understanding that this is necessary in order to provide equality for the Department of Defense civilians who are in the area that would be similar




39
to benefits provided to the Panama Canal Commission civilian members.
Mr. CARNEY. The DOD civilians, are they carrying out a mission other than the operation of the Panama Canal? Mr. GIANELLI. Oh, yes, sir.
Mr. CARNEY. Are they carrying out missions having to do with the Panama Canal directly?
Mr. GIANELLI. Not directly.
Mr. CARNEY. We are supporting the military activity? Mr. GIANELLI. The operation of the hospitals and some of the schools and things of that nature. Mr. CARNEY. Those facilities are used by military personnel from the Southern Command, is that right? Mr. GIANELLI. Mr. Coakley is the Department of Defense representative who is familiar with some of these things.
Mr. COAKLEY. We have in Panama a number of United States citizens working for the Department of Defense.
What we are proposing is that these employees be able to send their dependents back to the United States for college, like Depart' ment of Defense employees anywhere else in the world and also like the Panama Canal Commission employees living in Panama.
Mr. CARNEY. Why would you need special legislation to do that? If they were serving a military need, if they were transferred to Germany, they would get that benefit automatically.
Mr. COAKLEY. Yes, sir, but there is a provision in Public Law 9670 which specifically says that employees working in Panama will not get any of the benefits provided by chapter 59 of title 5.
That particular education/travel benefit comes from chapter 59 of title 5, and so we need to have specific legislation to continue to authorize this benefit.
Mr. CARNEY. OK, what I am trying to get clear in my mind now is the roles of the people we are talking about.
Are they supporting the military responsibility?
Mr. COAKLEY. Yes.
Mr. CARNEY. Are they supporting, in other words, do you have any DOD employees who might be working in a canal function, whether they be tugboat captains or whether they be the locomotive drivers or anything else?
Mr. COAKLEY. No, sir, these are strictly working for the DOD functions.
In the schools the teachers belong to the Department of Defense. In addition to teaching students of DOD people, they teach the students of the employees of the Panama Canal Commission, but that is as close as I can come to what you are driving at.
Mr. CARNEY. That would be understandable economies. It would be senseless to set up two systems for education.
Mr. COAKLEY. I guess to some extent the hospitals, the U.S. military hospitals that we are operating there also provide medical care to PCC employees, and also the employees in the commissaries, and the PX's.
Mr. CARNEY. That would make a great deal of sense. Do you have any specific language that you would like to see put in the bill to cover this aspect?




40
Mr. COAKLEY. Yes, sir, and I believe we gave a copy of that to your staffs yesterday.
Mr. CARNEY. I am sure we will probably consider the amendment in the markup.
Thank you. If I may go on, Mr. Gianelli, I have a problem with the authority, quite honestly, and my question is, I thought that the public law laid out precisely what the intent of the Congress was, and frankly, I think our representatives in Panama have not carried out that and that is why it is necessary for us to do this again in this particular piece of legislation. My question is, why didn't you follow the law in the first place?
Mr. GIANELLI. Let me ask-I guess I assumed we are following the law and perhaps you could help us by telling us where we are not following the law and we would be glad to address those questions.
Mr. CARNEY. After carefully considering the legislation, and I took part in the creation of the legislation, it was our intention that the President would delegate the authority to one person, whether it be you, or Lou Mazzerot from Cincinnati, or the Secretary of Defense, and that one person would carry out that delegated authority the President had the right to delegate to him.
It went from the President to the Secretary of Defense, to the Secretary of the Army, to the Assistant Secretary for Civil Works, which, of course, is yourself.
It went over, I think perhaps not intentionally, but in your other capacity as the Chairman of the Board I think you started to delegate a lot of that authority to the Administrator and I have a problem with the Administrator having that authority, because the Deputy Administrator, who is a very fine gentleman, has one drawback, he is not a citizen of the United States.
I can see in that chain that we can just abrogate our responsibility. I am concerned about that, and that is why it was the intention of the authors of the bill to clearly define what the Congress intentions are once more.
Mr. GIANELLI. Let me comment that we are certainly trying to comply with the mandates of the Congress, Mr. Carney, and if we are not, you know, I think it would be helpful if you could tell us exactly where we are not doing so. But in addition, I think we are trying to manage a system here as efficiently and effectively as we can.
It seems the provision of delegation is important to carry out at the appropriate level those things which should be carried out, and as I say, we just feel that the proposal which is being suggested would really make it difficult to manage the system, and that is why we are suggesting that we not be tied as tight as you indicate.
Mr. CARNEY. I think the responsibility is that you have to carry out the laws of the land and the intentions of the Congress and not to worry about how it is best or easiest to administer the Panama Canal. We are running into a problem in that area.
Mr. GIANELLI. Help us by saying where we are not carrying out -Mr. CARNEY. We are helping you and you have a bill that clearly defines it and you object to it.




41
I am just saying, I am just trying to tell you why we have this bill and why we think it is necessary. I, personally, think that you have not carried out the intent of the Congress as it was written in Public Law 96-70, and we are doing it again.
Counsel reminds me that this was set in motion before you came on board, and I should make that part of the public record, and that is, of course, true.
Again, when I went down the chain of command-maybe I should say chain of authority-I would assume from your opposition to section 1 where we are trying to clear that up, that you believe foreign nationals should exercise the authority granted by Congress to the President?
Mr. GIANELLI. I guess I will have to go back and educate myself a little bit.
I thought the law was set up to provide for a transition from the United States to Panama in terms of certainly the administration of the Commission.
Mr. CARNEY. There are very clear timeframes on that.
Mr. GIANELLI. Correct, and I thought that the intent was, and maybe I am incorrect, I thought the intent was until 1990, the administrator would be a U.S. citizen.
Mr. CARNEY. Correct.
Mr. GIANELLI. I thought the intent was that in 1990 it would pass over to a Panamanian, looking toward whatever transition that the Congress had in mind in the year 2000, and it would seem to me pretty difficult to-if you are going to carry out that thought of having a transition-of saying to the person who is administering, who in effect is the manager of the system down there, that we are not going to delegate you any authority at all, because you are not a U.S. citizen.
I don't quite understand the consistency of that with the intent to gradually transition the process.
Mr. CARNEY. We transitioned the process of the Administrator in 1990 in the makeup of the Commission.
Mr. GIANELLI. Excuse me, the Commission Board stays 5-4 until the year 2000, so the Commission will still be in-excuse me.
Mr. CARNEY. We must operate the canal until the year 2000, and that is why we must have it clarified, because as it stands now, you have delegated an enormous amount of authority to the gentleman to your left.
That gentleman, or that office that he holds, in the year 1990 will be held by a Panamanian, and that gives us grave concern.
The bill was written that the Commission-five Americans and four Panamanians-would be intact until the year 2000.
Mr. GIANELLI. Could I reflect how I would see this?
The policy delegations, it seems to me, you still will have United States with its members, the majority members, until the year 2000. So, from a policy standpoint, it is very clear that the United States would control from the standpoint of policy.
The Administrator is the fellow that manages the system on the site and it seems to me that whoever it is that is administering has tO have some delegations if he is going to be a good manager, from an operational standpoint. In other words, it does not seem to me that the chairman can go down and operate the system. The person




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that is down there has to operate the system and be the manager of it, and he has to have certain delegations, and this is what I understand would not happen under the changes being proposed here, that we would not-for instance, a Panamanian would not have any managerial delegations and would have a very difficult time managing the system.
Mr. CARNEY. It is obvious we disagree and you are talking about changes. As far as I am concerned, they are not changes. We are just trying to clarify the congressional intent, since it has not been carried out.
The part of the bill-section 10-which has to do with courts and jurisdiction of law, do you have any objection to that part of the bill?
Mr. GIANELLI. No; not with respect to the courts, Mr. Carney. We have no objection at all. We feel that there is some urgency to those provisions, but we certainly have no objection.
Mr. CARNEY. There will be witnesses who will say there is no necessity for that.
Could you address yourself to that?
Mr. GIANELLI. I think, probably, someone coming after me who is familiar with the court system, can, probably, comment on that perhaps better than I can, and if you don't mind-Mr. CARNEY. I can fully understand.
OK, and then you would want one other part of the bill changed, and that is the holiday schedule?
Mr. GIANELLI. Yes.
Mr. COAKLEY. At the present time in Panama, all the employees working there under the current Panamanian code get Good Friday and Panamanian Independence Day off as holidays.
With the Panama Canal Code going out of existence, some action needs to be taken to continue these holidays for the employees down there.
Now, in Mr. Jones' bill, he has provided for the continuation of those holidays for employees of the Panama Canal Commission. Our amendment says, let's also provide the same holidays for every employee down there, not just for the Panama Canal Commission Employees. And it is similar to the amendment concerning education and travel. You have seen fit to cover half the people. We are asking you to cover everybody.
Mr. CARNEY. Would that cover Commission employees who are in the United States?
Mr. COAKLEY. No.
Mr. CARNEY, Thank you very much for your testimony.
No further questions, Mr. Chairman.
Mr. HUBBARD. Thank you, Congressman Carney. Again, we appreciate your being here.
You will be in contact with the subcommittee members and the staff in the coming week. You were kindly diplomatic not to mention to Congressman Carney and me during the exchange about quorums and proxies that, obviously, congressional subcommittees and committee can have hearings without a quorum being present.
Mr. GIANELLI. Yes, sir; I have had considerable dialogue on that one, sir.




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Mr. HUBBARD. Thank you, and we appreciate your and Phil McAuliffe's being here.
Mr. GIANELLI. Thank you very much, Mr. Chairman, and Mr. Carney.
Mr. HUBBARD. Next, we will call the Honorable Morey Sear, U.S. district judge in the eastern district of Louisiana, appointed on May 7, 1976, a graduate of Tulane University.
We appreciate your being with us and I know Mr. Gianelli and the Administrator appreciate your allowing them to go first.
STATEMENT OF MOREY SEAR, U.S. DISTRICT COURT JUDGE,
EASTERN DISTRICT OF LOUISIANA
Judge SEAR. Thank you, Mr. Chairman. I am delighted to have the opportunity to be here this morning, and certainly feel privileged to have had the opportunity to serve in Panama, at least since the beginning of the transition.
I share with you your admiration for Mr. McAuliffe. I have had the opportunity to work very closely with him, and he and members of his staff have been most cooperative with us in the court system.
I can't resist the opportunity, Mr. Chairman, to point out the fact that since 1977, with the exception of a short period of some 8 months, the District of the Canal Zone has been without a permanent judge assigned to it, and the judges of the fifth circuit of the United States have served that court on a rotating basis until I took charge of the district on July 1, 1979.
We have liquidated the court's docket in accordance with the mandate of the treaty, and we presently have on that docket only four cases, all of which are probate, all of which will be terminated by March 31, 1982.
We are proud to report to you, Mr. Chairman and Mr. Carney, that we will not have any pending civil cases at the time the transition ends.
Obviously, it is impossible for us to predict whether or not there will be any criminal cases left in Panama on March 31, since our criminal jurisdiction continues through that date.
There is, as I have presented in my written statement, a mechanism already in place for disposition of any pending criminal case that may be pending at the end of the transition.
There is in addition, we believe, a statutory provision to take care of any case that falls within the Agreement on Implementation of Article 3 of the Panama Canal Treaty, so that we find no necessity for either the provision that would provide for disposition of cases pending at the end of the transition or for the trial of any case that may occur following transition, falling into the category in which the Republic of Panama would be asked to waive its jurisdiction in the eastern district of Louisiana. I believe that I have set forth in my statement the basis upon which I make those statements. I, of course, would be happy to answer any questions that you might have with regard to them.
[The Sear statement follows:]




44
STATEMENT OF HON. MOREY L. SEAR, U.S. DISTRICT JUDGE
Mr. Chairman: I have been privileged to serve as judge in charge of the district of the Canal Zone since July 1, 1979, three months prior to the October 1, 1979 entry in force of the Panama Canal Treaty of 1977. I appear today in behalf of the Judicial Conference of the United States, and I will be happy to answer any questions you may have concerning the operation of the United States court in the Republic of Panama.
Article XI, Section 6 of the Treaty of 1977 provided a 30-month transition beginning October 1, 1979, and ending March 31, 1982, during which the United States court in the Republic of Panama retained full jurisdiction to dispose of the 712 civil and 94 criminal cases then pending. The Treaty also provided that the United States courts would retain primary criminal jurisdiction during the transition over United States citizen employees of the Panama Canal Commission and their dependents, and members of the United States Armed Forces and civilian component and their dependents.
In the Agreement and Implementation of the 1977 Treaty, the Government of the Republic of Panama agreed that following the transition it would give favorable consideration to requests for waiver of its criminal jurisdiction over United States citizens for offenses arising out of their official duties and for offenses solely against the property or security of the United States committed in Canal operating or housing areas.
Title II of the Panama Canal Act of 1979 provided for the exercise of the Court's jurisdiction during the transition, but made no provision for disposition of cases still pending at the end of the transition period or for venue in cases in which the Republic of Panama waived its criminal jurisdiction. Section 10 of the Bill to Amend the Panama Canal Act of 1979 is intended to provide venue in both situations.
Section 2101 of the Bill to Amend provides for disposition of all pending civil and criminal cases in the Eastern District of Louisiana. We are pleased to report that there will be no civil cases pending at the end of the transition and that there are presently no criminal cases pending in the district. Few criminal cases have been filed against United States citizens during the transition but the criminal jurisdiction of the United States continues through March 31, 1982 and it is therefore impossible to predict whether there will be any criminal cases pending at the time the Court closes. However, to provide for those cases, the parties to the Treaty agreed in Article XI, Section 7 to enter into agreements for their disposition by an exchange of notes.
We believe the ends of justice are best served and substantial economies effected through use of the existing Treaty mechanism. Under that procedure, the offender would be tried in the United States court at the place where the offense is alleged to have occurred; the jury would be selected from a panel of United States citizen residents of that place already qualified under the Jury Selection and Service Act of 1968; trial in the Republic of Panama is more likely to assure the attendance of nonUnited States citizen witnesses who cannot be compelled to attend; and the expense of transportation, subsistence and security of personnel and witnesses, as well as the processing of documentation of aliens would be unnecessary. We estimate that any request for extension of jurisdiction that might be necessary would not exceed 60 days.
While there is no need to provide for pending civil cases, we do feel that there is a need to provide better access to the Court's records following the closing of the Court and the removal of its records for storage. The District of the Canal Zone is a court of general jurisdiction and its decrees included separation and divorce; maintenance and support for children; alimony; adoption and change of name. Provisions should be made for their ready access and certification to meet the needs of persons affected by the Court's decrees.
Section 2102 of the Bill to Amend provides venue specifically in the Eastern District of Louisiana for criminal cases arising subsequent to the transition in wich the Republic of Panama waives jurisdiction in favor of the United States. While at first blush this Section appears to raise constitutional questions encompassed by the Fifth and Sixth Amendments and Article III Section 2, since the First Congress there has been a similar provision in our law for trial of United States citizens for crimes committed Outside of the United States. 1 Stat. 113-114. With only slight modification, this provision is embodied in Section 3238 of our Criminal Code, laying venue for offenses committed outside any state or district "in the district in which the offender . is arrested or first brought" or in the district of the last known residence of the offender and, if no such address is known, in the District of Columbia. 18 U.S.C. 3238. The Supreme Court has not yet determined how the due proc-




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ess or compulsory process clauses of the Fifth and Sixth Amendments might affect such trials, but it has established that at least the venue provision of Section 3238 passes constitutional muster. Reid v. Covert, 354 U.S. 1, 77 Sup. Ct. 1222 (1957). Section 3238 provides the Government more flexibility in determining where to bring prosecution and makes the amendment proposed by this Bill unnecessary. There is no nexus between the Eastern District of Louisiana and a crime committed within the geographical boundary of the Republic of Panama, and if the Government chooses to bring an offender arrested outside of the United States first to the Eastern District of Louisiana, it may do so under the existing statute. It could also take him to any other district or, if he is arrested in the United States, it need not take him any place at all.
Mr. HUBBARD. Indeed, your full statement is included in the record and we appreciate your comments.
I assume that the comment at the top of page 3 of your statement, quote "Existing Treaty Mechanism" unquote, refers to an exchange of notes by the continued exercise of jurisdiction by the U.S. District Court for the Canal Zone.
Judge SEAR. Yes, sir, and obviously if the two governments were not willing to exchange notes, then certainly the Republic of Panama would not be willing to waive the jurisdiction in any future case. So it would seem if we provide for one, they just don't seem to follow if the governments are going to cooperate, that you would need either.
Mr. HUBBARD. What type of provision would be appropriate to provide for better access to the court records as recommended at the bottom of page 3 of your statement?
Judge SEAR. I believe that if the records of the court were transferred to the clerk of the court of the eastern district of Louisiana, that he could perform any service required. He would know and understand the significance of the legal documents and the records in his possession and he could certify or verify any of them. We are close enough to Panama that we can post them quickly and take care of anything that needs to be done in that manner.
We have made a microfilm of all of our records that are presently in Panama. We are leaving that microfilm behind, so we are leaving access to certain of our documents and certain of our indices. We are leaving that with Mr. McAuliffe and his staff. He is going to provide somebody to be able to find or locate any document that anyone might want, but if we physically had the documents in Louisiana, we would be better able to take care of them. We have no space to provide for these records now.
The Commission does maintain offices in New Orleans within the eastern district of Louisiana, a short distance from the courthouse, and it would provide no problem for us to operate on that basis, but I would be happy to work with the staff in working out whatever language we could to provide for these people. They ought to have access to records. There are vital statistics there. There are adoption records, name changes, divorces, alimony, and maintenance and support. These are all important to their daily lives, and we ought to make these records fully accessible to them.
Mr. HUBBARD. Congressman Carney.
Mr. CARNEY. Could you establish duel records here and there?
Judge SEAR. I have had microfilms made of every document signed by a judge that are still in Panama. A lot of our records are already in storage in Maryland. We are going to leave that micro97-154 0O-82----4




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film and I would be happy to have the Commission put in my office telephone copies, so that they could transmit the document to me, I could certify it and send it back to them. We could work out a number of mechanisms to accommodate these folks. I do not want to see them without their records or having to wait 30 days or 6 weeks in order to be able to find it, and then maybe even get the wrong record.
Mr. CARNEY. As the bill is written pertaining to the area of responsibility that you are giving testimony on, you seem to feel it is not necessary, but if it is not necessary in your mind, by leaving it in the bill does it do anything to complicate matters. Judge SEAR. That won't disturb me at all. We don't need it. We have done our work and finished what you have assigned us to do, and we are ready to leave.
Mr. CARNEY. Certainly we are very pleased with the work that you have done in Panama, and we are thankful for the work that you have done there, and I suspect as long as you don't have any objection to leaving it in, and the administration would like it, and the Congress seems to, the authors certainly like it in, we might as well leave it in.
Thank you very much for your testimony. I congratulate you for the job that you have done.
Mr. HUBBARD. Thank you very much. Mr. CARNEY. The judge has carried out the mandates of the Congress.
Mr. HUBBARD. This is off the record. [Discussion off the record.]
Mr. HUBBARD. Thank you again for being with us. Next, we have former Congressman Bob Bauman. It is good to have you with us again, and we appreciate your giving your time to present testimony here at our subcommittee. As most of the people in this room know, for three terms Congressman Bauman was a member of this full committee and subcommittee, and was the ranking minority member of our subcommittee in the last Congress.
We are glad to see you, and we will hear your testimony now.
STATEMENT OF ROBERT BAUMAN, FORMER MEMBER OF THE HOUSE OF REPRESENTATIVES FROM THE STATE OF MARYLAND Mr. BAUMAN. My name is Robert Bauman of Easton, Md., I am very pleased to be asked to appear before you again today. When I received your letter on February 9 inviting me to appear, Mr. Chairman, I noticed you had underlined the words "best wishes," and I appreciate that. I am sure there was nothing political meant by that.
I think you already have permission to place my complete statement in the record, and I will make a few comments on the legislation before you.
Mr. HUBBARD. Yes, the complete statement is included in the record. Thank you.
Mr. BAUMAN. This may be a very historic occasion in the sense that everyone in the United States who cares about the Panama Canal is in one room this morning. There was a time when millions




47
cheered or booed over the issue, in the recent memory of most of the members of your committee and myself.
I welcome the chance to appear this morning, because I think that there are some serious problems, some of which have been addressed in previous testimony, most of which have been completely ignored, and I will limit my comments to various portions of the bill, but I would suggest to you that it is a welcome development, in my view, that the discussion this morning revolves around your draft legislation as introduced, as opposed to the draft legislation submitted on October 5, 1981, by Assistant Secretary of the Army Gianelli. Certainly I would hope that your committee would not center its discussion on the draft submitted in August 1981 by Panamanian members of the Panama Canal Commission.
Both of those drafts are in many respects at variance with the Panama Canal treaties themselves, and at variance with the intent of the Congress, as Mr. Carney mentioned this morning.
It is my firm belief that the philosophy which was embodied in Public Law 96-70 has to be upheld by this Congress, although I don't mean that you should not make appropriate changes in the law as may be dictated by the experience gained since the United States relinquished its sovereignty over the canal on October 1, 1979.
It might be well at this point simply to recall for the record the specific mandate that you, as a Representative from Kentucky, and the gentleman from New York and others, have regarding any legislation governing the Panama Canal.
Paragraph 1 of article 3 of the 1977 treaty grants the United States:
The right to manage, operate, and maintain the Panama Canal. Paragraph 3 of the article provides that the United States will: In accordance with the terms of this treaty and the United States law, carry out the responsibilities by the means of a United States Government agency called the Panama Canal Commission, which shall be constituted by and in conformity with the laws of the United States of America.
There it is. Now, there were two parties to these treaties, one being the Republic of Panama, and the other the United States. It was provided that Congress, of which this committee is obviously a part, carry out the mandate of these treaties.
I would hope that any amendment to those laws would not be inconsistent with the intention of the law that is now on the books. It might be profitable for those who were not here in an executive ca-pacity at the time Public Law 96-70 was passed to go back and familiarize themselves with the debates on that measure in Congress.
I am sure the Secretary has more than enough to do, especially since he seems to be making mistakes on public works projects in Kentucky, or even on Long Island. But quite frankly, the frame of historic reference in which your committee operates is apparently somewhat different than his.
It is true that U.S. control of the canal to the year 200 is not exclusive by any means. It is a shared control, and your committee must take the views and sensibilities of the Panamanian Government into account. But we cannot ignore the fact-and it should bear on your deliberations when you markup, particularly as they




48
pertain to section 1 of the bill dealing with the delegation of authority-that almost from the date of effectiveness of the treaties, these treaties have been distorted and ignored by the Panamanian Government. This began with the famous letter that President Royo sent to President Carter in January 1980, followed by a series of continuing attacks; and concluding with the extraordinary speech last September by President Royo at the United Nations. Most recently the Deputy Administrator of the Canal, Fernando Manfredo, said he was speaking for President Royo in saying that the Government of Panama does not accept the terms of the treaty which gave the control of the canal to the U.S. Congress and the Government of the United States. Rather, the Panamanians have a fundamentally different view of what the canal supervisory board should be.
Mr. Manfredo spelled out that difference in his statement, and you perhaps have read his remarks. It was only the latest of a series of definitive statements by the Government of Panama of its view of its rights under the treaty. It was interesting, Mr. Manfredo went on to say, that one of the reasons that they take a differing view is that the Spanish and English language text of the treaties do not coincide, a point that was made at the time of the treaty deliberations by many of us, a point that was swept aside by the State Department officials, who said, "Well, that was just our misunderstanding of the-Spanish."
Here you have the crux of the problem of the United States-Panamanian relations today. Much of this contention arises from this basic policy disagreement, and yet, I heard almost nothing said about it this morning.
You have to bear that United States-Panamanian disagreement in mind. As one who is interested in seeing the successful operation of this international waterway, it is a sense of sadness to me that the officials of President Reagan's administration directly charged with formulating and administering policy in this area refuse to recognize or address these fundamental differences.
It disturbs me also, and I have to be frank about it, that there is a continued presence in almost every position in the State and the Defense Department and in the Panama Canal Commission of key civilian and military personnel who helped to negotiate, write and support the.Panama Canal treaties.
That is not to say that they cannot shift gears and follow the Reagan administration policy, but I have the distinct impression that a small group of people is making policies without the understanding or knowledge of the officials at the White House. It is apparently the feeling of the administration that Panama is only a minor irritant compared to the political and social unrest in the Central American region. But I don't think you can ignore Panama, because the potential for disaster there is clearly foreseeable.
The history of Central America in the last 5 or 6 years shows that the Government of Panama has played a key role in aiding and abetting the revolutionary movements that have already overthrown the Government of Nicaragua and are presently threatening the Governments of El Salvador, Guatemala, Honduras and other nations. Even as recently as a few weeks ago, the




49
Wall Street Journal addressed the question of Cuban guerrillas training in the Republic of Panama. The Government of Colombia was subjected to an attack against its Government launched from Panamanian soil.
These things will not go away. You have access to the classified briefings, and I do not, but anyone who reads the English language translations of Latin American news dispatches on a daily basis knows what is happening in the Central American region.
In the treaties, Panama and the United States solomnly agreed that each nation would conduct its affairs so as not to threaten the operation and the access of shipping through the canal. As I said, these treaties give the U.S. President and the Secretary of Defense the power and the right to operate the canal for the next 18 years. So, I am not even sure, Mr. Chairman-and maybe you would want to make it the subject of a separate inquiry-whether at any time since the Royo letter of January 1980 and the United Nations speech of last September, the U.S. Government has made any response to these extraordinary claims that have been made against us. I am not aware of any such response.
I have been told that there was a classified policy position adopted last summer by officials of the administration. It is not public. I don't see why we should not be allowed as citizens to know what is the policy that governs the canal. A lot of the discussion this morning was on policy and who administers it. The public has never been told if there is such a basic policy and what it entails.
I especially applaud section 1 of this bill, because it makes clear what we thought was already established: that the role of the President and the Secretary of Defense as officers of the United States is to serve as the primary officials responsible for, and having powers over, the Panama Canal. I agree that the repeated and successive delegation of those powers has led to a situation in which a few people are administering what amounts to their own private versions of Panama Canal policy without the sanction of anyone. It is perhaps in contravention of the law.
I do have some concern about section 5 of your bill, which repeals a requirement that the Comptroller General identify all of the direct and indirect costs of the operations of these treaties. I know it must be difficult to identify the indirect costs, but you probably remember, as I do, the insistent assurances given by President Carter, Secretary Vance, and others that these treaties would not cost the American taxpayers one additional dollar. They are actually costing us a great deal more, as witness the $100 million or more in general revenues that were appropriated in 1980 and payments that have not been made by the Canal Commission to the U.S. Treasury. I understand their need for some financial flexibility, but I don't think we will ever know what the actual costs of these treaties are because I think it was essentially a bad political and economic bargain from the viewpoint of the United States.
I, certainly, agree with the section 8 requirement that all the costs of maintaining and operating the Panama Canal are to be included as the basis of calculating the tolls to be charged. The need for this expanded toll definition further supports the claim, as I see it, that the canal be required to finance its own operations.




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Let me add that I have some real concerns about the trial booking system. I have a concern whether the supervisory board even has the authority to impose such a booking system, although it apparently has assumed that authority. It has been carried out in the form of executive orders. As I understand it, under Public Law 9670 there was a prescribed system for toll increases, and that has not been met at all, if indeed the booking system is in fact an increase in the tolls. So. I would hope some action by your committee dealing with this section of your bill might possibly deal with the booking system.
It has been claimed by some shippers that the booking system is a highly discriminatory system, while others feel it is beneficial to them. I wanted to call the Port of Baltimore Authority about this issue, and did not, but I am sure that ports all over the United
States will be looking at it.
Last, Mr. Chairman, let me commend you and the committee for repeatedly acting to protect the financial integrity of the canal and its operations, in spite of the apparently deliberate failure on the part of someone in the leadership of the Congress, or perhaps the administration, to secure the passage of authorizating legislation for the past 3 years.
You have been personally successful, Mr. Chairman, in amending the transportation appropriation bill to include the appropriate restrictions on spending, as the authors of this law suggested were necessary. I also applaud you for your refusal to consider changing the form of the canal governmental structure from an appropriated fund agency back to corporate form.
I am pleased to hear that change is not the administration's position at this time, although looking below the surface, there may be the hope by some that the day will come when the Congress will be agreeable to changing the form of the canal government.
Your support, Mr. Chairman, and your committee's, for the principle that the Canal Commission should not be allowed to live beyond its means by incurring obligations in advance of receipts, is also something that the American taxpayers should thank you for.
I thank you for the occasion to be able to testify this morning.
[The Bauman statement follows:]
STATEMENT OF ROBERT E. BAUMAN, FORMER MEMBER OF CONGRESS FROM THE STATE OF MARYLAND
Mr. Chairman, and members of the subcommittee, thank you for your invitation to appear again to comment on legislation affecting the operation and future of the Panama Canal.
As you requested, I have studied the draft bill, dated Feb. 9, 1982, and I can give this legislation my support. I offer that approval as one who has serious questions about the manner in which the Canal is being operated at this time, and also as one who takes some pride of authorship in Public Law 96-70, which sought to carry out America's obligations under the 1977 treaties with Panama. While I have some comments on various parts of the proposed bill, I believed it to be much more important to encourage your committee and the Congress to reject other proposed legislation regarding the Canal. On this rejection list I would most definitely include the draft bill submitted to Congress last October 5, 1981 by Asst. Secretary Gianelli, as well as a draft proposed in August, 1981, by the Panamanian members of the Panama Canal Commission. The central theme of P.L. 96-70 was to make sure that the Panama Canal continued to be operated efficiently under the control of the United States until the end of this century. As part of that control the Congress is to have a major role in making




51
policy and deciding the budgetary posture of the Canal. That authorit stems directly from the terms of the 1977 treaties and any proposed legislation which derogates the rights accorded the United States should be rejected.
I do not oppose reasonable changes in the existing law which are necessary because of changed circumstances or which are suggested by the practical experience gained since the United States surrendered its sovereignty over the Canal on October 1, 1979.
To be sure, the control of the Canal is a shared responsibility together with the Republic of Panama, and their views and sensibilities should be respected by the government of the United States and by the Congress.
But we would be blind to ignore the fact that almost from the effective date of the treaties those documents have been ignored and distorted by representatives of the government of Panama. In what has now become a persistent theme, the Panamanian attack on the treaties began with the infamous letter from President Aristide Royo to President Carter early in 1980, a document which has never been satisfactorily answered by our government, if at all. While the American press has ignored the drum fire of personal and political agitation against U.S. officials in the Canal area which occurs almost on a daily basis, they also saw fit to pass over President Royo's extraordinary attack which occurred at the United Nations last September.
On January 25, 1982, in an honest statement of his government's position, and speaking for President Royo, Deputy Canal Administrator Manfredo made clear the Panamanian view once again. The Republic of Panama simply does not accept the terms of the treaties which gave ultimate control of the Canal until the year 2000 to the United States, including you as Members of Congress. Rather they claim that the supervisory board (now dubbed "the Board of Directors") is to be the ultimate authority.
In that fundamental difference of viewpoint can be found the crux of the problem which dominates U.S.-Panamanian relations as they pertain to the operation of the Canal. It allows Panama to reject the authority of the U.S. Congress, the President and, in effect, the terms of the treaties as well.
It is in this context that I am pleased to respond to your request for comments on your proposed bill. I commend you, Mr. Chairman, and your committee, for drafting legislation which does what is necessary to meet current problems and to provide for the expiration of the treaty transition period on March 31, 1982.
I especially applaud Section 1 of the bill which again clearly establishes that the President of the United States and the Secretary of Defense are the primary officials charged under the law with administering their own private versions of U.S. policy towards the Canal with little sanction from anyone.
I have some concern with the provision of Section 5 which repeals the requirement that the Comptroller General be required to identify all direct and indirect costs flowing from the treaties. This was- intended to show what the American taxpayers really are paying for what I feel to be a bad political and economic bargain.
I also agree with the added definition of "costs" of Canal operation since those costs are to serve as the basis for setting tolls. As part of the guarantee that the tolls would support the costs of the treaties this is an important point to be re-enforced.
I suggest that the committee look closely at the current trial "booking system" which may in fact be a toll increase which avoids the statutory requirements when tolls are increased. It would appear at face value to be a preferential system benefitting selected shippers who have the means to pay higher rates.
Lastly, Mr. Chairman, let me commend you and the committee for repeatedly acting to protect the financial integrity of Canal operations. In spite of the failure to enact authorization legislation, you have repeatedly succeeded in amending the appropriations bills to conform with the spending restrictions embodied in Public Law 96-70. Equally important is your refusal to agree to the idea that the Canal Commission should live beyond it means by incurring obligations in advance of its receipts.
Mr. HUBBARD. Thank you, Congressman Bauman. Each of us who has served on this subcommittee with you realize your knowledge about the subjects you discussed and also your dedicated interests in our country's efforts to continue in a strong way as much as possible, notwithstanding the treaties in regard to the Panama Canal.
Bob, what do you see as the problem in the advanced booking system for ships moving through the canal referred to on page 2 of your statement?




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Mr. BAUMAN. My main concern is that it in effect creates two classes of users of the canal, one being a preferred class of shippers who quite obviously benefit economically by an assured schedule of transit and are willing and able to pay the increased amounts that might be imposed for this booking right.
The second class would be shippers with less economic clout, and I would suspect from my recollection of the testimony several years ago this would include a number of South American countries with agricultural and other export products that might have to use the canal on a regular basis for the transit of products, but which do not have the economic means to pay these fees.
Undoubtedly, all of this will be taken into account in the studies being conducted during the 120-day trial period.
The problem I have with it is the procedure involved. I view the booking fee as a toll increase and a toll increase under Public Law 96-70 requires public notice, hearings, comments by the affected parties and action, I believe, all the way up, possibly to the President of the United States; and in effect what the supervisory board is doing here is saying it will avoid that procedure in imposing what it euphemistically called a booking fee.
Mind you, when these treaties took effect one of the largest toll increases in the canal's history took place, some 27 to 30 percent increase, immediately, to pay annual fees to Panama, and today we are facing a situation in which the revenues of the canal don't cover the costs the treaties themselves created.
Mr. McAuliffe gave a rosy picture of the economic well-being of the canal, but he failed to mention it lost money last year, some $600,000 I gather-I am not sure of that figure-but that is only the second or third time in its history that the canal lost money. So, if the canal needs a toll increase, let us do it openly and consistent with the law.
Mr. HUBBARD. House bill 5601 was introduced only 2 days ago. Have you had a chance to read it yet?
Mr. BAUMAN. I read the draft bill that was dated February 9 accompanying your letter and so my comments are directed toward that.
If there have been any substantial changes made I am not aware of those.
Mr. HUBBARD. There were none.
Do you support the bill as is?
Mr. BAUMAN. Yes; I most assuredly do. I would only reiterate my own feeling that section 1, while it certainly ought to be in some way amended to accommodate some of the concerns expressed by Secretary Gianelli should remain in the bill so that the delegation of authority is clear.
As it is now, we have a fusion of authority amongst many people and, as Mr. Carney mentioned and Mr. Manfedo agrees, Mr. McAuliffe and the supervisory board are assuming this authority in many respects. Yet, there is no basic legal authority for such assumptions of power.
Back in 1914, when the canal began its operations, the President at that time issued what amounted to an Executive order, and it was a plan of authority by which the canal was operated. It made clear who had the authority to run the canal.




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At the present time we don't know who precisely has the authority, because it has trickled down, if I may use that rather unattractive phrase to Mr. Gianelli who has come to us from California and now is charged with dealing with many other areas of Government authority other than the Panama Canal.
We need a fundamental delineation in section 1 providing where this canal authority lies, who has it, and the scope of the exercise of that authority.
If it continues the way it is, it allows, and rightfully so, the Government of Panama to continue to complain and ask the rhetorical question, "who is in charge here?" because they would like to be in charge to a much greater degree. Our Government officials are not even answering what are valid questions by them. Panama should be told who is in charge.
The treaty tells me. Public Law 96-70 tells me. And it is about time the Reagan administration told them.
Mr. HUBBARD. Congressman Carney?
Mr. CARNEY. Thank you, Mr. Chairman, and thank you for coming here, Mr. Bauman. Everyone knows and appreciates how hard you worked on H.R. 111 which finally became Public Law 9670. I, certainly, appreciate it.
Mr. BAUMAN. I refer to that as the Hubbard bill. I believe he was instrumental in its passage.
Mr. CARNEY. You have not lost your edge for the politic.
How do you think the differences that you talked about between the United States and Panama in your testimony can be resolved?
Mr. BAUMAN. I suggested it in one sense, and that is that we need the Government of the United States to address this problem of who is in charge of Panama Canal policy.
It might require a trickle up to the President's desk to decide, but there is no reason why we should go on in this sort of international legal limbo and, if nothing else, section 1 of your bill raises the issue in a form that may have to be addressed.
I don't know whether this legislation is ever going anywhere. There is another legislative body with which you have to deal. But at least we need a policy definition, so that the differences can be resolved. They may not be resolved to the liking of your committee or the United States, and maybe negotiations are needed to renegotiate some of the terms of the treaty, but when one side is saying there is a board of directors with all power and the other side is saying nothing, which is what the Government of the United States is now saying, and you in Congress say, here is what we intended, there is definitely a need for all parties to come to a resolution and do it quickly, before it results in some sort of conflict.
How many other treaty partners do we have that have dragged us into the U.N. and criticized us?
Mr. CARNEY. You mentioned that it was your belief there was no policy statement or position paper from the administration on the Panama Canal. Would you say that for the record as certainty?
Do you know of any?
Mr. BAUMAN. I do not know of any basic policy declaration that has been made. The only statement I recall is a letter from Max Friedersdorf saying that the Bowen bill was the administration bill last year.




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You remember that Mr. Bowen of Mississippi told this committee that he didn't know where the bill came from, that it was presented to him by people "downtown." It embodied the Reagan position, he was told.
I heard there were a series of policy meetings involving State and Defense last summer, and out of this came definitive language that is in the classified file.
If our Government officials know, apparently the Government of Panama has not been told. Have you been told?
Mr. CARNEY. Frankly, I have not.
That letter, though, brings back memories. You were an author of Public Law 96-70. Is there any doubt in your mind as to the law's intent in regard to the supervisory board and its powers?
Mr. BAUMAN. No; it was to be a supervisory board and not a board of directors; those are not the words of Public Law 96-70 alone. Those are the words of the treaty and that certainly gives the Panamanians every opportunity to express their policy desires and the U.S. members the opportunity to respond. The law did not envision a board such as the corporate form of before, known as the Panama Canal Company; that was in fact a managing board of directors.
Mr. CARNEY. Would you like to speculate as-to why you think something went wrong with the interpretation of the authority of the Board?
Mr. BAUMAN. Well, because that Board has apparently been filling a vacuum in policy direction. Mr. Gianelli is the Governor of the Canal Zone in effect under this new system. But no one has ever really defined exactly what is to be done by whom. Secretary Gianelli has it in his power under Public Law 96-70 to cast five votes on any issues before the Board. He has not had to do that. There was one extraordinary occasion last summer when, as chairman, he voted with the Panamanians and the four Americans voted against his position. That such a diversion should happen was an unforeseen event, at least on my part, when we wrote the law.
I am not quite sure precisely where the power lies but I think it needs to be defined and defined quickly to avoid more problems.
Mr. CARNEY. Would you like to comment on the proxy situation? Again, as someone who has such great knowledge about the Panama Canal and Congressional intent of Public Law 96-70, what do you think about utilization of proxies,
Mr. BAUMAN. Well, as I understand the first suggestion made by Mr. Gianelli or his staff, it is simply for the use of proxies, and he has defined that to include votes to create a quorum. I presume proxies would be for all purposes.
I think that would be a disaster.
One of the assurances that was repeated day after day on the floor of the Senate was, "Don't worry, folks, until the year 2000, with five votes to four, we will control the Panama Canal ."
No one said it would be four pieces of paper and Mr. Gianelli or four pieces of paper and someone else.




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The fact of the matter is that the Panamanians are willing to participate, and in fact take a very close interest, in what the Board does, and we, of course, have to do the same. You are right. It is unfortunate that a Board meeting may take 4 or 5 days in the middle of December. That is tough duty with the weather down there; but, nevertheless, the reason the Congress designated a labor member and other specific members of that Board was to allow the Board to reflect American policy and decisions. I can see an emergency proxy provision, and maybe you would want to write it into this bill, allowing someone who gets an upset stomach to leave without dissolving the quorum.
I might add I don't understand why the present Board has not been replaced by now. With all due respect to the individuals, there is no parallel in the history of the canal that a new administration didn't come in and change the goverment of the Canal to reflect its policies. Maybe it is because it does not have a policy. Mr. CARNEY. I appreciate you might not want to answer this question. If you don't, just say so. You don't think the President is aware of the problems that you describe, and you believe that a small group of people are making policy.
Would you care to speculate who that small group is? Mr. BAUMAN. Well, you know, anyone can have his own
Mr. CARNEY. Always the hand grenade question.
Mr. BAUMAN. Quite obviously, I think that Mr. Gianelli plays a key role in this; Mr. Wyrough at the State Department, one of the treaty advisors, has charge of the Panama desk; Mr. McAuliffe as administrator; and, from all I can glean as an outsider, the consultative committee made up of Ambassador Popper and Ambassador Moss, and General Dolvin.
These people are pretty much operating as the policymakers in this area and you know that may be all well and good, but it is an informal sort of arrangement that none of us ever envisioned when we enacted the law and I don't think the treaty negotiators ever envisioned that either.
It has not created any grave problems so far. Except for the Government of Panama, no one seems to be addressing this issue.
I am sure these good folks could be brought before your committee and tell you how policy is being made.
Mr. CARNEY. An aspect of the treaty that you were very, very forceful about, and I might say so was I, was the aspect of having open hearings with the Panama Canal Commission, the supervisory board.
Last year you testified before the committee and again we went over that. Do you think that there still is a necessity to produce any further statutory provisions addressing the openness of the meetings?
Mr. BAUMAN. Mr. Lent had a provision in last year's bill, or attempted to place it in there, that would specifically have required open meetings. We require that openness in Public Law 96-70 by reference to other statutes, and specifically that these meetings be open.




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The objection by the administration was that open meetings would lend themselves to all sorts of public attacks being made by both sides, and it would not be conducive to good relations.
What has happened, in many instances, is that the deliberations have been held in private and then the next morning, in the controlled press in Panama, the entire statement is there, obviously, having been given to the press by the Panamanians, blasting the United States for some position.
The secrecy is not being observed by some of the Panamanian members.
I gather it has been difficult to get expeditious copies of some of
the board proceedings for this committee. I should think open meeting should be required.
Mr. CARNEY. It has improved, I might add, since the amendment has been adopted. That is one of the brighter notes, along with Mr. Gianelli's testimony and General McAuliffe's testimony, the setup is working.
Are you aware of any formal responses by our Government to the several protests that you talked about from the Panamanian Government about Public Law 96-70?
Mr. BAUMAN. No; the Government of Panama has accused the U.S. Government of being in violation of the treaties. They have flatly stated that the President and the Secretary of Defense and the U.S. Congress do not have the powers that you are now exercising and the fact of the matter is our Government has never responded.
At some point Panama may press us for a response and they could use some very embarrassing means to do that.
Mr. CARNEY. Do you see any application at all for advance receipts of revenue practices?
Mr. BAUMAN. Sir?
Mr. CARNEY. As far as our financial obligations are concerned?
Mr. BAUMAN. You mean to change the so-called Rudd amendment?
Mr. CARNEY. Yes.
Mr. BAUMAN. This is a serious problem. I am sure Mr. McAuliffe was quite correct, if there was not this unrepaid amount from an earlier U.S. appropriation he would have a very difficult time operating.
We did authorize an emergency fund. I am not sure that it has ever been funded to any degree. It may have been in the last year or so in the appropriation, $10 million, which may not be enough in the case of a major earth slide in one of the cuts, but I would suggest that in some way your committee address this and approve authorizing legislation to allow some financial flexibility.
I know this is going to sound liberal coming from me, but maybe you should let them keep the $10 million as a cash float on which to operate, or some part of that, so that they will have a cushion. They should understand at the end of the treaty life it should be repaid. But the Canal Commission should not be allowed unlimited ability to incur obligations in advance of receipts. If that happens the situation will arise where they don't have enough receipts, and that will happen within a year or two. It has already happened to a minor extent this year. With the building of




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the oil pipeline through Panama, the canal's economic standing could be seriously jeopardized. I think we have to address this question of their ability to live within their income which was the guarantee the proponents of the treaties gave the people of our country. Mr. CARNEY. Do you think a separate Panama Canal fund in the U.S. Treasury should be abolished?
Mr. BAUMAN. No, certainly not. That was tried last year. That separate canal fund in the Treasury is a means, and General McAuliffe told this committee that last year, of delineating whether or not the American taxpayer is having to foot any of the bills beyond the receipts of the canal. It was an excellent statement, and I endorsed it.
The fund should not be abolished and the receipts should not go into general revenues, Mr. Carney.
Mr. CARNEY. There are numerous major capital projects said to be needed in the canal. Do you have any ideas on how we might be able to finance?
Mr. BAUMAN. President Royo told the U.N. that a half a billion dollars in capital projects are needed in order to keep the canal operating. That has to be addressed. You have been there, as I have, and when you see the canal in operation you know it is a very impressive but very ancient lady that needs constant maintenance. An awful lot of work has to be done. Pacific and Atlantic approach dredging and so on are major projects. And there have been some down payments made on the expensive studies that will lead to major capital improvements.
Where is the money going to come from?
Here we have this Panamanian pipeline that will be finished shortly and pumping oil, and the Government of Panama will get enormous sums of money from the oil going through that pipeline. They will receive, according to estimates I have seen, more than a billion dollars.
Now, that is a toll income drain from the canal. Why can't the Panamanian Government be asked to share this wealth that they are going to gain from this pipeline, be asked to reduce the payments to them under the treaty and put funds back into building their canal? Has no one every thought of this?
Sit down with them and say,
Look, you are going to make a heck of a profit. We know you've got financial problems, but economically you are better off than any other Central American country, so devote part of the income from that pipeline to the canal's improvement.
It is a simple little thought.
Mr. CARNEY. I think Secretary Gianelli mentioned that.
Mr. BAUMAN. Well, good.
Mr. CARNEY. He thought certainly that should be considered.
I know I could ask Mr. Bauman several more questions, but we have other witnesses, and it won't be fair to delay those witnesses.
Mr. HUBBARD. It is a fact that Mr. Gianelli did propose these receipts from the pipeline be used for the canal.
Mr. BAUMAN. Excellent.
Mr. CARNEY. If I might, I will submit several questions to you, Mr. Bauman, but I would like to have one more answered now, if




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you would, and keeping in mind that we have other witnesses, please.
Mr. BAUMAN. Yes, of course.
Mr. CARNEY. You met with the White House officials regarding the Panama Canal last year. Did you get any results out of that? Mr. BAUMAN. The gentleman from New York, Mr. Lent, was kind enough to invite me to go to the White House together with one or two others. We met at that time with the then National Security Adviser, Mr. Allen, and his Deputy, Roger Fontaine. We devoted most of an hour to discussing the very problems that we are discussing here again this morning, at least in my testimony. We received all kinds of assurances that things would be done to correct these problems. This was, I guess, in May 1981. Now, I know Mr. Allen subsequently became very busy with other matters, but at the time it seemed that something was going to be done. Specifically within that week the gentleman from New York, Mr. Lent, Senator Thurmond, and others submitted a list of new nominees, including those on the canal supervisory board. He included some very stellar names and, yet, apparently, nothing ever happened.
Mr. CARNEY. Don't you read your mail? Mr. BAUMAN. Yes; but I don't think I received any letters from the White House on that subject., Mr. HUBBARD. Thank you, Mr. Bauman. Our next witness is Talmage Simpkins, executive director of the AFL-CIO Maritime Committee.
We appreciate your patience in waiting to be our fourth witness today, sir. We look forward to your remarks,
STATEMENT OF TALMAGE SIMPKINS, EXECUTIVE DIRECTOR,
AFL-CIO MARITIME COMMITTEE
Mr. SIMPKINS. I have a two-page statement that I would like to read, if I may, and then answer whatever questions you wish to ask that I could answer.
I am Talmage Simpkins, executive director of the AFL-CIO Maritime Committee and I am appearing on behalf of the National Maritime Union of America, AFL-CIO. We appreciate the opportunity to appear and tell you that the Panama Canal implementing legislation which was adopted on September 27, 1979, has worked very well. When we initially requested time to appear and testify-we did so because we were fearful that your committee would be considering the adoption of the Department of the Army's proposal to change the Panama Canal Act of 1979.
We believe the stability that has prevailed over these past 21/2 years is proof that the implementing legislation, which was primarily designed by the House Merchant Marine and Fisheries Committee, was the best approach.
We commend you, Mr. Chairman, on this bill, H.R. 5601, which you and the chairman of the full committee have introduced. We ask that you not amend this bill to incorporate any proposals to change the current labor-management setup or the application of




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cargo preference laws to the Commission, or any changes to make it easier to increase the tolls.
We have, since the treaty negotiations began some 16 years ago, avoided taking any position on the treaty. Our position and the thrust of our testimony over this period has been to do what we could as labor unions for the benefit of our members and leave the treaty to those who were expert in that field. The National Maritime Union of America, the International Organization of Masters, Mates and Pilots, and the Metal Trades Department, will begin negotiations with the Panama Canal Commission on March 1 of this year on an umbrella contract covering the employees who are employed in all phases of activities in the operation of the Canal.
This follows the conclusion of an election that. was held under the auspices of the Federal Labor Relations Authority to determine who the employees wished to have as their collective-bargaining agent.
During the month of March another election will be held among the various defense establishments to determine who will be the employees' collective bargaining agent. This election will also be held under the authority of the FLRA and we anticipate that it will also go as smoothly as the first one.
Again, Mr. Chairman, we believe that you are taking the correct approach by not drastically overhauling the Panama Canal Act of 1979.
Thank you.
Mr. HUBBARD. Thank you, Talmage.
In general, you do support House bill 5601?
Mr. SIMPKINS. House bill 5601, yes, sir.
Mr. HUBBARD. Please elaborate on this meeting to be held on March 1 between the three labor unions and the Panama Canal Commission regarding the umbrella contract?
Mr. SIMPKINS. The National Maritime Union, the Pilots and the Metal Trades Department of the AFL-CIO, will be getting together and presenting their proposals to the Panama Canal Commission. As to the areas of the bargaining, I do not know, Mr. Chairman, except to tell you that they will be guided by Public Law 95-454 which is title 7 of the Civil Service Reform Act of 1978.
The details of it I do not know. I do not know what they will be proposing to the Commission.
Mr. HUBBARD. Congressman Carney?
Mr. CARNEY. Well, Mr. Simpkins, I certainly appreciate the fact that you are pleased with the labor-management relationship as it presently stands and you are pleased with the direction we are going with the new bill.
Overall I was just wondering in two seconds if you could comment on any of the problems you might be having from the labor relations standpoint or problems that your labor force might be having that you would like to bring to our attention.
Mr. SIMPKINs, We have heard a lot of rumors to the effect that come April 1, that the acorn is going to hit us on the head.
Mr. CARNEY. Pardon me?
Mr. SIMPKINS. That the roof will fall in.
Mr. CARNEY. Oh.




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Mr. SIMPKINS. We, from our viewpoint, do not anticipate any problem in that connection, at least not to the degree that the rumors have said.
The treaty agreed to by the two countries has six different sections where it says the U.S. Government shall have the right to establish the labor-management section that is currently in Public Law 96-70, therefore, I would not anticipate any problem along that line.
Mr. CARNEY. Mr. Chairman, that is all the questions I have. Everything seems to be going very well with regards to labor. I am pleased to hear that.
Mr. HUBBARD. Mr. Simpkins, we respect your views and appreciate your willingness to add input to the legislation in question and thank you for being with us.
Mr. SIMPKINS. Thank you.
Mr. HUBBARD. We have one more witness. Calvin R. Bruer, president of the Panama Canal Federation of Teachers.
We appreciate your being here today. We appreciate your testimony and your willingness to answer any questions we might have. STATEMENT OF CALVIN R. BRUER, PRESIDENT, PANAMA CANAL
FEDERATION OF TEACHERS
Mr. BRUER. Good morning, Mr. Chairman. I am Calvin Bruer, president of the Panama Canal Federation of Teachers, our national organization being the American Federation of Teachers, Washington, D.C.
I am here to address the proposed legislation to amend the Panama Canal Act of 1979 in reference to teachers' pay allowances, section 1217.
First I invite your attention to section 1231 of the original act which states that "terms and conditions of employment set forth in paragraph 2 of this subsection shall be generally no less favorable on or after the date of transfer."
Hopefully then, to insure that teachers are not again singled out by a violation of the intent of the original treaty as referenced above I urge that on page 2, line 24, of the proposed legislation the phrase "in lieu of the additional," be deleted and the phrase "in addition to" be inserted; and on page 3, line 7, the word "shall" be substituted for the word "may".
As in instances of this singling out, elementary and secondary teachers are the only group in the Canal area to have had their salary adversely affected by the treaty. Last year we teachers saw a loss of salary and pay base combining with an increase in various cost'of-living elements of 30 to 300 percent. Additionally, teachers must move out of their rented U.S. Government housing by October 1, 1984, according to the provisions of the treaty and have not been assured that they will receive the quarter's allowance and/or housing that all other DoDDS teachers receive.
You are aware from the record that the "tropical differential" has been paid to employees working in the canal area since 1912. Management, too, receives these tropical differentials.




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While these problems were in part resolved while the Panama Canal Company was in charge of the area, we are seeing a return to less favorable living conditions since the treaty has been in effect.
In short, the conditions that existed previously to warrant this tropical differential continue today. In some cases they are worsening.
In the proposed legislation we are discussing today teachers, medical personnel and postal workers who were transferred to the Department of Defense as a result of the treaty and all those who were hired subsequent to the treaty will lose the tropical differential, a 15 percent additional compensation.
As a result of legislation on the books, teachers for DoDDS worldwide shall be authorized housing, housing allowance, and storage [U.S.C. title 20, sec. 905]; entitled to cost-of-living allowances and post-differential [US.C. title 20, sec. 906].
The proposed legislation does not authorize paid housing for teachers, who are now paying for their rent and electricity in Panama Canal Commission quarters; and does not allow an additional compensation, tropical differential, to continue when authority exists in Public Law 96-70, section 1217 and 1231 and U.S.C. title 20, section 905.
A portion of the original treaty's intent was to create a stable work force for the life of the treaty. As such, the retirements benefits were increased from 2 to 21/2 percent with no intent to erode this enhancement by subsequent legislation.
The terms- and conditions of employment for teachers in the Panama Canal area has continually worsened This is a clear contradiction of section 1231(a)(1) of the treaty and its intent that terms and conditions of employment set forth shall be generally no less favorable on or after the date of transfer.
We urge your endorsement of our proposal.
Thak you.
Mr. HUBBARD. Thank you very much, Mr. Bruer.
Have you had a chance to study House bill 5601, introduced 2 days ago?
Mr. BRUER. No, sir.
Mr. HUBBARD. Regarding your remarks, would you please explain the term tropical differential for the record and elaborate upon the problems to which you refer, such as salaries and terms of employment?
Mr. BRUER. Yes, sir, this goes back according to the records to 1912 and at that time they determined that there were several problems.
Title 5, chapter 59 enumerated some of those things, and they said that the conditions of the climate differed substantially from the climate in the United States. Some of the things given were housing was inadequate, sanitation problems, insect control, the continual high heat and excessive humidity of the tropics.
Mr. HUBBARD. That is not too bad nowadays, is it?
Mr. BRUER. Not today, no.
I take it you are talking about the current weather situation.
Mr. HUBBARD. Right.
97-154 O-82--5




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I
Mr. BRUER-- Something else arose relatively recently. Skin disorders from the sun, recognizing the skin disorders from the exposure to the tropical sun, the cancers that are being formed.
I don't know what else to say specifically on that situation.
Mr. HUBBARD. What is the average salary of American teachers in Panama?
Mr. BRUER. I don't think it quite comes up to what they have in Rockland County in New York State, but it is around $26,000, I would suspect, and that is including the tropical differential.
Mr. HUBBARD. I cannot speak for other States. That is much higher than the average teacher salary in Kentucky.
You were talking about the bad living conditions in Panama?
Mr. BRUER. Yes, sir.
Mr. HUBBARD. I have had the privilege of visiting there and couldn't see it being that bad. If it is so bad why do people still stay in Panama?
Mr. BRUER. Somewhat along the line, why do the people stay in Saudi Arabia?
I suppose it is the salaries in one aspect, and they would like to maintain what they have.
I invite you to come down and visit my house, a four-family house, and the studies show-and the wind blows through the cracks in the wall, and I have a clothesline stuck in the windows to keep it from blowing the air-conditioning out that I pay for. So, I guess it is perspective of what you call good housing and poor housing.
Mr. HUBBARD. One thing I have here that you don't have is a monthly bill from Vienna Fuel Co. that you would not appreciate, I guarantee you. They are higher than Kentucky, and for sure higher than what you would require in Panama.
But I repeat, I found Panama in the area where you live to be a very nice place. I am not familiar with your home, but please remind the teachers down there who may be complaining, they certainly would be paid less in many States here in the United States.
I do hope that you can continue to receive what you have in the past.
We realize you have come a long way to testify before us-and we appreciate very much the time and trouble to which you have gone to travel to Washington.
Mr. Carney, questions?
Mr. CARNEY. I would just say to Mr. Bruer that you have cited the bill specifically. You have clearly delineated the problems that you see with your profession, and I can tell you before next Friday's markup I will look at each and every one of. them carefully and give it my personal evaluation, and I am sure the staff will do that for the other members of the committee, so that at the markup process your day in court will be given. Knowing that you are far, far away, you can be assured every part of your testimony will be given its due consideration. Mr. BRUER. We would be happy to return and talk to your staff on the markup.
Mr. CARNEY. The staff is here. I wouldn't want to bring you back to Washigton's weather in February.




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I thank you very much for your testimony and, again, I assure you we will give it its consideration.
No further questions, Mr. Chairman.
Mr. HUBBARD. Thank you, Mr. Bruer.
This witness concludes our list of those testifying before us today. We appreciate each of you who have been in attendance. And, to the court reporter, Carol Bradfield, and to staff members, Merrill Whitman, Ed Welch, Janie Lawson, Bud Drago, Jana Oakley, and Robin McClung, the Chairman and the members of the subcommittee appreciate the work that you have done to make this hearing possible.
With that, we stand adjourned.
[The following was submitted for the record:]
STATEMENT OF FRANK C. CONAHAN, DIRECTOR, INTERNATIONAL DIVISION, U.S.
GENERAL ACCOUNTING OFFICE
Mr. Chairman and Members of the Subcommittee: We are pleased to present our views on the proposed Amendments to the Panama Canal Act of 1979. Presented in our statement are our views on Accounting Policies and Auditing which you indicated were of particular interest to the Subcommittee.
ACCOUNTING POLICIES
Section 4 amends Section 1311(b) of the Panama Canal Act of 1979, to clarify that regulations issued establishing the basis of accounting for assets for the use of the Commission shall be issued pursuant to the Accounting and Auditing Act of 1950. We agree with this clarification. The proposed amendments still retain the provision that would allow for depreciation of the net replacement value of the assets which will ultimately require replacement. This provision is contrary to both generally accepted accounting principles and the principles and standards of the Comptroller General and we suggest that it be deleted. In our report entitled "Examination of the Panama Canal Commission's Fiscal Year 1980 Financial Statements and Treaty-Related Issues (ID-81-49, June 29, 1981)," we reported that certain requirements of the Panama Canal Act of 1979 complicate the Commission's approach to accounting. For example:
Section 1311(a) requires the Commission to establish and maintain its accounts pursuant to the Accounting and Auditing Act of 1950 (31 U.S.C. 65 et seq.); that is, to adhere'to the principles and standards of the Comptroller General. Section 1341(e)(1) requires the Commission to determine its operating expenses in accordance with generally accepted accounting principles; that is, in the same manner as a nongovernmental business enterprise.
Section 1603(a) provides that the costs to be capitalized for construction projects will not include interest costs; this is counter to both generally accepted accounting principles and the principles and standards of the Comptroller General. Although generally accepted accounting principles and the principles and standards of the Comptroller General are generally compatible, they do not always agree in detailed application. The Commission's decision to present separately its Statement of Changes in Financial Position and its Statement of Status of Appropriations is a tacit recognition of these differences. Further these differences have a pronounced effect on the design of the Commission's accounting system.
Because the Commission is an appropriated funded Agency we believe that to eliminate the inconsistency in accounting principles, the appropriate sections of the Panama Canal Act of 1979 should be amended to require the Commission to adhere to the principles and standards of the Comptroller General.
AUDIT BY THE COMPTROLLER GENERAL
The major change made by Section 5 in amending Section 1313 of the Panama Canal Act of 1979, is to eliminate the requirement that our report include a statement listing all direct and indirect costs incurred by the United States in implementing the Panama Canal Treaty of 1977, including the cost of property transferred to the Republic of Panama during each fiscal year. In our fiscal year 1979 and 1980 reports on the audit of the Commission's financial statements, we pointed out problems in determining treaty-related costs. Primary among these is the ab-




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sence of a criterion for determining treaty-related costs. As a result of these problems, we suggested in our report entitled "Examination of the Panama Canal Commission's Fiscal Year 1980 Financial Statements and Treaty-Related Issues (ID-8149, June 19, 1981)," a number of alternatives for congressional consideration. We pointed out then, and we still believe, that the annual requirement for reporting by most, if not all, agencies could be eliminated from the Act without diminishing the expressed intent of Congress to keep cost to an absolute minimum. The Congress could still raise questions about these costs while exercising its oversight function through the budget process. Therefore, we agree with this proposed amendment to Section 1313 of the Panama Canal Act of 1979.
We would like to take this opportunity to point out additional audit requirements which we believe warrant your consideration in amending the Panama Canal Act of 1979.
CERTIFICATION OF ESTIMATED REVENUES
We are required by Section 1302(c)(2) to certify the Secretary of Defense's estimate of Commission revenues for the fiscal year. Our current work will lead to a report dealing with fiscal year 1983 revenues. The three certifications we have made (and the one for 1983 as well) are all highly qualified because the outcome of future events is so uncertain. At the same time, we can say that the Commission's methodology seems reasonable and generally will result in a reasonably accurate estimate of future revenues. Further, we see no advantage to the Commission to either understate or overstate its revenue estimates. Therefore, we see no advantage accruing to the Congress by our continued certification of estimated revenues on an annual basis and suggest that this requirement be deleted. As an alternative, we would consider how revenue estimates, as well as budgets, are developed in the course of our normal work.
PUBLIC SERVICE PAYMENTS TO PANAMA
Section 1341(a) of the Act of 1979 provides that we shall audit the $10 million public service payments to Panama annually. During the first 2 years, we have limited our audit to ensuring that the payment was made by the Commission. However, during the third year, it is contemplated that Panama will submit data supporting an increase or decrease in the annual payment. If, and when, that data is submitted, it will be possible for us to review what has been submitted, but verification of the data will require access to records of the Government of Panama. We do not have a clear right of access to such data, making an effective audit impossible. For this reason we suggest that the requirement for audit of the payment be deleted from the Act. We will, in the normal course of our audit work, consider and review the data submitted by Panama and evaluate the actions of the Commission with respect to this data.
BASES FOR TOLLS
The proposed amendment to Section 1602(b) of the Panama Canal Act of 1979 adds to the illustrative enumeration of costs to be covered by toils "reimbursements to the Treasury of the United States for costs incurred by other departments and agencies of the United States in providing educational, health, and other services in accordance with Section 1321 of the Act."
We have no objection to adding to the items of cost provided for in 22 U.S.C. 3792(b); however, we question whether it is intended that those reimbursements are to be deposited in the Treasury. Section 1321(d) of the Act, 22 U.S.C. 3731(d), provides that the "[a]mounts expended for furnishing services shall be fully reimbursable to the department or agency furnishing the services." We understand this to mean that the reimbursements will go directly to the agency concerned rather than to the Treasury.
If the Committee does not intend a change in subsection 1321(d) then the words "to the Treasury of the United States" should be deleted from the amendment. On the other hand, if the Committee does intend to have those reimbursements deposited in the Treasury, section 1321 should be made consistent. Moreover, the legislation also should make it clear into which Treasury account the reimbursements are to be deposited.
This completes my statement, Mr. Chairman.




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STATEMENT OF ANDREW NORMANDEAU OF RAGAN & MASON LAW FIRM
Mr. Chairman, my name is Andrew Normandeau and I am a member of the Washington, D.C. law firm of Ragan & Mason. Our interest in the pending bill to amend the Panama Canal Act of 1979 is to once again bring to the attention of this Subcommittee the fact that United States citizens continue to have outstanding claims against Panama because of that country's past actions in seizing business properties of U.S. citizens without paying for them. The legislation pending before this Subcommittee presents an opportunity to address squarely the issue of whether our Government ought to be paying appropriated funds to Panama while, at the same time, that country continues to refuse to make just payment for assets seized from United States citizens. To correct this abuse, we are proposing that the Subcommittee adopt an amendment the general effect of which would be to make Panama choose between either making a good faith effort at resolving outstanding claims or else temporarily foregoing payments due to Panama under Article III and Article XIII of the Panama Canal Treaty of 1977. A copy of the proposed amendment is attached to my statement.
Our client, a U.S. citizen residing in New York City has had a claim pending against Panama since December of 1974 when Citricos de Chiriqui, S.A., a Panamanian company wholly-controlled by our client, had its 11,000 acres of land, including citrus groves and citrus juice processing facilities seized by the Government of Panama through issuance of Executive Decree No. 119. Some members of this Subcommittee will no doubt remember that our client's claim was the subject of substantial discussion in the United States Congress in 1979 when the Panama Canal Treaty implementing legislation was being debated. At that time an amendment had been proposed to the implementing legislation which would have withheld all payments of treaty monies to Panama while there were U.S. citizen expropriation claims outstanding. While the amendment was adopted in subcommittee, it failed adoption in full Committee by two votes and on the House floor by a vote of 227 to 194. One of the principal reasons why the amendment failed then was that the U.S. State Department gave repeated assurances to many members of Congress that the Government of Panama was actively negotiating to resolve the two outstanding U.S. citizen claims and that in the judgment of the State Department the claims would be settled "within a few days" and so there was no need to include the suggested amendment in the treaty implementing legislation. Needless to say, not only has the Citricos de Chiriqui, S.A. claim not been settled but neither has the other United States citizen claim, that of the Boston-Panama Corporation. Moreover, I would also like to point out that ever since the treaty implementing legislation was passed in 1979 without our amendment, we have not heard one word from Panama concerning the Citricos claim. In short, the Panamanians refused to negotiate in good faith before the Panama Canal Treaty and the implementing legislation was passed and they still refuse to negotiate in good faith. In support of this statement, I have attached, as a matter of general information, a short chronology of events relating to our client's claim subsequent to the seizure of the Citricos assets in December of 1974.
The amendment we are now proposing would not prohibit treaty payments to Panama while United States citizen claims are still outstanding. Instead, the amendment would permit treaty payments to continue but only if the Panamanian Government is actually taking steps to resolve outstanding expropriation disputes. In this regard, the Secretary of the Treasury is designated at the person to decide if the Panamanian Government is, in fact, taking such steps. The reasons why the Secretary of the Treasury has been delegated to be the responsible party are twofold. First, the Panama Canal Commission Fund has been established in the United States Treasury and is under the responsibility of the Secretary of the Treasury. Second, the Treasury Department has a representative on the Interagency Expropriation Group which consists of representatives from the Departments of Treasury, Commerce and State. Therefore, the Treasury representative would be kept abreast of any developments regarding the outstanding claims.
We believe that the amendment is necessary in order to provide an incentive for the Government of Panama to address the existing claims of United States citizens. Without it, there is absolutely no reason for Panama to pay for the seized property because the U.S. Government is exerting absolutely no pressure on the Panamanians to pay.
An argument made by the State Department against the prior suggested amendment in 1979, and which is likely to be raised again, is that our amendment, if adopted, would violate the terms of the Panama Canal Treaty. We believe that objection to be baseless. It has long been recognized and there is no argument over the




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fact that the Congress has the right to interpret a treaty independent of Executive interpretation. The Panama Canal Treaty of 1977 is not self-executing. Hence, there was a need for the implementing legislation which occurred in 1979, amendments to which are the subject of discussion before you today. The payment provisions provided for in Paragraph 5-of Article III and Paragraph 4 of Article XIII of the treaty only establish Panama's entitlement to certain payments. It does not prescribe the time or the manner in which the stated amounts are to be paid, and, more importantly, neither this treaty provision nor any other precludes the establishment of reasonable conditions upon the payments. In our particular situation, the treaty itself is silent as to how and when treaty monies are to be paid over to Panama. Consequently, all of these are matters which the Congress, pursuant to its power under Article I, section 9 of the Constitution to appropriate public money, may legislate upon. There is no existing legal impediment to the Congress of the United States imposing a reasonable condition to the paying over of treaty funds to Panama. This 'reasonable condition" being that the Government of Panama make a serious attempt to resolve outstanding money claims of United States citizens for the loss of property.
In conclusion, we would like to emphasize that the validity of our client's claim against Panama has never been an issue. Even the Government of Panama concedes its validity. The only controversy is over the value of the assets for purposes of payment. The indifferent attitude that the Government of Panama has shown about really trying to resolve this case will, we are convinced, continue unless the amendment which we are proposing today is adopted. Otherwise, there is absolutely no incentive for the Government of Panama to honor its obligations to the United States citizens. As the attached chronology of our initiatives amply shows, in the over seven years that this claim has been outstanding never once has the Government of Panama been the one to initiate talks or to try and settle outstanding issues.
In 1972 this subcommittee held oversight hearings in connection with two other seizures of American property in Panama. I attach an excerpt from a report which deals with these two cases. One case involved the Panama Power & Light Co. and the other case involved the highjacking of buses owned by the Canal Zone Bus Service, Inc. There is a startling similarity between the events surrounding the seizure of Panama Power & Light Co. in 1972 and the seizure of the Citricos assets in 1974. Attention is directed to page 32 of the attached report where it is noted that while the book value of Panama Power & Light Co. assets was $87 million, the company received only $22 million in payment. This translates to a loss of $.75 for every $1.00 invested. Why Panama Power & Light Co. was willing to settle for this little amount or whether any other consideration was agreed to is unknown to us. In the case of Citricos, the Government of Panama offered $3.5 million while the co-operative subsequently offered $6 million. These two separate offers translate to a return of less than 20 per dollar invested and about 300 per dollar invested since our client's overall investment in the project was in excess of $18 million. These offers are totally inadequate and have been, of course, rejected.
The publicity surrounding the seizure of Panama Power & Light Co. apparently prompted our State Department to take active measures to induce the Panamanians to make some attempt at resolving that case. There was very little publicity surrounding the takeover of Citricos two years later, since it was a privately held company, and as a consequence the State Department predictably reverted to its moribund approach to helping Americans abroad. The State Department has been of no help in getting the Panamanians to negotiate in good faith to resolve our client's claim.
In the circumstances, we respectfully request your support for the amendment because without this legislation the claim, which is already over seven years old, will ..surely continue indefinitely without any prospect for resolution.
PROPOSED AMENDMENT TO H.R. 5601, A BiLL To AMEND THE PANAMA CANAL ACT OF 1979
Insert the following as Section 7 of the bill and renumber the existing Sections 7 to 12 as Sections 8 to 13:
PAYMENTS TO REPUBLIC OF PANAMA
SE.C. 7. Section 1341 of the Panama Canal Act of 1979 (22 U.S.C. 3751) is amended
(1) by redesignating subsection (f) as subsection (g); and




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(2) by adding a new subsection (f) to read as follows:
"No payments may be made to the Republic of Panama during any period that there remain outstanding any unpaid, uninsured claims of United States citizens or United States corporations if such claims were asserted prior to the effective date of the Panama Canal Treaty of 1977 and are based upon nationalization, expropriation or seizure of ownership or control of property owned or controlled by any United States citizen or by any corporation, partnership or association not less than 50 per centum of which is beneficially owned or controlled by United States citizens, unless the Secretary of the Treasury certifies to the Congress that the Republic of Panama is taking appropriate steps, including good faith negotiations, aimed at providing prompt, adequate, and effective compensation."
CHRONOLOGY-CITRICOS DE CHIRIQUI, S.A.
December 5, 1974-Decree No. 119 issued seizing all properties owned by Citricos de Chiriqui, S.A. (owner).
May 25, 1976-Owner's representative meets with Panamanian Minister of Planning in Cancun, Mexico in attempt to negotiate settlement. Meeting is fruitless.
June 15, 1976-Owner's representative meets with Minister of Planning in Panama to attempt further negotiations. Government of Panama representative rejects all arguments regarding values and offers U.S. $1 million in settlement which is refused by Owner.
November 22, 1977-Owner submits a Statement of Facts to Expropriation Group in United States State Department in Washington, D.C. and requests imposition of Hickenlooper, Gonzalez and Title V of the Trade Act of 1974 sanctions against Panama for their failure to pay full compensation to the Owner and for that Government's further failure to conduct negotiations in good faith
December 9, 1977-Owner's representatives meet with the Expropriation Group in the United States State Department to present case on behalf of United States citizen-owner for imposition of sanctions.
January 10, 1978-Upon insistence of Owner's representatives and after exchange of cables a meeting is held with the Minister of Planning in Panama to attempt to get the Panamanians to negotiate on asset values. Minister of Planning allows only 20 minutes of his time to this matter and turns the session over to subordinates. The result is the complete failure at any serious negotiations because of the absence of the Minister.
January 26, 1978-Upon learning that Panamanian Minister is to come to Washington, D.C. Owner's representatives arrange and meet with the Minister in attempt at negotiations. The attempt produces no results.
February 9, 1978-Owner's representatives correspond with Expropriation Group in attempt to expedite imposition of sanctions.
March 1, 1978-After extensive reanalysis and review of Citricos assets Owner submits additional data by letter to Minister of Planning in Panama showing that value of assets is in excess of U.S. $20 million.
March 3, 1978-Owner representatives meet with United States Ambassador to Panama William J. Jorden at United States State Department in Washington, D.C. to enlist his support on behalf of Owner. Mr. Jorden agrees to attempt to get the Panamanians to negotiate in good faith.
April- 7, 1978-Owner's representatives submit written requests to the Expropriation Group for action on the pending request for imposition of sanctions. The Expropriator Group responds that imposition of sanctions is premature.
April 10, 1978-As a result of various telephone conversations with U.S. Embassy personnel in Panama a meeting for April 27 in Panama is scheduled with the Minister of Planning to make another attempt at negotiations.
April 27, 1978-Panamanian Minister of Planning leaves the country on vacation cancelling the meeting with the Owner's representatives.
May 9, 1978-Upon initiative of Owner's representatives the United States Embassy in Panama co-ordinates an arrangement for a meeting on this date in Panama. Owner's representatives submit appraisal data which is again rejected by the Government of Panama. This meeting, like all others, ends without any substantive talks having taken place.
May 17, 1978-Owner's representatives meets with Office of Legal Advisor in United States State Department in attempt to resolve any outstanding issues that may exist which would preclude imposition of sanctions against Panama for failure to negotiate in good faith.
May 22, 1978-Owner's representatives prepares and submits to Expropriation Group at U.S. State Department a complete rundown on the facts involving at-




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tempts by the Owner to get the Panamanians to negotiate and evidence of the unwillingness of the Government of Panama to negotiate in good faith.
May 24, 1978-Owner's representatives demand in writing that Expropriation Group take action on the owner's requests for sanctions which has been pending since December of 1977.
June 2, 1978-Owner's representatives writes to Minister of Planning in Panama detailing reason why the Owner believes that Government of Panama is not negotiating in good faith and asking whether Government of Panama believes future talks might prove useful.
June 12, 1978-Expropriation Group responds to Owner's letter of May 24 asking imposition of sanctions by stating the State Department's hope that future negotiations may result and taking no action on owner's request of May 24.
July 11, 1978-Owner's representatives discusses the status of the Citricos claim with members of the United States Department of the Treasury and requests their independent imposition of Gonzalez amendment sanctions against Panama. Treasury officials respond by stating that they are unable to honor this request.
July 17, 1978-Owner's representatives submits financial data and proposals to officials of the United States Department of the Treasury and requests their independent imposition of Gonzalez amendment sanctions against Panama. Treasury officials respond by stating that they are unable to honor this request.
July 17, 1978-Owner's representatives submits financial data and proposals to officials of the United States Department of the Treasury in an attempt to obtain their support in having the Expropriation Group and the State Department take positive action on Owner's pending request for sanctions.
August-October 1978-Owner's representatives initiate innumerable telephone calls to United States Embassy staff in Panama as well as telephone calls and meetings with the Department of State and Department of Treasury officials in Washington, D.C. in attempt to enlist their aid in getting Government of Panama to enter into serious negotiations.
December 7-9, 1978-At instigation of Owner, the United States Embassy staff in Panama arranges a meeting to be held with the Minister of Planning on December 9. The Government of Panama takes the position that it will not honor any proposal valuation in excess of $3.5 million. The Minister of Planning advises that he will establish a Group from his Ministry to immediately investigate whether it is feasible for the Government to pay more than $3.5 million. He advises that the study would be complete within two weeks and that he will supply a copy to the Owner's representatives.
January 30, 1979-The Owner's representatives cables the Minister of Planning and advises that they have not received the results of a study promised sometime ago.
February 14, 1979-Minister of Planning advises the Owner that the study is not available and that $3.5 million is still the most that the Government of Panama is willing to pay.
February 15, 1979-Owner responds to Cable by Minister of Planning acknowledging position that Government of Panama has no further interest in discussing asset values.
February 16, 1979-Owner's representatives submits in writing to United States Embassy in Panama evidence of Government of Panama's latest display of bad faith regarding the Citricos claim.
February 23, 1979-Owner's representatives corresponds with U.S. Ambassador to Panama relating to him the Government of Panama's unwillingness to negotiate and pointing out to the Ambassador that talks with Panama have terminated.
February 27, 1979-Owner's representatives writes to the Legal Advisor's office in U.S. Department of State pointing out the intransigence of the Government of Panama with regard to the Citricos claim.
March 14, 1979-Owner's representatives submits to Legal Advisor's Office of United States Department of State a legal memorandum of points and authorities showing that the United States citizen owner of Citricos has no available legal remedies in Panama and that the only recourse value is the imposition of sanctions against Panama.
March 21, 1979-The Office of the Legal Advisor responds in writing that they will take our arguments under consideration.
March 30, 1979-Owner's representatives is advised by United States Embassy in Panama that Government of Panama agrees to stand to one side and allow Citricos co-operative to negotiate directly with the Owner for the purchase of the Citricos assets.




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April 10, 1979-Owner's representatives cables the Citricos co-operative that the Owner's representatives are willing to meet on May 2 in Washington, D.C. to negotiate asset values.
April 11, 1979-Owner's representatives receive response-from Citricos co-operative agreeing to May 2 meeting.
April 30, 1979-Government of Panama issues an order to the Citricos co-operative forbidding its representatives from attending the scheduled May 2 negotiating session with Owner's representatives.
May 4, 1979-Panamanian attorney for Citricos co-operative calls on Owner's representatives to apologize for the unwarranted interference of the Government of Panama in forbidding the May 2 meeting to take place.
June 14, 1979-Citricos co-operative representatives meet with Owner's representatives and offer $5 million in settlement. Offer refused as too low. Co-op raises offer to $6 million which is also refused.
June, 1979 to September, 1981-No further word or attempt at negotiating by either the co-operative or Government of Panama.
September, 1981-Owner's representatives telephone the U.S. Embassy in Panama in attempt to reinitiate negotiations with Government of Panama officials. Owner's representatives also meet with officials of the U.S. State Department in an attempt to get negotiations moving.
October, 1981 to February, 1982-Owner's representatives receive no response from Government of Panama, U.S. Embassy in Panama or U.S. State Department as to any possibility to settle this claim or resume negotiations.
THE SEIZURE OF THE PANAMA POWER & LIGHT CO. AND "HIJACKING" OF CANAL ZONE BUSES
Hearings were called by the Subcommittee on July 24 and August 10, 1972, on the military seizure on June 1, 1972, of the Panama Power and Light Company, called Fuerza y Luz (FYL), owned by the Boise-Cascade Corporation of Boise, Idaho.
Members of this Subcommittee found it difficult to accept what in effect was a military operation against a legitimate American business enterprise. The takeover of the company was carried out by troops of the Panamanian National Guard who were posted throughout the building and who searched persons entering and leaving the premises. The takeover was directed by Colonel Manuel Noriega, the Intelligence Chief of the National Guard and Dario Arosemena, the Director of the National Department of Investigations (DENI).
During the year, negotiations between the Junta Government and Fuerza y Luz had been proceeding on some long standing problems that had been underway for several years. On May 31, 1972, without warning the Junta Government issued Executive Decree No. 109, which ordered the temporary occupation of the facility. Decree 109 charged that the Company had failed to pay its fuel bills, which in turn threatened a blackout of Panama's major cities of Colon and Panama City; discontinued its investment program which had stopped the normal development of the country and endangered the national economy; and that Fuerza y Luz had "only in mind their interest and economic gains against the Revolutionary Government, thus forgetting the general welfare."
Testimony taken during Executive session hearings on August 10, 1972, showed that the allegations made by the Junta Government in Decree 109 were categorically not true.
This major step in the escalation of demands on the hostile actions against the United States by the Panamanians was just one example of the attitude of the Provincial Junta Government of Panama toward this country that has given two hundred million dollars in aid and assistance since it came into power.
While the Panamanian Government's major excuse for the seizure of Fuerza y Luz was that the Company had failed to pay its fuel bills. In reality, the Company's dire cash position was brought about in great measure by the failure of that very same Junta Government to pay approximately $21/2 million in back bills for electric and telephone service.
Despite the intimidation of a military takeover, representatives of the Company upheld its position during 30 days of negotiations in June and offered what it considered reasonable offers to the demands of the Panamanians. They also indicated to the Panamanians that they were very much interested in remaining in business in Panama. It did not take Boise-Cascade negotiators long to realize that the military regime in Panama started on that particular adventure with expropriation in mind even though they claimed otherwise. (The manager of the Panama Federal




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Power Commission had publicly stated that the more militant in the Junta Government were in favor of immediate expropriation rather than the 90 day drama that was acted out.)
And at the end of a series of fruitless talks in June, the military junta delivered an ultimatum to Boise-Cascade to "sell" its assets and installations to the Panamanian Government in 60 days.
If it failed to accept the Panamanian offer, the National Guard was offered to expropriate the Company on September 1, 1972.
The hopelessness of Boise-Cascade's position was found in a memo dated July 7, 1972 which reads:
"Boise-Cascade Corporation finds itself in a very difficult position in that (1) the Government, not Boise, is in possession of the Company and the properties which the Government wishes to acquire, and (2) the success of any negotiations that could take place during the next 60 days will necessarily depend upon the willingness of the Government to truly negotiate, there being no pressure on the Government to come to mutually reasonable terms during that period."
The wisdom of that memo is found in the fact that Boise-Cascade was forced to "sell" Fuerza y Luz with a book value of 87 million dollars to the Panamanians for 22 million dollars.
Such treatment of United States interests hardly instills faith in the good intentions of a government with whom we are expected to sign a new treaty to operate one of the most important world waterways for international commerce and which is of utmost important to the Southern Defense of the United States of America.
Subcommittee inquiries prior to the July-August hearings on the Boise-Cascade seizure indicated that there was ample evidence that the State Department allowed violations of the spirit and intent of President Nixon's policy on expropriations outlined in a statement of January 19, 1972.
There was also evidence that the State Department permitted violations of the laws of the United States by not exercising its responsibilities in this case.
For example, the President said that under certain expropriatory circumstances he will presume that the United States Government will withhold its support from loans under consideration in multilateral development banks. He also proclaimed that the Department of State would follow expropriation cases to determine whether the rights of Americans are being observed under international law and indeed, under the laws of the United States of America.
The Congress expressed its position in these matters in a law passed in March of 1972, which concerned itself with loans approved by the Inter-American Development Bank. This law stipulates that the United States would deny loans to any country which had expropriated or seized ownership or control of property owned by any U.S. citizen or corporation. Yet, on July 5, 1972, thirty-five days after the Panamanian military seized and occupied Boise-Cascade properties, the Inter-American Development Bank approved a $6.9 million loan to the Republic of Panama. That same law further states that loans will be denied to any country which has taken steps to repudiate or nullify existing contracts or agreements with any U.S. corporation. The Provisional Junta Government of Panama, by refusing to pay at latest count $2.5 million to FYL for services supplied that very government, according to the authors of this law, repudiated or nullified their contract with that company making them ineligible for American supported financial loans.
The Chairman of the Subcommittee stated at the beginning of the Boise-Cascase hearings that we were attempting to find out if this particular American firm was being given the full protection and support of the American Government as outlined by President Nixon in his White House statement of January, 1972, dealing with the policy of the United States in situations involving expropriatory acts. In his opening remarks the Chairman predicted:
"If Boise-Cascade is not receiving the full support of the American Government and its rights under international law are not being observed, this may be only the beginning of a series of seizures by the Provisional Junta Government of Panama which could ultimately deteriorate United States control and operation of the Panama Canal."
One month after the final takeover of the Panama Power and Light Company, the Panamanians seized the Canal Zone Bus Service, Inc.
state and Treasury Department witnesses testified that there was "full consideration" given to withholding the $6.9 million loan but the decision was made to grant it because in the judgment of the government the Panamanians were negotiating the Bois-cde takeover "in good faith". This judgment was made despite the overwhelming evidence that there was never a doubt over the true intentions of the Panamanians. They concocted a series of phony charges against the company,




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Fuerza y Luz then took it by force and Boise-Cascade was forced to accept one quarter of its book value of $87 million dollars in "compensation".
The State and Treasury Departments made much of the fact that Boise-Cascade was consulted in their decision-making process on the loan and that the company concurred that the Panamanians were negotiating "in good faith". The truth of the matter is that Boise-Cascade officials were fearful that if the $6.9 million loan were withheld by our government, the Panamanians would retaliate by expropriating the company outright and there would be no payment at all for the facility.
This Subcommittee feels it is time this country begins to receive from the Panamanian government the same kind of consideration we have shown the people of Panama. We will, therefore, take a hard look at loans that are now in process and at AID monies that are earmarked for the Republic of Panama with a view toward severely limiting the generous attitude we have taken toward a military junta whose leaders daily announce in a controlled press their hatred and contempt for the United States presence in their country.
In the judgment of this Subcommittee, while the Panamanian Government plays fast and loose with our country, its citizens and corporations, the State Department's position has been one of timidity, vascillation, and indecision. The Panamanian Junta is apparently pushing the United States to the wall to see how far they can go. And the Department of State appears to be perfectly willing to let the United States be pushed in a variety of areas in order to appease the Panamanians.
SEIZURE OF CANAL ZONE BUS COMPANY PROPERTY
As the Chairman of the Subcommittee, Mr. Murphy, indicated at the end of the Boise-Cascade hearings, if the Panamanians succeeded in the takeover of that American company, we might well ask, "What is next?". The Chairman, from evidence coming to the Subcommittee, indicated that other major American firms were marked for similar action. And, indeed, before the final takeover of Boise-Cascade had even been consummated, a government-inspired takeover of the Canal Zone Bus Company was initiated.
The Panamanian Government has consistently protested the operation of the Canal Zone Bus Service, Inc., as a violation of the 1936 Panama-United States treaty concerning the operation of private businesses within the Canal Zone. The ,Panamanians argued that the bus company was in no way related to the operation of the Canal and was, therefore, illegal. The position of the Canal Zone Company has been that inasmuch as the Bus Service is used to transport the employees of the Canal to and from work, the operation of the bus company has a direct bearing on the efficient and continued operation of the Canal.
Having 'filed in its efforts to convince the American Government that its position was justifie the Junta Government apparently instigated the Bus Company employees to hos oe action. Early in the morning of November 20, 1972, 12 of the Company's 52- buse were illegally removed by a group of militant drivers from the Canal Zone and 'oven to Panama City, whereupon the Guardia Nacionale took the vehicles into "protqtive custody". On the night of the 20th, two additional buses were highjacked by two armed passengers who allegedly held pistols to the heads of the drivers and forced them to drive into Panama City. Subsequently, two additional buses were taken into the Republic by their drivers and a company-owned station wagon was taken on the night of November 24th. A final bus was driven into Panama City on November'25, which brought the total number of vehicles to 17 buses and the station wagon. The United States State Department indicated it viewed this action with "serious concern".
An inquiry was begun into this extreme act of provocation against a private American-owned firm. (The Canal Zone Bus Company, Inc., is incorporated in Delaware, owned by American citizens residing in Panama, whose employees are all Panamanian nationals.)
After a week of negotiations, during which time it was determined that the incident that sparked the highjacking involved a union organizer allegedly caught stealing gasoline by the company and dismissed, a group of dissident drivers demanded that this official be reinstated. In addition, these dissidents seized on the opportunity to demand social security and other benefits available to Panamanian bus drivers who work in the Republic of Panama. The United States owners who pay their drivers the U.S. minimum wage which is triple that paid to their Republic of Panama counterparts, are, of course, not under any obligation to adhere to Panamanian rules governing their employees.
It is important to note that the great bulk of the company's drivers disassociated themselves from the actions of the militants.




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As a result of the State Department's intervention, the bus company will be sold to a Panamanian bus cooperative, Corporacion de Transporte S.A. (CUTSA). The State Department reports the drivers who highjacked the buses were dismissed, but they each received $200 in severance pay from the American Company.
The Guardia Nacionale returned all of the buses and the station wagon to the Canal Zone Bus Service, Inc., on November 30th.
One hundred and five of the Canal Zone Bus Service drivers petitioned Canal Zone Governor David S. Parker to keep the bus company in the Zone under American auspices. The drivers issued a joint statement to the press indicating their desires in this incident, i.e., that the Company not be sold and that it remain under control of the Canal Zone Government. They were immediately subjected to attack and vilification in the Junta Government-controlled press. The Panamanian Government charged that the statement issued by the bus drivers, which was favorable to the United States, was extracted from them in the administrative offices of the Canal Zone Company "who had a revolver pointed at their stomachs." The charge is, of course, ridiculous. However, it is an indication of the vehemence with which the military regime of Panama views any effort by the people of Panama to maintain normal relations with the people and Government of the United States of America.
CONCLUSION
The Boise-Cascade and the Canal Zone bus episodes are symbols of the loss of American rights on the Isthmus of Panama, and the Members of this Subcommittee are convinced it is time we take a stand to-prevent the continued piecemeal erosion of our position there.
The United States has been largely responsible for funnelling over one-half billion dollars in economic and military assistance into the Republic of Panama since 1946. Over $200 million of this aid has gone to the current Junta Government during just the past four years.
This means that of the recent Panamanian Governments the one that appears to be most dedicated to the goal of limitless extortion of the United States and U.S. citizens has received two-fifths of all the economic and military aid during the past 26 years in less than one-sixth of that time span. (The yearly aid figures are contained in a General Accounting Office report prepared for Chairman Murphy of the Panama Canal Subcommittee and is included at the end of this report as Appendix A.)
Additional loans and other economic aid in the tens of millions are presently in the works to help Panama with its internal problems. This is in spite of the fact there is strong evidence that Administration agencies allowed violations of Public Law 92-246 and Public Law 92-247. These laws explicitly forbid economic assistance and loans to countries that:
(A) Expropriate or seize U.S. property or repudiate or nullify existing contracts with U.S. citizens or corporations such as the Boise-Cascade case, and, countries.
(B) That have failed to take adequate steps to prevent narcotic drugs from being transported through such countries for sale in the United States.
In view of the overwhelming evidence that the Panamanian Government has not only failed to stop the transshipment of drugs but is, in part, part of the conspiracy to do just the opposite, this Subcommittee intends early in the 93rd Congress to examine all current aid and loan programs to Panama to determine if the laws of the United States have been violated and the will of Congress thwarted. If this is found to be true, the Subcommittee will consider recommending to the Congress the reduction or termination of all aid programs to Panama as well as other sanctions. The continued operation and control of the Panama Canal by the United States may well depend on such actions.
MAJOR CANAL ISSUES SUMMARIZED
The inquiry is far from over. The remaining key issues to be resolved are:
(a) Retention by the United States of its undiluted sovereign rights, power and authority over the Canal Zone, which is the absolutely necessary protective frame of the Canal; and
(b) major modernization of the existing Canal within the present Canal Zone which means that we do not necessarily need a new treaty with Panama. All other large Canal questions, however important, including the much discussed "sea level" proposal, are irrelevant and should not be allowed to confuse that of the Canal's major needs, i.e., its increase in capacity and operational improvements.
In forthcoming hearings the question of type of canal will be examined.




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STATEMENT OF DONALD J. DEVINE, DIRECTOR, OFFICE OF PERSONNEL MANAGEMENT
Mr. Chairman and Members of the Subcommittee: Thank you for giving me this opportunity to provide the views of the Office of Personnel Management on the subcommittee's draft bill to amend the Panama Canal Act of 1979. While the draft bill deals with a great many different subjects, the subcommittee has asked that we address in particular sections 2 and 3, which concern personnel management matters.
Section 2(a) would allow the Department of Defense to pay a quarters allowance to certain employees who were transferred to the Department of Defense or have been recruited from outside Panama. This allowance would be the same as is provided for Federal employees in other foreign areas when government housing is not available, and it would be in lieu of the special recruitment and retention allowance now provided for certain U.S. Government employees in Panama. This provision appears to us to be reasonable.
Section 2(b) of the draft bill Would make several changes in title 5, United States Code. The first change would be to move from the Panama Canal Code to title 5 the statutory authority for two legal public holidays now observed by U.S. Government employees in Panama, Good Friday and Panamanian Independence Day. These holidays are in addition to the nine holidays provided for all Federal employees. While we would not favor additional holidays for Federal employees, this amendment would simply continue an existing entitlement. Good Friday and Panamanian Independence Day (November 3) are legal holidays in the Republic of Panama, and in the past have been authorized for all U.S. Government employees stationed there as well. However, we note that the bill would narrow the coverage for these holidays from all U.S. Government employees in Panama to only employees of the Panama Canal Commission. We understand that the agencies involved would prefer to continue the existing coverage for all U.S. Government employees, and we therefore recommend that this provision in the draft bill be amended to continue the present coverage without change.
Section 2 would also make a technical amendment to the final sentence of section
5924(4)(b) of title 5, United States Code. We recommend instead that the entire final sentence be deleted. This sentence now speaks of the travel for educational purposes of .dependents of employees in the former Canal Zone. However, under section 1217(d) of the Panama Canal Act, this provision has been rendered inapplicable. Instead, the dependents of Canal Commission employees can now receive such travel expenses under section 1207 of the Panama Canal Act, and we accordingly believe the obsolete provision in section 5924 should be repealed. Further, we would recommended that section 1207 of the Panama Canal Act be amended to extend its benefit to all U.S. Government employees stationed in Panama. This would correct an existing inequity whereby U.S. Government employees in Panama (other than employees of the Panama Canal Commission) are the only U.S. Government employees in foreign areas who are not eligible to receive educational travel benefits.
Section 3 of the subcommittee's bill relates to the timing of annual pay increases for certain minimum wage employees in Panama. Section 1225 of the Panama Canal Act now requires that these employees receive annual pay increases each October 1. However, under the local pay system, some categories of employees receive pay increases in October and others receive their pay increases in January. This amendment would allow agencies to- adjust the pay of these minimum wage employees at the same time as other employees and seems a reasonable solution to this administrative problem.
There is one other matter which we feel is important, and which has not been addressed in the draft bill. Section 1209 of the Panama Canal Act relates to the inapplicability of certain benefits to certain non-U.S. citizens whose initial appointment by the Panama Canal Commission has occurred since October 1, 1979. However, it has become clear that that section does not adequately address one situation: Some individuals were first employed with the Canal prior to October 1, 1979, but left such employment. If these individuals are reemployed by the Commission at some time after October 1, 1979, we believe that it would be inconsistent with article VIII of the agreement in implementation of article III of the Panama Canal Treaty of 1977 to allow these individuals to be covered under the U.S. Government's benefits programs. Accordingly, we urge that the draft bill be revised to include an amendment to section 1209(a) of the Panama Canal Act, to read as follows:
"Sec. 1209. (a) Any individual who is covered by the Social Security System of the Republic of Panama shall not be considered an employee for the purpose of chapter 81 of title 5, United States Code, relating to compensation for work injuries, chapter




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83 of such title 5, relating to civil service retirement, chapter 87 of such title 5, relating to life insurance, and chapter 89 of such title 5, relating to health insurance."
Thank you for the opportunity to present these views. We will be happy to provide any further information that the subcommittee might need.
DOCUMENT ON THE POSITION OF THE PANAMANIAN MEMBERS OF THE BOARD OF DIRECTORS OF THE PANAMA CANAL COMMISSION ON PUBLIC LAW 96-70 OR PANAMA
CANAL ACT OF 1979
The Panamanian members of the Board of Directors of the Panama Canal Commission consider that the law of the United States of America whereby that agency is established, as is the purpose of Article III of the Panama Canal Treaty, should be known as "Panama Canal Commission Law." Consequently, it is our opinion that the title that Section 1 of Public Law 96-70 assigns to that legal document is inappropriate.
Consequently, with the above instead of what Section 2 provides, the resultant legislation should have had as its purpose to establish the Panama Canal Commission according to the terms of the Treaty.
The definitions in Section 3 should be consistent with the provisions of the Treaty and its related agreements, and the extension of the transition period by amendments or the application of the-U.S. laws which are not applicable and cannot be applied beyond what the Treaty provides, especially in paragraph 7 of its Article XII, should not have been recommended.
Insofar as the Administration and Regulations established by Title I, it is necessary that' the Canal Commission be restructured with its own juridical and independent status, so that it may exercise the function of fulfilling the responsibilities assumed by the United States of America under Article III of the Treaty, in order not to jeopardize the efficient and continuous management and operation of the Panama Canal. In consequence, the text of Section 1101 does not conform to the structure agreed upon in the Treaty for that Agency.
As was envisioned in the Treaty, the Board of Directors of the Panama Canal Commission should be the body directing all the activities necessary to fulfill the responsibility of guaranteeing the efficient and continuous operation and maintenance of the Panama Canal. This is why it may establish administration and operations policies; review, modify, recommend, or approve budgets and regulations, and establish the necessary financial guidelines inherent to a corporate entity with the mutual cooperation of the two parties involved, as well as to comply with the requirement of a regular and progressive participation of Panamanians in all levels of employment and knowledge about the operation and management of the interoceanic waterway.
Section 1102 deviates from this conception by downplaying its functions and assigning to it the nature of a Supervisory Board.,
Also, paragraph (c), when referring to the Board meeting quorum provides that a U.S. majority should prevail, contradicting the principle of Panamanian participation in the Canal enterprise. Although this is a procedural matter, if what was meant was to include it in the Law, it should have provided that the quorum should be of at least six directors to guarantee the presence of at least one Panamanian in said quorum.
As on January 1, 1990, the Administrator shall be a Panamanian citizen proposed to the United States of America by the Republic of Panama for his appointment to that position by the United States (paragraph 3(c), Article III of the Treaty), Section 1103 does not agree with such a norm.
The same comment applies to the appointment of the Deputy Administrator who shall be a Panamanian citizen up to December 31, as it is not clear whether the Panamanian Deputy Administrator will be recommended by the Republic of Panama; in this sense, Section 1104 also does not agree with the Treaty.
Section 1104 establishes the position of a Chief Engineer. We do not consider necessary the establishment of such a position which, in practice, will be parallel to that of the Deputy Administrator. If such a designation were indispensable, we consider that, in compliance with the principle of a growing participation of Panamanians, it should be filled by a qualified Panamanian citizen.
We consider inappropriate to have this Law govern aspects clearly defined by the Treaty and the agreements subscribed by the parties through Exchanges of Diplomatic Notes and other agreements.
Thus, it should not have covered the Consultative Committee, the Joint Commission on the Environment, Canal Defense, and the Sea Level Canal Studies Commission.




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Such activities depend upon binational actions and in practice do not respond to particular interests; therefore they cannot be subject to unilateral legislation by our two nations, but to criteria which, under the Treaty, are of mutual understanding, cooperation, work and recommendation to the two governments so that full consideration may be given to the formulation of policy decisions relative to the activities pertaining to each of (these bodies). Consequently, Sections 1105 and 1106 are inadmissible.
Insofar as the travel expenses of the members of the Consultative Committee and the Joint Commission referred to in Section 1107, if such disbursements are to be made by the Panama Canal Commission, then there should be no discrimination against the Panamanian members of these organizations.
The Panama Canal Treaty has the mechanism to transfer to the Republic of Panama such property and functions it should assume under Article XIII. Therefore, it is unnecessary to establish, as in Section 1110, unilateral procedures to delegate to the Ambassador of the United States in Panama, the condition (sic) of such activities.
This Law (Section 1111) purports to have the U.S. negotiate with the Republic of Panama the presence of U.S. troops in Panamanian territory after the Treaty expires. In this regard, consideration should be given to the provisions of Article V of the Treaty Concerning the Permanent Neutrality of the Canal and the Operation of the Panama Canal which expressly determines that "after the termination of the Panama Canal Treaty, only the Republic of Panama shall operate the Canal and maintain military forces, defense sites and military installations within its national territory."
It must also be pointed out that the Protocol to the Neutrality Treaty was open to accession by all States of the world, and once other States accede to it, said Treaty shall cease to be a bilateral relationship between the two Nations.
In what respects to the Code of Conduct of employees of the Commission to which Section 1112 refers, although regulations of this nature to be applied to Commission employees are necessary, it is antijuridical to hold said employees under oath to obey the laws of the United States, which is contrary to the recognition of the sovereignty of the Republic of Panama throughout its territory made in the Preamble to the Treaty and in several of its provisions. Considering that most of the Commission employees are Panamanian, it is inconsistent to abscribe to them a moral responsibility toward a Government alien to them. A legislative act by Congress cannot govern activities which, according to the Treaty, are of the exclusive-competence of the Panama Canal Commission (Article III).
Consequently, as the Panamanian members of the Board of Directors, as well as the Deputy Administrator up to 1989 and the Administrator, from 1990 on, are officials representing the Government of the Republic of Panama and therefore subject to its laws on conduct, they cannot be subject to the Code of Conduct referred to in Section 1112.
The establishment of the office of the Ombudsman in Section 1113 is not a Treaty provision, nor does it have a precedent in the former Panama Canal Company. Although the philosophy behind the position is positive, we are opposed to the discrimination by reason of nationality included in paragraph (d) of this Section, under which the "Ombudsman" shall be a citizen of the United States. This provision discriminates against Panamanian citizens and is contrary to the clear provisions of Article I, (3), Article III (8) and Article X of the Treaty.
Insofar as the employees and the power of the Commission to make appointments (Section 1202), it is necessary to point out that Article X of the Treaty establishes the guidelines to be followed in exercising these rights. Compliance with such requirements should follow closely the concept of the hiring preference for Panamanian applicants. Thus, appointment and remuneration of Commission employees needed for the management, operation, and maintenance of the Panama Canal and its auxiliary works, installations, and equipment, shall be compatible with such principles, so it goes without saying that the text of the aforesaid Section shall be revised accordingly.
Section 1203 shall only be acceptable if the transfer of Federal employees does not affect the Treaty provisions regarding the growing participation and preference in hiring of Panamanians. The same comment applies to Section 1204 on compensation to individuals serving in Commission positions, who simultaneously serve in the armed forces, provided it is not in detriment of the need of Panamanian employees' acquiring skills and knowledge on all levels of employment and, specifically, that exclusive positions or offices are not designated.
In any case, we must point out that, because of the temporary nature of the military service rendered by these individuals, their office and services to the Commis-




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sion are limited by temporariness, and to be consistent with the Treaty, these individuals should be replaced by Panamanian citizens upon termination of their services for the Commission.
Section 1205 is not objectionable, as it provides the Commission with a practical and useful mechanism to collect for supplies or services. Nevertheless, inasmuch as Commission employees (including U.S. citizens) are subject to the jurisdiction of civil courts of the Republic of Panama (first paragraph of Article I; Article III (5) of the Annex 1 to Treaty, and Article XVIII, (4) of the Agreement in Implementation of Article III), no doubt should remain that the mechanisms for payroll deductions should also apply to those cases allowed or ordered by Panamanian Law.
This would also be in accordance with the collaboration established in the Treaty so that Panamanian justice is (not) obstructed.
We believe that the subsidy granted to Commission employees formerly with the Company/Government for cost of living and loss of certain privileges is commendable, but to discriminate on the basis of nationality contradicts the basic objectives of the Treaty and is counter to'equal pay for equal work for Panamanian employees in the same categories. Consequently, we note that Section 1206 should have also included a subsidy for cases of Panamanian workers who lost such privileges upon entry into force of the Treaty.
Consistent with what Section 1207 provides on certain employee and dependent travel benefits for educational purposes, we consider that the necessary funds must be made available to include other employees and dependents recruited locally.
Subchapter II entitled Pay and Employment Practices (sic) (Section 1212), covers the employment system of the Panama Canal, the Merit system and other activities relative to employment, and empowers the President to order, issue the necessary regulations, and coordinate the practices and activities of the agencies according to said Law. This procedure is not compatible with Article III (3) of the Treaty which provides that pursuant to the concessions made by the Republic of Panama to the United States, the latter shall carry out its responsibilities by means of the Panama Canal Commission which, as employer (Article X (1) of the Treaty), "shall establish employment regulations" and labor regulations for employees which shall contain the terms, conditions and prerequisites for all categories of employees, with the obligation of providing such regulations to the Republic of Panama prior to their entry into force. This is why it is objectionable to grant administrative employment powers to the President of the United States exclusively and unilaterally, for matters that should be discussed by the Board of Directors of the Commission.
With Section 1214 it is purported to apply the provisions of Subchapter III, Chapter 7, Title 2, Canal Zone Code, which established the Panama Canal Zone Merit System, and its continuity until such time as the Panama Canal Employment System is established, not taking into account that there shall be no discrimination in pay or benefits by reason of nationality, sex, or race. Subchapter III of the Canal Zone Code, which established pay and employment practices, covers application of 1) the tax factor; 2) sensitive positions; 3) the Board of Appeals of the former Canal Zone; 4) delegation to the President of the United States of certain powers and authority to issue regulations; and 5) the application of U.S. laws, among other things, which by virtue of the "new relationship' have been superseded, abrogated and regulated under the new Treaty and which, according to Article XI, paragraph 7, shall only be applicable during the transition period. Consequently, the parties must make decisions relative to the continuity and applicability of such laws; therefore, such activities are best carried out through the binational mechanisms and not by a unilateral legislative act.
The items that follow, "Basic Pay" (Section 1215); "Uniform Application for Standards and Rates" (Section 1216); (Salary Protection Upon Conversion of Pay Base) (Section 1219); "Review and Adjustment of Classifications, Grades, and Pay Level," (Section 1220); "Appeals to Board; Procedures; Finality of Decisions," (Section 1222); "Administration by the President," (Section 1223); and "Applicability of Certain Laws," (Section 1224), result in a quote of the provisions contained in Subchapter III, Chapter 7, Title 2 of the Canal Zone Code, with small variations, but basically have the purpose of maintaining the status quo that prevailed in the former Canal Zone, disregard the "new relationship" between both nations and diminish the employment principles set forth in the Panama Canal Treaty of 1977. This thesis would result in a permanent point of conflict because it contradicts what the Treaty has provided to this effect.
The minimum level of pay and minimum annual increases (Section 1225) constitute a grievance and diminish the existing employmernt terms which the Treaty in its Article X, paragraph 2(b) had contemplated by establishing that "the terms and Conditions of employment to be established will in general be no less favorable to




77
persons already employed by the Panama Canal Company or Canal Zone Government prior to the entry into force of this Treaty, than those in effect immediately prior to that date." This reduction in minimum pay upon entry into force of the Treaty constitutes a discrimination against Panamanian employees (as compared to) equally qualified U.S. citizens at the same employment levels, and logically acts against the efficient administration and employment policy within the Commission; the Treaty, in addition, provides for improvement of the employment conditions and terms in the Canal area.
Section 1271, in its Subchapter VII (on labor-management relations) introduces the application of Chapter 71, Title 5 of the U.S. Code, and extends the jurisdiction of the Federal Labor Relations Authority which, in the territory made available to the United States of America, may conduct elections and make decisions with regard to collective agreements between the Commission and its employees.
This situation violates the labor procedures established in the Treaty (Article III, 3 and Article X, 1) as well as the sovereignty of the Republic of Panama, widely recognized by the United States in the Treaty, and subjects the Commission employees to the labor jurisdiction of the United States, thereby failing to comply with the Treaty provisions. The problem is even more serious as the Law wishes to apply these labor activities uniformly to all agencies. It must be recalled that insofar as the Armed Forces, the Agreement signed by the two governments for the Implementation of Article IV of the Treaty, in its Article VII, establishes that they shall prepare regulations on the terms, conditions and prerequisites for all categories of civilian employees, conforming to the general principles contained in the labor laws of Panama, through the Joint Committee.
Chapter 3, Funds and Accounts of the Canal Zone Government and the Panama Canal Company (Sections 1301 and 1302), jeopardizes the efficient operation of the Canal by the Commission by establishing it as an Executive agency whose budget appropriations require Congressional approval. There (is) a restriction in the use by the Commission of the available balance of its funds credited to its receipts, in the event they exceed the budget of the corresponding fiscal year, (as if) to avoid an outlay by the U.S. Treasury to manage and operate the Canal through its agency in an efficient and continuous manner and guarantee the orderly transit of vessels through the Canal. In consequence, such responsibilities are of mandatory compliance, and it is therefore necessary to make the commission a more flexible agency, more independent from the bureaucracy of Congress, whose debate are mainly political. Accounting and auditing practices (Sections 1311 and 1313) should likewise adapt to a corporative system with greater financial flexibility.
Insofar as interagency accounts and the reimbursement of interagency services and supplies (Section 1321), although we object to having the Commission pay expenses other than those relative to the Canal maintenance and operation such as educational, recreational, health, and other activities because they are not related to these purposes, such activities should in any case be for all its employees and dependents notwithstanding their nationality, without classifying them "eligible" or "authorized" persons. This discriminatory practice contradicts the principle not nondiscrimination contained in Article X, 6 of the Treaty. Moreover, the expenses paid by the Commission under these items should also not cover payment by the Commission other agencies' employee and dependent expenses.
The Panamanian Government, when objecting to the text of the appropriate items of H.R. 111 now in thiq Section (1341), stated that it has the purpose of invalidating Panama's right under Article XIII (4)(c) of the Treaty of receiving up to $10 million whenever there is a surplus in yearly Canal operations. Depreciation and interests are included in it should be excluded when calculating the Canal operating expenditures. Article XIII (4)(c) authorizes Panama to receive up to $10 million annually to the extent the revenues from the Canal operation exceed the expenditures of the Panama Canal Commission, including the sums paid under the Treaty. The intention is to add unauthorized expenditures in making the aforesaid calculation, and this obviously constitutes going back on the word of honor given by the United States in the Treaty.
This section also wishes to deny Panama the right of receiving the amount specified in Article XIII (4)(c) by charging to Canal operation costs "all costs of implementation of the Panama Canal.. .". This is not what we agreed upon and only by reneging its sovereign rights could Panama ever agree to assume the costs incurred by the United States to implement the Treaty. Such provisions carries the purpose of artificially padding the Commission' s operating costs at Panama's expense. This is equivalent to amending the Treaty unilaterally, an illegal action under International Law.
97-154 0O-82----6




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The Republic of Panama does not object to Congressional action (Section 1344)
when, by virtue of its constitutional powers it may enforce financial restraints on the Commission's transfer of property and tax expenditures, provided the transfer is made on the basis of Article XIII, 1, 2, and 3 of the Panama Canal Treaty. However, the aforesaid provision, in its paragraph (c) proposes to have $205,000,000 in retirement costs of former Panama Canal Company employees deducted and charged to
tolls, whereas they should have been assumed by the U.S. Treasury.
Chapter 4 (Sections 1401 through 1418) on "Claims for Injuries to Persons or Property" constitutes application of Chapter 11, Title 2 of the Canal Zone Code. It is opportune to point out that such a practice would make evident the issuance and application of laws that contradict the principle of the "new relationship," and "mutual cooperation," with the ensuing difficulties in their application due to the
considerable jurisdictional confusion they would introduce insofar as the Treaty.
Article XI of the Panama Canal Treaty of 1977 establishes that "the Republic of
Panama shall reassume plenary jurisdiction over the former Canal Zone upon entry
into force of this treaty and in accordance with its terms."
Such has been the Panamanian positions since the start of the new relationship
between the two nations over the Canal, and the United States has also recognized it in the Preamble of the Treaty, in the second whereas, which establishes that the sovereignty of the Republic of Panama over its territory is "recognized." It is also worth mentioning that Article IX, 1, says that "in accordance with the provisions of this Treaty and related agreements, the law of the Republic of Panama shall apply in the areas made available to the United States of America pursuant to this
Treaty."
It is evident that Panamanian jurisdiction is persent and indispensable after the
date of termination of the "transition period," and consequently, Article XI, 6 states that "in civil cases, the civilian courts of the United States of America in the Republic of Panama shall have no jurisdiction over new cases of a private civil nature, but shall retain full jurisdiction during the transition period to dispose of any civil cases, including admiralty cases, already instituted and pending before the courts
prior to the entry into force of this Treaty."
Such stipulation provides that the United States, "recognizing the sovereignty of
the Republic of Panama over its territory" under the terms of this Treaty and related agreements, determines that "the laws of the Republic of Panama shall apply in the areas made available to the United States of America for its use." Under Article XI, 6 of said Treaty, the civil courts of the United States of America in the Republic of Panama will not have jurisdiction over new private and civil cases, to decide any
civil cases, including admiralty cases, once the transition period is over.
This is why Panamanian jurisdiction and laws are applicable to any new civil, private or admiralty cases arising after entry into force of the Treaty, and therefore, the United States may only during the transition period retain full jurisdiction to decide any civil and admiralty cases already instituted and pending before the
courts prior to transition period."
With the transfer of all property and other assets of the Panama Canal Company
and the contractual obligations as well as the liabilities (Section 1501) to the United States, and the proviso that the Panama Canal Commission "may use" such property, installations, and records that may be necessary to fulfill its functions, the principle of the United States exercising its responsibilities by means of an agency called Panama Canal Commission (Article III of the Treaty) and that it be the one in charge of transferring property during and after entry into force of the Treaty
(Article XIII of the Treaty), is contradicted.
With regard to the transfer and cross-servicing between agencies (Section 1502) it
should be considered that when authorizing the transfer between agencies of the United States of installations, buildings, structures, improvements, stock and equipment located in the Republic, the activities or property which under the Treaty and its related agreements will revert to the Republic of Panama should not be affected.
The corresponding mutual agreement between agencies and the approval of property transfers by the President may lead to unforeseen situations in detriment of the economic participation by the Republic of Panama (Article XIII of the Treaty), and of the preference given to it insofar as the assignment of equipment, materials, supplies or other removable property of the Commission under Article III, 7 (a) (b) of the Agreement in Implementation of Article III of the Panama Canal Treaty of
* 1977. Also, Section 1503 aims to prevent the automatic transfer of any U.S. property
without the exclusive and unilateral authorization of Congress, despite the fact that the Treaty, being a law of the United States, has established the procedure to follow in this regard by creating binational mechanisms and providing for the participation and representation of both governments. If this has the intent of having a full




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domestic "constitutional debate" in the United States for the disposal of U.S. property, this does not concern Panama provided the deadlines set in the Treaty (a law between the parties) are met as mutually agreed upon.
Chapter 6, refers to the "Tolls for Use of the Panama Canal."
The subject of this chapter should be governed by Panama Canal Commission regulations and not by a law (Sections 1601 and 1602).
Although it is true that it has been agreed in the Treaty that the United States "may establish and modify methods of their assessment" (Article III (2) (d)), such a function should be carried out through the Panama Canal Commission (Article III
(3)). Consequently, the vesting of the President with unilateral powers for setting tolls, adding that such a decision is final, contradicts the position of the United States as contained in several provisions of the Treaty. Article III (4) (7), establishes the Consultative Committee and agrees that . "the Committee shall advise on matters such as general tolls policy . ." and at the end of same it is added "that ... the Committee's recommendations shall be transmitted to the two Governments, which shall give such recommendations full consideration in the formulation of such policy decisions." The Law excludes the participation of the Government of Panama through its four Directors of the Commission, for issuing regulations and making decisions in the formulation of tolls policies, which constitutes a violation of the Treaty, in view of the above.
Chapter 7, "General Regulations," contains the "Authority of President" (Section 1701) and "Authority of Commission" (Section 1702), and grants regulatory powers in the areas made available to the United States. As regards the first one, it is a Treaty violation to grant regulatory and exclusive powers to the President over matters not involving the management, operation and maintenance of the Canal, such responsibilities to be fulfilled by means of the Commission (Article III, paragraph 3). Also, the Annex to the Treaty establishes the procedure for the cessation or transfer of the activities and function to be carried out by the Panama Canal Commission.
In the Chapter relative to "Shipping and Navigation", the law maintains the power of regulating on tonnage on tolls, as well as navigation, pilot licenses in waters of the Canal in the hands of the President of the United States, a power that pertain to the Commission and not to the U.S. Executive, preventing the possibility of having the Panamanian members of the Board of Directors suggest policies on these matters. (Article II, 13 of the Treaty.)
Section 2101 proposes that the laws, regulations, administrative powers of the United States in the Commission or in the areas available to it for its use continue; it should be made clear that this is during the transition period, and that upon expiration of same this section is inapplicable.
This is so because Article XI of the Panama Canal Treaty of 1977 expressly sets guidelines for the continuity of the laws, regulations, and administrative powers of the United States in the Republic of Panama, in the areas made available to the United States, and makes provisions for deciding pending cases at the end of the transition period.
To this effect it provides that "the Republic of Panama shall reassume plenary jurisdiction over the former Canal Zone upon entry into force of this Treaty and in accordance with its terms." Paragraph 1 of that article states that "the laws, regulations and administrative authority of the United States applicable in the former Canal Zone immediately prior to the entry into force of this Treaty shall, to the extent not inconsistent with this Treaty and related agreements, continue in force for the purpose of the exercise by the United States of America of law enforcement and judicial jurisdiction only during the transition period."
The United States of America may amend, repeal, or otherwise modify such laws, regulations or administrative authority. The parties shall consult concerning procedural and substantive matters relative to the implementation of this article, including the disposition of cases pending at the end of the transition period, and, in this respect, may enter into appropriate agreements by an exchange of notes or other instruments.
Moreover, insofar as the concept of jurisdiction for the purposes of the transition period (Chapter 2, Section 2201 et seq.) in addition to the above, we must note that Article XIX of the Agreement in Implementation of Article III of the Panama Canal Treaty of 1977 specifically establishes the procedure to be followed to have criminal jurisdiction exercised over the U.S. citizen employees of the Panama Canal Commission.
"3. In any case in which the authorities of the Republic of Panama ..., the accused United States citizen employee or dependent shall be tried outside of the territory of the Republic of Panama.' "(The underlining is ours (sic).)




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Finally, the Panamanian members of the Board of Directors wish to state for the record that their comments to Law 96-70 have been made in their capacity as members of the Board of Directors of the Panama Canal Commission, and therefore the more ample and detailed objections by the Government of Panama (they have used) have already been submitted through, other channels.




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(OI ICI .I TlAN:,IIOl PANAmIA CANAL COMMISSION
ANNEX A
DRAFT BILL WHICH, ACCORDING TO EXPERIENCE UNDER THE TREATY,
THE PANAMANIAN MEMBERS OF THE BOARD.OF DIRECTORS
OF THE PANAMA CANAL (IIMMISSION CONSIDER
THAT THE AGENCY SHOULD RECON2MEND TO THE U.S. EXECUTIVE,
FOR SUBMISSION TO THE U.S. CONGRESS
August 1981




82
AN ACT
-rib provide-.for a reorganization of the agency charged by the united States of America as responsible for the management, operation and maintenance of the Panama Canal, its complementary works, installations and equipment, in accordance with the Panama Canal Treaty and related agreements. Be it enacted by the Senate and the House of Representatives of the U-ited States in Congress assembled,
SHDRT TITLE
Section 1. This Act may be cited as "The Panama Canal Commission Act of 1981."




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TABLE OF CONTENTS
Section
1. Short Title
2. Statement of Purpose
3. Der'initions
TITLE I--LXINISTRATION AND REGULATIONS CHAPTER 1--PANAMA CANAL CUINISSION
1101 Establishment of the Panama Canal Commission 1102 Board of Directors 1103 Administrator 1104 Deputy Administrator 1105 General Authority of the Commission 1106 Special Authority of the (bnission
CHAPTER 2--DMPLOYEjES
1201 Fecruitment and Bnployment System 1202 Deduction from Basic Pay of counts Due for Supplies or Services 1203 Gest of Living Allowance ],204 Privileges and Inmunities of Certain Ditployees 1205 Appliances for fnployees Injured'Before September 7, 1916




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CHAPTER 3--FUNDS AND ACCDUNIS Subchapter 1--Funds 1301 Canal Zone Covernm'ent Funds .1302 Authority to*Incur'in Obligations
9jbchapter 2--ACCOUNTING AND AUDITING POLICIES 1311 Accounting Policies 1312 Reports 1313 Auditing Policies




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STATENT OF PURPOSE
Section 2. It is the purpose of this Act to provide legislation necessary or desirable to reorganize the- agency charged by the United States as responsible for the management, operation and maintenance of the Panama Canal, its complementary works, installations and equipment, pursuant to the Panama Canal Treaty of 1977 and related agreements, and.a) to repeal any legal provisions which, in their present form, are applicable only during the transition period prescribed in Article XI of that Treaty, and
b) to repeal the Panama Canal Code.
DEFINITIONS
Section 3. (a) Fbr purposes of this Pt:
(1) References to the Panama Canal Treaty of 1977 refer to the Panama
Canal Treaty between the Uhited States of America and the F-public of
Panama, signed September 7, 1977; and
(2) FLferences to the Panama Canal Treaty of 1977 and related agreements refer to the Panama Canal Treaty of 1977, the agreements relating to and implementing that Treaty, signed September 7, 1977, and to the Agreement
Between the United States of America and the Republic of Panama
Cbncerning Air Traffic Cbntrol and Related Services, concluded January
8, 1979.




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(b) Subject to the provisions of subsection (c) of this section, for purposes of applying, in the Lhited States of America, laws of the UWited States of America and regulations issued pursuant to such laws with respect to transactions, occurrences, or status on or after the effectivce date. of this Act:"
(1) -'Canal Zone" shall be deemed to refer to the areas and installations in the Tpublic of Panama made available to the United States pursuant to the Panama Canal Treaty Of 1977 and related agreements;
'(2) "Canal Zone Waters" shall be deemed to refer to "Panama Canal Waters";
(3) "Canal Zone Government" shall be deemed to refer to the United States of America;
(4) "Canal Zone Governor" .or -"Governor", wherever* the reference is to the governor of the Canal Zone, shall be deemed to refer to the Panama Canal orrrmission;
(c) Any. reference set forth in subsection (b) of this section shall apply except as otherwise provided in this Act or unless:
(1) such reference is inconsistent with the provisions of the Panama
-Canal Treaty or related agreements, or this Pct, (2) in the context in
which a term is used such reference is clearly not intended, or (3) a




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term refers to a time before the effective date of the Panama Canal Treaty of 1977.
TITLE I--ADINISTRATION AND REGULATIONS CHAPTER I--PANAMA CANAL (ThMISSION
ESTABLISHMENT OF COMMISSION
Section 1101. (a) Fbr the purposes of carrying out the responsibility of the United States according. to the Panama Canal Treaty of 1977, and related agreements with respect to the administration, operation and maintenance of
-the Panam.a Canal, there is established the Panama Canal Commission, as a corporate agency and instrumentality of the United States (hereinafter referred to in this Act as the "Commission").
(b) The President of the. Board of Directors of the Com ission referred to in Article III, 3(a), shall be its legal representative.
(c) The main office of the commissionn and its domicile shall be. located in the Republic of Panama in one of the areas made available to the United States of America for its use, in accordance with the Panama Canal Treaty of 1977 and Related Agreements. Under tne meaning in U.S. laws relative to jurisdiction or (domicile) for civil actions, the commissionn is a resident of the District of Columbia and of the Eastern Judicial District of louisiana.*




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BOARD OF DIRECTORS
Section 1102. (a) Ube Cbmmission shall be managed, and supervised by a Board of Directors composed of nine members. Five members of the Board shall be nationals of the United States of Amnerica and four members shall be nationals of the Republic of Panama. The Board of Directors shall have all the necessary powers to execute those actions necessary for the (lbmmission to fulfill the responsibilities of operation and maintenance of the Panama Canal.
The Board of Directors shall establish and modify administrative and operational policies, shall revise, modify and approve the budgets, shall approve and modify the tolls, shall approve and modify administrative and operational regulations, including the terms, employment conditions, wage scales and prerequisites.
(b) The President appoints the members of the Board. The members of the Board that are Lhited States nationals shall be appointed by and with the advice and consent of the Senate. Subject to the provisions of Article III,.
(3) (b), of the Panama Canal Treaty of 1977, each Board member shall hold office at the pleasure of the President and, the (Board members) who are LUited States nationals, before assuming the duties of such office, shall take an oath to discharge faithfully the duties of their office.
(c) The members of the Board shall not be paid for their services, but under regulations and in the amounts prescribed by the Commission, a




89
reasonable per diem (will be granted) in lieu of subsistence, for attending Board meetings and for the time spent on special services for the Cbmmission, and for expenses incurred while travelling to and from meetings or on special services.
(d) Ihe .Panamanian members of the Board of Directors are officials and* representatives of the republic of Panam a.
(e) TIhe Board shall hold meetings as provided in regulations adopted by the Panama Canal Cbmmission.
ADMINISTRATOR
Section 1103. A U.S. national shall be the administrator of the- Commission until December 31, 1989, appointed'by the President by and with the advice and consent of the Senate, and .(he) shall hold office at the pleasure of the President.
Effective January 1, 1990, the Administrator shall be a Panamanian citizen, nominated by the Republic of Panama, for appointment to said office by the United States'of America.
The Administrator is the chief executive official of the Panama CanalCommission, with overall and active control of the business and offices of the Commission, and overall supervision of his offices and employees.




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DEPUTY ADMINISTRATOR
Section 1104. (a) A Panamanian national shall be the Deputy Administrator of the Cbnmission until December 31, 1989, Who shall be nominated by the Republic of Panama and appointed by the President.
(b) Effective)January 1, 1990 and until December 31, 1999, the Deputy Administrator shall be a citizen of the United States of America, appointed by the President. The Deputy Administrator is the chief assistant to the Administrator..
During the absence or disability of Che Administrator or in the event the position of Administrator becomes vacant, the Deputy Administrator shall act as Administrator until such time as the President designates an Administrator. When acting as Administrator, the Deputy Administrator shall have all the powers and authority of the Administrator.
(C) The Deputy Administrator shall be compensated on the basis of a rate of pay established by the President not to exceed the rate of basic pay in force for grade of the General Schedule, pursuant to Section 5332, title 5, United States Code.




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GENERAL AUTHRITY OF THE COMMISSION
Section 1105. (a) The Cbmmission is the agency responsible for the management., operation and maintenance of the Panama Canal, its complementary works, installations and equipment and to provide for the orderly transit of vessels through- the Canal, and shall exercise all the responsibilities set forth in Article III of the Panama Canal Treaty. In addition, the Commissionmay, under the direction of the Board of Directors:
(1) adopt, alter and use a corporative seal that will be registered
judicially;
(2) adopt, amend and repeal bylaws to govern the general conduct of
business and the performance of the powers and duties granted for (sic)
or imposed by Law;
(3) to sue and be sued in its corporate name, unless:
(A) Its responsibility to be sued is limited by the immunities
'established in Article VIII of the Panama Canal Treaty of 1977, and
otherwise by law; and
(B) Shall be exempt from any liability on "prejudged" interests.
(4) enter into contracts, leases, agreements, or other transactions;




92
(5) determine the nature of., and need for, its obligations and expenses
and the manner in which they will be carried out, allowed and paid, and
incur, allow, and pay them, subject to the pertinent legal provisions,
generally applicable to Governmental Corporations; and
(6) unless prohibited by the 1977 Panama Canal Treaty and Related Agreements, to buy, lease or in otherwise acquire, hold, .own, maintain, -work,
develop, -sell, lease, change, conduct, mortgage or otherwise dispose of and trade in lands, rentals, and any share, realestate, or rights to real or
minvableproperty, or joint ownership, and any franchise, concessions, rights,
licenses or privileges necessary or appropriate for either of the purposes
expressed in this chapter.
..b) The Cowmission has preference by United States (sic) in the payment of
debts in the event of bankruptcy..
SPECIAL AUTHORITY OF THE COmMISSION
Section 1106. Except .as otherwise stated in the Panama Canal Treaty of 1977
and related agreements, and subject to the Law of Control of Government
Corporations (31 U.S.C. 841 et seq.) the Commission may:
(1) Maintain .and operate the Panama Canal
(2) maintainn and operate the railroad through the isthmus of Panama if
faced with the conditions described in Article III, 4 (e) (sic) of
the Panama Canal Treaty of 1977.
(3) Build or acquire, and operate vessels for transporting passengers,
cargo, and for other purposes;




93
(4) Build or acquire, establish, maintain, -and operate locks, wharves,
piers, anchorage terminal facilities, shops, yards, marine railways, bunkering facilities, motor transportation facilities,
electrical systems, aqueduct systems, telephone systems, construction facilities, housing and other buildings, guest housing,. commissaries, storehouses, warehouses, printing plants, libraries,
laundries, non-profit recreational and community servic..s facilities
and areas and other enterprises, the necessary facilities and complementary installations for the purposes of this chapter;
(5) Iake use of the. United States Postal System under the same
conditions as'the Federal Government Executive departments, and
(6) r13ke the appropriate or necessary actions to fulfill the specific
rights with regard to them.
CHAPTER 2 04PLOYEES
RECRUITAENT AND EMPLOYMENT SYSTEM
Section 1201. Pursuant to the provisions of Article X of the Panama Canal Treaty of 1977, the Panama Canal Commission, -in exercise of the rights of the Lbited States of America, and in compliance with its responsibility as" employer, shall establish employment and labor regulations, which shall contain the terms, conditions, -and prerequisites for all categories of
employees in the Panama Canal Commission.
97-154 0O-82---7




94
The Commission shall conduct its employment and wage practice (in a manner) no less favorable than those applied in the Panama Canal Cbmpany and the Canal Zone Government.
Dnployees uired by the Commission as of October 1, 1979, shall enjoy the same pay system and employment terms and conditions a's those employed prior to that date by the Panama Canal Coupany and the Canal Zone Government, including the Panama Canal Oommission Merit System.
DEDUCTION FRC4 BASIC. PAY OF AMOUNTS DUE FOR SUPPLIES OR SERVICES
Section 1202. The Commission or any other department or agency of the Lhited States operating in the Republic of Panama may deduct from the basic pay otherwise payable to any officer or employee of said agency any amount due by the officer or employee of said agency to *the Cormission or to any contractor of the Commission for transportation, lodging, supplies, or any other service.
Deductions may also be made from the basic pay of said officers or employees, of the compulsory deductions under Panamanian laws or duly executed sentences.




95
0GSJ OF LIVING ALLOWANCE
Section 1203. (a) Effective beginning October 1, 1979, each officer or employee of the Commission, regardless of nationality,. formerly employed by the Panama .Qanal (Cmpany or the Canal Zone Covernment on September 30, 1979,. shall De paid an allowance to compensate for any increase in cost of living
that may result from the termination of the eligibility of the officer or employee and his dependents to use military postal services, commissaries,. and exchanges, housing, and electric power provided by the Commission. The amount of the allowance shall be determined by the Commission.
(b) Effective beginning October 1, 1984, each U.S. citizen officer and employee of tne Commission formerly employed by the Panama Canal Company or the Canal Zone Government on September 30,.1979, or an individual of any nationality recruited outside the Republic of Panama after September 30, 1979, may be paid ah allowance to compensate for any increase in cost of living which may result from the termination of the eligibility of the officer or employee and his dependents to use military'postal services, commissaries, and exchanges, housing and electric power provided by the' (bmmission. The amount of the allowance shall be determined by the Commission.




96
.PRIVILEGES AND IMMUNITIES OF CERTAIN EMPLOYEES
Section 1204. 'ihe Commission shall designate those officers and employees of the Commission and other individuals entitled to the privileges and jimunities accorded under paragraph 3 of Article VIII of the Panama Canal Treaty of 1977. The Commission shall furnish to the Republic of Panama a list of the names of such officers and dependents, identifying the positions they hold in the Commission, and shall keep such a list updated at all times.
-APPLIANCES FOR EMPLOYEES INJURED BEFORE SEPTEMBER 7, 1916
Section 1205. Artificial limbs or other appliances may be purchased by the Commission, for persons who were injured in the service of the Isthmian Canal missionn or of the Panama Canal before September 7, 1916.
CHAPTER 3 FUNDS AND ACCOUNTS7
SUBCHAPTER 1 FUNDS
CANAL ZONE GOVERNMENT FUNDS
Section 1301. .on the effective date of this Act, any amounts appearing on the books of tne. United States Covernment as "Panama Canal Comission Fbnd," established by section 1302 of Public Law 96-70, 93 Stat. 477, 1hall be changed to a revolving fund (to be) used by the Commission for the deposit of receipts and disbursement of funds. Also, upon entry into force of this

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PANAMA CANAL tIISCEL' JUS HEA JNGS BEFORE THE SUBCOMMITTEE ON THE PANAMA CANAL/OUTER CONTINENTAL SHELF OF THE COMMITTEE ON MERCHANT MARINE AND FISHERIES HOUSE OF REPRESENTATIVES NINETY-SEVENTH CONGRESS SECOND SESSION ON REPEAL PANAMA CANAL CODE-H.R. 5601 FEBRUARY 26, 1982 PANAMA CANAL COMMISSION AUTHORIZATION, FISCAL YEAR 1983, AND OVERSIGHT APRIL 20, 1982 Serial No. 97-34 Printed for the use of the Committee on Merchant Marine and Fisheries a7 U. S. GOVERNMENT PRINTING"' OFFICE 97,154 0 WASHINGTON: 1982

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COMMITTEE ON MERCHANT MARINE AND FISHERIES WALTER B. JONES, North Carolina, Chairman MARIO BIAGGI, New York GENE SNYDER, Kentucky GLENN M. ANDERSON, California PAUL N. McCLOSKEY, JR., California JOHN B. BREAUX, Louisiana EDWIN B. FORSYTHE, New Jersey GERRY E. STUDDS, Massachusetts JOEL PRITCHARD, Washington DAVID R. BOWEN, Mississippi DON YOUNG, Alaska CARROLL HUBBARD, JR., Kentucky NORMAN F. LENT, New York DON BONKER, Washington DAVID F. EMERY, Maine NORMAN E. D'AMOURS, New Hampshire THOMAS B. EVANS, JR., Delaware JAMES L. OBERSTAR, Minnesota ROBERT W. DAVIS, Michigan WILLIAM J. HUGHES, New Jersey WILLIAM CARNEY, New York BARBARA A. MIKULSKI, Maryland CHARLES F. DOUGHERTY, Pennsylvania EARL HUTTO, Florida NORMAN D. SHUMWAY, California BRIAN J. DONNELLY, Massachusetts JACK FIELDS, Texas W. J. (BILLY) TAUZIN, Louisiana CLAUDINE SCHNEIDER, Rhode Island THOMAS M. FOGLIETTA, Pennsylvania E. CLAY SHAW, JR., Florida WILLIAM N. PATMAN, Texas FOFO I. F. SUNIA, American Samoa DENNIS M. HERTEL, Michigan ROY DYSON, Maryland JOSEPH F. SMITH, Pennsylvania EDMUND B. WELCH, Chief Counsel MICHAEL J. TOOHEY, Minority Staff Director SUBCOMMITTEE ON PANAMA CANAL/OUTER CONTINENTAL SHELF CARROLL HUBBARD, JR., Kentucky, Chairman JOHN B. BREAUX, Louisiana NORMAN F. LENT, New York DAVID R. BOWEN, Mississippi EDWIN B. FORSYTHE, New Jersey THOMAS M. FOGLIETTA, Pennsylvania DON YOUNG, Alaska GLENN M. ANDERSON, California DAVID F. EMERY, Maine BARBARA A. MIKULSKI, Maryland WILLIAM CARNEY, New York JOSEPH F. SMITH, Pennsylvania JACK FIELDS, Texas W. J. (BILLY) TAUZIN, Louisiana GENE SNYDER, Kentucky WALTER B. JONES, North Carolina (Ex Officio) (Ex Officio) JANIE LAWSON, Staff Director JANA RUE OAKLEY, Clerk ROBIN MCCLUNG, Minority Professional Staff BUD DRAGO, Minority Counsel

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CONTENTS REPEAL PANAMA CANAL CODE Page H earing held February 26, 1982. 1 T ext of H .R 5601. 3 Statement of: Bauman, Robert, former member of the House of Representatives from the State of M aryland 46 Prepared statem ent. 50 Bruer, Calvin R., president, Panama Canal Federation of Teachers. 60 Coakley, William F., Deputy Director for Compensation and Overseas Employment Policy, Office of the Assistant Secretary of Defense for Manpower, Reserve Affairs and Logistics 16 Conahan, Frank C., Director, International Division, U.S. General Accoun ting O ffice 63 Devine, Donald J., Director, Office of Personnel Management. 73 Gianelli, William R., Assistant Secretary of the Army (Civil Works). 16 Prepared statem ent. 20 Lent, Hon. Norman F., a Representative in Congress from the State of New York. 15 McAuliffe, Gen. Dennis P., Panama Canal Commission 16, 34 Normandeau, Andrew, of Ragan & Mason law firm. 65 Sear, Morey, U.S. district court judge, eastern district of Louisiana. 43 Prepared statem ent. 44 Simpkins, Talmage, executive director, AFL-CIO Maritime Committee. 58 Additional material supplied: Benkert, W. M.: Claims pending before Panama Canal Commission for marine accidents outside the locks 102 Devine, Donald J.: Document on the position of the Panamanian Members of the Board of Directors of the Panama Canal Commission on Public Law 96-70 or Panam a Canal Act of 1979. 74 D raft bill. 81 Gianelli, William R.: Inclusion of working capital factor in toll base 31 Proposed amendment to H.R. 5601 with analysis 29 Recovery of capital for plant replacement, expansion, and improvem en ts. . 25 Normandeau, Andrew: Proposed amendment to H.R. 5601. 66 The Seizure of the Panama Power & Light Co. and "Hijacking" of Canal Zone B uses. 69 Communications submitted: Benkert, W. M.: Letter of March 10, 1982, to Hon. Walter B. Jones 100 Gianellie, William R.: Letter of March 3, 1982, to Hon. Carroll Hubbard, Jr., with enclosure. 22 Letter of May 7, 1982, to Hon. Walter B. Jones with attachment. 23 PANAMA CANAL COMMISSION AUTHORIZATION, FISCAL YEAR 1983, AND OVERSIGHT H earing held A pril 20, 1982. 103 T ext of H .R 6196. 105 Report from: Panam a Canal Com m ission. 110 State D epartm ent. 116 (III)

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IV Statement of: Bjorseth, Walter D., Chief, Financial Management, Panama Canal ComPage m ission 118 Boatwright, Robert J., Chief, Budget Branch, Panama Canal Commission. 118 Chism, Edward, staff assistant, Panama Canal Commission. 118 Gianelli, William R., Assistant Secretary of the Army (Civil Works). 118 Lent, Hon. Norman F., a Representative in Congress from the State of N ew Y ork 104 McAuliffe, Dennis P., Administrator, Panama Canal Commission. 118 Prepared statem ent. 124 Rhode, Michael, Jr., Secretary, Panama Canal Commission. 118 Schroeder, Myron A., Chief, Financial Planning Division, Panama Canal C om m ission 118 Additional material supplied: Panama Canal Commission: Address by Mr. Ricardo Alonso Rodriguez, Minister of the Presidency and Member of the Panama Canal Commission Board of Directors on March 25, 1982, Administration Building, Panama City. 206 Annex to address of Mr. Ricardo Alonso Rodriguez: Comments on replies submitted by U.S. Representatives 226 C apital changes. 175 Changes in cost projection for fiscal year 1983. 142 Com parative budget figures. 152 Dredge "Mindi". 174 Fiscal year 1983 capital program priorities. 171 Permanent and temporary employees. 145 Pilot com pensation 144 Questions submitted by Mr. Bowen and answers. 180 Questions submitted by Mr. Hubbard and answers. 177 Questions submitted by Mr. Jones and answers. 154 Questions submitted by Mr. Lent and answers 182 Additional questions and answers 202 Record of proceedings and inspection in case of M.V. Star Malmanger and Tug U.S. R ousseau. 235 Sum m ary of w ork force. 146 Trans-Panam a pipeline 139

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REPEAL PANAMA CANAL CODE FRIDAY, FEBRUARY 26, 1982 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON PANAMA CANAL AND OUTER CONTINENTAL SHELF, COMMITTEE ON MERCHANT MARINE AND FISHERIES, Washington, D.C. The subcommittee met, pursuant to notice, at 9:30 a.m., in room 1334, Longworth House Office Building, Hon. Carroll Hubbard, Jr. (chairman of the subcommittee) presiding. Present: Representatives Hubbard and Carney. Staff present: Merrill Whitman, Janie Lawson, Jana Oakley, Bud Drago, and Robin McClung. Mr. HUBBARD. The Subcommittee on the Panama Canal and Outer Continental Shelf will now come to order. We appreciate the attendance of each of you. This hearing has been called to consider enactment of legislation regarded as necessary or desirable in the light of the expiration on March 31, 1982, of the transition period established by the Panama Canal Treaty of 1977 and experience in operation of H.R. 5601, introduced on February 24, by the distinguished chairman of the Committee on Merchant Marine and Fisheries along with the chairman and ranking minority member of this subcommittee. Copies of the bill in draft form, with a section-by-section analysis were made available when the hearing was announced and witnesses were invited to testify. After expiration of the transition period on March 31, 1982, certain laws and regulations of the United States will cease to apply in the area made available by Panama for operation of the canal formerly referred to as the Canal Zone, and the courts of the United States in that area will cease to function. H.R. 5601 would repeal laws that no longer apply and provide for transfer to the U.S. district court for the eastern district of Louisiana of cases that remain pending in the U.S. courts in Panama at the end of the transition period. The bill would also vest jurisdiction in the eastern district of Louisiana in criminal proceedings on certain Federal offenses committed in Panama. Amendments to the provisions to the Panama Canal Act relating to accounting for Panama Canal funds and for adjustment of charges for the use of the canal continue the present plan of the Panama Canal Act that requires payment of all canal revenues into a special fund in the Treasury and limits expenditures from the fund to those authorized and appropriated by the Congress within the limits of the amount of revenues. (1)

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2 The bill contains no permanent authorizations or appropriations, which will continue on an annual basis. The minor changes in the fiscal provisions of the bill are intended to reinforce the requirement of the 1979 act that all costs associated with the operation of the canal, including capital costs, are to be paid from canal revenues and not from the general fund of the Treasury. The change in section 1313 of the 1979 act providing for audit of the Commission's accounts by the Comptroller General of the United States emphasizes that the Accounting and Auditing Act of 1950, applicable to agencies of the U.S. Government generally, is controlling. A provision requiring a Government-wide audit of all costs of implementing the 1977 treaties is deleted in accordance with a recommendation of the Comptroller General who has found that records necessary for such an audit are not maintained on a Governmentwide basis and that the requirement in its present form interferes with the timely audit of the Commission's account. The underlying position of the 1979 act limiting the amount of additional costs incurred to implement the treaty is not changed by the bill, and the necessity and desirability of providing effective controls, including appropriate audits, will be considered in oversight hearings of the performance of the requirements of the Panama Canal Act. The bill also amends the provisions of the Panama Canal Act of 1979 and title 5 of the U.S. Code to make available to employees of the Department of Defense in Panama housing allowances in lieu of the traditional pay differential otherwise available under the 1979 act. Other amendments relate to collection of amounts due for services furnished to employees, and for two additional holidays for employees in Panama. Changes are also made in the regulatory provisions of the Panama Canal Act made necessary by the end of the transition period. [A copy of the bill follows:]

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3 97TH CONGRESS 2 SESSION 5601 To amend the Panama Canal Act of 1979, and for other purposes. IN THE HOUSE OF REPRESENTATIVES FEBRUARY 24, 1982 Mr. JONES of North Carolina (for himself, Mr. HUBBARD, and Mr. LENT) introduced the following bill; which was referred to the Committee on Merchant Marine and Fisheries A BILL To amend the Panama Canal Act of 1979, and for other purposes. 1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 3 DELEGATION OF AUTHORITY 4 SECTION 1. (a) The Panama Canal Act of 1979 (22 5 U.S.C. 3601 et seq.) is amended by adding after section 3 the 6 following new section: 7 "'DELEGATION OF AUTHORITY 8 "SEC. 4. Authority vested by this Act in the President 9 or the Secretary of Defense may be delegated to any other

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4 2 1 officer of the United States but may not be redelegated by 2 such other officer.". 3 (b) The table of contents of the Panama Canal Act of 4 1979 is amended by adding immediately after the item relat5 ing to section 3 the following new item: "4. Delegation of authority.". 6 PAY AND ALLOWANCES 7 SEC. 2. (a) Section 1217 of the Panama Canal Act of 8 1979 (22 U.S.C. 3657) is amended9 (1) in subsection (c), by inserting "subsection (a) 10 of" after "under"; and 11 (2) in subsection (d)12 (A) by striking out "(d) Subchapter" and in13 serting in lieu thereof "(d)(1) Except as provided 14 in paragraph (2) of this subsection, subchapter"; 15 and 16 (B) by adding at the end thereof the follow17 ing: 18 "(2) In lieu of the additional compensation authorized by 19 subsection (a) of this section, if Government quarters cannot 20 be provided to an employee who was transferred to the De21 partment of Defense pursuant to the Panama Canal Treaty of 22 1977, or who is recruited outside of the Republic of Panama 23 after the date of the enactment of this Act for duty with the 24 Department of Defense in the Republic of Panama, the De25 partment of Defense may pay the quarters allowance pro

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5 3 1 vided by section 5923 of title 5, United States Code, if the 2 employee is otherwise eligible for such allowance under ap3 plicable regulations.". 4 (b) Title 5, United States Code, is amended5 (1) in section 6103, by adding after subsection (c) 6 the following: 7 "(d) In addition to the legal public holidays listed in 8 subsection (a) of this section, the following are legal holidays 9 for officers and employees of the Panama Canal Commission 10 who are stationed or employed in the Republic of Panama: 11 "Good Friday. 12 "Panamanian Independence Day, November 3."; 13 (2) in section 5921(6), by striking out "the Canal 14 Zone,"; 15 (3) in section 5924(4)(B), by striking out "Not16 withstanding section 5921(6) of this title, travel" and 17 inserting in lieu thereof "Travel"; and 18 (4) in section 8138(b), by striking out "Canal 19 Zone Government or the Panama Canal Company" 20 and inserting in lieu thereof "Panama Canal Commis21 sion". 22 MINIMUM ANNUAL INCREASE 23 SEC. 3. Section 1225(b)(2) of the Panama Canal Act of 24 1979 (22 U.S.C. 3665(2)) is amended to read as follows:

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6 4 1 "(2) The rate of basic pay for each individual referred to 2 in paragraph (1) of this subsection whose basic pay is not 3 fixed in relation to rates of basic pay for the same or similar 4 work performed in the United States shall be increased each 5 year by an amount equal to not less than 2 percent of the 6 rate of basic pay for that individual in effect immediately 7 before the date of that increase.". 8 ACCOUNTING POLICIES 9 SEC. 4. Section 1311(b) of the Panama Canal Act of 10 1979 (22 U.S.C. 3721(b)) is amended to read as follows: 11 "(b) Regulations issued pursuant to the Accounting and 12 Auditing Act of 1950 which establish the basis of accounting 13 for the assets that are made available for the use of the Com14 mission may provide for depreciation of the net replacement 15 value of the assets which will ultimately require replacement 16 to maintain the service capacity of the Panama Canal. Such 17 regulations may also provide that depreciation of such assets 18 be recorded ratably over their service lives.". 19 AUDIT BY THE COMPTROLLER GENERAL OF THE UNITED 20 STATES 21 SEC. 5. Section 1313 of the Panama Canal Act of 1979 22 (22 U.S.C. 3723) is amended to read as follows: 23 "SEC. 1313. Financial transactions of the Commission 24 shall be audited by the Comptroller General of the United 25 States pursuant to the Accounting and Auditing Act of 1950

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7 5 1 (31 U.S.C. 65 et seq.). The Comptroller General shall submit 2 to the Congress a report of the audit conducted pursuant to 3 this section with respect to each fiscal year.". 4 INTERAGENCY SERVICES; REIMBURSEMENTS 5 SEC. 6. Section 1321(d) of the Panama Canal Act of 6 1979 (22 U.S.C. 3731(d)) is amended by adding at the end 7 thereof the following new sentence: "Collection of amounts 8 payable by persons for services referred to in subsection (c) of 9 this section that are provided to such persons shall be the 10 responsibility of the department or agency providing the serv11 ices involved.". 12 CONGRESSIONAL RESTRAINTS ON PROPERTY TRANSFERS 13 AND TAX EXPENDITURES 14 SEC. 7. Section 1344(b) of the Panama Canal Act of 15 1979 (22 U.S.C. 3754(b)) is amended to read as follows: 16 "(b) Prior to the transfer of property of the United 17 States located in the Republic of Panama to the Republic of 18 Panama pursuant to section 1504 of this Act the President 19 shall formally advise the Government of Panama that20 "(1) in fulfilling its obligations under the Panama 21 Canal Treaty of 1977, the United States shall make no 22 payments to the Republic of Panama derived from tax 23 revenues of the United States; 24 "(2) the United States retains full discretion and 25 authority to determine whether and the extent to

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8 6 1 which tax revenues of the United States may be ex2 pended in exercising United States rights and carrying 3 out United States responsibilities under the Panama 4 Canal Treaty of 1977 and related agreements; 5 "(3) no tax revenues of the United States shall be 6 made available for obligations and expenditure after the 7 effective date of this Act for purposes of implementing 8 the Panama Canal Treaty of 1977 and related agree9 ments, unless hereafter specifically approved by the 10 Congress through the authorization and appropriation 11 process; and 12 "(4) the total amount expended by the Commis13 sion from funds appropriated to or for the use of the 14 Commission shall not exceed the total amount deposit15 ed in the Panama Canal Commission Fund.". 16 BASES OF TOLLS 17 SEC. 8. Section 1602(b) of the Panama Canal Act of 18 1979 (22 U.S.C. 3792(b)) is amended to read as follows: 19 "(b) Tolls shall be prescribed at rates calculated to pro20 duce revenues to cover as nearly as practicable all costs of 21 maintaining and operating the Panama Canal, together with 22 the facilities and appurtenances related thereto, including (1) 23 unrecovered costs incurred on or after October 1, 1979, (2) 24 interest, (3) depreciation, (4) payments to the Republic of 25 Panama pursuant to paragraph 5 of Article III and para

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9 7 1 graphs 4 (a) and (b) of Article XIII of the Panama Canal 2 Treaty of 1977, (5) capital for plant replacement, expansion, 3 and improvements, (6) reimbursements to the Treasury of the 4 United States for costs incurred by other departments and 5 agencies of the United States in providing educational, 6 health, and other services to the Commission, to the employ7 ees of the Commission and their dependents, and to other 8 categories of persons, in accordance with section 1321 of this 9 Act, and (7) any costs that are incurred in implementing the 10 Panama Canal Treaty of 1977 and related agreements and 11 that are associated with the maintenance and operation of the 12 Panama Canal. Tolls shall not be prescribed at rates calculat13 ed to produce revenues sufficient to cover payments to the 14 Republic of Panama pursuant to paragraph 4(c) of Article 15 XIII of the Panama Canal Treaty of 1977.". 16 OPERATING REGULATIONS 17 SEC. 9. Section 1801 of the Panama Canal Act of 1979 18 (22 U.S.C. 3811) is amended to read as follows: 19 "OPERATING REGULATIONS 20 "SEc. 1801. The President may prescribe, and from 21 time to time amend, regulations governing22 "(1) the operation of the Panama Canal; 23 "(2) the navigation of the harbors and other 24 waters of the Panama Canal and areas adjacent there25 to, including the Ports of Balboa and Cristobal;

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10 8 1 "(3) the passage and control of vessels through 2 the Panama Canal or any part thereof, including the 3 locks and approaches thereto; 4 "(4) pilotage in the Panama Canal or the ap5 proaches thereto through the adjacent waters; 6 "(5) the licensing of officers or other operators of 7 vessels, belonging to or operated by the Commission, 8 which navigate the waters of the Panama Canal and 9 areas adjacent thereto, including the Ports of Balboa 10 and Cristobal; and 11 "(6) swimming in the Panama Canal and waters 12 adjacent thereto.". 13 JUDICIARY 14 SEC. 10. Title II of the Panama Canal Act of 1979 (22 15 U.S.C. 3831 et seq.; 93 Stat. 493-496) is amended to read 16 as follows: 17 "TITLE 11-COURTS 18 "JURISDICTION OVER PENDING ACTIONS 19 "SEC. 2101. (a) The United States District Court for 20 the Eastern District of Louisiana shall, on April 1, 1982, 21 assume the jurisdiction of all actions that originated in the 22 United States District Court for the District of the Canal 23 Zone or in the magistrates' courts established pursuant to 24 section 81 of title 3 of the Panama Canal Code (76A Stat.

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11 9 1 54) and that have not been finally disposed of as of March 31, 2 1982. 3 "(b) In disposing of the cases referred to in subsection 4 (a) of this section, the United States District Court for the 5 Eastern District of Louisiana shall construe the terms 6 'United States citizen employees', 'members of the United 7 States Forces', 'civilian component', and 'dependents' as 8 such terms are defined in the Panama Canal Treaty of 1977 9 and related agreements, and shall construe the term 'areas 10 and installations made available for the use of the United 11 States' to mean (1) the Panama Canal operating areas and 12 housing areas described in Annex A to the Agreement in 13 Implementation of Article III of the Panama Canal Treaty of 14 1977, (2) the Ports of Balboa and Cristobal described in 15 Annex B to that agreement, and (3) the defense sites and 16 military areas of coordination described in Annex A to the 17 Agreement in Implementation of Article IV of the Panama 18. Canal Treaty of 1977. 19 "FEDERAL JURISDICTION OVER NEW OFFENSES 20 "SEC. 2102. (a) Except as otherwise provided by law, 21 the district courts of the United States shall have original 22 jurisdiction of all Federal offenses committed in the Republic 23 of Panama by a United States citizen employee of the Com24 mission, a member of the civilian component, or a dependent

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12 10 1 of such employee or member, or by a dependent of a member 2 of the United States Forces. 3 "(b) Except as otherwise provided by law, prosecutions 4 under this section shall be brought in the United States Dis5 trict Court for the Eastern District of Louisiana. 6 "(c) Subject to the provisions of the Panama Canal 7 Treaty of 1977 and related agreements, the provisions of title 8 18, United States Code, and of any other Federal law the 9 violation of which is punishable by a criminal penalty shall 10 apply within the Republic of Panama, in the same manner 11 and to the same extent that such laws apply within the spe12 cial maritime and territorial jurisdiction of the United States, 13 to United States citizen employees of the Commission, to 14 members of the United States Forces and the civilian compo15 nent, and to the dependents of such employees and members. 16 "(d) As used in this section, the term 'Federal offense' 17 means a violation of Federal law other than chapter 47 of 18 title 10, United States Code (United States Code of Military 19 Justice), for which a criminal penalty may be imposed. This 20 section shall not impair any jurisdiction granted pursuant to 21 chapter 47 of title 10, United States Code. 22 "(e) As used in this section, the terms 'United States 23 citizen employees', 'civilian component', 'members of the 24 United States Forces', and 'dependents' shall have the mean25 ings referred to in section 2101(b) of this Act.

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13 11 1 "REGISTRATION OF JUDGMENTS 2 "SEc. 2103. (a) The provisions of section 1963 of title 3 28, United States Code, shall apply to judgments entered in 4 the United States District Court for the District of the Canal 5 Zone.". 6 (b) The table of contents of the Panama Canal Act of 7 1979 is amended by amending the items relating to title II to 8 read as follows: "TITLE II-COURTS "2101. Jurisdiction over pending actions. "2102. Federal jurisdiction over new offenses. "2103. Registration of judgments.". 9 REPEALS 10 SEC. 11. The following provisions of law are repealed: 11 (1) The Panama Canal Code (76A Stat. 1 et 12 seq.), as redesignated by section 3303(b) of the 13 Panama Canal Act of 1979 (22 U.S.C. 3602 note). 14 (2) Section 14 of title 18, United States Code. 15 (3) The following sections of the Panama Canal 16 Act of 1979: 17 (A) Section 3(d) (22 U.S.C. 3600(d)). 18 (B) Section 1605 (22 U.S.C. 3795). 19 (C) Section 1701 (22 U.S.C. 3801). 20 (D) Section 1702 (22 U.S.C. 3802). 21 (E) Section 3101 (22 U.S.C. 3861). 97-154 0-82----2

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14 12 1 EFFECTIVE DATE 2 SEC. 12. (a) Section 11 of this Act and the amendments 3 made by sections 7, 9, and 10 of this Act shall take effect on 4 the date of the enactment of this Act. 5 (b) The amendments made by sections 1, 2, 3, 4, 5, 6, 6 and 8 of this Act shall take effect on October 1, 1982.

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15 Mr. HUBBARD. Our witnesses this morning include: Hon. William R. Gianelli, Assistant Secretary of the Army (Civil Works), appearing on behalf of the Department of Defense. Accompanying Mr. Gianelli is Gen. Dennis P. (Phil) McAuliffe, Administrator of the Panama Canal Commission, and Hon. Morey Sear, U.S. district court judge in the eastern district of Louisiana, appearing on behalf of the Judicial Conference of the United States; Hon. Robert Bauman, former Member of Congress from the State of Maryland; Talmage Simpkins, executive director, AFLCIO Maritime Committee; Calvin R. Bruer, president, Panama Canal Federation of Teachers. We have also received reports on the bill, or appropriate provisions of the bill from the General Accounting Office and the Honorable Andrew Normandeau, Ragan & Mason law firm. Another statement expected to be submitted for the record is from the Office of Personnel Management. Without objection, these statements will be included in the record of the hearing after the testimony of the witnesses who are present. Is there any objection? Hearing none, it is so ordered that the statements referred to will be included in the record of this hearing after the testimony of the witnesses who are here today. Congressman Norman Lent, the ranking minority member of the subcommittee from the State of New York wants his statement submitted for the record. Is there objection to that? If not, his statement is indeed included in the record. [The statement of Mr. Lent follows:] STATEMENT BY HON. NORMAN F. LENT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW YORK Mr. Chairman, March 31, 1982, marks the end of the first phase of the Panama Canal Treaties of 1977. On that date the 30-month transition period will end. After that date there is no authority for continued exercise of U.S. law enforcement and judicial jurisdiction in the Republic of Panama and the concurrent application of U.S. criminal and civil laws with those of Panama will come to an end. Experience and testimony heard by the Panama Canal Subcommittee during this period indicate that amendments to Public Law 96-70 would facilitate U.S. management and operation of the Canal until the year 2000. In that regard I look forward to the testimony we will hear today on the bipartisan bill introduced this past week to amend the Panama Canal Act and repeal the Panama Canal Code. I am determined to make certain that the United States' responsibilities under the 1977 Treaties are exercised in accordance with the laws of the United States. In that regard I look forward to the testimony of the witnesses today. Thank you, Mr. Chairman. Mr. HUBBARD. I call on Congressman William Carney, also from the State of New York, for any comment. Mr. CARNEY. Thank you. I think you summed up the reasons for these hearings and I look forward to hearing the testimony of the five witnesses today and look forward to smooth sailing to a markup of a bill that will accommodate everyone's needs, both down in Panama and, of course, the needs and wishes of the Members of Congress, so why don't we have our witnesses come forward. Mr. HUBBARD. Thank you.

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16 The first witness scheduled was to be the Honorable Morey Sear, the U.S. district court judge. He has graciously consented to go second in order that Hon. William R. Gianelli can get back to another meeting at the Department of Defense. We call on you first, Mr. Gianelli. He is representing the Department of Defense and has worked closely with me during 1981 and thus far this year relating to matters regarding the Panama Canal, and our relations with the Panamanian people and country. STATEMENT OF WILLIAM R. GIANELLI, ASSISTANT SECRETARY OF THE ARMY (CIVIL WORKS), ACCOMPANIED BY GEN. DENNIS P. McAULIFFE, PANAMA CANAL COMMISSION; WILLIAM F. COAKLEY, DEPUTY DIRECTOR FOR COMPENSATION AND OVERSEAS EMPLOYMENT POLICY, OFFICE OF THE ASSISTANT SECRETARY OF DEFENSE FOR MANPOWER, RESERVE AFFAIRS AND LOGISTICS STATEMENT OF WILLIAM R. GIANELLI Mr. GIANELLI. Thank you very much. I am William Gianelli, Assistant Secretary of the Army for Civil Works and also the Chairman of the Board of the Panama Canal Commission. This is my first appearance before your committee, Mr. Chairman. I am delighted to be here. Accompanying me at the table is Dennis P. McAuliffe, Administrator of the Commission, and with your permission, I would like to have my written statement for the record and I will make some verbal observations too. Mr. HUBBARD. No objections, and we do appreciate also the appearance of Mr. Phil McAuliffe. I admire him and appreciate the work he has done for our Nation in recent years with the Panama Canal Commission, and heis a dear friend and we appreciate his being here with you. Mr. GIANELLI. I thought perhaps if it met with your approval, he might give a brief report after I finish my statement, concerning the operation of the canal this last year. At the outset, let me express to you and the rest of the committee my appreciation for the opportunity to appear to testify at this hearing concerning proposals for the revision of the Panama Canal Act of 1979. I consider it to be of prime importance that there exists a close working relationship between the Congress and certainly especially this committee and my office in connection with the oversight of the canal operations. I have initiated several steps such as timely information to the Congress concerning the Commission activities, which I believe has moved us toward our goal. The Commission now has 28 months experience operating the canal under the terms of Public Law 96-70 and while I cannot say that this period has been problem free, I can say the agency has experienced no insurmountable problems in carrying out what I believe to be its mission.

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17 I can testify that the conversion to the appropriated fund form has been successfully accomplished with minimum disruption and without change in the efficient service which the canal agency has traditionally provided to worldwide shipping. Because of this, the administration believed it unnecessary to propose major revisions in the Commission's fiscal structure as established by Public Law 96-70. The few changes recommended to the Congress were limited to those which are particularly important to the administration, the Commission, and to the U.S. Southern Command. The proposed changes were in the nature of refinements or fine tuning of the organization, rather, at least as I view it, a departure from the basic thrust of Public Law 96-70. As regards the Commission, the aim of the administration's proposal submitted to the Congress last October is to enhance the businesslike operations of the Commission without reducing the oversight role of the Congress in canal matters fixed by Public Law 96-70. The proposed bill that we are addressing today is the one introduced by the chairman of the Merchant Marine and Fisheries Committee, Mr. Jones, and the chairman and ranking minority member of this committee, Mr. Hubband and Mr. Lent. I want to commend the authors of the bill for their successful effort to address needed revisions in the present law. The administration is generally supportive of the proposal as presented. That bill basically follows the administration's proposals, except we believe the committee may wish to consider adding other items to assist us in our operations in Panama. I hope to work with the committee before markup to provide a more detailed rationale. I would like to state, Mr. Chairman, we had a very good meeting with the staff of the committee yesterday, and representatives of some of the Members, and I would like to continue that dialog, and it certainly is very helpful to us to be able to get their views and reflect directly to them some of our concerns. I would like to address several topics of concern that are part of the administration proposal, but not included in the bill that is before us today. The 1977 treaty requires that the Commission be supervised by a Board composed of five U.S. nationals and four Panamanians. Public Law 96-70 provides that a quorum for the conduct of business consists of a majority of the Board members of which a majority of those present are nationals of the United States. I would like to suggest a change that would insert a provision authorizing the use of proxies for the purposes of establishing that quorum when necessary. As the law now stands, an absence by any one of the U.S. Board members could make it impossible to have a meeting of the Commission, and as Chairman, I am required to have a majority of the Board present and a majority of those present must be U.S. nationals in order to convene a meeting, in order to take any action. Presently I cannot have a meeting unless all five of the U.S. members are present. Thus far, all U.S. members have been present, but we have had to shift meetings for considerable periods in

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18 order to find a suitable time when all U.S. members could be present. We have had to shorten some meetings also because of a need of a Board member to leave unexpectedly. This change could be very helpful in the conduct of the Commission's business, and we discussed this matter at some length with your staff yesterday; and if there is some concern about unlimited use of proxies, I would like to welcome any limited proposal which the committee might want to suggest so long as we do have some flexibility to operate. I would like to comment that three of our members from the United States are public members, busy people, and it is very often difficult for them to find 4 or 5 days necessary to set aside for the conduct of the Commission's business. So, it would be very helpful to us if we could work with the committee and your staff with some sort of an amendment which would give us some flexibility in terms of how many people we might have to have at a meeting to conduct our business, and if there is some concern on behalf of the committee or the committee staff, we would certainly welcome any limitations you might want to place on us for the use of proxies so that we could have some flexibility in that regard. Next, concerning the financial provisions of the bill, there are two changes we would like to see made with regard to the provision in the bill dealing with the formula for determining tolls. As presently drafted, that provision could be misconstrued to require that the toll base include both the full cost of capital for plant replacement, expansion and improvements, as well as depreciation. Such a requirement would impose, we believe, an unfair and unnecessary burden on the steamship owners and operators using the waterway and would be improper from an accounting standpoint. Moreover, such an interpretation could result in a substantial profit payment to Panama which I think would be contrary to another provision of the law specifically prohibiting toll rates from being set at a level to produce profits which would flow to Panama under the treaty mandated contingency payment. Let me comment, Mr. Chairman, if I could, that I think Mr. Whitman of your committee has a different view of the effect of this provision, and we discussed this thing at great length yesterday, and I am not sure there was a meeting of the mind. I would appreciate the opportunity for the Commission staff to confer further with Mr. Whitman, and in addition, that we be allowed to prepare a staff paper which is our analysis of this section and if we could, I believe we could present that as part of your record, and we could have it to you early next week. I believe that perhaps it would at least give you our interpretation of how this would work, Mr. Chairman, and perhaps provide an opportunity for us all to carry on further deliberations, because I think our objectives are the same. It is just that we need to have a meeting of the minds with respect to how the provision would work and if you would allow us to do that, I would very much appreciate it. Another concern is to provide the same educational travel benefits for dependents of employees of the Department of Defense in Panama as are available to employees in the Panama Canal Commission and DOD employees in other overseas areas.

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19 There are also a few revisions needed to correct several problem areas that have arisen under section 1209 of Public Law 96-70 regarding the administration of the Federal Employees Compensation Act, the Civil Service Retirement Act, the Federal employees life insurance program, and the Federal Employees Health Benefits Act to non-U.S. citizen employees in the former Canal Zone. There is also a need to clarify certain Department of Defense labor relations practices concerning the inclusion of supervisors and collective-bargaining units and to give flexibility to the Department of Defense to change personnel policies and practices affecting non-U.S. citizen employees in order to bring them into line with Panamanian labor law and practice as is required by the Treasury and we will be furnishing the committee further information for the record regarding these matters and we had quite a detailed discussion with the committee staff yesterday and it may be that some of these matters could be addressed by one of the other committees, if it is your pleasure, but at any rate, we would like to have the opportunity to have further dialog with you at the staff level and then to do whatever is necessary to make some of these changes. I think the committee agrees with them. It is a matter of how they would be implemented. Let me also at this time, Mr. Chairman, address several of the proposals included in the bill before us. First, section 1 of the bill pertaining to delegation of authority seems to restrict in great sense what the executive branch may do in regard to delegations of authority. The Secretary of Defense has delegated his authority to oversee the operation of the Panama Canal to my office through the Secretary of the Army. As I understand the proposal and again, we had some discussions on this yesterday, this would change the delegation process and alter the present arrangement, and from a discussion with your staff yesterday, I am more than ever concerned that this proposal would require the Commission to radically alter the way in which it now operates and create a host of new problems which I don't believe the Commission needs to have at the present time. Mr. Chairman, we doubt that this proposal would enhance the oversight responsibility of this committee and the administration recommendations that this provision be deleted from the proposal and again, we would be delighted to have further dialog because we are all trying to go in the same direction and it is a matter of interpretation of what this would do and problems that it might create. In addition, the amendment proposed to section 6103 of title 5 of the United States Code relating to legal public holidays should be expanded to employees of the Commission and also U.S. Government agencies operating in the Republic of Panama. That is a matter of working it out to make sure other agencies are covered with the same rules that we have with respect to the Commission. I would also like to make a brief comment on the need to have the jurisdictional provisions of your proposal in effect quickly and you will be hearing about that in a few moments.

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20 A 30-month transition period which has been in effect since the 1977 treaty entered into force on October 1, 1979, will end at midnight on March 31, 1982, and when it does, the last vestiges of U.S. civilian law enforcement authority in Panama will disappear and with this removal of the U.S. court system in Panama, there will be a need for a forum in this country to dispose of any civil or criminal matters which may be still pending. There will also be a need to have such a forum for new criminal matters over which the United States is given jurisdiction either by the treaty documents or by Panamanian waiver. Finally, there will be a need for a mechanism whereby judgments rendered by the U.S. courts which have been operating in the Canal Zone and Panama can be registered and enforced. Accordingly, it would be helpful to have the legislation approved at an early date, particularly prior to April 1, if at all possible, so there will be no disruption in the administration of justice. Mr. Chairman, in closing, I would like to reiterate my appreciation to you and to this committee for the opportunity to testify on the proposed changes to Public Law 96-70 and once again, I would like to say that I favor a very close and coordinated working relationship between the Congress and my office in Canal matters. I think such a relationship is very important, and I look forward to working with you on these suggested changes and all future programs and policies directing the waterway and again, if it meets with your approval, I would like to suggest that the Administrator of the Panama Canal Commission, Mr. McAuliffe, give you a brief update on Commission operations and then both of us will be available for any questions you might have and we have some backup from staff if that is necessary. Thank you very much, Mr. Chairman. [The following was submitted:] STATEMENT BY WILLIAM R. GIANELLI, ASSISTANT SECRETARY OF THE ARMY (CIVIL WORKS) AND CHAIRMAN OF THE BOARD, PANAMA CANAL COMMISSION INTRODUCTION Mr. Chairman, members of the Committee, I am William Gianelli, Assistant Secretary of the Army for Civil Works and Chairman of the Board of the Panama Canal Commission. Accompanying me at the table today is Mr. Dennis P. McAuliffe, Administrator of the Commission. At the outset, Mr. Chairman, let me express to you and the rest of the Committee my appreciation for the opportunity to appear and testify at this hearing concerning proposal for revision of the Panama Canal Act of 1979 (Public Law 96-70). I consider it to be of prime importance that there exist a close working relationship between the Congress-especially this Committee-and my office in matters connected with the oversight of Canal operations. As you are aware I have initiated several steps such as timely information to the Congress concerning Commission activities, which I believe have moved us toward that goal. As the Committee is aware, the Administration sent a legislative proposal to amend P.L. 96-70 to the Congress last October. That proposal was staffed with every department in the Executive Branch which has an interest in the operation, protection and defense of the Panama Canal and contains input from each of them. ADMINISTRATION'S APPROACH The Commission now has 28 months' experience operating the Canal under the terms of Public Law 96-70 and the agency has experienced no insurmountable problems in carrying out its mission during this period. Despite the change from a corporate entity to an appropriated fund agency, the waterway has continued to operate

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21 efficiently. While I cannot say that the conversion from the corporate to the appropriated fund form has been problem-free, I can testify that the conversion has been successfully accomplished with minimum disruption and without change in the efficient service which the Canal agency has traditionally provided to world shipping. Because of this, the Administration believed it unnecessary to propose major revisions in the Commission's fiscal structure as established by Public Law 96-70. The few changes recommended to the Congress were limited to those which are particularly important to the Administration, the Commission and to the United States Southern Command. The proposed changes were in the nature of refinements, or of fine-tuning of the organization, rather than a departure from the basic thrust of Public Law 96-70. As regards the Commission, the aim of the Administration's proposal is to enhance the business-like operations of the Commission but without reducing the oversight role of the Congress in Canal matters fixed by Public Law 96-70. CONTENTS OF BILL The proposed bill that we are addressing today is one introduced by the Chairman of the Merchant Marine and Fisheries Committee and others. I want to commend the authors of the bill for their successful effort to address needed revisions in the present law. The Administration is generally supportive of the proposal as presented. That bill basically follows the Administration's proposal except that we believe the Committee may wish to consider adding other items to assist us in our operations in Panama. I should like to discuss some of these items briefly and would hope to work with the Committee before markup to provide a more detailed rationale. First, I would like to address several topics of concern that were part of the Administration's proposal but not included in the bill before us. Mr. Chairman, the 1977 Treaty requires that the Commission be supervised by a Board composed of five United States nationals and four Panamanians. Public Law 96-70 provides that a quorum for the conduct of business consists of a majority of the Board members of which a majority of those present are nationals of the United States. I propose a change that would insert a provision authorizing the use of proxies for the purposes of establishing that quorum when necessary. As the law now stands, an absence by any one of the U.S. Board members could make it impossible to have a meeting of the Commission. As Chairman, I am required to have a majority of the Board present and a majority of those present must be U.S. nationals in order to convene a meeting. Presently, I cannot have a meeting unless all five of the U.S. members are present. Thus far, all U.S. members have been present, but we have had to shift meetings for considerable periods in order to find a suitable time when all U.S. members would be present. We have had to shorten some meetings also because of the need of a Board member to leave unexpectedly. This change would be very helpful in the conduct of the Commission's business. Concerning the financial provisions of the bill, there are two changes we would like to see made with regard to the tolls formula. The first of these would expand on the elements to be included in the toll base and is intended to insure that the Canal continues to be operated on a self-sufficient basis. The second is really only a clarifying provision of the existing text and is designed to insure that shipping is not subject to a substantial and unnecessary increase in the toll rate, which I am sure was not intended. Another concern is to provide for the same educational travel benefits for dependents of employees of the Department of Defense in Panama as are available in other overseas areas and to clarify certain Department of Defense labor relations practices. Mr. Chairman, I also wish to address several of the proposals included in the bill before us. First, section 1 of the Bill pertaining to Delegation of Authority seems to restrict-in great sense-what the Executive Branch may do in regards to delegation of authority. The Secretary of Defense has delegated his authority to oversee the operation of the Panama Canal to my office through the Secretary of the Army. As I understand the proposal, this would change the delegation process and alter the present arrangement. Mr. Chairman, we doubt this proposal will enhance the oversight responsibility of this committee and the Administration recommends that this provision be deleted from the proposal. Second, the amendment proposed to Section 6103 of Title 5 of U.S. Code relating to legal public holidays should be expanded to cover employees not only in the Com

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22 mission but also in the other U.S. Government agencies operating in the Republic of Panama. I will also make a brief comment on the need to have the jurisdictional provisions of your proposal in effect quickly. The 30-month transition period which has been in effect since the 1977 Treaty entered into force on October 1, 1979 will end at midnight on March 31, 1982. When it does, the last vestiges of U.S. civilian law enforcement authority in Panama will disappear. With this removal of the U.S. court system in Panama, there will be a need for a forum in this country to dispose of any civil or criminal matters which are still pending. There will also be a need to have such a forum for new criminal matters over which the United States is given jurisdiction either by the Treaty documents or by Panamanian waiver. Finally there will be a need for a mechanism whereby judgments rendered by the U.S. courts which have been operating in the Canal Zone and Panama can be registered and enforced. Accordingly, it would be helpful to have the legislation approved at an early dateparticularly prior to April 1 if possible, so there will be no disruption in the administration of justice. CONCLUSION Mr. Chairman, in closing, I would like to reiterate my appreciation to you and this Committee for this opportunity to testify on proposed changes to Public Law 96-70. Once again I would like to say that I strongly favor a close and coordinated working relationship between the Congress and my office in Canal matters: I think such a relationship is very important, and I look forward to working with you on these suggested changes and all future programs and policies affecting the waterway. Mr. Chairman, if it meets with your approval, I recommend that the Administrator of the Panama Canal Commission, Mr. Dennis P. McAuliffe, offer a brief update on Commission operations and then both of us will be available for any questions the Committee might have. DEPARTMENT OF THE ARMY, OFFICE OF THE ASSIsTANT SECRETARY, Washington, D.C., March 3, 982. Hon. CARROLL HUBBARD, JR., Chairman, Subcommittee on Panama Canal/Outer Continental Shelf, U.S. House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: In the course of my February 26th testimony on H.R. 5601 before the Subcommittee on Panama Canal/Outer Continental Shelf, I indicated there are several modifications we would like to see made. At that time, I expressed my desire to work with the members of the Committee and staff to include these proposals in the bill. I believe our goals: to operate the waterway on a self-sufficient basis at no cost to the U.S. taxpayer and with no profit to accrue to the Republic of Panama, are the same. It is not our wish to circumvent the intent of the Congress in achieving these goals. Therefore, I ask your support in several areas of concern not presently included in the bill. The first would clarify that the Commission is to continue to finance its capital program from funds generated from depreciation and, to the extent needed, by inclusion of a capital factor in the toll base. The second modification would allow the Commission to include a factor for working capital requirements in the base for calculating Canal tolls. (See attachments for detailed rationale.) I also ask for your support for provision in the bill authorizing the use of proxies by the supervisory board. This is so that we might conduct necessary business and also provide some accommodation to the busy schedules of our members. This is particularly true with respect to our private sector members who, as you know, serve without pay. I will be willing to accept any proposal which will give us some flexibility while making certain the use of proxies is not abused. We have proposed several amendments concerning personnel policies applicable to civilian employees of the Department of Defense and to clarify certain Department of Defense labor relations practices. No additional costs will be incurred to the Commission or Department of Defense as a result of these proposals since these practices are currently applicable. The purpose of the amendments for Department of Defense is to permit continuation of these practices after repeal of the Panama Canal Code and to align conditions of employment for non-U.S. employees to conform with the general principles of Panamanian labor laws as required by Treaty implementing agreements.

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23 Lastly, I want to reiterate our opposition to the provision of the bill that would restrict the Executive Branch with regard to delegations of authority. I do not believe such a limitation will contribute to the efficient operation of the Canal, nor will it enhance the oversight role of the Congress. As written, that proposal would be disruptive to the efficiency of administrative functions associated with the management of the Canal operation. I affirm my desire for a close-working relationship with the Congress to achieve our mutual goals regarding Canal matters. From my perspective, I believe these changes to H.R. 5601 are necessary. I solicit your support. Sincerely, WILLIAM R. GIANELLI, Assistant Secretary of the Army (Civil Works). Enclosure. BOARD OF DIRECTORS, PANAMA CANAL COMMISSION, May 7, 1982. Hon. WALTER B. JONES, Chairman, Committee on Merchant Marine and Fisheries, House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: During the markup session on March 16th in consideration of H.R. 5601, to amend the Panama Canal Act of 1979 and for other purposes, several amendments were adopted by the Panama Canal/Outer Continental Shelf Subcommittee. In my letter of March 3rd concerning H.R. 5601, copy attached, I affirmed my desire for a close working relationship with the Congress to achieve our mutual goal regarding Canal matters. I ask your support in several areas of concern regarding the bill as currently adopted. The amendment pertaining to interest payments that would require interest to be calculated on the entire investment of the United States in the Canal, rather than on the net direct investment as is the present practice, would impose a significant additional cost burden on the users of the Canal. The payment of interest by the Canal agency commenced in 1952 with the formation of the Panama Canal Company. Since that time, the basis for interest was the capital contribution by the United States to the Canal and did not take into account any reinvestment of profits earned by the Canal. H.R. 5601, as amended, would require interest to be computed on the entire United States investment. Calculation of this amount would have to take into account $191.8 million representing reinvested earnings in addition to the net direct investment of the United States. Inclusion of these prior earnings from shipping into the interest base would impose an additional requirement for recovery from tolls of $17.6 million annually based on the interest rate in effect for 1982. The net effect would require shipping to pay interest to the United States Government on funds that were contributed by them. This requirement, in addition to the inclusion of full capital plus depreciation in the toll base, as I outlined in my letter of March 3rd, would impose a $37.2 million additional cost burden on the Canal that would have to be recovered through a toll rate increase. The Subcommittee amendment adding a provision prohibiting payments to the Republic of Panama during any period in which there remains outstanding preTreaty claims due to expropriation of property held by United States citizens or corporations appears to be inconsistent with portions of Article III and VIII of the Paname Canal Treaty which require certain payments to be made to Panama. While the United States could probably withhold Treaty payments to offset claims of the United States Government against Panama, there is some doubt as to the propriety of withholding payments to compel action on claims by private interests from the United States. Since the purpose of H.R. 5601 is to amend Treaty implementing legislation and this amendment does not relate to the Treaty, this bill does not appear to be the proper forum to address the issue. Additionally, enactment of this proposal could have adverse impact on out ability to meet our Treaty Commitments. Lastly, the Subcommittee amendment deleting Section 2102, Federal jurisdiction over new offenses, would result in precluding the United States from exercising jurisdiction over its citizens in Panama in all cases except when the United States is the victim. Such a limitation is, in my view, unwise and may not have been intended. The Panama Canal Treaty and implementing agreements give to the United States certain criminal jurisdiction over offenses committed in Panama by United States citizen employees or their dependents. There needs to be a provision in the

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24 law to establish statutory authority for the United States courts to permit prosecution under the Treaty. The enclosed fact sheet provides a more detailed rationale. I solicit your support in seeking to correct these areas of concern in addition to those issues previously addressed relating to the Capital Program, a provision for proxies for Board, and the proposal to restrict the Executive Branch with regard to delegations of authority. Please contact me if I can provide any further information. Sincerely, WILLIAM R. GIANELLI, Chairman. Enclosure. FACT SHEET SUMMARY OF PROBLEM Article VI of the Agreement in Implementation of Article IV of the Panama Canal Treaty vests the United States with primary jurisdiction over U.S. citizen civilian employees of the U.S. Forces and the dependents of both military and civilian employees for any offenses punishable by U.S. law committed on Defense sites. The agreement also vests the U.S. with primary jurisdiction over offenses committed by such persons outside Defense sites when the victim of the offense is another member of the Force, The civilian component, or a dependent of either. Section 2102, "Federal Jurisdiction Over New Offenses" of H.R. 5601, which was eliminated by the Subcommittee, provided the necessary statutory authority for the U.S. to exercise this treaty given authority. Except for offenses in which the United States is the victim, there is no current statutory authority for U.S. courts to exercise jurisdiction over U.S. citizens for crimes committed outside the United States. A provision similar to former Section 2102 is essential if the United States is to exercise its full treaty authority in Panama and if the U.S. is to preserve and extend procedural and substantive due process to U.S. citizens serving in Panama. As the Honorable Morey L. Sear identified in his testimony, subsection (b) of the former Section 2102 is not essential. Current legislation amply provides for the venue or forum before which U.S. citizens accused of crimes outside the U.S. may be brought for trail. However, nothing in former Section 2102 provided for the assimilation of a corpus or body of criminal law to be enforced and applied by the U.S. District Court with proper venue and jurisdiction. Federal criminal statutes do not define the multitude of common criminal offenses subject to the jurisdiction of the U.S. courts. Such crimes are assimilated by virtue of 18 U.S.C. 13 (The Assimilated Crimes Act). Ordinarily U.S. courts enforce the criminal laws of the U.S. state or territory within which the offense occurred. In Panama, however, there is no body of law which U.S. courts may assimilate and enforce. Therefore, H.R. 5601 should provide such a body of law. RECOMMENDATIONS 1. That former Subsections 2102(a), (c), and (d) of H.R. 5601 be reinserted. 2. That a new subsection be added providing the "Criminal offenses, not otherwise defined or punishable under Title 18, United States Code, shall be those offenses set forth in the criminal code of the State of Louisiana."

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25 RECOVERY OF CAPITAL FOR PLANT REPLACEMENT, EXPANSION, AND IMPROVEMENTS Section 1602(b) of Public Law 96-70, which prescribes the elements to be included in the toll base, provides in part, that: polls s shall be prescribed at rates calculated to produce revenues to cover as nearly as practicable all costs of maintaining and operating the Panama Canal, together with the facilities and appurtenances related thereto, including unrecovered costs incurred on or after the effective date of this Act, interest, depreciation, payments to the Republic of Panama pursuant to paragraph 5 of Article III and paragraph 4(a) and (b) or Article XIII of the Panama Canal Treaty of 1977, and capital for plant replacement, expansion, and improvements." The Comission has interpreted this provision to mean that tolls shall produce revenuestocover: (1) All costs of operating and maintaining the Canal; and (2) capital for plant replacement, expansion, and improvements. In other words, toll revenues should be sufficient to ensure the Canal operate on a self-sufficient basis, to include financing of its capital program. Under that interpretation, funds generated from the inclusion of depreciation in the toll base are used as the principal source for financing the capital program.l/ To the extent the funds generated from this source are insufficient to cover the capital funding requirements, a capital factor to make up the difference is included in the toll base. For example, the toll rate increase that was implemented on October 1, 1979 included in its base $18 million in depreciation and a capital factor of $7 million for covering a projected $25 million capital program. This method not only ensures the recovery of funds each year sufficient to finance the Canal's capital programs, but is consistent with the provisions of section 1341(e) of Public Law 96-70, covering payments to the Republic of Panama. That section provides, in part, that: l/ It should be recognized that although depreciation is included as a cost in the toll base, it is an expense item not requiring an expenditure of funds or appropriations. Thus, the revenue generated from this item represents a net inflow of cash for the Canal.

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26 "Moreover, no payments may be made to the Republic of Panama under paragraph 4 (c) of Article XIII of the Panama Canal Treaty of 1977 unless unexpended funds are used to pay all costs of operation and maintenance of the canal, including but not limited to (1) operating expenses determined in accordance with generally accepted accounting principles, (2) payments to the Republic of Panama under paragraphs 4(a) and 4(b)of such Article XIII and under paragraph (5) of Article Iii of such Treaty, (3) amounts-in excess -of-depreciation-and amortization-which-are programmedfor -plant replacement, expansion, -and improvements, (4) payments to the Treasury of the United States under section 1603 of this Act, (5) . ." (Bnphasis-added.) This provision was included in Public Law 96-70 to ensure that funds generated by the capital factor would be retained by the Canal and not flow to Panama as profit. From the wording, it is clear that the amount to be programmed for capital in the toll base is the difference between depreciation and the total capital program cost. Under the existing provisions for capital recovery in the tolls formula, the Commission has been able to finance its complete capital program requirements, amounting to some $54.8 million for 1980 and 1981. Section 8 of H.R. 5601 would modify the existing statutory tolls formula in such a way as to be construed to require that the toll base include both the full cost of capital for plant replacement, expansion, and improvements as well as depreciation. Such a requirement would generate recoveries well in ~ excess of the funds needed by the (Ymmission to cover the cost of its capital programs and, by so doing, impose a substantial additional cost burden on the users of the waterway, which would be both unnecessary and unfair, and which could over the longer term, jeopardize the financial viability of the Canal. Of equal importance, the requirement to recover full capital plus depreciation is inconsistent with the sense of Public Law 96-70, as well as certain provisions therein. Some of these points are developed below. Cost impact on toll-rates. The cost impact of section 8, as presently drafted as compared to the practice applied under the existing law, can be illustrated in terms of the Commission's FY 1983 budget, as follows:

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27 Capital Full Factor Capital Concept Concept i(In millions) Recovery from tolls: Capital $ 9.4 $ 29.0 Depreciation -19.6 ) 19.6 Total recovery 29.0 48.6 Funds needed for capital recovery (29.0) (29.0) Overrecovery of costs $ :-0 $ 19.6 From the above, it can be seen that continuation of the capital factor concept would produce cash inflows exactly equal to the funds required to finance a $29 million capital program. However, under the full capital concept required by section 8 of H.R. 5601, the Commission would be required to recover $19.6 million more cash than is actually needed for the capital program or for repaying the Treasury for appropriations received. This treatment would serve to impose an additional 6.8% increase in toll rates over that which will otherwise be needed in FY 1983. Inconsistency -with -sense of -PublicLaw96-70. 'Ibe sense of the Congress in acceptance of the Treaty and passage of the implementing legislation was that the Canal operate at no cost to the U.S. taxpayer. Tnile expressing this sense, nowhere in Public Law 96-70 or elsewhere did it express its intent that the U.S. investment be repaid. Yet, Sec. 1602(b) as revised by section 8, would go a long way toward accomplishing that. In other words, the Canal would be required to generate funds in excess of its needs, in amounts approximating over time the total U.S. equity in the waterway. It is doubtful this was intended. In the first place, the legislation would have clearly spelled out such a requirement. Secondly, it would not have allowed the initial property transfers to be made to Panama without providing for some consideration to be payable by the Commission. Thirdly, to require. repayment through tolls of the U.S. equity in the Canal would be grossly unfair to shipping, who contributed through prior tolls some 36% of it. Profit payment to Panama. If section 8 is, allowed to stand as drafted, without further revision of the Panama Canal Act, the result will be to generate a profit payment to Panama each year. In other words, instead of the overrecovery going to the U.S. Government, it would flow to Panama. This is so because section 1341(e) of P.L. 96-70 precludes payment to Panama under paragraph 4 (c) of Article XIII of the Treaty of "amounts in excess of depreciation and amortization which are programmed for plant replacement, expansion and improvements." '"is provision was included in the public law to ensure that funds generated by the capital factor would be retained by the Canal and not flow to Panama as profit. Unless changed, the inclusion in the toll base of full capital plus cdepteciation would result in an automatic profit payment to Panama equivalent to annual depreciation, since only that capital amount programmed in excess of depreciation could be deducted before payment to Panama. This can be illustrated as follows:

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28 Capital Full Factor Capital Concept Concept (In millions) Recovery from tolls: Capital $ 9.4 $29.0 Depreciation 19.6 19.6 rTotal recovery 29.0 48.6 Less: Allowable deductions for calculating profit payment payment to Panama: Depreciation (19.6) (19.6) Capital in excess of depreciation (9.4) (9.4) Profit payment due Panama $-0+ $19.6 Because of the foregoing reasons, and particularly because of the substantial additional cost burden that would be imposed on shipping, it is recommended that section 8 of H.R. 5601 be modified to allow the Commission to continue its present practice of financing its capital program through a combination of depreciation and a capital factor.

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29 PROPOSED AMENDMENT T0 H.R. 5601 A BILL 10 AMEND THE PANAMA CANAL ACT OF 1979 AND FOR OTHER PURPOSES Sec. 8. Section 1602(b) of the Panama Canal Act of 1979 is amended to read as follows: (b) Tolls shall be prescribed at rates calculated to produce revenues to cover as nearly as practicable all costs of maintaining and operating the Panama Canal, together with the facilities and appurtenances related thereto, including (1) unrecovered costs incurred on or after October 1, 1979, (2) interest, (3) depreciation, (4) payments to the Republic of Panama pursuant to paragraph 5 of Article III and paragraphs 4 (a) and (b) of Article XIII of the Panama Canal Treaty of 1977, (5) additional capital for plant replacement, expansion, and improvements, (6) reimbursements to the Treasury of the United States for costs incurred by other departments and agencies of the United States in providing educational, health, and other services to the Commission to the employees of the Commission and their dependents, and to other categories of persons, in accordance with section 1321 of this act, (7) working capital, and (8) any costs that are incurred in implementing the Piaama Canal Treaty of 1977 and related agreements and that are associated with the maintenance and operation of the Panama Canal. Tolls shall not be prescribed at rates calculated to produce revenues sufficient to cover payments to the Republic of Panama pursuant to paragraph 4 (c) of Article XIII of the Panama Canal Treaty of 1977." Note: Additions and changes are underlined. 97-154 0-82--3

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30 ANALYSIS OF PROPOSED AMENDMENT 'IO SECTION 8 OF H.R. 5601, BASES OF ILLS The proposed amendment would modify section 8 in two ways. First, it would clarify that the Commission is to continue to finance its capital program requirements from funds generated by depreciation and, to the extent needed by inclusion of a capital factor in the toll base. As the section is presently drafted, it could be construed to require that the toll base include both the full cost of capital for plant replacement, expansion, and improvements as-well as depreciation. Such a requirement would generate recoveries well in excess of the funds needed by the Commission to cover the cost of its capital programs and, by so doing, impose an unfair and unnecessary burden on the steamship owner and operators using the Canal. Moreover, such an interpretation could result in a substantial annual profit payment to Fanama, which would be contrary to another provision of law specifically prohibiting toll rates from being set at a level to produce profits that would flow to Panama under the treaty-mandated contingency payment. The Commission's predecessor agency was prohibited by law from including in the toll base a factor for financing capital improvements. As with most business enterprises, the former Canal Company utilized its profits and depreciation to finance its capital programs. In recognition of the fact that the 1977 Treaty requires profits to be paid to Panama, the drafters of Public Law 96-70 included a provision in that law allowing capital to be taken into account in fixing the toll base. Through this provision, the Commission is able to continue to finance part of its capital program through funds generated by depreciation, with the balance derived from the capital factor in the toll base. The proposed modification would make it clear that the Commission has the authority to include capital in the toll base but only to the extent needed to cover the capital financing over and above the funds generated by depreciation. The second modification would allow the Commission to include a factor for working capital requirements in the base for calculating Canal tolls. The present tolls formula in Public Law 96-70 does not provide authority for recovery of this item and, yet, the Canal--like any other business enterprise--is faced with an ever increasing demand for funds to finance inventories and accounts receivable due to inflation. Such funding requirements must be financed through Canal tolls if the Commission is to remain self-sufficient and cover the appropriations drawn for that purpose. Along with such a provision, the bill should also contain a .companion amendment which would insure thatfunds recovered as working capital would not be included as part of the profit payments to Panama called for by the Treaty. This has been proposed-as a new section to H.R. 5601 between sections 6 and 7.

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31 INCLUSION OF WORKING CAPITAL FACTOR IN 'IOLL BASE The second modification to section 8 of H.R. 5601 that we believe is necessary is the inclusion in the toll base of authority to recover working capital requirements of the Commission. Normally, one would not expect an appropriated-fund agency to encounter working capital problems since such needs would be covered by appropriations. In the case of the Commission, however, not only must the appropriations be repaid, but the level of appropriations themselves are dependent on the Canal's capability to produce revenues. In essence, then, the Commission is liken to a commercial enterprise in that it must be able to finance its working capital requirements. In the ultimate analysis, a regular commercial firm must be able to finance working capital needs from profits, although its periodic needs may be met through the sale of stock or borrowing. Since the Commission is, for all practical purposes, precluded from making a profit (by both the tolls formula and the contingent payment to Panama) it will, over the long term, be unable to finance the appropriations needed for this purpose, unless it is authorized to include a factor for working capital in the toll base. At the end of 1981, the Commission had inventories of $40.3 million, orders outstanding for operating supplies and services of $11.1 million, and accounts receivables of $12.7 million. Additional investments in all of these items can be expected over the long term. The dollar requirements for inventories and outstanding orders can be expected to increase with inflation and to meet the needs for additional replacement parts needed for more sophisticated equipment, particularly in the Transit functions for tugboat and towing locomotives. Accounts receivables arising from services provided to other U.S. Government agencies, the Republic of Panama, shipping firms and others can be expected to increase with general inflation and workloads. Assuming an annual rate of inflation of 6%, the Commission will need to expend $3.8 million additional each year to finance the three working capital items above, i.e. inventories, orders outstanding, and accounts receivable. COer the long term, this will impose a significant financial burden on the Commission which it will be unable to meet unless financing is authorized through tolls. A simple example can be used to illustrate how inflation imposes a funding problem for inventories. The example assumes a constant level of inventory with purchases during the year exactly equal to the units of inventory used or sold. 'The only difference is that the replacement stock had to be purchased at a higher price than the year before because of inflation.

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32 Beginning balance, 10,000 units at $1.00 $10,000 Purchase during year, 10,000 units at $1.50 15,000 Total investment in inventory $25,000 Less: Cash received for inventory used during year 10,000 units at $1.00 (10,000) Ending inventory 10,000 units at $1.50 $15;000 As can be seen, although the sale of inventory during the year brought in $10,000 in cash, $15,000 had to be expended to replace the stock at higher prices. The $5,000 differential represents working capital requirements which must be financed from some source. The statutory tolls formula provide the basis for the Canal to operate on a self-sufficient basis. It is complete in that respect except for working capital, which is the important missing link. Along with such a provision, the bill should also contain a companion amendment which would insure that funds recovered as working capital would not be included as part of the profit payments to Panama called for by the Treaty.

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33 PROPOSED AMEND]ENT 'O H.R. 5601 A BILL 'IO AMEND THE PANAMA CANAL ACT OF 1979 AND FOR OTHEP PURPOSES Add a new section between sections 6 and 7, as follows: PAYMEN T S 'IO THE REPUBLIC OF PANAMA Sec. Section 1341(e) of the Panama Canal Act of 1979 is amended by striking out "and (6) any costs of Treaty implementation associated with the maintenance and operation of the Panama Canal." and inserting in lieu thereof (6) amounts, programmed to meet working capital requirements of the Cormission, and (7) any costs of Treaty implementation associated with the maintenance and operation of the Fenama Canal." ANALYSIS OF AMENDMENTS TO H. R. 5601 ADDING A NEW SECTION AMENDING SECTION 1341(e OF THE PANAMA CANAL ACT OF 1979 DEALING WITH PAYMENTS TO THE REPUBLIC OF PANAMA This section would amend section 1341 (e) of the Panama Canal Act of 1979 by adding to the list of costs of operation of the Canal which must be paid before any payment is made to Panama pursuant to Article XIII, paragraph 4(c) of the Panama Canal Treaty of 1977 amounts programmed to meet the Commission's requirements for working capital. This is a companion amendment to the modification made to section 8 of H.R. 5601, which would authorize for inclusion in the toll base a factor for recovery of working capital. This companion provision is necessary to ensure that amounts recovered from tolls for working capital are retained for that purpose, rather than being paid to Panama as profit.

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34 Mr. HUBBARD. Thank you, Mr. Gianelli. Indeed your request that you outlined during your remarks is granted. We will cooperate with you next week. You can present any additional material you wish. We do have a markup on this bill, as you know, scheduled for this time next week. We appreciate your comments, and we will be asking you questions after we hear from the Honorable Dennis P. McAuliffe. Since October 1, 1979, Phil McAuliffe has been the Administrator of the Panama Canal Commission, and October 1, 1979, is when the Panama Canal Treaties went into effect. I have commended him on many occasions for the job he continues to do in this sensitive position, and I have said publicly before, that I am very happy the current administration has seen fit to continue the work of this outstanding gentleman who began his efforts during the previous administration. We are glad to have you and we will hear you now. STATEMENT OF DENNIS P. McAULIFFE Mr. McAULIFFE. Thank you very much. It is a pleasure to participate in this hearing. Last year, fiscal year 1981, was the most successful year in the history of the Panama Canal, measured in business terms. Oceangoing transits totaled almost 14,000, carrying a record cargo of 170 million long tons. We moved one more vessel per day than in 1980, itself a highly successful year. Statistically, that additional vessel was of large beam, requiring more tug and locomotive assistance and other support than the smaller ships. We have begun to see the beneficial effects of the capital improvements, the tugboats, locomotives, and other projects which the Congress approved in 1980. Financially, we are operating at no cost to the U.S. taxpayer. All the costs of operating and maintaining the canal, as well as capital improvements, are being covered by revenues. Particularly noteworthy is the teamwork among our American and Panamanian employees, which is evident every day along the canal. It is healthy, and growing stronger all the time. It is effective. Our transit records show this. And that teamwork provides the framework in which training takes place, where the skilled men and women of tomorrow learn and gain experience in the canal today. All in all, we have improved service to our customers, the steamship firms of the world, and we are dedicated to continue to do so. Thank you very much. Mr. HUBBARD. Thank you, Administrator McAuliffe. Mr. Secretary, what is the cost of the several provisions for employee benefits recommended in your statement? Can you be exact? Mr. GIANELLI. We have a representative from the Department of Defense here, Mr. William Coakley, and with your permission I would like to have him come forward and perhaps he could help us on this one.

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35 Mr. COAKLEY. We will have to furnish that for the record. Mr. GIANELLI. He indicates he does not have that, but he will be glad to furnish it for the record. Mr. HUBBARD. Identify the problems that might arise from the section of the bill limiting delegation of authority by the President and the Secretary of Defense. Mr. GIANELLI. Yes, I would be pleased to do that, Mr. Chairman. As I indicated, we had quite a long discussion with staff on this provision yesterday and the way the system now works is that the delegation comes to me through the Secretary of Defense and the Secretary of the Army. As I understand the changes proposed, it would be necessary for the President to delegate, if, for example, he wanted my office to carry out its present responsibilities, to delegate directly to me specific responsibilities and to bypass the Secretary of Defense and the Secretary of the Army. In addition, it is my understanding that it would be necessary also for the President to delegate directly to the Administrator of the Commission which areas of responsibility he would be charged with carrying out and then both myself, if I were the person designated as chairman, and the Administrator, would be limited by those specific delegations. There would be no need to delegate further, and I think this might create some problems with respect to how the Commission operates. We have been delegating down those things which we think are appropriate and I think this would in effect be very much of a restriction. There is one other provision which came out yesterday, and perhaps if I don't explain it correctly, Mr. Whitman might be able to help me, but it is with respect to a delegation could never be made to a non-U.S. citizen. One of the ways, as I understand the Commission is structured, is that in 1990, the Administrator of the Commission becomes a Panamanian, but until 1990 it is a U.S. citizen. In 1990, the role is shifted and a Panamanian would become the Administrator of the Commission, and as I understand the amendment then, because that person would be a Panamanian, it would be impossible for him to function under the delegation that had been given prior to Mr. McAuliffe and it seems to me for the person who acts as the manager or the Administrator of the Commission, this would present a very difficult situation. So I am concerned about that proposal because of the way I understand it would work, and the main thing that would trouble me is, if it is designed to improve the oversight of the Congress, I am not quite sure that it would actually perform that function, and so what I guess I am concerned about is whether or not the provision as drafted included would accomplish the objective perhaps that the committee had in mind but in addition, that it would present some real difficult problems in connection with the actual administration of the Panama Canal Commission by both the chairman and by the Administrator. Mr. HUBBARD. You have seen House bill H.R. 5601 introduced by Chairman Jones, Mr. Lent, the ranking minority member of our subcommittee, and by myself as chairman of this subcommittee. What amendments are you recommending?

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36 Mr. GIANELLI. Well, two or three things, Mr. Chairman. First of all, with respect to this matter we are now discussing, I think it is our hope that the committee would see that that particular provision was not necessary, that it would not accomplish the desired results and create some problems, so we are hopeful that that particular part would be eliminated. We are asking also that the provision that I alluded to earlier would be added with respect to proxies, and this would be in addition to the present bill. We also suggest that there be some modification of the provision with respect to the tolls formula, so it won't operate in a way we don't want it to operate, and that it won't be duplicatory in nature and cause an unnecessary increase in totals to the shipping industry and result in additional benefits to Panama. Maybe the staff should work together on this, and we should have some sort of a modification of the language to be sure that this does not take place. Then the other changes are largely of concern to the Department of Defense, and probably should be either modifications of the language for clarification or perhaps some additions, to make sure that there is uniformity amongst the other governmental agencies in Panama. Those are the main changes. I would consider them, as I say, somewhat minor in the light of all of the realm of things which we have to consider, but we would urge that the committee give those things special attention, please. Mr. HUBBARD. Thank you very much, and I assume that you will be contacting members of the subcommittee regarding those amendments? Mr. GIANELLI. Yes, and we will continue to work with the staff. Mr. HUBBARD. You were correct earlier when you said all of us, the members of the subcommittee and the staffs, are working in the same direction, although we may see differently on a few issues. Congressman Carney. Mr. CARNEY. Thank you very much. Thank you for appearing today. I have one question on the proxies. Would you assign your proxy to someone else? Mr. GIANELLI. We talked about this yesterday, and we have not provided for any absence of the chairman. We have not assumed that that would be a major problem. Our primary problem is with the public members. I haven't given any consideration to that part. If you provide some provisions for proxy, we should provide for the point that you are raising. Mr. CARNEY. How do we cover the congressional intent that we set up with the Board by having members from the various sectors, the public sector that are impacted by what would happen in the Panama Canal, people from the shipping industries, how do we cover them by proxies when you are down there? Mr. GIANELLI. At the present time, we are not able to have a meeting if all of those folks aren't present and they have been present, but the point I was trying to make yesterday with the staff is that, on occasion, these are busy people, and it requires almost a

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37 week of their time to spend with Commission business each time we have a meeting. One of the problems we have had is that one of the persons may have to leave early or something comes up in the conduct of private business, so as a result of that we have been unable to finish the Commission's business. Mr. CARNEY. Perhaps the way that we can solve that problem and still carry out the intent of this Congress is to assign people to the Commission who have the time and have the willingness to serve their country. Presently the Commission is meeting four times a year. It seems strange that we cannot get four people that can dedicate that type of time to carrying out this task. Mr. GIANELLI. Wait a minute, let me comment on that. I think that the people who are being considered for the Commission, particularly the public members, are people who are doing it without any charge, free of charge. They get no salary for it except their travel expenses. They are busy people, and the shipping people are busy people. Even though they might schedule four times a year several days, perhaps something would come up and require their presence somewhere else in the conduct of their personal business. We have been very fortunate thus far, but the thing I am concerned about is that we run into a situation where one of them has to leave and then the Commission can't conduct any further business. Let me just say, I want to be sure that you are clear on this. I am not trying to circumvent any thought at all that those people will not have full participation with the Commission activities. That is not my intent, and if the committee would like to put whatever strings it wants on our ability to use the proxy, that is perfectly satisfactory to me. I just hate to see us put in the position where we have all of the members of the Commission present to conduct business and some one of the members of the United States has to leave for some unexpected reason and we are not able to finish the Commission's business and I would hope you would see some way to give us, limit it any way you want in terms of the use of proxies, but give us a little flexibility to take care of that kind of problem. Mr. CARNEY. We have limited you in the use of proxies by not allowing you to use proxies and that was the intent of the subcommittee, the full committee and the full Congress of the United States, and I feel that it still is the intent and that is why it is not written into the bill right now by the authors. I am not a cosponsor of the bill, and you are aware of that, I am sure, but this is of concern to the Members of Congress. We are talking about four people. We can't get four people to stay together at a meeting. It seems incredible to me. Weighing the intent of the Congress against the inconvenience of our people not being able to stay at a meeting, it just does not fall out the way you would like it to. Mr. GIANELLI. Supposing you have a meeting in Panama which lasts very often 4 days and suddenly one of the, after everybody has assembled after the second day, one of the members becomes

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38 ill or he has to go somewhere, it seems to me not to be a useful, or to use the time efficiently of all of the other members of the Commission who are down there not to be able to conduct or finish the Commission's business and we are not trying to avoid participation by those people. All I am asking for is what I consider to be a little reasonable flexibility in the conduct of our business and you can tie us any way you want, but it seems to me, to require every member to be present all of the time is a very difficult burden for us to bear. Mr. CARNEY. What about establishing a quorum? Mr. GIANELLI. What about it? Mr. CARNEY. If you had proxies, would you use the proxies in the absence of someone who was present and had to leave prematurely or use the proxies to establish a quorum? Mr. GIANELLI. The situation I presented to you, we would use a proxy to establish the quorum. Mr. CARNEY. This committee is not allowed to use a proxy to establish a quorum, and no committee in the Congress can use a proxy to establish a quorum. Why should you be able to? Mr. GIANELLI. We have to have every member of the U.S. delegation present before we conduct any business. You don't have to have every member present to conduct business. If you can figure out some other way to try and help us out on the problem that I have described to you, we would really appreciate it, keeping in mind what the Congress had in mind in wanting to have all those people present and all I am trying to do is to appeal to you for a little reasonableness in allowing us to conduct our business in a situation where we might have an emergency. Mr. CARNEY. All I am trying to do is to try to carry out the intent of the Congress. If you could address the question of your proxy, as to whether you would give your proxy to another member that might help a little bit, before we go to markup. Mr. GIANELLI. I will indicate that the chairman would not be able to give his proxy to anyone, if that is your desire. Mr. CARNEY. The totals, the chairman has stated that he would like, and so would I, for your folks to sit down before next Friday with our staff. Mr. GIANELLI. We will have a supplemental paper to you which tries to explain how we see this thing working and we would be glad to have further dialog on it. Mr. CARNEY. I am going down step by step the things you brought out in your testimony, the educational and travel compensation. Are we talking about civilian employees and if we are, what agencies are these civilian employees involved with? Mr. GIANELL1. Largely the civilian employees of the Department of Defense and we are suggesting that they be accorded the same privileges with respect to this matter, travel benefits, as are the civilian employees of the Panama Canal Commission and those employees in other parts of the world. Mr. Coakley can help us out here, but it is my understanding that this is necessary in order to provide equality for the Department of Defense civilians who are in the area that would be similar

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39 to benefits provided to the Panama Canal Commission civilian members. Mr. CARNEY. The DOD civilians, are they carrying out a mission other than the operation of the Panama Canal? Mr. GIANELLI. Oh, yes, sir. Mr. CARNEY. Are they carrying out missions having to do with the Panama Canal directly? Mr. GIANELLI. Not directly. Mr. CARNEY. We are supporting the military activity? Mr. GIANELLI. The operation of the hospitals and some of the schools and things of that nature. Mr. CARNEY. Those facilities are used by military personnel from the Southern Command, is that right? Mr. GIANELL1. Mr. Coakley is the Department of Defense representative who is familiar with some of these things. Mr. COAKLEY. We have in Panama a number of United States citizens working for the Department of Defense. What we are proposing is that these employees be able to send their dependents back to the United States for college, like Department of Defense employees anywhere else in the world and also like the Panama Canal Commission employees living in Panama. Mr. CARNEY. Why would you need special legislation to do that? If they were serving a military need, if they were transferred to Germany, they would get that benefit automatically. Mr. COAKLEY. Yes, sir, but there is a provision in Public Law 9670 which specifically says that employees working in Panama will not get any of the benefits provided by chapter 59 of title 5. That particular education/travel benefit comes from chapter 59 of title 5, and so we need to have specific legislation to continue to authorize this benefit. Mr. CARNEY. OK, what I am trying to get clear in my mind now is the roles of the people we are talking about. Are they supporting the military responsibility? Mr. COAKLEY. Yes. Mr. CARNEY. Are they supporting, in other words, do you have any DOD employees who might be working in a canal function, whether they be tugboat captains or whether they be the locomotive drivers or anything else? Mr. COAKLEY. No, sir, these are strictly working for the DOD functions. In the schools the teachers belong to the Department of Defense. In addition to teaching students of DOD people, they teach the students of the employees of the Panama Canal Commission, but that is as close as I can come to what you are driving at. Mr. CARNEY. That would be understandable economies. It would be senseless to set up two systems for education. Mr. COAKLEY. I guess to some extent the hospitals, the U.S. military hospitals that we are operating there also provide medical care to PCC employees, and also the employees in the commissaries, and the PX's. Mr. CARNEY. That would make a great deal of sense. Do you have any specific language that you would like to see put in the bill to cover this aspect?

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40 Mr. COAKLEY. Yes, sir, and I believe we gave a copy of that to your staffs yesterday. Mr. CARNEY. I am sure we will probably consider the amendment in the markup. Thank you. If I may go on, Mr. Gianelli, I have a problem with the authority, quite honestly, and my question is, I thought that the public law laid out precisely what the intent of the Congress was, and frankly, I think our representatives in Panama have not carried out that and that is why it is necessary for us to do this again in this particular piece of legislation. My question is, why didn't you follow the law in the first place? Mr. GIANELLI. Let me ask-I guess I assumed we are following the law and perhaps you could help us by telling us where we are not following the law and we would be glad to address those questions. Mr. CARNEY. After carefully considering the legislation, and I took part in the creation of the legislation, it was our intention that the President would delegate the authority to one person, whether it be you, or Lou Mazzerot from Cincinnati, or the Secretary of Defense, and that one person would carry out that delegated authority the President had the right to delegate to him. It went from the President to the Secretary of Defense, to the Secretary of the Army, to the Assistant Secretary for Civil Works, which, of course, is yourself. It went over, I think perhaps not intentionally, but in your other capacity as the Chairman of the Board I think you started to delegate a lot of that authority to the Administrator and I have a problem with the Administrator having that authority, because the Deputy Administrator, who is a very fine gentleman, has one drawback, he is not a citizen of the United States. I can see in that chain that we can just abrogate our responsibility. I am concerned about that, and that is why it was the intention of the authors of the bill to clearly define what the Congress intentions are once more. Mr. GIANELLI. Let me comment that we are certainly trying to comply with the mandates of the Congress, Mr. Carney, and if we are not, you know, I think it would be helpful if you could tell us exactly where we are not doing so. But in addition, I think we are trying to manage a system here as efficiently and effectively as we can. It seems the provision of delegation is important to carry out at the appropriate level those things which should be carried out, and as I say, we just feel that the proposal which is being suggested would really make it difficult to manage the system, and that is why we are suggesting that we not be tied as tight as you indicate. Mr. CARNEY. I think the responsibility is that you have to carry out the laws of the land and the intentions of the Congress and not to worry about how it is best or easiest to administer the Panama Canal. We are running into a problem in that area. Mr. GIANELLI. Help us by saying where we are not carrying out-Mr. CARNEY. We are helping you and you have a bill that clearly defines it and you object to it.

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41 I am just saying, I am just trying to tell you why we have this bill and why we think it is necessary. I, personally, think that you have not carried out the intent of the Congress as it was written in Public Law 96-70, and we are doing it again. Counsel reminds me that this was set in motion before you came on board, and I should make that part of the public record, and that is, of course, true. Again, when I went down the chain of command-maybe I should say chain of authority-I would assume from your opposition to section 1 where we are trying to clear that up, that you believe foreign nationals should exercise the authority granted by Congress to the President? Mr. GIANELLI. I guess I will have to go back and educate myself a little bit. I thought the law was set up to provide for a transition from the United States to Panama in terms of certainly the administration of the Commission. Mr. CARNEY. There are very clear timeframes on that. Mr. GIANELLI. Correct, and I thought that the intent was, and maybe I am incorrect, I thought the intent was until 1990, the administrator would be a U.S. citizen. Mr. CARNEY. Correct. Mr. GIANELLI. I thought the intent was that in 1990 it would pass over to a Panamanian, looking toward whatever transition that the Congress had in mind in the year 2000, and it would seem to me pretty difficult to-if you are going to carry out that thought of having a transition-of saying to the person who is administering, who in effect is the manager of the system down there, that we are not going to delegate you any authority at all, because you are not a U.S. citizen. I don't quite understand the consistency of that with the intent to gradually transition the process. Mr. CARNEY. We transitioned the process of the Administrator in 1990 in the makeup of the Commission. Mr. GIANELLI. Excuse me, the Commission Board stays 5-4 until the year 2000, so the Commission will still be in-excuse me. Mr. CARNEY. We must operate the canal until the year 2000, and that is why we must have it clarified, because as it stands now, you have delegated an enormous amount of authority to the gentleman to your left. That gentleman, or that office that he holds, in the year 1990 will be held by a Panamanian, and that gives us grave concern. The bill was written that the Commission-five Americans and four Panamanians-would be intact until the year 2000. Mr. GIANELLI. Could I reflect how I would see this? The policy delegations, it seems to me, you still will have United States with its members, the majority members, until the year 2000. So, from a policy standpoint, it is very clear that the United States would control from the standpoint of policy. The Administrator is the fellow that manages the system on the site and it seems to me that whoever it is that is administering has to have some delegations if he is going to be a good manager, from an operational standpoint. In other words, it does not seem to me that the chairman can go down and operate the system. The person

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42 that is down there has to operate the system and be the manager of it, and he has to have certain delegations, and this is what I understand would not happen under the changes being proposed here, that we would not-for instance, a Panamanian would not have any managerial delegations and would have a very difficult time managing the system. Mr. CARNEY. It is obvious we disagree and you are talking about changes. As far as I am concerned, they are not changes. We are just trying to clarify the congressional intent, since it has not been carried out. The part of the bill-section 10-which has to do with courts and jurisdiction of law, do you have any objection to that part of the bill? Mr. GIANELLI. No; not with respect to the courts, Mr. Carney. We have no objection at all. We feel that there is some urgency to those provisions, but we certainly have no objection. Mr. CARNEY. There will be witnesses who will say there is no necessity for that. Could you address yourself to that? Mr. GIANELLI. I think, probably, someone coming after me who is familiar with the court system, can, probably, comment on that perhaps better than I can, and if you don't mind-Mr. CARNEY. I can fully understand. OK, and then you would want one other part of the bill changed, and that is the holiday schedule? Mr. GIANELLI. Yes. Mr. COAKLEY. At the present time in Panama, all the employees working there under the current Panamanian code get Good Friday and Panamanian Independence Day off as holidays. With the Panama Canal Code going out of existence, some action needs to be taken to continue these holidays for the employees down there. Now, in Mr. Jones' bill, he has provided for the continuation of those holidays for employees of the Panama Canal Commission. Our amendment says, let's also provide the same holidays for every employee down there, not just for the Panama Canal Commission Employees. And it is similar to the amendment concerning education and travel. You have seen fit to cover half the people. We are asking you to cover everybody. Mr. CARNEY. Would that cover Commission employees who are in the United States? Mr. COAKLEY. No. Mr. CARNEY. Thank you very much for your testimony. No further questions, Mr. Chairman. Mr. HUBBARD. Thank you, Congressman Carney. Again, we appreciate your being here. You will be in contact with the subcommittee members and the staff in the coming week. You were kindly diplomatic not to mention to Congressman Carney and me during the exchange about quorums and proxies that, obviously, congressional subcommittees and committee can have hearings without a quorum being present. Mr. GIANELLI. Yes, sir; I have had considerable dialogue on that one, sir.

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43 Mr. HUBBARD. Thank you, and we appreciate your and Phil McAuliffe's being here. Mr. GIANELLI. Thank you very much, Mr. Chairman, and Mr. Carney. Mr. HUBBARD. Next, we will call the Honorable Morey Sear, U.S. district judge in the eastern district of Louisiana, appointed on May 7, 1976, a graduate of Tulane University. We appreciate your being with us and I know Mr. Gianelli and the Administrator appreciate your allowing them to go first. STATEMENT OF MOREY SEAR, U.S. DISTRICT COURT JUDGE, EASTERN DISTRICT OF LOUISIANA Judge SEAR. Thank you, Mr. Chairman. I am delighted to have the opportunity to be here this morning, and certainly feel privileged to have had the opportunity to serve in Panama, at least since the beginning of the transition. I share with you your admiration for Mr. McAuliffe. I have had the opportunity to work very closely with him, and he and members of his staff have been most cooperative with us in the court system. I can't resist the opportunity, Mr. Chairman, to point out the fact that since 1977, with the exception of a short period of some 8 months, the District of the Canal Zone has been without a permanent judge assigned to it, and the judges of the fifth circuit of the United States have served that court on a rotating basis until I took charge of the district on July 1, 1979. We have liquidated the court's docket in accordance with the mandate of the treaty, and we presently have on that docket only four cases, all of which are probate, all of which will be terminated by March 31, 1982. We are proud to report to you, Mr. Chairman and Mr. Carney, that we will not have any pending civil cases at the time the transition ends. Obviously, it is impossible for us to predict whether or not there will be any criminal cases left in Panama on March 31, since our criminal jurisdiction continues through that date. There is, as I have presented in my written statement, a mechanism already in place for disposition of any pending criminal case that may be pending at the end of the transition. There is in addition, we believe, a statutory provision to take care of any case that falls within the Agreement on Implementation of Article 3 of the Panama Canal Treaty, so that we find no necessity for either the provision that would provide for disposition of cases pending at the end of the transition or for the trial of any case that may occur following transition, falling into the category in which the Republic of Panama would be asked to waive its jurisdiction in the eastern district of Louisiana. I believe that I have set forth in my statement the basis upon which I make those statements. I, of course, would be happy to answer any questions that you might have with regard to them. [The Sear statement follows:]

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44 STATEMENT OF HON. MOREY L. SEAR, U.S. DISTRICT JUDGE Mr. Chairman: I have been privileged to serve as judge in charge of the district of the Canal Zone since July 1, 1979, three months prior to the October 1, 1979 entry in force of the Panama Canal Treaty of 1977. I appear today in behalf of the Judicial Conference of the United States, and I will be happy to answer any questions you may have concerning the operation of the United States court in the Republic of Panama. Article XI, Section 6 of the Treaty of 1977 provided a 30-month transition beginning October 1, 1979, and ending March 31, 1982, during which the United States court in the Republic of Panama retained full jurisdiction to dispose of the 712 civil and 94 criminal cases then pending. The Treaty also provided that the United States courts would retain primary criminal jurisdiction during the transition over United States citizen employees of the Panama Canal Commission and their dependents, and members of the United States Armed Forces and civilian component and their dependents. In the Agreement and Implementation of the 1977 Treaty, the Government of the Republic of Panama agreed that following the transition it would give favorable consideration to requests for waiver of its criminal jurisdiction over United States citizens for offenses arising out of their official duties and for offenses solely against the property or security of the United States committed in Canal operating or housing areas. Title II of the Panama Canal Act of 1979 provided for the exercise of the Court's jurisdiction during the transition, but made no provision for disposition of cases still pending at the end of the transition period or for venue in cases in which the Republic of Panama waived its criminal jurisdiction. Section 10 of the Bill to Amend the Panama Canal Act of 1979 is intended to provide venue in both situations. Section 2101 of the Bill to Amend provides for disposition of all pending civil and criminal cases in the Eastern District of Louisiana. We are pleased to report that there will be no civil cases pending at the end of the transition and that there are presently no criminal cases pending in the district. Few criminal cases have been filed against United States citizens during the transition but the criminal jurisdiction of the United States continues through March 31, 1982 and it is therefore impossible to predict whether there will be any criminal cases pending at the time the Court closes. However, to provide for those cases, the parties to the Treaty agreed in Article XI, Section 7 to enter into agreements for their disposition by an exchange of notes. We believe the ends of justice are best served and substantial economies effected through use of the existing Treaty mechanism. Under that procedure, the offender would be tried in the United States court at the place where the offense is alleged to have occurred; the jury would be selected from a panel of United States citizen residents of that place already qualified under the Jury Selection and Service Act of 1968; trial in the Republic of Panama is more likely to assure the attendance of nonUnited States citizen witnesses who cannot be compelled to attend; and the expense of transportation, subsistence and security of personnel and witnesses, as well as the processing of documentation of aliens would be unnecessary. We estimate that any request for extension of jurisdiction that might be necessary would not exceed 60 days. While there is no need to provide for pending civil cases, we do feel that there is a need to provide better access to the Court's records following the closing of the Court and the removal of its records for storage. The District of the Canal Zone is a court of general jurisdiction and its decrees included separation and divorce; maintenance and support for children; alimony; adoption and change of name. Provisions should be made for their ready access and certification to meet the needs of persons affected by the Court's decrees. Section 2102 of the Bill to Amend provides venue specifically in the Eastern District of Louisiana for criminal cases arising subsequent to the transition in wich the Republic of Panama waives jurisdiction in favor of the United States. While at first blush this Section appears to raise constitutional questions encompassed by the Fifth and Sixth Amendments and Article III Section 2, since the First Congress there has been a similar provision in our law for trial of United States citizens for crimes committed outside of the United States. 1 Stat. 113-114. With only slight modification, this provision is embodied in Section 3238 of our Criminal Code, laying venue for offenses committed outside any state or district "in the district in which the offender . is arrested or first brought" or in the district of the last known residence of the offender and, if no such address is known, in the District of Columbia. 18 U.S.C. 3238. The Supreme Court has not yet determined how the due proc

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45 ess or compulsory process clauses of the Fifth and Sixth Amendments might affect such trials, but it has established that at least the venue provision of Section 3238 passes constitutional muster. Reid v. Covert, 354 U.S. 1, 77 Sup. Ct. 1222 (1957). Section 3238 provides the Government more flexibility in determining where to bring prosecution and makes the amendment proposed by this Bill unnecessary. There is no nexus between the Eastern District of Louisiana and a crime committed within the geographical boundary of the Republic of Panama, and if the Government chooses to bring an offender arrested outside of the United States first to the Eastern District of Louisiana, it may do so under the existing statute. It could also take him to any other district or, if he is arrested in the United States, it need not take him any place at all. Mr. HUBBARD. Indeed, your full statement is included in the record and we appreciate your comments. I assume that the comment at the top of page 3 of your statement, quote "Existing Treaty Mechanism" unquote, refers to an exchange of notes by the continued exercise of jurisdiction by the U.S. District Court for the Canal Zone. Judge SEAR. Yes, sir, and obviously if the two governments were not willing to exchange notes, then certainly the Republic of Panama would not be willing to waive the jurisdiction in any future case. So it would seem if we provide for one, they just don't seem to follow if the governments are going to cooperate, that you would need either. Mr. HUBBARD. What type of provision would be appropriate to provide for better access to the court records as recommended at the bottom of page 3 of your statement? Judge SEAR. I believe that if the records of the court were transferred to the clerk of the court of the eastern district of Louisiana, that he could perform any service required. He would know and understand the significance of the legal documents and the records in his possession and he could certify or verify any of them. We are close enough to Panama that we can post them quickly and take care of anything that needs to be done in that manner. We have made a microfilm of all of our records that are presently in Panama. We are leaving that microfilm behind, so we are leaving access to certain of our documents and certain of our indices. We are leaving that with Mr. McAuliffe and his staff. He is going to provide somebody to be able to find or locate any document that anyone might want, but if we physically had the documents in Louisiana, we would be better able to take care of them. We have no space to provide for these records now. The Commission does maintain offices in New Orleans within the eastern district of Louisiana, a short distance from the courthouse, and it would provide no problem for us to operate on that basis, but I would be happy to work with the staff in working out whatever language we could to provide for these people. They ought to have access to records. There are vital statistics there. There are adoption records, name changes, divorces, alimony, and maintenance and support. These are all important to their daily lives, and we ought to make these records fully accessible to them. Mr. HUBBARD. Congressman Carney. Mr. CARNEY. Could you establish duel records here and there? Judge SEAR. I have had microfilms made of every document signed by a judge that are still in Panama. A lot of our records are already in storage in Maryland. We are going to leave that micro97-154 0-82--4

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46 film and I would be happy to have the Commission put in my office telephone copies, so that they could transmit the document to me, I could certify it and send it back to them. We could work out a number of mechanisms to accommodate these folks. I do not want to see them without their records or having to wait 30 days or 6 weeks in order to be able to find it, and then maybe even get the wrong record. Mr. CARNEY. As the bill is written pertaining to the area of responsibility that you are giving testimony on, you seem to feel it is not necessary, but if it is not necessary in your mind, by leaving it in the bill does it do anything to complicate matters. Judge SEAR. That won't disturb me at all. We don't need it. We have done our work and finished what you have assigned us to do, and we are ready to leave. Mr. CARNEY. Certainly we are very pleased with the work that you have done in Panama, and we are thankful for the work that you have done there, and I suspect as long as you don't have any objection to leaving it in, and the administration would like it, and the Congress seems to, the authors certainly like it in, we might as well leave it in. Thank you very much for your testimony. I congratulate you for the job that you have done. Mr. HUBBARD. Thank you very much. Mr. CARNEY. The judge has carried out the mandates of the Congress. Mr. HUBBARD. This is off the record. [Discussion off the record.] Mr. HUBBARD. Thank you again for being with us. Next, we have former Congressman Bob Bauman. It is good to have you with us again, and we appreciate your giving your time to present testimony here at our subcommittee. As most of the people in this room know, for three terms Congressman Bauman was a member of this full committee and subcommittee, and was the ranking minority member of our subcommittee in the last Congress. We are glad to see you, and we will hear your testimony now. STATEMENT OF ROBERT BAUMAN, FORMER MEMBER OF THE HOUSE OF REPRESENTATIVES FROM THE STATE OF MARYLAND Mr. BAUMAN. My name is Robert Bauman of Easton, Md., I am very pleased to be asked to appear before you again today. When I received your letter on February 9 inviting me to appear, Mr. Chairman, I noticed you had underlined the words "best wishes," and I appreciate that. I am sure there was nothing political meant by that. I think you already have permission to place my complete statement in the record, and I will make a few comments on the legislation before you. Mr. HUBBARD. Yes, the complete statement is included in the record. Thank you. Mr. BAUMAN. This may be a very historic occasion in the sense that everyone in the United States who cares about the Panama Canal is in one room this morning. There was a time when millions

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47 cheered or booed over the issue, in the recent memory of most of the members of your committee and myself. I welcome the chance to appear this morning, because I think that there are some serious problems, some of which have been addressed in previous testimony, most of which have been completely ignored, and I will limit my comments to various portions of the bill, but I would suggest to you that it is a welcome development, in my view, that the discussion this morning revolves around your draft legislation as introduced, as opposed to the draft legislation submitted on October 5, 1981, by Assistant Secretary of the Army Gianelli. Certainly I would hope that your committee would not center its discussion on the draft submitted in August 1981 by Panamanian members of the Panama Canal Commission. Both of those drafts are in many respects at variance with the Panama Canal treaties themselves, and at variance with the intent of the Congress, as Mr. Carney mentioned this morning. It is my firm belief that the philosophy which was embodied in Public Law 96-70 has to be upheld by this Congress, although I don't mean that you should not make appropriate changes in the law as may be dictated by the experience gained since the United States relinquished its sovereignty over the canal on October 1, 1979. It might be well at this point simply to recall for the record the specific mandate that you, as a Representative from Kentucky, and the gentleman from New York and others, have regarding any legislation governing the Panama Canal. Paragraph 1 of article 3 of the 1977 treaty grants the United States: The right to manage, operate, and maintain the Panama Canal. Paragraph 3 of the article provides that the United States will: In accordance with the terms of this treaty and the United States law, carry out the responsibilities by the means of a United States Government agency called the Panama Canal Commission, which shall be constituted by and in conformity with the laws of the United States of America. There it is. Now, there were two parties to these treaties, one being the Republic of Panama, and the other the United States. It was provided that Congress, of which this committee is obviously a part, carry out the mandate of these treaties. I would hope that any amendment to those laws would not be inconsistent with the intention of the law that is now on the books. It might be profitable for those who were not here in an executive capacity at the time Public Law 96-70 was passed to go back and familiarize themselves with the debates on that measure in Congress. I am sure the Secretary has more than enough to do, especially since he seems to be making mistakes on public works projects in Kentucky, or even on Long Island. But quite frankly, the frame of historic reference in which your committee operates is apparently somewhat different than his. It is true that U.S. control of the canal to the year 200 is not exclusive by any means. It is a shared control, and your committee must take the views and sensibilities of the Panamanian Government into account. But we cannot ignore the fact-and it should bear on your deliberations when you markup, particularly as they

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48 pertain to section 1 of the bill dealing with the delegation of authority-that almost from the date of effectiveness of the treaties, these treaties have been distorted and ignored by the Panamanian Government. This began with the famous letter that President Royo sent to President Carter in January 1980, followed by a series of continuing attacks; and concluding with the extraordinary speech last September by President Royo at the United Nations. Most recently the Deputy Administrator of the Canal, Fernando Manfredo, said he was speaking for President Royo in saying that the Government of Panama does not accept the terms of the treaty which gave the control of the canal to the U.S. Congress and the Government of the United States. Rather, the Panamanians have a fundamentally different view of what the canal supervisory board should be. Mr. Manfredo spelled out that difference in his statement, and you perhaps have read his remarks. It was only the latest of a series of definitive statements by the Government of Panama of its view of its rights under the treaty. It was interesting, Mr. Manfredo went on to say, that one of the reasons that they take a differing view is that the Spanish and English language text of the treaties do not coincide, a point that was made at the time of the treaty deliberations by many of us, a point that was swept aside by the State Department officials, who said, "Well, that was just our misunderstanding of the Spanish." Here you have the crux of the problem of the United States-Panamanian relations today. Much of this contention arises from this basic policy disagreement, and yet, I heard almost nothing said about it this morning. You have to bear that United States-Panamanian disagreement in mind. As one who is interested in seeing the successful operation of this international waterway, it is a sense of sadness to me that the officials of President Reagan's administration directly charged with formulating and administering policy in this area refuse to recognize or address these fundamental differences. It disturbs me also, and I have to be frank about it, that there is a continued presence in almost every position in the State and the Defense Department and in the Panama Canal Commission of key civilian and military personnel who helped to negotiate, write and support the Panama Canal treaties. That is not to say that they cannot shift gears and follow the Reagan administration policy, but I have the distinct impression that a small group of people is making policies without the understanding or knowledge of the officials at the White House. It is apparently the feeling of the administration that Panama is only a minor irritant compared to the political and social unrest in the Central American region. But I don't think you can ignore Panama, because the potential for disaster there is clearly foreseeable. The history of Central America in the last 5 or 6 years shows that the Government of Panama has played a key role in aiding and abetting the revolutionary movements that have already overthrown the Government of Nicaragua and are presently threatening the Governments of El Salvador, Guatemala, Honduras and other nations. Even as recently as a few weeks ago, the

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49 Wall Street Journal addressed the question of Cuban guerrillas training in the Republic of Panama. The Government of Colombia was subjected to an attack against its Government launched from Panamanian soil. These things will not go away. You have access to the classified briefings, and I do not, but anyone who reads the English language translations of Latin American news dispatches on a daily basis knows what is happening in the Central American region. In the treaties, Panama and the United States solomnly agreed that each nation would conduct its affairs so as not to threaten the operation and the access of shipping through the canal. As I said, these treaties give the U.S. President and the Secretary of Defense the power and the right to operate the canal for the next 18 years. So, I am not even sure, Mr. Chairman-and maybe you would want to make it the subject of a separate inquiry-whether at any time since the Royo letter of January 1980 and the United Nations speech of last September, the U.S. Government has made any response to these extraordinary claims that have been made against us. I am not aware of any such response. I have been told that there was a classified policy position adopted last summer by officials of the administration. It is not public. I don't see why we should not be allowed as citizens to know what is the policy that governs the canal. A lot of the discussion this morning was on policy and who administers it. The public has never been told if there is such a basic policy and what it entails. I especially applaud section 1 of this bill, because it makes clear what we thought was already established: that the role of the President and the Secretary of Defense as officers of the United States is to serve as the primary officials responsible for, and having powers over, the Panama Canal. I agree that the repeated and successive delegation of those powers has led to a situation in which a few people are administering what amounts to their own private versions of Panama Canal policy without the sanction of anyone. It is perhaps in contravention of the law. I do have some concern about section 5 of your bill, which repeals a requirement that the Comptroller General identify all of the direct and indirect costs of the operations of these treaties. I know it must be difficult to identify the indirect costs, but you probably remember, as I do, the insistent assurances given by President Carter, Secretary Vance, and others that these treaties would not cost the American taxpayers one additional dollar. They are actually costing us a great deal more, as witness the $100 million or more in general revenues that were appropriated in 1980 and payments that have not been made by the Canal Commission to the U.S. Treasury. I understand their need for some financial flexibility, but I don't think we will ever know what the actual costs of these treaties are because I think it was essentially a bad political and economic bargain from the viewpoint of the United States. I, certainly, agree with the section 8 requirement that all the costs of maintaining and operating the Panama Canal are to be included as the basis of calculating the tolls to be charged. The need for this expanded toll definition further supports the claim, as I see it, that the canal be required to finance its own operations.

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50 Let me add that I have some real concerns about the trial booking system. I have a concern whether the supervisory board even has the authority to impose such a booking system, although it apparently has assumed that authority. It has been carried out in the form of executive orders. As I understand it, under Public Law 9670 there was a prescribed system for toll increases, and that has not been met at all, if indeed the booking system is in fact an increase in the tolls. So. I would hope some action by your committee dealing with this section of your bill might possibly deal with the booking system. It has been claimed by some shippers that the booking system is a highly discriminatory system, while others feel it is beneficial to them. I wanted to call the Port of Baltimore Authority about this issue, and did not, but I am sure that ports all over the United States will be looking at it. Last, Mr. Chairman, let me commend you and the committee for repeatedly acting to protect the financial integrity of the canal and its operations, in spite of the apparently deliberate failure on the part of someone in the leadership of the Congress, or perhaps the administration, to secure the passage of authorizating legislation for the past 3 years. You have been personally successful, Mr. Chairman, in amending the transportation appropriation bill to include the appropriate restrictions on spending, as the authors of this law suggested were necessary. I also applaud you for your refusal to consider changing the form of the canal governmental structure from an appropriated fund agency back to corporate form. I am pleased to hear that change is not the administration's position at this time, although looking below the surface, there may be the hope by some that the day will come when the Congress will be agreeable to changing the form of the canal government. Your support, Mr. Chairman, and your committee's, for the principle that the Canal Commission should not be allowed to live beyond its means by incurring obligations in advance of receipts, is also something that the American taxpayers should thank you for. I thank you for the occasion to be able to testify this morning. [The Bauman statement follows:] STATEMENT OF ROBERT E. BAUMAN, FORMER MEMBER OF CONGRESS FROM THE STATE OF MARYLAND Mr. Chairman, and members of the subcommittee, thank you for your invitation to appear again to comment on legislation affecting the operation and future of the Panama Canal. As you requested, I have studied the draft bill, dated Feb. 9, 1982, and I can give this legislation my support. I offer that approval as one who has serious questions about the manner in which the Canal is being operated at this time, and also as one who takes some pride of authorship in Public Law 96-70, which sought to carry out America's obligations under the 1977 treaties with Panama. While I have some comments on various parts of the proposed bill, I believed it to be much more important to encourage your committee and the Congress to reject other proposed legislation regarding the Canal. On this rejection list I would most definitely include the draft bill submitted to Congress last October 5, 1981 by Asst. Secretary Gianelli, as well as a draft proposed in August, 1981, by the Panamanian members of the Panama Canal Commission. The central theme of P.L. 96-70 was to make sure that the Panama Canal continued to be operated efficiently under the control of the United States until the end of this century. As part of that control the Congress is to have a major role in making

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51 policy and deciding the budgetary posture of the Canal. That authority stems directly from the terms of the 1977 treaties and any proposed legislation which derogates the rights accorded the United States should be rejected. I do not oppose reasonable changes in the existing law which are necessary because of changed circumstances or which are suggested by the practical experience gained since the United States surrendered its sovereignty over the Canal on October 1, 1979. To be sure, the control of the Canal is a shared responsibility together with the Republic of Panama, and their views and sensibilities should be respected by the government of the United States and by the Congress. But we would be blind to ignore the fact that almost from the effective date of the treaties those documents have been ignored and distorted by representatives of the government of Panama. In what has now become a persistent theme, the Panamanian attack on the treaties began with the infamous letter from President Aristide Royo to President Carter early in 1980, a document which has never been satisfactorily answered by our government, if at all. While the American press has ignored the drum fire of personal and political agitation against U.S. officials in the Canal area which occurs almost on a daily basis, they also saw fit to pass over President Royo's extraordinary attack which occurred at the United Nations last September. On January 25, 1982, in an honest statement of his government's position, and speaking for President Royo, Deputy Canal Administrator Manfredo made clear the Panamanian view once again. The Republic of Panama simply does not accept the terms of the treaties which gave ultimate control of the Canal until the year 2000 to the United States, including you as Members of Congress. Rather they claim that the supervisory board (now dubbed "the Board of Directors") is to be the ultimate authority. In that fundamental difference of viewpoint can be found the crux of the problem which dominates U.S.-Panamanian relations as they pertain to the operation of the Canal. It allows Panama to reject the authority of the U.S. Congress, the President and, in effect, the terms of the treaties as well. It is in this context that I am pleased to respond to your request for comments on your proposed bill. I commend you, Mr. Chairman, and your committee, for drafting legislation which does what is necessary to meet current problems and to provide for the expiration of the treaty transition period on March 31, 1982. I especially applaud Section 1 of the bill which again clearly establishes that the President of the United States and the Secretary of Defense are the primary officials charged under the law with administering their own private versions of U.S. policy towards the Canal with little sanction from anyone. I have some concern with the provision of Section 5 which repeals the requirement that the Comptroller General be required to identify all direct and indirect costs flowing from the treaties. This was intended to show what the American taxpayers really are paying for what I feel to be a bad political and economic bargain. I also agree with the added definition of "costs" of Canal operation since those costs are to serve as the basis for setting tolls. As part of the guarantee that the tolls would support the costs of the treaties this is an important point to be re-enforced. I suggest that the committee look closely at the current trial "booking system" which may in fact be a toll increase which avoids the statutory requirements when tolls are increased. It would appear at face value to be a preferential system benefitting selected shippers who have the means to pay higher rates. Lastly, Mr. Chairman, let me commend you and the committee for repeatedly acting to protect the financial integrity of Canal operations. In spite of the failure to enact authorization legislation, you have repeatedly succeeded in amending the appropriations bills to conform with the spending restrictions embodied in Public Law 96-70. Equally important is your refusal to agree to the idea that the Canal Commission should live beyond it means by incurring obligations in advance of its receipts. Mr. HUBBARD. Thank you, Congressman Bauman. Each of us who has served on this subcommittee with you realize your knowledge about the subjects you discussed and also your dedicated interests in our country's efforts to continue in a strong way as much as possible, notwithstanding the treaties in regard to the Panama Canal. Bob, what do you see as the problem in the advanced booking system for ships moving through the canal referred to on page 2 of your statement?

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52 Mr. BAUMAN. My main concern is that it in effect creates two classes of users of the canal, one being a preferred class of shippers who quite obviously benefit economically by an assured schedule of transit and are willing and able to pay the increased amounts that might be imposed for this booking right. The second class would be shippers with less economic clout, and I would suspect from my recollection of the testimony several years ago this would include a number of South American countries with agricultural and other export products that might have to use the canal on a regular basis for the transit of products, but which do not have the economic means to pay these fees. Undoubtedly, all of this will be taken into account in the studies being conducted during the 120-day trial period. The problem I have with it is the procedure involved. I view the booking fee as a toll increase and a toll increase under Public Law 96-70 requires public notice, hearings, comments by the affected parties and action, I believe, all the way up, possibly to the President of the United States; and in effect what the supervisory board is doing here is saying it will avoid that procedure in imposing what it euphemistically called a booking fee. Mind you, when these treaties took effect one of the largest toll increases in the canal's history took place, some 27 to 30 percent increase, immediately, to pay annual fees to Panama, and today we are facing a situation in which the revenues of the canal don't cover the costs the treaties themselves created. Mr. McAuliffe gave a rosy picture of the economic well-being of the canal, but he failed to mention it lost money last year, some $600,000 I gather-I am not sure of that figure-but that is only the second or third time in its history that the canal lost money. So, if the canal needs a toll increase, let us do it openly and consistent with the law. Mr. HUBBARD. House bill 5601 was introduced only 2 days ago. Have you had a chance to read it yet? Mr. BAUMAN. I read the draft bill that was dated February 9 accompanying your letter and so my comments are directed toward that. If there have been any substantial changes made I am not aware of those. Mr. HUBBARD. There were none. Do you support .the bill as is? Mr. BAUMAN. Yes; I most assuredly do. I would only reiterate my own feeling that section 1, while it certainly ought to be in some way amended to accommodate some of the concerns expressed by Secretary Gianelli should remain in the bill so that the delegation of authority is clear. As it is now, we have a fusion of authority amongst many people and, as Mr. Carney mentioned and Mr. Manfedo agrees, Mr. McAuliffe and the supervisory board are assuming this authority in many respects. Yet, there is no basic legal authority for such assumptions of power. Back in 1914, when the canal began its operations, the President at that time issued what amounted to an Executive order, and it was a plan of authority by which the canal was operated. It made clear who had the authority to run the canal.

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53 At the present time we don't know who precisely has the authority, because it has trickled down, if I may use that rather unattractive phrase to Mr. Gianelli who has come to us from California and now is charged with dealing with many other areas of Government authority other than the Panama Canal. We need a fundamental delineation in section 1 providing where this canal authority lies, who has it, and the scope of the exercise of that authority. If it continues the way it is, it allows, and rightfully so, the Government of Panama to continue to complain and ask the rhetorical question, "who is in charge here?" because they would like to be in charge to a much greater degree. Our Government officials are not even answering what are valid questions by them. Panama should be told who is in charge. The treaty tells me. Public Law 96-70 tells me. And it is about time the Reagan administration told them. Mr. HUBBARD. Congressman Carney? Mr. CARNEY. Thank you, Mr. Chairman, and thank you for coming here, Mr. Bauman. Everyone knows and appreciates how hard you worked on H.R. 111 which finally became Public Law 9670. I, certainly, appreciate it. Mr. BAUMAN. I refer to that as the Hubbard bill. I believe he was instrumental in its passage. Mr. CARNEY. You have not lost your edge for the politic. How do you think the differences that you talked about between the United States and Panama in your testimony can be resolved? Mr. BAUMAN. I suggested it in one sense, and that is that we need the Government of the United States to address this problem of who is in charge of Panama Canal policy. It might require a trickle up to the President's desk to decide, but there is no reason why we should go on in this sort of international legal limbo and, if nothing else, section 1 of your bill raises the issue in a form that may have to be addressed. I don't know whether this legislation is ever going anywhere. There is another legislative body with which you have to deal. But at least we need a policy definition, so that the differences can be resolved. They may not be resolved to the liking of your committee or the United States, and maybe negotiations are needed to renegotiate some of the terms of the treaty, but when one side is saying there is a board of directors with all power and the other side is saying nothing, which is what the Government of the United States is now saying, and you in Congress say, here is what we intended, there is definitely a need for all parties to come to a resolution and do it quickly, before it results in some sort of conflict. How many other treaty partners do we have that have dragged us into the U.N. and criticized us? Mr. CARNEY. You mentioned that it was your belief there was no policy statement or position paper from the administration on the Panama Canal. Would you say that for the record as certainty? Do you know of any? Mr. BAUMAN. I do not know of any basic policy declaration that has been made. The only statement I recall is a letter from Max Friedersdorf saying that the Bowen bill was the administration bill last year.

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54 You remember that Mr. Bowen of Mississippi told this committee that he didn't know where the bill came from, that it was presented to him by people "downtown." It embodied the Reagan position, he was told. I heard there were a series of policy meetings involving State and Defense last summer, and out of this came definitive language that is in the classified file. If our Government officials know, apparently the Government of Panama has not been told. Have you been told? Mr. CARNEY. Frankly, I have not. That letter, though, brings back memories. You were an author of Public Law 96-70. Is there any doubt in your mind as to the law's intent in regard to the supervisory board and its powers? Mr. BAUMAN. No; it was to be a supervisory board and not a board of directors; those are not the words of Public Law 96-70 alone. Those are the words of the treaty and that certainly gives the Panamanians every opportunity to express their policy desires and the U.S. members the opportunity to respond. The law did not envision a board such as the corporate form of before, known as the Panama Canal Company; that was in fact a managing board of directors. Mr. CARNEY. Would you like to speculate as to why you think something went wrong with the interpretation of the authority of the Board? Mr. BAUMAN. Well, because that Board has apparently been filling a vacuum in policy direction. Mr. Gianelli is the Governor of the Canal Zone in effect under this new system. But no one has ever really defined exactly what is to be done by whom. Secretary Gianelli has it in his power under Public Law 96-70 to cast five votes on any issues before the Board. He has not had to do that. There was one extraordinary occasion last summer when, as chairman, he voted with the Panamanians and the four Americans voted against his position. That such a diversion should happen was an unforeseen event, at least on my part, when we wrote the law. I am not quite sure precisely where the power lies but I think it needs to be defined and defined quickly to avoid more problems. Mr. CARNEY. Would you like to comment on the proxy situation? Again, as someone who has such great knowledge about the Panama Canal and Congressional intent of Public Law 96-70, what do you think about utilization of proxies. Mr. BAUMAN. Well, as I understand the first suggestion made by Mr. Gianelli or his staff, it is simply for the use of proxies, and he has defined that to include votes to create a quorum. I presume proxies would be for all purposes. I think that would be a disaster. One of the assurances that was repeated day after day on the floor of the Senate was, "Don't worry, folks, until the year 2000, with five votes to four, we will control the Panama Canal ." No one said it would be four pieces of paper and Mr. Gianelli or four pieces of paper and someone else.

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55 The fact of the matter is that the Panamanians are willing to participate, and in fact take a very close interest, in what the Board does, and we, of course, have to do the same. You are right. It is unfortunate that a Board meeting may take 4 or 5 days in the middle of December. That is tough duty with the weather down there; but, nevertheless, the reason the Congress designated a labor member and other specific members of that Board was to allow the Board to reflect American policy and decisions. I can see an emergency proxy provision, and maybe you would want to write it into this bill, allowing someone who gets an upset stomach to leave without dissolving the quorum. I might add I don't understand why the present Board has not been replaced by now. With all due respect to the individuals, there is no parallel in the history of the canal that a new administration didn't come in and change the goverment of the Canal to reflect its policies. Maybe it is because it does not have a policy. Mr. CARNEY. I appreciate you might not want to answer this question. If you don't, just say so. You don't think the President is aware of the problems that you describe, and you believe that a small group of people are making policy. Would you care to speculate who that small group is? Mr. BAUMAN. Well, you know, anyone can have his own-Mr. CARNEY. Always the hand grenade question. Mr. BAUMAN. Quite obviously, I think that Mr. Gianelli plays a key role in this; Mr. Wyrough at the State Department, one of the treaty advisors, has charge of the Panama desk; Mr. McAuliffe as administrator; and, from all I can glean as an outsider, the consultative committee made up of Ambassador Popper and Ambassador Moss, and General Dolvin. These people are pretty much operating as the policymakers in this area and you know that may be all well and good, but it is an informal sort of arrangement that none of us ever envisioned when we enacted the law and I don't think the treaty negotiators ever envisioned that either. It has not created any grave problems so far. Except for the Government of Panama, no one seems to be addressing this issue. I am sure these good folks could be brought before your committee and tell you how policy is being made. Mr. CARNEY. An aspect of the treaty that you were very, very forceful about, and I might say so was I, was the aspect of having open hearings with the Panama Canal Commission, the supervisory board. Last year you testified before the committee and again we went over that. Do you think that there still is a necessity to produce any further statutory provisions addressing the openness of the meetings? Mr. BAUMAN. Mr. Lent had a provision in last year's bill, or attempted to place it in there, that would specifically have required open meetings. We require that openness in Public Law 96-70 by reference to other statutes, and specifically that these meetings be open.

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56 The objection by the administration was that open meetings would lend themselves to all sorts of public attacks being made by both sides, and it would not be conducive to good relations. What has happened, in many instances, is that the deliberations have been held in private and then the next morning, in the controlled press in Panama, the entire statement is there, obviously, having been given to the press by the Panamanians, blasting the United States for some position. The secrecy is not being observed by some of the Panamanian members. I gather it has been difficult to get expeditious copies of some of the board proceedings for this committee. I should think open meeting should be required. Mr. CARNEY. It has improved, I might add, since the amendment has been adopted. That is one of the brighter notes, along with Mr. Gianelli's testimony and General McAuliffe's testimony, the setup is working. Are you aware of any formal responses by our Government to the several protests that you talked about from the Panamanian Government about Public Law 96-70? Mr. BAUMAN. No; the Government of Panama has accused the U.S. Government of being in violation of the treaties. They have flatly stated that the President and the Secretary of Defense and the U.S. Congress do not have the powers that you are now exercising and the fact of the matter is our Government has never responded. At some point Panama may press us for a response and they could use some very embarrassing means to do that. Mr. CARNEY. Do you see any application at all for advance receipts of revenue practices? Mr. BAUMAN. Sir? Mr. CARNEY. As far as our financial obligations are concerned? Mr. BAUMAN. You mean to change the so-called Rudd amendment? Mr. CARNEY. Yes. Mr. BAUMAN. This is a serious problem. I am sure Mr. McAuliffe was quite correct, if there was not this unrepaid amount from an earlier U.S. appropriation he would have a very difficult time operating. We did authorize an emergency fund. I am not sure that it has ever been funded to any degree. It may have been in the last year or so in the appropriation, $10 million, which may not be enough in the case of a major earth slide in one of the cuts, but I would suggest that in some way your committee address this and approve authorizing legislation to allow some financial flexibility. I know this is going to sound liberal coming from me, but maybe you should let them keep the $10 million as a cash float on which to operate, or some part of that, so that they will have a cushion. They should understand at the end of the treaty life it should be repaid. But the Canal Commission should not be allowed unlimited ability to incur obligations in advance of receipts. If that happens the situation will arise where they don't have enough receipts, and that will happen within a year or two. It has already happened to a minor extent this year. With the building of

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57 the oil pipeline through Panama, the canal's economic standing could be seriously jeopardized. I think we have to address this question of their ability to live within their income which was the guarantee the proponents of the treaties gave the people of our country. Mr. CARNEY. Do you think a separate Panama Canal fund in the U.S. Treasury should be abolished? Mr. BAUMAN. No, certainly not. That was tried last year. That separate canal fund in the Treasury is a means, and General McAuliffe told this committee that last year, of delineating whether or not the American taxpayer is having to foot any of the bills beyond the receipts of the canal. It was an excellent statement, and I endorsed it. The fund should not be abolished and the receipts should not go into general revenues, Mr. Carney. Mr. CARNEY. There are numerous major capital projects said to be needed in the canal. Do you have any ideas on how we might be able to finance? Mr. BAUMAN. President Royo told the U.N. that a half a billion dollars in capital projects are needed in order to keep the canal operating. That has to be addressed. You have been there, as I have, and when you see the canal in operation you know it is a very impressive but very ancient lady that needs constant maintenance. An awful lot of work has to be done. Pacific and Atlantic approach dredging and so on are major projects. And there have been some down payments made on the expensive studies that will lead to major capital improvements. Where is the money going to come from? Here we have this Panamanian pipeline that will be finished shortly and pumping oil, and the Government of Panama will get enormous sums of money from the oil going through that pipeline. They will receive, according to estimates I have seen, more than a billion dollars. Now, that is a toll income drain from the canal. Why can't the Panamanian Government be asked to share this wealth that they are going to gain from this pipeline, be asked to reduce the payments to them under the treaty and put funds back into building their canal? Has no one every thought of this? Sit down with them and say, Look, you are going to make a heck of a profit. We know you've got financial problems, but economically you are better off than any other Central American country, so devote part of the income from that pipeline to the canal's improvement. It is a simple little thought. Mr. CARNEY. I think Secretary Gianelli mentioned that. Mr. BAUMAN. Well, good. Mr. CARNEY. He thought certainly that should be considered. I know I could ask Mr. Bauman several more questions, but we have other witnesses, and it won't be fair to delay those witnesses. Mr. HUBBARD. It is a fact that Mr. Gianelli did propose these receipts from the pipeline be used for the canal. Mr. BAUMAN. Excellent. Mr. CARNEY. If I might, I will submit several questions to you, Mr. Bauman, but I would like to have one more answered now, if

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58 you would, and keeping in mind that we have other witnesses, please. Mr. BAUMAN. Yes, of course. Mr. CARNEY. You met with the White House officials regarding the Panama Canal last year. Did you get any results out of that? Mr. BAUMAN. The gentleman from New York, Mr. Lent, was kind enough to invite me to go to the White House together with one or two others. We met at that time with the then National Security Adviser, Mr. Allen, and his Deputy, Roger Fontaine. We devoted most of an hour to discussing the very problems that we are discussing here again this morning, at least in my testimony. We received all kinds of assurances that things would be done to correct these problems. This was, I guess, in May 1981. Now, I know Mr. Allen subsequently became very busy with other matters, but at the time it seemed that something was going to be done. Specifically within that week the gentleman from New York, Mr. Lent, Senator Thurmond, and others submitted a list of new nominees, including those on the canal supervisory board. He included some very stellar names and, yet, apparently, nothing ever happened. Mr. CARNEY. Don't you read your mail? Mr. BAUMAN. Yes; but I don't think I received any letters from the White House on that subject. Mr. HUBBARD. Thank you, Mr. Bauman. Our next witness is Talmage Simpkins, executive director of the AFL-CIO Maritime Committee. We appreciate your patience in waiting to be our fourth witness today, sir. We look forward to your remarks. STATEMENT OF TALMAGE SIMPKINS, EXECUTIVE DIRECTOR, AFL-CIO MARITIME COMMITTEE Mr. SIMPKINS. I have a two-page statement that I would like to read, if I may, and then answer whatever questions you wish to ask that I could answer. I am Talmage Simpkins, executive director of the AFL-CIO Maritime Committee and I am appearing on behalf of the National Maritime Union of America, AFL-CIO. We appreciate the opportunity to appear and tell you that the Panama Canal implementing legislation which was adopted on September 27, 1979, has worked very well. When we initially requested time to appear and testify we did so because we were fearful that your committee would be considering the adoption of the Department of the Army's proposal to change the Panama Canal Act of 1979. We believe the stability that has prevailed over these past 21/2 years is proof that the implementing legislation, which was primarily designed by the House Merchant Marine and Fisheries Committee, was the best approach. We commend you, Mr. Chairman, on this bill, H.R. 5601, which you and the chairman of the full committee have introduced. We ask that you not amend this bill to incorporate any proposals to change the current labor-management setup or the application of

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59 cargo preference laws to the Commission, or any changes to make it easier to increase the tolls. We have, since the treaty negotiations began some 16 years ago, avoided taking any position on the treaty. Our position and the thrust of our testimony over this period has been to do what we could as labor unions for the benefit of our members and leave the treaty to those who were expert in that field. The National Maritime Union of America, the International Organization of Masters, Mates and Pilots, and the Metal Trades Department, will begin negotiations with the Panama Canal Commission on March 1 of this year on an umbrella contract covering the employees who are employed in all phases of activities in the operation of the Canal This follows the conclusion of an election that. was held under the auspices of the Federal Labor Relations Authority to determine who the employees wished to have as their collective-bargaining agent. During the month of March another election will be held among the various defense establishments to determine who will be the employees' collective bargaining agent. This election will also be held under the authority of the FLRA and we anticipate that it will also go as smoothly as the first one. Again, Mr. Chairman, we believe that you are taking the correct approach by not drastically overhauling the Panama Canal Act of 1979. Thank you. Mr. HUBBARD. Thank you, Talmage. In general, you do support House bill 5601? Mr. SIMPKINS. House bill 5601, yes, sir. Mr. HUBBARD. Please elaborate on this meeting to be held on March 1 between the three labor unions and the Panama Canal Commission regarding the umbrella contract? Mr. SIMPKINS. The National Maritime Union, the Pilots and the Metal Trades Department of the AFL-CIO, will be getting together and presenting their proposals to the Panama Canal Commission. As to the areas of the bargaining, I do not know, Mr. Chairman, except to tell you that they will be guided by Public Law 95-454 which is title 7 of the Civil Service Reform Act of 1978. The details of it I do not know. I do not know what they will be proposing to the Commission. Mr. HUBBARD. Congressman Carney? Mr. CARNEY. Well, Mr. Simpkins, I certainly appreciate the fact that you are pleased with the labor-management relationship as it presently stands and you are pleased with the direction we are going with the new bill. Overall I was just wondering in two seconds if you could comment on any of the problems you might be having from the labor relations standpoint or problems that your labor force might be having that you would like to bring to our attention. Mr. SIMPKINS. We have heard a lot of rumors to the effect that come April 1, that the acorn is going to hit us on the head. Mr. CARNEY. Pardon me? Mr. SIMPKINS. That the roof will fall in. Mr. CARNEY. Oh.

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60 Mr. SIMPKINs. We, from our viewpoint, do not anticipate any problem in that connection, at least not to the degree that the rumors have said. The treaty agreed to by the two countries has six different sections where it says the U.S. Government shall have the right to establish the labor-management section that is currently in Public Law 96-70, therefore, I would not anticipate any problem along that line. Mr. CARNEY. Mr. Chairman, that is all the questions I have. Everything seems to be going very well with regards to labor. I am pleased to hear that. Mr. HUBBARD. Mr. Simpkins, we respect your views and appreciate your willingness to add input to the legislation in question and thank you for being with us. Mr. SIMPKINs. Thank you. Mr. HUBBARD. We have one more witness. Calvin R. Bruer, president of the Panama Canal Federation of Teachers. We appreciate your being here today. We appreciate your testimony and your willingness to answer any questions we might have. STATEMENT OF CALVIN R. BRUER, PRESIDENT, PANAMA CANAL FEDERATION OF TEACHERS Mr. BRUER. Good morning, Mr. Chairman. I am Calvin Bruer, president of the Panama Canal Federation of Teachers, our national organization being the American Federation of Teachers, Washington, D.C. I am here to address the proposed legislation to amend the Panama Canal Act of 1979 in reference to teachers' pay allowances, section 1217. First I invite your attention to section 1231 of the original act which states that "terms and conditions of employment set forth in paragraph 2 of this subsection shall be generally no less favorable on or after the date of transfer." Hopefully then, to insure that teachers are not again singled out by a violation of the intent of the original treaty as referenced above I urge that on page 2, line 24, of the proposed legislation the phrase "in lieu of the additional," be deleted and the phrase "in addition to" be inserted; and on page 3, line 7, the word "shall" be substituted for the word "may". As in instances of this singling out, elementary and secondary teachers are the only group in the Canal area to have had their salary adversely affected by the treaty. Last year we teachers saw a loss of salary and pay base combining with an increase in various cost-of-living elements of 30 to 300 percent. Additionally, teachers must move out of their rented U.S. Government housing by October 1, 1984, according to the provisions of the treaty and have not been assured that they will receive the quarter's allowance and/or housing that all other DoDDS teachers receive. You are aware from the record that the "tropical differential" has been paid to employees working in the canal area since 1912. Management, too, receives these tropical differentials.

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61 While these problems were in part resolved while the Panama Canal Company was in charge of the area, we are seeing a return to less favorable living conditions since the treaty has been in effect. In short, the conditions that existed previously to warrant this tropical differential continue today. In some cases they are worsening. In the proposed legislation we are discussing today teachers, medical personnel and postal workers who were transferred to the Department of Defense as a result of the treaty and all those who were hired subsequent to the treaty will lose the tropical differential, a 15 percent additional compensation. As a result of legislation on the books, teachers for DoDDS worldwide shall be authorized housing, housing allowance, and storage [U.S.C. title 20, sec. 905]; entitled to cost-of-living allowances and post-differential [U.S.C. title 20, sec. 906]. The proposed legislation does not authorize paid housing for teachers, who are now paying for their rent and electricity in Panama Canal Commission quarters; and does not allow an additional compensation, tropical differential, to continue when authority exists in Public Law 96-70, section 1217 and 1231 and U.S.C. title 20, section 905. A portion of the original treaty's intent was to create a stable work force for the life of the treaty. As such, the retirements benefits were increased from 2 to 21/2 percent with no intent to erode this enhancement by subsequent legislation. The terms and conditions of employment for teachers in the Panama Canal area has continually worsened. This is a clear contradiction of section 1231(a)(1) of the treaty and its intent that terms and conditions of employment set forth shall be generally no less favorable on or after the date of transfer. We urge your endorsement of our proposal. Thank you. Mr. HUBBARD. Thank you very much, Mr. Bruer. Have you had a chance to study House bill 5601, introduced 2 days ago? Mr. BRUER. No, sir. Mr. HUBBARD. Regarding your remarks, would you please explain the term tropical differential for the record and elaborate upon the problems to which you refer, such as salaries and terms of employment? Mr. BRUER. Yes, sir, this goes back according to the records to 1912 and at that time they determined that there were several problems. Title 5, chapter 59 enumerated some of those things, and they said that the conditions of the climate differed substantially from the climate in the United States. Some of the things given were housing was inadequate, sanitation problems, insect control, the continual high heat and excessive humidity of the tropics. Mr. HUBBARD. That is not too bad nowadays, is it? Mr. BRUER. Not today, no. I take it you are talking about the current weather situation. Mr. HUBBARD. Right. 97-154 0-82--5

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62 Mr. BRUER. Something else arose relatively recently. Skin disorders from the sun, recognizing the skin disorders from the exposure to the tropical sun, the cancers that are being formed. I don't know what else to say specifically on that situation. Mr. HUBBARD. What is the average salary of American teachers in Panama? Mr. BRUER. I don't think it quite comes up to what they have in Rockland County in New York State, but it is around $26,000, I would suspect, and that is including the tropical differential. Mr. HUBBARD. I cannot speak for other States. That is much higher than the average teacher salary in Kentucky. You were talking about the bad living conditions in Panama? Mr. BRUER. Yes, sir. Mr. HUBBARD. I have had the privilege of visiting there and couldn't see it being that bad. If it is so bad why do people still stay in Panama? Mr. BRUER. Somewhat along the line, why do the people stay in Saudi Arabia? I suppose it is the salaries in one aspect, and they would like to maintain what they have. I invite you to come down and visit my house, a four-family house, and the studies show-and the wind blows through the cracks in the wall, and I have a clothesline stuck in the windows to keep it from blowing the air-conditioning out that I pay for. So, I guess it is perspective of what you call good housing and poor housing. Mr. HUBBARD. One thing I have here that you don't have is a monthly bill from Vienna Fuel Co. that you would not appreciate, I guarantee you. They are higher than Kentucky, and for sure higher than what you would require in Panama. But I repeat, I found Panama in the area where you live to be a very nice place. I am not familiar with your home, but please remind the teachers down there who may be complaining, they certainly would be paid less in many States here in the United States. I do hope that you can continue to receive what you have in the past. We realize you have come a long way to testify before us-and we appreciate very much the time and trouble to which you have gone to travel to Washington. Mr. Carney, questions? Mr. CARNEY. I would just say to Mr. Bruer that you have cited the bill specifically. You have clearly delineated the problems that you see with your profession, and I can tell you before next Friday's markup I will look at each and every one of them carefully and give it my personal evaluation, and I am sure the staff will do that for the other members of the committee, so that at the markup process your day in court will be given. Knowing that you are far, far away, you can be assured every part of your testimony will be given its due consideration. Mr. BRUER. We would be happy to return and talk to your staff on the markup. Mr. CARNEY. The staff is here. I wouldn't want to bring you back to Washington's weather in February.

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63 I thank you very much for your testimony and, again, I assure you we will give it its consideration. No further questions, Mr. Chairman. Mr. HUBBARD. Thank you, Mr. Bruer. This witness concludes our list of those testifying before us today. We appreciate each of you who have been in attendance. And, to the court reporter, Carol Bradfield, and to staff members, Merrill Whitman, Ed Welch, Janie Lawson, Bud Drago, Jana Oakley, and Robin McClung, the Chairman and the members of the subcommittee appreciate the work that you have done to make this hearing possible. With that, we stand adjourned. [The following was submitted for the record:] STATEMENT OF FRANK C. CONAHAN, DIRECTOR, INTERNATIONAL DIVIsION, U.S. GENERAL ACCOUNTING OFFICE Mr. Chairman and Members of the Subcommittee: We are pleased to present our views on the proposed Amendments to the Panama Canal Act of 1979. Presented in our statement are our views on Accounting Policies and Auditing which you indicated were of particular interest to the Subcommittee. ACCOUNTING POLICIES Section 4 amends Section 1311(b) of the Panama Canal Act of 1979, to clarify that regulations issued establishing the basis of accounting for assets for the use of the Commission shall be issued pursuant to the Accounting and Auditing Act of 1950. We agree with this clarification. The proposed amendments still retain the provision that would allow for depreciation of the net replacement value of the assets which will ultimately require replacement. This provision is contrary to both generally accepted accounting principles and the principles and standards of the Comptroller General and we suggest that it be deleted. In our report entitled "Examination of the Panama Canal Commission's Fiscal Year 1980 Financial Statements and Treaty-Related Issues (ID-81-49, June 29, 1981)," we reported that certain requirements of the Panama Canal Act of 1979 complicate the Commission's approach to accounting. For example: Section 1311(a) requires the Commission to establish and maintain its accounts pursuant to the Accounting and Auditing Act of 1950 (31 U.S.C. 65 et seq.); that is, to adhere to the principles and standards of the Comptroller General. Section 1341(e)(1) requires the Commission to determine its operating expenses in accordance with generally accepted accounting principles; that is, in the same manner as a nongovernmental business enterprise. Section 1603(a) provides that the costs to be capitalized for construction projects will not include interest costs; this is counter to both generally accepted accounting principles and the principles and standards of the Comptroller General. Although generally accepted accounting principles and the principles and standards of the Comptroller General are generally compatible, they do not always agree in detailed application. The Commission's decision to present separately its Statement of Changes in Financial Position and its Statement of Status of Appropriations is a tacit recognition of these differences. Further these differences have a pronounced effect on the design of the Commission's accounting system. Because the Commission is an appropriated funded Agency we believe that to eliminate the inconsistency in accounting principles, the appropriate sections of the Panama Canal Act of 1979 should be amended to require the Commission to adhere to the principles and standards of the Comptroller General. AUDIT BY THE COMPTROLLER GENERAL The major change made by Section 5 in amending Section 1313 of the Panama Canal Act of 1979, is to eliminate the requirement that our report include a statement listing all direct and indirect costs incurred by the United States in implementing the Panama Canal Treaty of 1977, including the cost of property transferred to the Republic of Panama during each fiscal year. In our fiscal year 1979 and 1980 reports on the audit of the Commission's financial statements, we pointed out problems in determining treaty-related costs. Primary among these is the ab

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64 sence of a criterion for determining treaty-related costs. As a result of these problems, we suggested in our report entitled "Examination of the Panama Canal Commission's Fiscal Year 1980 Financial Statements and Treaty-Related Issues (ID-8149, June 19, 1981)," a number of alternatives for congressional consideration. We pointed out then, and we still believe, that the annual requirement for reporting by most, if not all, agencies could be eliminated from the Act without diminishing the expressed intent of Congress to keep cost to an absolute minimum. The Congress could still raise questions about these costs while exercising its oversight function through the budget process. Therefore, we agree with this proposed amendment to Section 1313 of the Panama Canal Act of 1979. We would like to take this opportunity to point out additional audit requirements which we believe warrant your consideration in amending the Panama Canal Act of 1979. CERTIFICATION OF ESTIMATED REVENUES We are required by Section 1302(c)(2) to certify the Secretary of Defense's estimate of Commission revenues for the fiscal year. Our current work will lead to a report dealing with fiscal year 1983 revenues. The three certifications we have made (and the one for 1983 as well) are all highly qualified because the outcome of future events is so uncertain. At the same time, we can say that the Commission's methodology seems reasonable and generally will result in a reasonably accurate estimate of future revenues. Further, we see no advantage to the Commission to either understate or overstate its revenue estimates. Therefore, we see no advantage accruing to the Congress by our continued certification of estimated revenues on an annual basis and suggest that this requirement be deleted. As an alternative, we would consider how revenue estimates, as well as budgets, are developed in the course of our normal work. PUBLIC SERVICE PAYMENTS TO PANAMA Section 1341(a) of the Act of 1979 provides that we shall audit the $10 million public service payments to Panama annually. During the first 2 years, we have limited our audit to ensuring that the payment was made by the Commission. However, during the third year, it is contemplated that Panama will submit data supporting an increase or decrease in the annual payment. If, and when, that data is submitted, it will be possible for us to review what has been submitted, but verification of the data will require access to records of the Government of Panama. We do not have a clear right of access to such data, making an effective audit impossible. For this reason we suggest that the requirement for audit of the payment be deleted from the Act. We will, in the normal course of our audit work, consider and review the data submitted by Panama and evaluate the actions of the Commission with respect to this data. BASES FOR TOLLS The proposed amendment to Section 1602(b) of the Panama Canal Act of 1979 adds to the illustrative enumeration of costs to be covered by tolls "reimbursements to the Treasury of the United States for costs incurred by other departments and agencies of the United States in providing educational, health, and other services in accordance with Section 1321 of the Act." We have no objection to adding to the items of cost provided for in 22 U.S.C. 3792(b); however, we question whether it is intended that those reimbursements are to be deposited in the Treasury. Section 1321(d) of the Act, 22 U.S.C. 3731(d), provides that the "[a]mounts expended for furnishing services shall be fully reimbursable to the department or agency furnishing the services." We understand this to mean that the reimbursements will go directly to the agency concerned rather than to the Treasury. If the Committee does not intend a change in subsection 1321(d) then the words "to the Treasury of the United States" should be deleted from the amendment. On the other hand, if the Committee does intend to have those reimbursements deposited in the Treasury, section 1321 should be made consistent. Moreover, the legislation also should make it clear into which Treasury account the reimbursements are to be deposited. This completes my statement, Mr. Chairman.

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65 STATEMENT OF ANDREw NORMANDEAU OF RAGAN & MASON LAw FIRM Mr. Chairman, my name is Andrew Normandeau and I am a member of the Washington, D.C. law firm of Ragan & Mason. Our interest in the pending bill to amend the Panama Canal Act of 1979 is to once again bring to the attention of this Subcommittee the fact that United States citizens continue to have outstanding claims against Panama because of that country's past actions in seizing business properties of U.S. citizens without paying for them. The legislation pending before this Subcommittee presents an opportunity to address squarely the issue of whether our Government ought to be paying appropriated funds to Panama while, at the same time, that country continues to refuse to make just payment for assets seized from United States citizens. To correct this abuse, we are proposing that the Subcommittee adopt an amendment the general effect of which would be to make Panama choose between either making a good faith effort at resolving outstanding claims or else temporarily foregoing payments due to Panama under Article III and Article XIII of the Panama Canal Treaty of 1977. A copy of the proposed amendment is attached to my statement. Our client, a U.S. citizen residing in New York City has had a claim pending against Panama since December of 1974 when Citricos de Chiriqui, S.A., a Panamanian company wholly-controlled by our client, had its 11,000 acres of land, including citrus groves and citrus juice processing facilities seized by the Government of Panama through issuance of Executive Decree No. 119. Some members of this Subcommittee will no doubt remember that our client's claim was the subject of substantial discussion in the United States Congress in 1979 when the Panama Canal Treaty implementing legislation was being debated. At that time an amendment had been proposed to the implementing legislation which would have withheld all payments of treaty monies to Panama while there were U.S. citizen expropriation claims outstanding. While the amendment was adopted in subcommittee, it failed adoption in full Committee by two votes and on the House floor by a vote of 227 to 194. One of the principal reasons why the amendment failed then was that the U.S. State Department gave repeated assurances to many members of Congress that the Government of Panama was actively negotiating to resolve the two outstanding U.S. citizen claims and that in the judgment of the State Department the claims would be settled "within a few days" and so there was no need to include the suggested amendment in the treaty implementing legislation. Needless to say, not only has the Citricos de Chiriqui, S.A. claim not been settled but neither has the other United States citizen claim, that of the Boston-Panama Corporation. Moreover, I would also like to point out that ever since the treaty implementing legislation was passed in 1979 without our amendment, we have not heard one word from Panama concerning the Citricos claim. In short, the Panamanians refused to negotiate in good faith before the Panama Canal Treaty and the implementing legislation was passed and they still refuse to negotiate in good faith. In support of this statement, I have attached, as a matter of general information, a short chronology of events relating to our client's claim subsequent to the seizure of the Citricos assets in December of 1974. The amendment we are now proposing would not prohibit treaty payments to Panama while United States citizen claims are still outstanding. Instead, the amendment would permit treaty payments to continue but only if the Panamanian Government is actually taking steps to resolve outstanding expropriation disputes. In this regard, the Secretary of the Treasury is designated at the person to decide if the Panamanian Government is, in fact, taking such steps. The reasons why the Secretary of the Treasury has been delegated to be the responsible party are twofold. First, the Panama Canal Commission Fund has been established in the United States Treasury and is under the responsibility of the Secretary of the Treasury. Second, the Treasury Department has a representative on the Interagency Expropriation Group which consists of representatives from the Departments of Treasury, Commerce and State. Therefore, the Treasury representative would be kept abreast of any developments regarding the outstanding claims. We believe that the amendment is necessary in order to provide an incentive for the Government of Panama to address the existing claims of United States citizens. Without it, there is absolutely no reason for Panama to pay for the seized property because the U.S. Government is exerting absolutely no pressure on the Panamanians to pay. An argument made by the State Department against the prior suggested amendment in 1979, and which is likely to be raised again, is that our amendment, if adopted, would violate the terms of the Panama Canal Treaty. We believe that objection to be baseless. It has long been recognized and there is no argument over the

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66 fact that the Congress has the right to interpret a treaty independent of Executive interpretation. The Panama Canal Treaty of 1977 is not self-executing. Hence, there was a need for the implementing legislation which occurred in 1979, amendments to which are the subject of discussion before you today. The payment provisions provided for in Paragraph 5 of Article III and Paragraph 4 of Article XIII of the treaty only establish Panama's entitlement to certain payments. It does not prescribe the time or the manner in which the stated amounts are to be paid, and, more importantly, neither this treaty provision nor any other precludes the establishment of reasonable conditions upon the payments. In our particular situation, the treaty itself is silent as to how and when treaty monies are to be paid over to Panama. Consequently, all of these are matters which the Congress, pursuant to its power under Article I, section 9 of the Constitution to appropriate public money, may legislate upon. There is no existing legal impediment to the Congress of the United States imposing a reasonable condition to the paying over of treaty funds to Panama. This 'reasonable condition" being that the Government of Panama make a serious attempt to resolve outstanding money claims of United States citizens for the loss of property. In conclusion, we would like to emphasize that the validity of our client's claim against Panama has never been an issue. Even the Government of Panama concedes its validity. The only controversy is over the value of the assets for purposes of payment. The indifferent attitude that the Government of Panama has shown about really trying to resolve this case will, we are convinced, continue unless the amendment which we are proposing today is adopted. Otherwise, there is absolutely no incentive for the Government of Panama to honor its obligations to the United States citizens. As the attached chronology of our initiatives amply shows, in the over seven years that this claim has been outstanding never once has the Government of Panama been the one to initiate talks or to try and settle outstanding issues. In 1972 this subcommittee held oversight hearings in connection with two other seizures of American property in Panama. I attach an excerpt from a report which deals with these two cases. One case involved the Panama Power & Light Co. and the other case involved the highjacking of buses owned by the Canal Zone Bus Service, Inc. There is a startling similarity between the events surrounding the seizure of Panama Power & Light Co. in 1972 and the seizure of the Citricos assets in 1974. Attention is directed to page 32 of the attached report where it is noted that while the book value of Panama Power & Light Co. assets was $87 million, the company received only $22 million in payment. This translates to a loss of $.75 for every $1.00 invested. Why Panama Power & Light Co. was willing to settle for this little amount or whether any other consideration was agreed to is unknown to us. In the case of Citricos, the Government of Panama offered $3.5 million while the co-operative subsequently offered $6 million. These two separate offers translate to a return of less than 200 per dollar invested and about 300 per dollar invested since our client's overall investment in the project was in excess of $18 million. These offers are totally inadequate and have been, of course, rejected. The publicity surrounding the seizure of Panama Power & Light Co. apparently prompted our State Department to take active measures to induce the Panamanians to make some attempt at resolving that case. There was very little publicity surrounding the takeover of Citricos two years later, since it was a privately held company, and as a consequence the State Department predictably reverted to its moribund approach to helping Americans abroad. The State Department has been of no help in getting the Panamanians to negotiate in good faith to resolve our client's claim. In the circumstances, we respectfully request your support for the amendment because without this legislation the claim, which is already over seven years old, will surely continue indefinitely without any prospect for resolution. PROPOSED AMENDMENT To H.R. 5601, A BILL To AMEND THE PANAMA CANAL ACT OF 1979 Insert the following as Section 7 of the bill and renumber the existing Sections 7 to 12 as Sections 8 to 13: PAYMENTS TO REPUBLIC OF PANAMA SEC. 7. Section 1341 of the Panama Canal Act of 1979 (22 U.S.C. 3751) is amended(1) by redesignating subsection (f) as subsection (g); and

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67 (2) by adding a new subsection (f) to read as follows: "No payments may be made to the Republic of Panama during any period that there remain outstanding any unpaid, uninsured claims of United States citizens or United States corporations if such claims were asserted prior to the effective date of the Panama Canal Treaty of 1977 and are based upon nationalization, expropriation or seizure of ownership or control of property owned or controlled by any United States citizen or by any corporation, partnership or association not less than 50 per centum of which is beneficially owned or controlled by United States citizens, unless the Secretary of the Treasury certifies to the Congress that the Republic of Panama is taking appropriate steps, including good faith negotiations, aimed at providing prompt, adequate, and effective compensation." CHRONOLOGY-CITRICOS DE CHIRIQUI, S.A. December 5, 1974-Decree No. 119 issued seizing all properties owned by Citricos de Chiriqui, S.A. (owner). May 25, 1976-Owner's representative meets with Panamanian Minister of Planning in Cancun, Mexico in attempt to negotiate settlement. Meeting is fruitless. June 15, 1976-Owner's representative meets with Minister of Planning in Panama to attempt further negotiations. Government of Panama representative rejects all arguments regarding values and offers U.S. $1 million in settlement which is refused by Owner. November 22, 1977-Owner submits a Statement of Facts to Expropriation Group in United States State Department in Washington, D.C. and requests imposition of Hickenlooper, Gonzalez and Title V of the Trade Act of 1974 sanctions against Panama for their failure to pay full compensation to the Owner and for that Government's further failure to conduct negotiations in good faith. December 9, 1977-Owner's representatives meet with the Expropriation Group in the United States State Department to present case on behalf of United States citizen-owner for imposition of sanctions. January 10, 1978-Upon insistence of Owner's representatives and after exchange of cables a meeting is held with the Minister of Planning in Panama to attempt to get the Panamanians to negotiate on asset values. Minister of Planning allows only 20 minutes of his time to this matter and turns the session over to subordinates. The result is the complete failure at any serious negotiations because of the absence of the Minister. January 26, 1978-Upon learning that Panamanian Minister is to come to Washington, D.C. Owner's representatives arrange and meet with the Minister in attempt at negotiations. The attempt produces no results. February 9, 1978-Owner's representatives correspond with Expropriation Group in attempt to expedite imposition of sanctions. March 1, 1978-After extensive reanalysis and review of Citricos assets Owner submits additional data by letter to Minister of Planning in Panama showing that value of assets is in excess of U.S. $20 million. March 3, 1978-Owner representatives meet with United States Ambassador to Panama William J. Jorden at United States State Department in Washington, D.C. to enlist his support on behalf of Owner. Mr. Jorden agrees to attempt to get the Panamanians to negotiate in good faith. April 7, 1978-Owner's representatives submit written requests to the Expropriation Group for action on the pending request for imposition of sanctions. The Expropriator Group responds that imposition of sanctions is premature. April 10, 1978-As a result of various telephone conversations with U.S. Embassy personnel in Panama a meeting for April 27 in Panama is scheduled with the Minister of Planning to make another attempt at negotiations. April 27, 1978-Panamanian Minister of Planning leaves the country on vacation cancelling the meeting with the Owner's representatives. May 9, 1978-Upon initiative of Owner's representatives the United States Embassy in Panama co-ordinates an arrangement for a meeting on this date in Panama. Owner's representatives submit appraisal data which is again rejected by the Government of Panama. This meeting, like all others, ends without any substantive talks having taken place. May 17, 1978-Owner's representatives meets with Office of Legal Advisor in United States State Department in attempt to resolve any outstanding issues that may exist which would preclude imposition of sanctions against Panama for failure to negotiate in good faith. May 22, 1978-Owner's representatives prepares and submits to Expropriation Group at U.S. State Department a complete rundown on the facts involving at

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68 tempts by the Owner to get the Panamanians to negotiate and evidence of the unwillingness of the Government of Panama to negotiate in good faith. May 24, 1978-Owner's representatives demand in writing that Expropriation Group take action on the owner's requests for sanctions which has been pending since December of 1977. June 2, 1978-Owner's representatives writes to Minister of Planning in Panama detailing reason why the Owner believes that Government of Panama is not negotiating in good faith and asking whether Government of Panama believes future talks might prove useful. June 12, 1978-Expropriation Group responds to Owner's letter of May 24 asking imposition of sanctions by stating the State Department's hope that future negotiations may result and taking no action on owner's request of May 24. July 11, 1978-Owner's representatives discusses the status of the Citricos claim with members of the United States Department of the Treasury and requests their independent imposition of Gonzalez amendment sanctions against Panama. Treasury officials respond by stating that they are unable to honor this request. July 17, 1978-Owner's representatives submits financial data and proposals to officials of the United States Department of the Treasury and requests their independent imposition of Gonzalez amendment sanctions against Panama. Treasury officials respond by stating that they are unable to honor this request. July 17, 1978-Owner's representatives submits financial data and proposals to officials of the United States Department of the Treasury in an attempt to obtain their support in having the Expropriation Group and the State Department take positive action on Owner's pending request for sanctions. August-October 1978-Owner's representatives initiate innumerable telephone calls to United States Embassy staff in Panama as well as telephone calls and meetings with the Department of State and Department of Treasury officials in Washington, D.C. in attempt to enlist their aid in getting Government of Panama to enter into serious negotiations. December 7-9, 1978-At instigation of Owner, the United States Embassy staff in Panama arranges a meeting to be held with the Minister of Planning on December 9. The Government of Panama takes the position that it will not honor any proposal valuation in excess of $3.5 million. The Minister of Planning advises that he will establish a Group from his Ministry to immediately investigate whether it is feasible for the Government to pay more than $3.5 million. He advises that the study would be complete within two weeks and that he will supply a copy to the Owner's representatives. January 30, 1979-The Owner's representatives cables the Minister of Planning and advises that they have not received the results of a study promised sometime ago. February 14, 1979-Minister of Planning advises the Owner that the study is not available and that $3.5 million is still the most that the Government of Panama is willing to pay. February 15, 1979-Owner responds to Cable by Minister of Planning acknowledging position that Government of Panama has no further interest in discussing asset values. February 16, 1979-Owner's representatives submits in writing to United States Embassy in Panama evidence of Government of Panama's latest display of bad faith regarding the Citricos claim. February 23, 1979-Owner's representatives corresponds with U.S. Ambassador to Panama relating to him the Government of Panama's unwillingness to negotiate and pointing out to the Ambassador that talks with Panama have terminated. February 27, 1979-Owner's representatives writes to the Legal Advisor's office in U.S. Department of State pointing out the intransigence of the Government of Panama with regard to the Citricos claim. March 14, 1979-Owner's representatives submits to Legal Advisor's Office of United States Department of State a legal memorandum of points and authorities showing that the United States citizen owner of Citricos has no available legal remedies in Panama and that the only recourse value is the imposition of sanctions against Panama. March 21, 1979-The Office of the Legal Advisor responds in writing that they will take our arguments under consideration. March 30, 1979-Owner's representatives is advised by United States Embassy in Panama that Government of Panama agrees to stand to one side and allow Citricos co-operative to negotiate directly with the Owner for the purchase of the Citricos assets.

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69 April 10, 1979-Owner's representatives cables the Citricos co-operative that the Owner's representatives are willing to meet on May 2 in Washington, D.C. to negotiate asset values. April 11, 1979-Owner's representatives receive response from Citricos co-operative agreeing to May 2 meeting. April 30, 1979-Government of Panama issues an order to the Citricos co-operative forbidding its representatives from attending the scheduled May 2 negotiating session with Owner's representatives. May 4, 1979-Panamanian attorney for Citricos co-operative calls on Owner's representatives to apologize for the unwarranted interference of the Government of Panama in forbidding the May 2 meeting to take place. June 14, 1979-Citricos co-operative representatives meet with Owner's representatives and offer $5 million in settlement. Offer refused as too low. Co-op raises offer to $6 million which is also refused. June, 1979 to September, 1981-No further word or attempt at negotiating by either the co-operative or Government of Panama. September, 1981-Owner's representatives telephone the U.S. Embassy in Panama in attempt to reinitiate negotiations with Government of Panama officials. Owner's representatives also meet with officials of the U.S. State Department in an attempt to get negotiations moving. October, 1981 to February, 1982-Owner's representatives receive no response from Government of Panama, U.S. Embassy in Panama or U.S. State Department as to any possibility to settle this claim or resume negotiations. THE SEIZURE OF THE PANAMA POWER & LIGHT CO. AND "HIJACKING" OF CANAL ZONE BUSES Hearings were called by the Subcommittee on July 24 and August 10, 1972, on the military seizure on June 1, 1972, of the Panama Power and Light Company, called Fuerza y Luz (FYL), owned by the Boise-Cascade Corporation of Boise, Idaho. Members of this Subcommittee found it difficult to accept what in effect was a military operation against a legitimate American business enterprise. The takeover of the company was carried out by troops of the Panamanian National Guard who were posted throughout the building and who searched persons entering and leaving the premises. The takeover was directed by Colonel Manuel Noriega, the Intelligence Chief of the National Guard and Dario Arosemena, the Director of the National Department of Investigations (DENI). During the year, negotiations between the Junta Government and Fuerza y Luz had been proceeding on some long standing problems that had been underway for several years. On May 31, 1972, without warning the Junta Government issued Executive Decree No. 109, which ordered the temporary occupation of the facility. Decree 109 charged that the Company had failed to pay its fuel bills, which in turn threatened a blackout of Panama's major cities of Colon and Panama City; discontinued its investment program which had stopped the normal development of the country and endangered the national economy; and that Fuerza y Luz had "only in mind their interest and economic gains against the Revolutionary Government, thus forgetting the general welfare." Testimony taken during Executive session hearings on August 10, 1972, showed that the allegations made by the Junta Government in Decree 109 were categorically not true. This major step in the escalation of demands on the hostile actions against the United States by the Panamanians was just one example of the attitude of the Provincial Junta Government of Panama toward this country that has given two hundred million dollars in aid and assistance since it came into power. While the Panamanian Government's major excuse for the seizure of Fuerza y Luz was that the Company had failed to pay its fuel bills. In reality, the Company's dire cash position was brought about in great measure by the failure of that very same Junta Government to pay approximately $21/2 million in back bills for electric and telephone service. Despite the intimidation of a military takeover, representatives of the Company upheld its position during 30 days of negotiations in June and offered what it considered reasonable offers to the demands of the Panamanians. They also indicated to the Panamanians that they were very much interested in remaining in business in Panama. It did not take Boise-Cascade negotiators long to realize that the military regime in Panama started on that particular adventure with expropriation in mind even though they claimed otherwise. (The manager of the Panama Federal

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70 Power Commission had publicly stated that the more militant in the Junta Government were in favor of immediate expropriation rather than the 90 day drama that was acted out.) And at the end of a series of fruitless talks in June, the military junta delivered an ultimatum to Boise-Cascade to "sell" its assets and installations to the Panamanian Government in 60 days. If it failed to accept the Panamanian offer, the National Guard was offered to expropriate the Company on September 1, 1972. The hopelessness of Boise-Cascade's position was found in a memo dated July 7, 1972 which reads: "Boise-Cascade Corporation finds itself in a very difficult position in that (1) the Government, not Boise, is in possession of the Company and the properties which the Government wishes to acquire, and (2) the success of any negotiations that could take place during the next 60 days will necessarily depend upon the willingness of the Government to truly negotiate, there being no pressure on the Government to come to mutually reasonable terms during that period." The wisdom of that memo is found in the fact that Boise-Cascade was forced to "sell" Fuerza y Luz with a book value of 87 million dollars to the Panamanians for 22 million dollars. Such treatment of United States interests hardly instills faith in the good intentions of a government with whom we are expected to sign a new treaty to operate one of the most important world waterways for international commerce and which is of utmost important to the Southern Defense of the United States of America. Subcommittee inquiries prior to the July-August hearings on the Boise-Cascade seizure indicated that there was ample evidence that the State Department allowed violations of the spirit and intent of President Nixon's policy on expropriations outlined in a statement of January 19, 1972. There was also evidence that the State Department permitted violations of the laws of the United States by not exercising its responsibilities in this case. For example, the President said that under certain expropriatory circumstances he will presume that the United States Government will withhold its support from loans under consideration in multilateral development banks. He also proclaimed that the Department of State would follow expropriation cases to determine whether the rights of Americans are being observed under international law and indeed, under the laws of the United States of America. The Congress expressed its position in these matters in a law passed in March of 1972, which concerned itself with loans approved by the Inter-American Development Bank. This law stipulates that the United States would deny loans to any country which had expropriated or seized ownership or control of property owned by any U.S. citizen or corporation. Yet, on July 5, 1972, thirty-five days after the Panamanian military seized and occupied Boise-Cascade properties, the Inter-American Development Bank approved a $6.9 million loan to the Republic of Panama. That same law further states that loans will be denied to any country which has taken steps to repudiate or nullify existing contracts or agreements with any U.S. corporation. The Provisional Junta Government of Panama, by refusing to pay at latest count $2.5 million to FYL for services supplied that very government, according to the authors of this law, repudiated or nullified their contract with that company making them ineligible for American supported financial loans. The Chairman of the Subcommittee stated at the beginning of the Boise-Cascase hearings that we were attempting to find out if this particular American firm was being given the full protection and support of the American Government as outlined by President Nixon in his White House statement of January, 1972, dealing with the policy of the United States in situations involving expropriatory acts. In his opening remarks the Chairman predicted: "If Boise-Cascade is not receiving the full support of the American Government and its rights under international law are not being observed, this may be only the beginning of a series of seizures by the Provisional Junta Government of Panama which could ultimately deteriorate United States control and operation of the Panama Canal." One month after the final takeover of the Panama Power and Light Company, the Panamanians seized the Canal Zone Bus Service, Inc. State and Treasury Department witnesses testified that there was "full consideration" given to withholding the $6.9 million loan but the decision was made to grant it because in the judgment of the government the Panamanians were negotiating the Boise-Cascade takeover "in good faith". This judgment was made despite the overwhelming evidence that there was never a doubt over the true intentions of the Panamanians. They concocted a series of phony charges against the company,

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71 Fuerza y Luz then took it by force and Boise-Cascade was forced to accept one quarter of its book value of $87 million dollars in "compensation". The State and Treasury Departments made much of the fact that Boise-Cascade was consulted in their decision-making process on the loan and that the company concurred that the Panamanians were negotiating "in good faith". The truth of the matter is that Boise-Cascade officials were fearful that if the $6.9 million loan were withheld by our government, the Panamanians would retaliate by expropriating the company outright and there would be no payment at all for the facility. This Subcommittee feels it is time this country begins to receive from the Panamanian government the same kind of consideration we have shown the people of Panama. We will, therefore, take a hard look at loans that are now in process and at AID monies that are earmarked for the Republic of Panama with a view toward severely limiting the generous attitude we have taken toward a military junta whose leaders daily announce in a controlled press their hatred and contempt for the United States presence in their country. In the judgment of this Subcommittee, while the Panamanian Government plays fast and loose with our country, its citizens and corporations, the State Department's position has been one of timidity, vascillation, and indecision. The Panamanian Junta is apparently pushing the United States to the wall to see how far they can go. And the Department of State appears to be perfectly willing to let the United States be pushed in a variety of areas in order to appease the Panamanians. SEIZURE OF CANAL ZONE BUS COMPANY PROPERTY As the Chairman of the Subcommittee, Mr. Murphy, indicated at the end of the Boise-Cascade hearings, if the Panamanians succeeded in the takeover of that American company, we might well ask, "What is next?". The Chairman, from evidence coming to the Subcommittee, indicated that other major American firms were marked for similar action. And, indeed, before the final takeover of Boise-Cascade had even been consummated, a government-inspired takeover of the Canal Zone Bus Company was initiated. The Panamanian Government has consistently protested the operation of the Canal Zone Bus Service, Inc., as a violation of the 1936 Panama-United States treaty concerning the operation of private businesses within the Canal Zone. The Panamanians argued that the bus company was in no way related to the operation of the Canal and was, therefore, illegal. The position of the Canal Zone Company has been that inasmuch as the Bus Service is used to transport the employees of the Canal to and from work, the operation of the bus company has a direct bearing on the efficient and continued operation of the Canal. Having failed in its efforts to convince the American Government that its position was justified, the Junta Government apparently instigated the Bus Company employees to hostile action. Early in the morning of November 20, 1972, 12 of the Company's 52 buses were illegally removed by a group of militant drivers from the Canal Zone and driven to Panama City, whereupon the Guardia Nacionale took the vehicles into "protective custody". On the night of the 20th, two additional buses were highjacked by two armed passengers who allegedly held pistols to the heads of the drivers and forced them to drive into Panama City. Subsequently, two additional buses were taken into the Republic by their drivers and a company-owned station wagon was taken on the night of November 24th. A final bus was driven into Panama City on November 25, which brought the total number of vehicles to 17 buses and the station wagon. The United States State Department indicated it viewed this action with "serious concern". An inquiry was begun into this extreme act of provocation against a private American-owned firm. (The Canal Zone Bus Company, Inc., is incorporated in Delaware, owned by American citizens residing in Panama, whose employees are all Panamanian nationals.) After a week of negotiations, during which time it was determined that the incident that sparked the highjacking involved a union organizer allegedly caught stealing gasoline by the company and dismissed, a group of dissident drivers demanded that this official be reinstated. In addition, these dissidents seized on the opportunity to demand social security and other benefits available to Panamanian bus drivers who work in the Republic of Panama. The United States owners who pay their drivers the U.S. minimum wage which is triple that paid to their Republic of Panama counterparts, are, of course, not under any obligation to adhere to Panamanian rules governing their employees. It is important to note that the great bulk of the company's drivers disassociated themselves from the actions of the militants.

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72 As a result of the State Department's intervention, the bus company will be sold to a Panamanian bus cooperative, Corporacion de Transporte S.A. (CUTSA). The State Department reports the drivers who highjacked the buses were dismissed, but they each received $200 in severance pay from the American Company. The Guardia Nacionale returned all of the buses and the station wagon to the Canal Zone Bus Service, Inc., on November 30th. One hundred and five of the Canal Zone Bus Service drivers petitioned Canal Zone Governor David S. Parker to keep the bus company in the Zone under American auspices. The drivers issued a joint statement to the press indicating their desires in this incident, i.e., that the Company not be sold and that it remain under control of the Canal Zone Government. They were immediately subjected to attack and vilification in the Junta Government-controlled press. The Panamanian Government charged that the statement issued by the bus drivers, which was favorable to the United States, was extracted from them in the administrative offices of the Canal Zone Company "who had a revolver pointed at their stomachs." The charge is, of course, ridiculous. However, it is an indication of the vehemence with which the military regime of Panama views any effort by the people of Panama to maintain normal relations with the people and Government of the United States of America. CONCLUSION The Boise-Cascade and the Canal Zone bus episodes are symbols of the loss of American rights on the Isthmus of Panama, and the Members of this Subcommittee are convinced it is time we take a stand to prevent the continued piecemeal erosion of our position there. The United States has been largely responsible for funnelling over one-half billion dollars in economic and military assistance into the Republic of Panama since 1946. Over $200 million of this aid has gone to the current Junta Government during just the past four years. This means that of the recent Panamanian Governments the one that appears to be most dedicated to the goal of limitless extortion of the United States and U.S. citizens has received two-fifths of all the economic and military aid during the past 26 years in less than one-sixth of that time span. (The yearly aid figures are contained in a General Accounting Office report prepared for Chairman Murphy of the Panama Canal Subcommittee and is included at the end of this report as Appendix A.) Additional loans and other economic aid in the tens of millions are presently in the works to help Panama with its internal problems. This is in spite of the fact there is strong evidence that Administration agencies allowed violations of Public Law 92-246 and Public Law 92-247. These laws explicitly forbid economic assistance and loans to countries that: (A) Expropriate or seize U.S. property or repudiate or nullify existing contracts with U.S. citizens or corporations such as the Boise-Cascade case, and, countries. (B) That have failed to take adequate steps to prevent narcotic drugs from being transported through such countries for sale in the United States. In view of the overwhelming evidence that the Panamanian Government has not only failed to stop the transshipment of drugs but is, in part, part of the conspiracy to do just the opposite, this Subcommittee intends early in the 93rd Congress to examine all current aid and loan programs to Panama to determine if the laws of the United States have been violated and the will of Congress thwarted. If this is found to be true, the Subcommittee will consider recommending to the Congress the reduction or termination of all aid programs to Panama as well as other sanctions. The continued operation and control of the Panama Canal by the United States may well depend on such actions. MAJOR CANAL ISSUES SUMMARIZED The inquiry is far from over. The remaining key issues to be resolved are: (a) Retention by the United States of its undiluted sovereign rights, power and authority over the Canal Zone, which is the absolutely necessary protective frame of the Canal; and (b) major modernization of the existing Canal within the present Canal Zone which means that we do not necessarily need a new treaty with Panama. All other large Canal questions, however important, including the much discussed "sea level" proposal, are irrelevant and should not be allowed to confuse that of the Canal's major needs, i.e., its increase in capacity and operational improvements. In forthcoming hearings the question of type of canal will be examined.

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73 STATEMENT OF DONALD J. DEVINE, DIRECTOR, OFFICE OF PERSONNEL MANAGEMENT Mr. Chairman and Members of the Subcommittee: Thank you for giving me this opportunity to provide the views of the Office of Personnel Management on the subcommittee's draft bill to amend the Panama Canal Act of 1979. While the draft bill deals with a great many different subjects, the subcommittee has asked that we address in particular sections 2 and 3, which concern personnel management matters. Section 2(a) would allow the Department of Defense to pay a quarters allowance to certain employees who were transferred to the Department of Defense or have been recruited from outside Panama. This allowance would be the same as is provided for Federal employees in other foreign areas when government housing is not available, and it would be in lieu of the special recruitment and retention allowance now provided for certain U.S. Government employees in Panama. This provision appears to us to be reasonable. Section 2(b) of the draft bill would make several changes in title 5, United States Code. The first change would be to move from the Panama Canal Code to title 5 the statutory authority for two legal public holidays now observed by U.S. Government employees in Panama, Good Friday and Panamanian Independence Day. These holidays are in addition to the nine holidays provided for all Federal employees. While we would not favor additional holidays for Federal employees, this amendment would simply continue an existing entitlement. Good Friday and Panamanian Independence Day (November 3) are legal holidays in the Republic of Panama, and in the past have been authorized for all U.S. Government employees stationed there as well. However, we note that the bill would narrow the coverage for these holidays from all U.S. Government employees in Panama to only employees of the Panama Canal Commission. We understand that the agencies involved would prefer to continue the existing coverage for all U.S. Government employees, and we therefore recommend that this provision in the draft bill be amended to continue the present coverage without change. Section 2 would also make a technical amendment to the final sentence of section 5924(4)(b) of title 5, United States Code. We recommend instead that the entire final sentence be deleted. This sentence now speaks of the travel for educational purposes of dependents of employees in the former Canal Zone. However, under section 1217(d) of the Panama Canal Act, this provision has been rendered inapplicable. Instead, the dependents of Canal Commission employees can now receive such travel expenses under section 1207 of the Panama Canal Act, and we accordingly believe the obsolete provision in section 5924 should be repealed. Further, we would recommended that section 1207 of the Panama Canal Act be amended to extend its benefit to all U.S. Government employees stationed in Panama. This would correct an existing inequity whereby U.S. Government employees in Panama (other than employees of the Panama Canal Commission) are the only U.S. Government employees in foreign areas who are not eligible to receive educational travel benefits. Section 3 of the subcommittee's bill relates to the timing of annual pay increases for certain minimum wage employees in Panama. Section 1225 of the Panama Canal Act now requires that these employees receive annual pay increases each October 1. However, under the local pay system, some categories of employees receive pay increases in October and others receive their pay increases in January. This amendment would allow agencies to adjust the pay of these minimum wage employees at the same time as other employees and seems a reasonable solution to this administrative problem. There is one other matter which we feel is important, and which has not been addressed in the draft bill. Section 1209 of the Panama Canal Act relates to the inapplicability of certain benefits to certain non-U.S. citizens whose initial appointment by the Panama Canal Commission has occurred since October 1, 1979. However, it has become clear that that section does not adequately address one situation: Some individuals were first employed with the Canal prior to October 1, 1979, but left such employment. If these individuals are reemployed by the Commission at some time after October 1, 1979, we believe that it would be inconsistent with article VIII of the agreement in implementation of article III of the Panama Canal Treaty of 1977 to allow these individuals to be covered under the U.S. Government's benefits programs. Accordingly, we urge that the draft bill be revised to include an amendment to section 1209(a) of the Panama Canal Act, to read as follows: "Sec. 1209. (a) Any individual who is covered by the Social Security System of the Republic of Panama shall not be considered an employee for the purpose of chapter 81 of title 5, United States Code, relating to compensation for work injuries, chapter

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74 83 of such title 5, relating to civil service retirement, chapter 87 of such title 5, relating to life insurance, and chapter 89 of such title 5, relating to health insurance." Thank you for the opportunity to present these views. We will be happy to provide any further information that the subcommittee might need. DOCUMENT ON THE POSITION OF THE PANAMANIAN MEMBERS OF THE BOARD OF DIRECTORS OF THE PANAMA CANAL COMMISSION ON PUBLIC LAW 96-70 OR PANAMA CANAL ACT OF 1979 The Panamanian members of the Board of Directors of the Panama Canal Commission consider that the law of the United States of America whereby that agency is established, as is the purpose of Article III of the Panama Canal Treaty, should be known as "Panama Canal Commission Law." Consequently, it is our opinion that the title that Section 1 of Public Law 96-70 assigns to that legal document is inappropriate. Consequently, with the above instead of what Section 2 provides, the resultant legislation should have had as its purpose to establish the Panama Canal Commission according to the terms of the Treaty. The definitions in Section 3 should be consistent with the provisions of the Treaty and its related agreements, and the extension of the transition period by amendments or the application of the U.S. laws which are not applicable and cannot be applied beyond what the Treaty provides, especially in paragraph 7 of its Article XII, should not have been recommended. Insofar as the Administration and Regulations established by Title I, it is necessary that the Canal Commission be restructured with its own juridical and independent status, so that it may exercise the function of fulfilling the responsibilities assumed by the United States of America under Article III of the Treaty, in order not to jeopardize the efficient and continuous management and operation of the Panama Canal. In consequence, the text of Section 1101 does not conform to the structure agreed upon in the Treaty for that Agency. As was envisioned in the Treaty, the Board of Directors of the Panama Canal Commission should be the body directing all the activities necessary to fulfill the responsibility of guaranteeing the efficient and continuous operation and maintenance of the Panama Canal. This is why it may establish administration and operations policies; review, modify, recommend, or approve budgets and regulations, and establish the necessary financial guidelines inherent to a corporate entity with the mutual cooperation of the two parties involved, as well as to comply with the requirement of a regular and progressive participation of Panamanians in all levels of employment and knowledge about the operation and management of the interoceanic waterway. Section 1102 deviates from this conception by downplaying its functions and assigning to it the nature of a Supervisory Board. Also, paragraph (c), when referring to the Board meeting quorum provides that a U.S. majority should prevail, contradicting the principle of Panamanian participation in the Canal enterprise. Although this is a procedural matter, if what was meant was to include it in the Law, it should have provided that the quorum should be of at least six directors to guarantee the presence of at least one Panamanian in said quorum. As on January 1, 1990, the Administrator shall be a Panamanian citizen proposed to the United States of America by the Republic of Panama for his appointment to that position by the United States (paragraph 3(c), Article III of the Treaty), Section 1103 does not agree with such a norm. The same comment applies to the appointment of the Deputy Administrator who shall be a Panamanian citizen up to December 31, as it is not clear whether the Panamanian Deputy Administrator will be recommended by the Republic of Panama; in this sense, Section 1104 also does not agree with the Treaty. Section 1104 establishes the position of a Chief Engineer. We do not consider necessary the establishment of such a position which, in practice, will be parallel to that of the Deputy Administrator. If such a designation were indispensable, we consider that, in compliance with the principle of a growing participation of Panamanians, it should be filled by a qualified Panamanian citizen. We consider inappropriate to have this Law govern aspects clearly defined by the Treaty and the agreements subscribed by the parties through Exchanges of Diplomatic Notes and other agreements. Thus, it should not have covered the Consultative Committee, the Joint Commission on the Environment, Canal Defense, and the Sea Level Canal Studies Commission.

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75 Such activities depend upon binational actions and in practice do not respond to particular interests; therefore they cannot be subject to unilateral legislation by our two nations, but to criteria which, under the Treaty, are of mutual understanding, cooperation, work and recommendation to the two governments so that full consideration may be given to the formulation of policy decisions relative to the activities pertaining to each of (these bodies). Consequently, Sections 1105 and 1106 are inadmissible. Insofar as the travel expenses of the members of the Consultative Committee and the Joint Commission referred to in Section 1107, if such disbursements are to be made by the Panama Canal Commission, then there should be no discrimination against the Panamanian members of these organizations. The Panama Canal Treaty has the mechanism to transfer to the Republic of Panama such property and functions it should assume under Article XIII. Therefore, it is unnecessary to establish, as in Section 1110, unilateral procedures to delegate to the Ambassador of the United States in Panama, the condition (sic) of such activities. This Law (Section 1111) purports to have the U.S. negotiate with the Republic of Panama the presence of U.S. troops in Panamanian territory after the Treaty expires. In this regard, consideration should be given to the provisions of Article V of the Treaty Concerning the Permanent Neutrality of the Canal and the Operation of the Panama Canal which expressly determines that "after the termination of the Panama Canal Treaty, only the Republic of Panama shall operate the Canal and maintain military forces, defense sites and military installations within its national territory." It must also be pointed out that the Protocol to the Neutrality Treaty was open to accession by all States of the world, and once other States accede to it, said Treaty shall cease to be a bilateral relationship between the two Nations. In what respects to the Code of Conduct of employees of the Commission to which Section 1112 refers, although regulations of this nature to be applied to Commission employees are necessary, it is antijuridical to hold said employees under oath to obey the laws of the United States, which is contrary to the recognition of the sovereignty of the Republic of Panama throughout its territory made in the Preamble to the Treaty and in several of its provisions. Considering that most of the Commission employees are Panamanian, it is inconsistent to abscribe to them a moral responsibility toward a Government alien to them. A legislative act by Congress cannot govern activities which, according to the Treaty, are of the exclusive-competence of the Panama Canal Commission (Article III). Consequently, as the Panamanian members of the Board of Directors, as well as the Deputy Administrator up to 1989 and the Administrator, from 1990 on, are officials representing the Government of the Republic of Panama and therefore subject to its laws on conduct, they cannot be subject to the Code of Conduct referred to in Section 1112. The establishment of the office of the Ombudsman in Section 1113 is not a Treaty provision, nor does it have a precedent in the former Panama Canal Company. Although the philosophy behind the position is positive, we are opposed to the discrimination by reason of nationality included in paragraph (d) of this Section, under which the "Ombudsman" shall be a citizen of the United States. This provision discriminates against Panamanian citizens and is contrary to the clear provisions of Article I, (3), Article III (8) and Article X of the Treaty. Insofar as the employees and the power of the Commission to make appointments (Section 1202), it is necessary to point out that Article X of the Treaty establishes the guidelines to be followed in exercising these rights. Compliance with such requirements should follow closely the concept of the hiring preference for Panamanian applicants. Thus, appointment and remuneration of Commission employees needed for the management, operation, and maintenance of the Panama Canal and its auxiliary works, installations, and equipment, shall be compatible with such principles, so it goes without saying that the text of the aforesaid Section shall be revised accordingly. Section 1203 shall only be acceptable if the transfer of Federal employees does not affect the Treaty provisions regarding the growing participation and preference in hiring of Panamanians. The same comment applies to Section 1204 on compensation to individuals serving in Commission positions, who simultaneously serve in the armed forces, provided it is not in detriment of the need of Panamanian employees' acquiring skills and knowledge on all levels of employment and, specifically, that exclusive positions or offices are not designated. In any case, we must point out that, because of the temporary nature of the military service rendered by these individuals, their office and services to the Commis

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76 sion are limited by temporariness, and to be consistent with the Treaty, these individuals should be replaced by Panamanian citizens upon termination of their services for the Commission. Section 1205 is not objectionable, as it provides the Commission with a practical and useful mechanism to collect for supplies or services. Nevertheless, inasmuch as Commission employees (including U.S. citizens) are subject to the jurisdiction of civil courts of the Republic of Panama (first paragraph of Article I; Article III (5) of the Annex 1 to Treaty, and Article XVIII, (4) of the Agreement in Implementation of Article III), no doubt should remain that the mechanisms for payroll deductions should also apply to those cases allowed or ordered by Panamanian Law. This would also be in accordance with the collaboration established in the Treaty so that Panamanian justice is (not) obstructed. We believe that the subsidy granted to Commission employees formerly with the Company/Government for cost of living and loss of certain privileges is commendable, but to discriminate on the basis of nationality contradicts the basic objectives of the Treaty and is counter to equal pay for equal work for Panamanian employees in the same categories. Consequently, we note that Section 1206 should have also included a subsidy for cases of Panamanian workers who lost such privileges upon entry into force of the Treaty. Consistent with what Section 1207 provides on certain employee and dependent travel benefits for educational purposes, we consider that the necessary funds must be made available to include other employees and dependents recruited locally. Subchapter II entitled Pay and Employment Practices (sic) (Section 1212), covers the employment system of the Panama Canal, the Merit system and other activities relative to employment, and empowers the President to order, issue the necessary regulations, and coordinate the practices and activities of the agencies according to said Law. This procedure is not compatible with Article III (3) of the Treaty which provides that pursuant to the concessions made by the Republic of Panama to the United States, the latter shall carry out its responsibilities by means of the Panama Canal Commission which, as employer (Article X (1) of the Treaty), "shall establish employment regulations" and labor regulations for employees which shall contain the terms, conditions and prerequisites for all categories of employees, with the obligation of providing such regulations to the Republic of Panama prior to their entry into force. This is why it is objectionable to grant administrative employment powers to the President of the United States exclusively and unilaterally, for matters that should be discussed by the Board of Directors of the Commission. With Section 1214 it is purported to apply the provisions of Subchapter III, Chapter 7, Title 2, Canal Zone Code, which established the Panama Canal Zone Merit System, and its continuity until such time as the Panama Canal Employment System is established, not taking into account that there shall be no discrimination in pay or benefits by reason of nationality, sex, or race. Subchapter III of the Canal Zone Code, which established pay and employment practices, covers application of 1) the tax factor; 2) sensitive positions; 3) the Board of Appeals of the former Canal Zone; 4) delegation to the President of the United States of certain powers and authority to issue regulations; and 5) the application of U.S. laws, among other things, which by virtue of the "new relationship' have been superseded, abrogated and regulated under the new Treaty and which, according to Article XI, paragraph 7, shall only be applicable during the transition period. Consequently, the parties must make decisions relative to the continuity and applicability of such laws; therefore, such activities are best carried out through the binational mechanisms and not by a unilateral legislative act. The items that follow, "Basic Pay" (Section 1215); "Uniform Application for Standards and Rates" (Section 1216); (Salary Protection Upon Conversion of Pay Base) (Section 1219); "Review and Adjustment of Classifications, Grades, and Pay Level," (Section 1220); "Appeals to Board; Procedures; Finality of Decisions," (Section 1222); "Administration by the President," (Section 1223); and "Applicability of Certain Laws," (Section 1224), result in a quote of the provisions contained in Subchapter III, Chapter 7, Title 2 of the Canal Zone Code, with small variations, but basically have the purpose of maintaining the status quo that prevailed in the former Canal Zone, disregard the "new relationship" between both nations and diminish the employment principles set forth in the Panama Canal Treaty of 1977. This thesis would result in a permanent point of conflict because it contradicts what the Treaty has provided to this effect. The minimum level of pay and minimum annual increases (Section 1225) constitute a grievance and diminish the existing employmernt terms which the Treaty in its Article X, paragraph 2(b) had contemplated by establishing that "the terms and conditions of employment to be established will in general be no less favorable to

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77 persons already employed by the Panama Canal Company or Canal Zone Government prior to the entry into force of this Treaty, than those in effect immediately prior to that date." This reduction in minimum pay upon entry into force of the Treaty constitutes a discrimination against Panamanian employees (as compared to) equally qualified U.S. citizens at the same employment levels, and logically acts against the efficient administration and employment policy within the Commission; the Treaty, in addition, provides for improvement of the employment conditions and terms in the Canal area. Section 1271, in its Subchapter VII (on labor-management relations) introduces the application of Chapter 71, Title 5 of the U.S. Code, and extends the jurisdiction of the Federal Labor Relations Authority which, in the territory made available to the United States of America, may conduct elections and make decisions with regard to collective agreements between the Commission and its employees. This situation violates the labor procedures established in the Treaty (Article III, 3 and Article X, 1) as well as the sovereignty of the Republic of Panama, widely recognized by the United States in the Treaty, and subjects the Commission employees to the labor jurisdiction of the United States, thereby failing to comply with the Treaty provisions. The problem is even more serious as the Law wishes to apply these labor activities uniformly to all agencies. It must be recalled that insofar as the Armed Forces, the Agreement signed by the two governments for the Implementation of Article IV of the Treaty, in its Article VII, establishes that they shall prepare regulations on the terms, conditions and prerequisites for all categories of civilian employees, conforming to the general principles contained in the labor laws of Panama, through the Joint Committee. Chapter 3, Funds and Accounts of the Canal Zone Government and the Panama Canal Company (Sections 1301 and 1302), jeopardizes the efficient operation of the Canal by the Commission by establishing it as an Executive agency whose budget appropriations require Congressional approval. There (is) a restriction in the use by the Commission of the available balance of its funds credited to its receipts, in the event they exceed the budget of the corresponding fiscal year, (as if) to avoid an outlay by the U.S. Treasury to manage and operate the Canal through its agency in an efficient and continuous manner and guarantee the orderly transit of vessels through the Canal. In consequence, such responsibilities are of mandatory compliance, and it is therefore necessary to make the commission a more flexible agency, more independent from the bureaucracy of Congress, whose debate are mainly political. Accounting and auditing practices (Sections 1311 and 1313) should likewise adapt to a corporative system with greater financial flexibility. Insofar as interagency accounts and the reimbursement of interagency services and supplies (Section 1321), although we object to having the Commission pay expenses other than those relative to the Canal maintenance and operation such as educational, recreational, health, and other activities because they are not related to these purposes, such activities should in any case be for all its employees and dependents notwithstanding their nationality, without classifying them "eligible" or "authorized" persons. This discriminatory practice contradicts the principle not nondiscrimination contained in Article X, 6 of the Treaty. Moreover, the expenses paid by the Commission under these items should also not cover payment by the Commission other agencies' employee and dependent expenses. The Panamanian Government, when objecting to the text of the appropriate items of H.R. 111 now in thi Section (1341), stated that it has the purpose of invalidating Panama's right under Article XIII (4)(c) of the Treaty of receiving up to $10 million whenever there is a surplus in yearly Canal operations. Depreciation and interests are included in it should be excluded when calculating the Canal operating expenditures. Article XIII (4)(c) authorizes Panama to receive up to $10 million annually to the extent the revenues from the Canal operation exceed the expenditures of the Panama Canal Commission, including the sums paid under the Treaty. The intention is to add unauthorized expenditures in making the aforesaid calculation, and this obviously constitutes going back on the word of honor given by the United States in the Treaty. This section also wishes to deny Panama the right of receiving the amount specified in Article XIII (4)(c) by charging to Canal operation costs "all costs of implementation of the Panama Canal . .". This is not what we agreed upon and only by reneging its sovereign rights could Panama ever agree to assume the costs incurred by the United States to implement the Treaty. Such provisions carries the purpose of artificially padding the Commission's operating costs at Panama's expense. This is equivalent to amending the Treaty unilaterally, an illegal action under International Law. 97-154 0-82--6

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78 The Republic of Panama does not object to Congressional action (Section 1344) when, by virtue of its constitutional powers it may enforce financial restraints on the Commission's transfer of property and tax expenditures, provided the transfer is made on the basis of Article XIII, 1, 2, and 3 of the Panama Canal Treaty. However, the aforesaid provision, in its paragraph (c) proposes to have $205,000,000 in retirement costs of former Panama Canal Company employees deducted and charged to tolls, whereas they should have been assumed by the U.S. Treasury. Chapter 4 (Sections 1401 through 1418) on "Claims for Injuries to Persons or Property" constitutes application of Chapter 11, Title 2 of the Canal Zone Code. It is opportune to point out that such a practice would make evident the issuance and application of laws that contradict the principle of the "new relationship," and "mutual cooperation," with the ensuing difficulties in their application due to the considerable jurisdictional confusion they would introduce insofar as the Treaty. Article XI of the Panama Canal Treaty of 1977 establishes that "the Republic of Panama shall reassume plenary jurisdiction over the former Canal Zone upon entry into force of this treaty and in accordance with its terms." Such has been the Panamanian positions since the start of the new relationship between the two nations over the Canal, and the United States has also recognized it in the Preamble of the Treaty, in the second whereas, which establishes that the sovereignty of the Republic of Panama over its territory is "recognized." It is also worth mentioning that Article IX, 1, says that "in accordance with the provisions of this Treaty and related agreements, the law of the Republic of Panama shall apply in the areas made available to the United States of America pursuant to this Treaty." It is evident that Panamanian jurisdiction is persent and indispensable after the date of termination of the "transition period," and consequently, Article XI, 6 states that "in civil cases, the civilian courts of the United States of America in the Republic of Panama shall have no jurisdiction over new cases of a private civil nature, but shall retain full jurisdiction during the transition period to dispose of any civil cases, including admiralty cases, already instituted and pending before the courts prior to the entry into force of this Theaty." Such stipulation provides that the United States, "recognizing the sovereignty of the Republic of Panama over its territory" under the terms of this Treaty and related agreements, determines that "the laws of the Republic of Panama shall apply in the areas made available to the United States of America for its use." Under Article XI, 6 of said Treaty, the civil courts of the United States of America in the Republic of Panama will not have jurisdiction over new private and civil cases, to decide any civil cases, including admiralty cases, once the transition period is over. This is why Panamanian jurisdiction and laws are applicable to any new civil, private or admiralty cases arising after entry into force of the Treaty, and therefore, the United States may only during the transition period retain full jurisdiction to decide any civil and admiralty cases already instituted and pending before the courts prior to transition period." With the transfer of all property and other assets of the Panama Canal Company and the contractual obligations as well as the liabilities (Section 1501) to the United States, and the proviso that the Panama Canal Commission "may use" such property, installations, and records that may be necessary to fulfill its functions, the principle of the United States exercising its responsibilities by means of an agency called Panama Canal Commission (Article III of the Treaty) and that it be the one in charge of transferring property during and after entry into force of the Treaty (Article XIII of the Treaty), is contradicted. With regard to the transfer and cross-servicing between agencies (Section 1502) it should be considered that when authorizing the transfer between agencies of the United States of installations, buildings, structures, improvements, stock and equipment located in the Republic, the activities or property which under the Treaty and its related agreements will revert to the Republic of Panama should not be affected. The corresponding mutual agreement between agencies and the approval of property transfers by the President may lead to unforeseen situations in detriment of the economic participation by the Republic of Panama (Article XIII of the Treaty), and of the preference given to it insofar as the assignment of equipment, materials, supplies or other removable property of the Commission under Article III, 7 (a) (b) of the Agreement in Implementation of Article III of the Panama Canal Treaty of 1977. Also, Section 1503 aims to prevent the automatic transfer of any U.S. property without the exclusive and unilateral authorization of Congress, despite the fact that the Treaty, being a law of the United States, has established the procedure to follow in this regard by creating binational mechanisms and providing for the participation and representation of both governments. If this has the intent of having a full

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79 domestic "constitutional debate" in the United States for the disposal of U.S. property, this does not concern Panama provided the deadlines set in the Treaty (a law between the parties) are met as mutually agreed upon. Chapter 6, refers to the "Tolls for Use of the Panama Canal." The subject of this chapter should be governed by Panama Canal Commission regulations and not by a law (Sections 1601 and 1602). Although it is true that it has been agreed in the Treaty that the United States "may establish and modify methods of their assessment" (Article III (2) (d)), such a function should be carried out through the Panama Canal Commission (Article III (3)). Consequently, the vesting of the President with unilateral powers for setting tolls, adding that such a decision is final, contradicts the position of the United States as contained in several provisions of the Treaty. Article III (4) (7), establishes the Consultative Committee and agrees that . "the Committee shall advise on matters such as general tolls policy . ." and at the end of same it is added "that . the Committee's recommendations shall be transmitted to the two Governments, which shall give such recommendations full consideration in the formulation of such policy decisions. The Law excludes the participation of the Government of Panama through its four Directors of the Commission, for issuing regulations and making decisions in the formulation of tolls policies, which constitutes a violation of the Treaty, in view of the above. Chapter 7, "General Regulations," contains the "Authority of President" (Section 1701) and "Authority of Commission" (Section 1702), and grants regulatory powers in the areas made available to the United States. As regards the first one, it is a Treaty violation to grant regulatory and exclusive powers to the President over matters not involving the management, operation and maintenance of the Canal, such responsibilities to be fulfilled by means of the Commission (Article III, paragraph 3). Also, the Annex to the Treaty establishes the procedure for the cessation or transfer of the activities and function to be carried out by the Panama Canal Commission. In the Chapter relative to "Shipping and Navigation", the law maintains the power of regulating on tonnage on tolls, as well as navigation, pilot licenses in waters of the Canal in the hands of the President of the United States, a power that pertain to the Commission and not to the U.S. Executive, preventing the possibility of having the Panamanian members of the Board of Directors suggest policies on these matters. (Article III, 13 of the Treaty.) Section 2101 proposes that the laws, regulations, administrative powers of the United States in the Commission or in the areas available to it for its use continue; it should be made clear that this is during the transition period, and that upon expiration of same this section is inapplicable. This is so because Article XI of the Panama Canal Treaty of 1977 expressly sets guidelines for the continuity of the laws, regulations, and administrative powers of the United States in the Republic of Panama, in the areas made available to the United States, and makes provisions for deciding pending cases at the end of the transition period. To this effect it provides that "the Republic of Panama shall reassume plenary jurisdiction over the former Canal Zone upon entry into force of this Treaty and in accordance with its terms." Paragraph 1 of that article states that "the laws, regulations and administrative authority of the United States applicable in the former Canal Zone immediately prior to the entry into force of this Treaty shall, to the extent not inconsistent with this Treaty and related agreements, continue in force for the purpose of the exercise by the United States of America of law enforcement and judicial jurisdiction only during the transition period." The United States of America may amend, repeal, or otherwise modify such laws, regulations or administrative authority. The parties shall consult concerning procedural and substantive matters relative to the implementation of this article, including the disposition of cases pending at the end of the transition period, and, in this respect, may enter into appropriate agreements by an exchange of notes or other instruments. Moreover, insofar as the concept of jurisdiction for the purposes of the transition period (Chapter 2, Section 2201 et seq.) in addition to the above, we must note that Article XIX of the Agreement in Implementation of Article III of the Panama Canal Treaty of 1977 specifically establishes the procedure to be followed to have criminal jurisdiction exercised over the U.S. citizen employees of the Panama Canal Commission. "3. In any case in which the authorities of the Republic of Panama . ., the accused United States citizen employee or dependent shall be tried outside of the territory of the Republic of Panama.' (The underlining is ours (sic).)

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80 Finally, the Panamanian members of the Board of Directors wish to state for the record that their comments to Law 96-70 have been made in their capacity as members of the Board of Directors of the Panama Canal Commission, and therefore the more ample and detailed objections by the Government of Panama (they have used) have already been submitted through other channels.

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81 OH IGI \l TBL\N:i .TOIR PANNNIA CANAL COMMISSION ANNEX A DRAFT BILL WHICH, ACCORDING TO EXPERIENCE UNDER THE TREATY, THE PANAMANIAN MFMBERS OF THE BOARD OF DIRECTORS OF THE PANAMA CANAL CO MISSION CONSIDER THAT THE AGENCY SHOULD REOCMEND TO THE U.S. EXECUTIVE, FOR SUBMISSION TO THE U.S. CONGRESS August 1981

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82 AN ACT To provide-.for a reorganization of the agency charged by the Ubited States of America as responsible for the management, operation and maintenance of the Panama CInal, its complementary works, installations and equipment, in accordance with the Panama Canal Treaty and related agreements. Be it enacted by the Senate and the HJouse of Representatives of the Ulited States in Congress assembled, SDRT TITLE Section 1. This Act may be cited as "The Panama Canal Commission Act of 1981." s1'N

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83 TABLE OF CONTENTS Section 1. Short Title 2. Statement of Purpose 3. Deinitions TITLE I--A]DMINISTRATION AND REGULATIONS CHAPTER 1--PANAMA CANAL (ThMISSION 1101 Establishment of the Panama Canal Commission 1102 Bard of, Directors 1103 Administrator -1104 Deputy Administrator 1105 General Authority of the Commission 1106 Special Authority of the O(mmission CHAPTER 2--ENPLOYEES 1201 Recruitment and Bnployment System 1202 Deduction from Basic Pay of Amounts Due for Supplies or Services 1203 Cbst of Living Allowance 1204 Privileges and Inmunities ofCertain Ditployees 1205 Appliances for Bnployees Injured Before September 7, 1916

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84 CHAPTER 3--FUNDS AND ACCDUNIS S Dubchapter 1--FUnds 1301 Gana1 Zone Government Funds .1302 Authority to Incur in Obligations Subchapter 2--ACCDUNTING AND AUDITING POLICIES 1311 Accounting Folicies 1312 Reports 1313 Aditing Folicies

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85 STATEMENT OF PURPOSE Section 2. It is the purpose of this Act to provide legislation necessary or desirable to reorganize the agency charged by the.United States as responsibl-e for the management, operation and maintenance of the Panama Canal, its complementary works, installations and equipment, pursuant to the Panama Canal Treaty of 1977 and related agreements, and,> a) to repeal any legal provisions which, in their present form, are applicable only during the transition period prescribed in Article XI of that Teaty, and b) to repeal the Panama Canal Code. DEFINITIONS Section 3. (a) For purposes of this Act: (1) References to the Panama Canal Treaty of 1977 refer to the Panama Canal Treaty between the Uhited States of America and the Fepublic of Panama, signed September 7, 1977; and (2) R-ferences to the Panama Canal Treaty of 1977 and related agreements refer to the Panama Canal Treaty of 1977, the agreements relating to and implementing that Treaty, signed September 7, 1977, and to the Agreement Between the United States of America and the Republic of Panama (bncerning Air Traffic (bntrol and Tmlated Services, concluded January 8, 1979.

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86 (b) Subject to the provisions of subsection (c) of this section, for purposes of applying, in the U-ited States of America, laws of the Uited States of America and regulations issued pursuant to such laws with respect to transactions, occurrences, or status on or after the effectivce date. of this Act:-(1) "Canal Zone" shall be deemed to refer to the areas and installations in the epublic of Panama made available to the Wited States pursuant to the Panama Canal Treaty of 1977 and related agreements; (2) "Canal Zone Waters" shall be deemed to refer to "Panama Canal Waters"; (3) "Canal Zone Government" shall be deemed to refer to the United States of America; (4) "Canal Zone Governor"'or "Governor", wherever the reference is to the Governor of the Canal Zone, shall be deemed to refer to the Panama Canal Commission; (c) Any. reference set forth in subsection (b) of this section shall apply except as otherwise provided in this Pct or unless: (1) such reference is inconsistent with the provisions of the Panama Canal Treaty or related agreements, or this Act, (2) in the context in which a term is used such reference is clearly not intended, or (3) a

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87 term refers to a time before the effective date of the Panama Canal Treaty of 1977. TITLE I--AMINISTRATION AND REGULATIONS CHAPTER I--PANAMA CANAL (ThMISSION ESTABLISHMENT OF COtMISSION Section 1101. (a) For the purposes of carrying out the responsibility of the United States according to the Panama Canal Treaty of 1977, and related agreements with respect to the administration, operation and maintenance of the Panana Canal, there is established the Panama Canal Commission, as a corporate agency and instrumentality of the United States (hereinafter referred to i.n this Act as the "Commission"). (b) The President of the Board of Directors of the Commission referred to in Article III, 3(a), shall be its legal representative. (c) Ihe main office of the commission and its domicile shall be. located in the Republic of Panama in one of the areas made available to the United States of Anerica for its use, in accordance with the Panama Canal Treaty of 1977 and Related Agreements. Under tne meaning in U.S. laws relative to jurisdiction or (domicile) for civil actions, the Gommission is a resident of the District of Columbia and of the Eastern Judicial District of Louisiana.

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88 BOARD OF DIRECTORS Section 1102. (a) The 0bmmission shall be managed. and supervised by a Board of Directors composed of nine members. Five members of the Board shall be nationals of the Uiited States of America and four members shall be nationals of the .Republic of Panama. The Board of Directors shall have all the necessary powers to execute those actions necessary for the Ebmmission to fulfill the responsibilities of operation and maintenance of the Panama Canal. 'The Board -of Directors shall establish and modify administrative and operational policies, shall revise, modify and approve the budgets, shall approve and modify the tolls, shall approve and modify administrative and operational regulations, including the terms, employment conditions, wage scales and prerequisites. (b) The President appoints the members of the Board. The members of the Board that are United States nationals shall be appointed by and with the advice and consent of the Senate. Subject to the provisions of Article III, (3) (b), of the Panama Canal Treaty of 1977, each Board member shall hold office at the pleasure of the President and, the (Board members) who are Iiited States nationals, before assuming the duties of such office, shall take an oath to discharge faithfully the duties of their office. (C) The members of the Board shall not be paid for their services, but under regulations and in the amounts prescribed by the Commission, a

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89 reasonable per diem (will be granted) in lieu of subsistence, for attending Bard meetings and for the time spent on special services for the Cbmmission, and for expenses incurred while travelling to and from meetings or on special services. (d) The Panamanian members of the Board of Directors are officials and* representatives of the Pepublic of Panama. (e) The Board shall hold meetings as provided in regulations adopted by the Panama Canal (bmmission. ADMINISTRATOR Section 1103. A U.S. national shall be the administrator of theCommission until December 31, 1989, appointed by the President by and with the advice and consent of the Senate, and (he) shall hold office at the pleasure of the President. Effective January 1, 1990, the Administrator s1all be a Panamanian citizen, nominated by the Pepublic of Panama, for appointment to said office by the United States'of America. The Administrator is the chief executive official of the Panama Canal*Commission, with overall and active control of the business and offices of the Commission, and overall supervisIon of his offices and employees.

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90 DEPUTY ADMINISTRATOR Section 1104. (a) A Panamanian national shall be the Deputy Mministrator of the Commission until December 31, 1989, who shall be nominated by the Republic of Panama and appointed by the President. (b) Effective)January 1, 1990 and until December 31, 1999, the Deputy Administrator shall be a citizen of .the United States of America, appointed by the President. The Deputy Administrator is the chief assistant to the Administrator. During the absence or disability of the Administrator or in the event the position of Administrator becomes vacant, the Deputy Administrator shall act as Administrator until such time as the President designates an Administrator. Wien acting as Administrator, the Deputy Administrator shall have all the powers and authority of the Administrator. (c) 'he Deputy Administrator shall be compensated on the basis of a rate of pay established by the President not to exceed the rate of basic pay in force for grade of the General Schedule, pursuant to Section 5332, title 5, United States Code.

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91 GENERAL AUTIORITY OF THE COMMISSION Section 1105. (a) The Cbrmission is the agency responsible for the management-, operation and maintenance of the Panama Canal, its complementary works, installations and equipment and to provide for the orderly transit of vessels through the Canal, and shall exercise all the responsibilities set forth in Article III of the Panama Canal Treaty. In addition, the Commission may, under the direction of the Board of Directors: (1) adopt, alter and use a corporative seal that will be registered judicially; (2) adopt, amend and repeal bylaws to govern the general conduct of business and the performance of the powers and duties granted for (sic) or imposed by Law; (3) to sue and be sued in its corporate name, unless: (A) Its responsibility to be sued is limited by the immunities established in Article VIII of the Panama Canal Treaty of 1977, and otherwise by law; and (B) Shall be exempt from any liability on "prejudged" interests. (4) enter into contracts, leases, agreements, or other transactions;

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92 (5) determine the nature of, and need for, its obligations and expenses and the manner in which they will be carried out, allowed and paid, and incur, allow, and pay them, subject to the pertinent legal provisions, generally applicable to Governmental Corporations; and (6) unless prohibited by the 1977 Panama Canal Treaty and Related Agreements, to buy, lease or in otherwise acquire, hold, own, maintain, work, develop, -sell, lease, change, conduct, mortgage or otherwise dispose of and trade in lands, rentals, and any share, real-estate, or rights to real or indvable property, or joint ownership, and any franchise, concessions, rights, licenses or privileges necessary or appropriate for either of the purposes expressed in this chapter. (b) The Commission has preference by United States (sic) in the payment of debts in the event of bankruptcy. SPECIAL AUTHDRITY OF THE COMMISSION Section 1106. Except as otherwise stated in the Panama Canal Treaty of 1977 and related agreements, and subject to the Law of Control of Government Corporations (31 U.S.C. 841 et seq.) the commission may: (1) Maintain and operate the Panama Canal (2) Maintain and operate the railroad through the Isthmus of Panama if faced with the conditions described in Article III, 4 (e) (sic) of the Panama Canal Treaty of 1977. (3) Build or acquire, and operate vessels for transporting passengers, cargo, and for other purposes;

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93 (4) Build or ac( uire, establish, maintain, and operate locks, wharves, piers, anchorage terminal facilities, shops, yards, marine rail.ways, bunkering facilities, motor transportation facilities, electrical systems, .aqueduct systems, telephone systems, construction facilities, housing and other buildings, quest housing, com-. missaries, storehouses, warehouses, printing plants, libraries, laundries, non-profit recreational and community servic-a facilities and areas and other enterprises, the necessary facilities and complementary installations for the purposes of this chapter; (5) Make use of the. thited States Postal System under the same conditions as the Federal Government Executive departments, and (6) Take the appropriate or necessary actions to fulfill the specific rights with regard to them. CHAPTER 2 EMPLOYEES RECRUI'IMENT AND EMPLOYMENT SYSTEM Section 1201. Pursuant to the provisions of Article X of the Panama Canal Treaty of 1977, the Panama Canal Commission, in exercise of the rights of the Liited States of America, and in compliance with its responsibility as employer, shall establish employment and labor regulations, which shall contain the terms, conditions, -and prerequisites for all categories of employees in the Panama Canal Connission. 97-154 0-82--7

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94 The Commission shall conduct its employment and wage practice (in a manner) no less favorable than those applied in the Panama Canal Cbmpany and the Canal Zone Government. Employees "Aired by the Commission as of October 1, 1979, shall enjoy the same pay system and employment terms and conditions as those employed prior to that date by the Panama Canal Coi.pany and the Canal Zone Government, including the Panama Canal Cbmmission Merit System. DEDLCTION FROM BASIC PAY OF AMOUNTS DUE FOR SUPPLIES OR SERVICES Section 1202. The Commission or any other department or agency of the Lhited States operating in the P-public of Panama may deduct from the basic pay otherwise payable to any officer or employee of said agency any amount due by the officer or employee of said agency to the Commission or to any contractor of the Commission for transportation, lodging, supplies, or any other service. Deductions may also be made from the basic pay of said officers or employees, of the compulsory deductions under Panamanian laws or duly executed sentences.

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95 COSI OF LIVING ALLOWANCE Section 1203. (a) Effective beginning O:tober 1, 1979, each officer or employee of the Commission, regardless of nationality,.formerly employed by the Panama Canal Company or the Canal Zone Government on September 30, 1979,. shall De paid an allowance to compensate for any increase in cost of living that may result from the termination of the eligibility of the officer or employee and his dependents to use military postal services, commissaries, and exchanges, housing, and electric power provided by the Commission. The amount of the allowance shall be determined by the Commission. (b) Effective beginning Qctober 1, 1984, each U.S. citizen officer and employee of tne Commission formerly employed by the Panama Canal Company or the Canal Zone Government on September 30j 1979, or an individual of any nationality recruited outside the Republic of Panama after September 30, 1979, may be paid an allowance to compensate for any increase in cost of living which may result from the termination of the eligibility of the officer or employee and his dependents to use military postal services, commissaries, and exchanges, housing and electric power provided by the Cbmmission. The amount of the allowance shall be determined by the Commission.

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96 .PRIVILEGES AND IMMUNITIES OF CERTAIN EMPLOYEES Section 1204. 'Ihe Commission shall designate those officers and employees of the Commission and other individuals entitled to the privileges and irmunities accorded under paragraph 3 of Article VIII of the Panama Canal Treaty of 1977. The Commission shall furnish to the Republic of Panama a list of the names of such officers and dependents, identifying the positions they hold in the Commission, and shall keep such a list updated at all times. APPLIANCES FOR EMPLOYEES INJURED BEFORE SEPTEMBER 7, 1916 Section 1205. Artificial limbs or other appliances may be purchased by the Commission, for persons who were injured in the service of the Isthmian Canal Cbmmission or of the Panama Canal before September 7, 1916. CHAPTER 3 FUNDS AND ACCOUNTS SUB2HAPTER 1 FUNDS CANAL ZONE GOVERNMENT FUNDS Section 1301. Cn the effective date of this Act, any amounts appearing on the books of tne. [Uited States Covernment as "Panama Canal Commission Furd," established by section 1302 of Public Law 96-70, 93 Stat. 477, hall be changed to a revolving fund (to be) used by the Commission for the deposit of receipts and disbursement of funds. Also, upon entry into force of this

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97 law, the unexpended balance of Commission receipts as of the close of business of the day prior to the entry into force of this law, plus any balance available in the "Panama.Canal Drnergency Fund," established by Section 1303 of Public Law 96-70,. 93 Stat. 478, to date, shall be transferred to the revolving fund. AUTHORITY '10 INCUR IN OBLIGATIONS Section 1302. Notwithstanding any other law, the Commission may incur in obligations up to the extent of its current assets, except for inventories. SUBCHAPTER 2 ACCOUNTING AND AUDITING POLICIES ACCOUNTING POLICIES Section 1311. (a) Tne Auditing and Accounting system of the Cbrnission shall be established by the Board of Directors. The Commission shall establish and maintain its accounts pursuant to the Regulations approved by the Board of Directors for that purpose. (b) At a uniform return rate, the Panama Canal Commission shall recognize revenues and costs consistent with the manner in which they are recognized for the purpose of setting tolls for the use of the Canal.

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98. (c) The C6mmission may issue regulations establishing the accounting basis for its assets. Said regulations may provide for depreciation of the net replacement value of the assets which will ultimately require replacement to maintain the service capacity of the Panama Canal. Said regulations may also provide that depreciation of such assets be recorded. ratably over. their service lives. REPORTS Section 1312. .The Cbmmission shall submit to the President, to (bngress, ahd to the Republic of Panama, not later than January 31 of each year, a financial statement and a complete report with respect to the maintenance and operation of the Panama Canal during the preceding f iscal year. AUDITING POLICIES Section 1313. (a) Financial transactions of the Commission shall.be audited according to the system adopted by the Board of Directors in that regard. (b) The Commission shall submit to the Congress and to the Repblic of Panama, no later than six months after the end of each fiscal year, a report of the audit conducted pursuant to subsection (a) of this section with respect to such fiscal year. Such report shall set forth the. scope of the audit and shall include:

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99(1) a statement of assets and liabilities, capital, and surplus or deficit, based on the account of the commissionn established pursuant to this chapter, (2) a statement of income and expenses, (3), a statement of sources and application of funds, (4) such comments and information as the Comnission considers necessary-, to keep Congress. and the Government of the Republic of Panama informed of the operations and financial transactions of the Commission, together with such recommendations with respect to such recommendations, operations and transactions as the Commission considers advisable. The report shall identify specifically any program, expenditure, or other financial transaction or undertaking observed in the course of the audit which, in the opinion of the Commission, has been carried out or made and has not been authorized by the Panama Canal Treaty of 1977 or by the Board of Directors pursuant to said Treaty, (and) shall submit a copy of each report to the President, the Secretary of the Treasury, and the Government of the Republic of Panama through the ?mbassador of the Uited States of A'rerica in that country. (c) The Commission shall forward to Congress, nolater than six months after the end of each fiscal year, a-statement listing all direct and indirect costs incurred by the United States for implementation of the Panama Canal Treaty of 1977, including the cost of the property transferred to the Republic of Panama each fiscal year.

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100 A AMERICAN INSTITUTE OF MERCHANT SHHPPI G 1625 K Street, N.W., Suite 1000, Washington, D.C. 20006 Telephone 202/783-6440 Telex:89-424 A IMSHIP WSH March 10, 1982 The Honorable Walter B. Jones, Chairman Merchant Marine and Fisheries Committee U.S. House of Representatives Washington, D.C. 20515 Dear Mr. Chairman: On November 19, 1981, I wrote to you and the Honorable Carroll Hubbard, Jr., Chairman of the Subcommittee on Panama Canal and the Outer Continental Shelf, concerning a problem the users of the Canal are having with respect to claims outside the locks. Specifically, the Panama Canal Act of 1979 prohibits the Panama Canal Commission from settling negligence claims in excess of $120,000 for injuries occurring within the Canal areas but outside the Canal locks. Settlements in excess of $120,000 must be submitted to Congress for action, a time-consuming and inequitable procedure. The Act also eliminates all judicial review of outside-the-locks claims of any amount. We laid out the user's difficulties with this cumbersome and inequitable procedure in our letter. To recapitulate: The PCC continues to have unlimited settlement authority in connection with claims arising inside-the-locks but now has an artificial $120,000 limit for claims arising outside-the-locks. Since it is likely that the major claims will arise outside-thelocks (tug/ship collision, ship/ship collision, grounding, etc.), it is apparent that the $120,000 limit is unrealistic. For example, last year the Panama Canal Company settled a pre-treaty (prior to October 1, 1979) inside-the-locks claim for $1,000,000 (and presumably it would have been similarly settled had it been a post-treaty claim). We find it difficult to rationalize a payment of $1,000,000 by the Claims Branch for an inside-the-locks claim while Congressional approval is necessary for undisputed outsidethe-locks claims in excess of $120,000 and a private bill may be necessary to resolve disputed outside-the-locks claims. You replied to our letter on December 9, 1981 asking for a list of claims for damage to vessels outside the locks since October 1, 1979. Attached to this letter you will find a list of claims since that date. It is noted that the list includes the vessels of other users as well as AIMS members who are involved in this outside-the-locks problem and who desire a change.

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101 Moreover, these user interests perceive that there is a prospective problem even without the list of claims appended, inasmuch as there may be incidents in thefuture outside-the-locks which could involve millions of dollars in claims in which the existing system is completely inadequate. In conjunction with the request for this list, you also requested certain insurance information with respect to these claims. Whether a claimant is insured in whole or in part (or self-insured for that matter) would seem to be irrelevant. As a practical matter, most claimants would be insured for hull damage (subject to deductibles, etc.) but would not be insured for the vast majority of the detention claims asserted against the Panama Canal Commission. Those parts of the claims covered by hull insurance are reflected in the fleet loss record and adversely affect the owners' subsequent hull insurance premiums. In addition, it would appear that insurance is neither considered in claims arising inside-the-locks nor is it considered in other statutes which give claimants the right to sue the U.S. Government. For example, see Suits in Admiralty Act, 46 USC 741 et seq. and Federal Tort Claims Act, 28 USC g2672, 2679 and 1346(b). With respect to the Suez Canal analogy raised in your letter, we would like to note that the Suez Canal as a sea level canal has no locks whatsoever but more importantly it would seem to be irrelevant that another government has or has not consented to be sued. For your information, the German Government has consented to be sued in connection with casualties in the Kiel Canal. The Suez Canal analogy does seem to go to the heart of a philsophical decision as to whether or not a government as sovereign consents to be sued. The U.S. Government has answered that in the affirmative in the Suits in Admiralty Act and Federal Tort Claims Act, supra. For example, an action may be brought against the United States for its negligence resulting in damage to property caused by its employees of the St. Lawrence Seaway Development Corporation, 172 F. Supp. 565 (N.D.N.Y. 1959). We are pleased to supply the requested information and, as you can see, the users regard a change in the outside-the-locks claims procedure as necessary. Sincerely, W. M. Benkert President Attachment

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102 Claims Pending before Panama Canal Commission for Marine Accidents Outside the Locks 1. AMERICAN APOLLO 10/1/80 $5,620,095.67 2. Barge YRBM 32 1/16 & 20/81 46,513.75 3. FUHWO VENTURE 11/20/79 164,313.55 4. KOREAN LEADER 07/06/80 1,202,972.74 5. KOREAN WONIS SUN 12/01/80 2,957,098.50 6. OCEAN EVER 05/25/81 384,133.93 7. OVERSEAS JOYCE 03/23/81 992.00 8. Launch SANTA RITA 11/011/80 24,650.00 9. SWAN ARROW 11/08/79 367,066.12 10. TEXACO CONNECTICUT 06/07/80 2,488,433.14 11. WASHINGTON TRADER 03/03/80 101,511.38 [Whereupon, at 11:45 a.m. the subcommittee was adjourned.]

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PANAMA CANAL COMMISSION AUTHORIZATION, FISCAL YEAR 1983 AND OVERSIGHT TUESDAY, APRIL 20, 1982 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON PANAMA CANAL AND OUTER CONTINENTAL SHELF, COMMITTEE ON MERCHANT MARINE AND FISHERIES, Washington, D.C. The subcommittee met, pursuant to call, at 10:10 a.m., in room 1334, Longworth House Office Building, Hon. Carroll Hubbard (chairman of the subcommittee) presiding. Present: Representatives Hubbard and Lent. Staff present: Janie Lawson, Jana Oakley, Merrill Whitman, Ed Welch, John Long, Robin McClung, and Bud Drago. Also present: Representative Jones. Mr. HUBBARD. We are somewhat late, but we have been waiting on some of the other members. We have the chairman of the full committee with us, and as chairman of the subcommittee, I believe it is time we called our subcommittee hearing to order. The purpose of this hearing is to receive the views of the Department of Defense and the Panama Canal Commission on the authorization of appropriations for the operation of the Panama Canal in fiscal year 1983, which begins October 1 of this year. Such authorizing legislation is required by the provisions of the Panama Canal Act of 1979, establishing the Panama Canal Commission as an agency in the executive branch of the U.S. Government for the operation of the Panama Canal under the President and the Secretary of Defense. Section 1302 of the act provides that no funds be obligated or expended for any fiscal year unless such obligation or expenditure has been specifically authorized by law. In order to assist the subcommittee in overseeing this authorization, we will be hearing today from the Honorable William R. Gianelli, Assistant Secretary of the Army (Civil Works) and Chairman of the Board of the Panama Canal Commission. We will also hear from Hon. Dennis P. McAuliffe, Administrator of the Panama Canal Commission. As many of you know, the markup for this authorization, which was to immediately follow today's hearing, has been rescheduled for 2 p.m. on Thursday, April 29. Before we proceed with the testimony, the Chair will recognize members of the subcommittee who wish to make opening statements. (103)

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104 It is a pleasure at this time to call upon our distinguished chairman of the full committee, Merchant Marine and Fisheries, the Honorable Walter Jones of North Carolina. Mr. JONES. I don't have a prepared statement. I am here as an interested observer in trying to be informed as to what this committee is doing at the subcommittee level and full committee. I will assure you, Mr. Chairman, my cooperation with you in efforts to work out fair and equitable appropriations and funding for the coming year. Mr. HUBBARD. We do have an opening statement from Hon. Norman F. Lent of New York, who is in another hearing at this time. In fact, other members of our subcommittee are attending other hearings and markups that are in session today, the first day we are officially back from this Easter recess, which may have been too long. Norman Lent is ranking minority member of our subcommittee. His statement is very short, and I would like to read it at this time. Congressman Lent says: STATEMENT OF HON. NORMAN F. LENT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW YORK Mr. HUBBARD [reading:] There are a number of questions and concerns that need to be raised with regard to our annual review of the Panama Canal Commission authorization. While I intend to pose a number of questions to our witnesses today, since the time available for questioning is limited, I intend to submit questions for the record. I hope our witnesses will provide a complete and thorough response. I also want to say that since becoming ranking minority member of this subcommittee, I have become more aware of the unique and trying circumstances under which the Canal will be operated and maintained by the United States until the year 2000. These circumstances deserve Congress' full consideration, and in that regard I want to thank the chairman for delaying the markup on the Commission's fiscal year 1983 authorization to permit time for a full review of the testimony and supporting documentation we will receive before approving an authorization. That completes hisastatement. [The authorization bill became H.R. 6196, a copy of which follows, along with departmental reports:]

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105 97TH CONGRESS 2 SESSION 6196 To authorize appropriations for the fiscal year beginning October 1, 1982, for the maintenance and operation of the Panama Canal, and for other purposes. IN THE HOUSE OF REPRESENTATIVES APRIL 28, 1982 Mr. JONES of North Carolina (for himself and Mr. LENT) introduced the following bill; which was referred to the Committee on Merchant Marine and Fisheries A BILL To authorize appropriations for the fiscal year beginning October 1, 1982, for the maintenance and operation of the Panama Canal, and for other purposes. 1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 3 That this Act may be cited as the "Panama Canal Authoriza4 tion Act, Fiscal Year 1983". 5 OPERATING EXPENSES AND CAPITAL OUTLAY 6 SEC. 2. (a) There is authorized to be appropriated from 7 the Panama Canal Commission Fund for the use of the 8 Panama Canal Commission for the fiscal year beginning Oc9 tober 1, 1982, not more than $421,031,000 required for nec10 essary expenses of the Commission incurred under the

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106 2 1 Panama Canal Act of 1979 (Public Law 96-70; 93 Stat. 2 452), including3 (1) not more than $25,000 for official reception 4 and representation expenses; 5 (2) not more than $217,000 for operation of guide 6 services; 7 (3) not more than $60,000 for a residence for the 8 Administrator, as authorized by section 5913 of title 5, 9 United States Code; 10 (4) not more than $25,000 for the disbursement 11 by the Administrator for employee recreation and com12 munity projects; 13 (5) not more than $520,000 for procurement of 14 expert and consultant services as provided by section 15 3109 of title 5, United States Code; 16 (6) not more than $4,000,000 for maintenance 17 and alteration of facilities of the Government of the 18 Republic of Panama, used by the Commission, of 19 which the United States retains use pursuant to the 20 Panama Canal Treaty of 1977 and related agreements; 21 and 22 (7) not more than $60,000 for expenses of the Su23 pervisory Board established pursuant to section 1102 24 of the Panama Canal Act of 1979 (Public Law 96-70; 25 93 Stat. 456), including travel and transportation ex

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107 3 1 penses under section 5703 of title 5, United States 2 Code. 3 (b) Not more than $19,766,000 of the funds appropri4 ated pursuant to the authorization in subsection (a) of this 5 section may be expended for acquisition, construction, and 6 replacement of facilities, structures, equipment, and improve7 ments thereto required by the Panama Canal Commission, 8 including the purchase of not more than forty-two passenger 9 motor vehicles of which nineteen are for replacement only. 10 Amounts appropriated pursuant to this subsection are author11 ized to remain available until expended. 12 (c) Of the sums referred to in subsection (b) of this sec13 tion, not more than the following amounts shall be available 14 for the following purposes: 15 (1) for transit projects, $13,764,000; 16 (2) for general support projects, $3,252,000; 17 (3) for utilities projects, $1,870,000; and 18 (4) for quarters improvement projects, $880,000. 19 (d)(1) Subject to the limitations prescribed in paragraph 20 (2), the amount which may be expended for any individual 21 project within any category of projects contained in para22 graphs (1) through (4) of subsection (c) may be increased 23 above the amount specified for that individual project in the 24 budget estimate submitted to the Congress by an amount 25 necessary to meet increased costs in such project due to infla

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108 4 1 tion or other unforeseeable factors, if the Board of the 2 Panama Canal Commission has approved such increase and 3 has notified in writing the Committee on Merchant Marine 4 and Fisheries of the House of Representatives, the Commit5 tee on Armed Services of the Senate, and the Subcommittees 6 on Transportation of the Committees on Appropriations of 7 the House of Representatives and the Senate of the 8 Commission's approval of such increase, the reason for such 9 approval, and the new cost estimate for the project con10 cerned. Any of the committees referred to in this subsection 11 may disapprove the increases in amounts for any individual 12 project as proposed by the Commission, within sixty days of 13 receipt of such a request. 14 (2) In no event may15 (A) the total cost of all projects within any of the 16 categories of projects contained in clauses (1) through 17 (4) of subsection (c) exceed the amount authorized by 18 law for that category, or 19 (B) the total cost of all capital projects authorized 20 by this section exceed the amounts appropriated for 21 such projects. 22 (e) There is authorized to be credited to the amount ap23 propriated pursuant to this section, for payment to other 24 United States Government agencies, an amount equal to the 25 amount of funds received from officers and employees of the

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109 5 1 Commission or commercial insurers of Commission employ2 ees for expenditures made for services provided to Commis3 sion employees and their dependents by such other agencies. 4 (f) There are authorized to be appropriated, in addition 5 to the amounts authorized by subsection (a) of this section, 6 such additional supplemental amounts for the activities for 7 which appropriations are authorized as may be necessary for 8 increases in salary, pay, retirement, or other employee bene9 fits determined by law or authorized by administrative action 10 pursuant to law, for covering payments to Panama under 11 paragraph 4(a) of article XIII of the Panama Canal Treaty of 12 1979, as provided by section 1341(a) of the Panama Canal 13 Act of 1979, and for increased costs for fuel expenses. 14 MEETINGS OF BOARD 15 SEc. 3. None of the appropriations authorized in this 16 Act may be expended for meetings of the Board established 17 by section 1102 of the Panama Canal Act of 1979 unless (a) 18 such meetings are open to the public in accordance with the 19 provisions of the Government in the Sunshine Act of Septem20 ber 13, 1976 (90 Stat. 1421; 5 U.S.C. 552b); and (b) an 21 unedited transcript of any meeting is received by the House 22 Merchant Marine and Fisheries Committee and the Senate 23 Armed Services Committee within ten days. 97-154 0-82--8

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110 PANAMA CANAL COMMIS: )N OFFICE OF THE ADMINISTRATOR APO MIAMI 34011 BALBOA, REPUBLIC OF PANAMA Honorable Walter B. Jones Chairman, Committee on Merchant JUL 6 1982 Marine and Fisheries House of Representatives Washington, D. C. 20515 Dear Mr. Chairman: This is in response to your letter of April 29, 1982, requesting the Panama Canal Commission's comments and recommendations on H.R. 6196, a bill "to authorize appropriations for the fiscal year beginning October 1, 1982, for the maintenance and operation of the Panama Canal, and for other purposes." As requested, we have reviewed H.R. 6196 and have concluded that the level of appropriation that would be authorized by the bill, taking into account the changes made when the bill was reported out of your Committee, could seriously and unnecessarily compromise the ability of the Commission to operate the Canal on an efficient, safe, and businesslike basis. Its enactment, therefore, would not seem to be in the best interests of either the shipping industry or our Government. This conclusion is based on our analysis of the following particular provisions of the bill for which we include our individual comments and recommendations. Section 2(a) of the bill authorizes $31,481,000 less than was requested by the President for necessary operating expense of the Commission. During past weeks, the Commission, in order to minimize the pending toll rate increase, on its own initiative has taken action to further reduce its costs to the greatest extent possible consistent with providing efficient service. Those actions have resulted in an absolute minimum operating appropriation requirement of $406,402,000 which is reflected in our tolls proposal. This represents a $17,163,000 reduction from our initial operating authorization request. While this level of authorization is $14,318,000 above the level H.R. 6196 would authorize, any lesser amount could only be accommodated at the expense of necessary ongoing Canal maintenance and the continuity of the Canal workforce. Furthermore, without this increase, the agency will be faced with a potential funding shortage which would adversely impact on the level of Canal service. This shortage could become critical if there is a delay beyond November 1982 in the completion of the trans-Panama oil pipeline, which would impose a substantial unbudgeted requirement for funding of lock and tug crews and other expenses necessary for the continued handling of a high level of Alaskan North Slope oil traffic. Accordingly, we strongly recommend that the Comission's operating expense authorization not be reduced below $406,402,000. Section 2(a) (2) of the bill sets a $217,000 limitation on the operation of guide services by the Commission. This item is fully consistent with the Panama Canal Treaty of 1977 and the Panama Canal Act of 1979. The operation of the Canal clearly requires the fostering of international goodwill and promoting a general understanding of the importance of the waterway to world commerce. The guide services provided by the Commission and its predecessors have traditionally played an important role in the success which the agency has achieved in this area. It is recommended that this limitation be set at $234,000, as included in the agency's budget for this purpose.

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111 Honorable Walter B. Jones Section 2(a) (3) of H.R. 6196 would impose a limit of $60,000 on the maintenance of the Administrator's official residence which is said to be authorized by section 5913 of Title 5, U.S. Code. Over the years, the Canal agency has consistently taken the position that the annual appropriation act, rather than the cited statutory provision, constitutes adequate authority to support this residence. I do not believe there are any circumstances which would warrant an alteration of the treatment which traditionally has been afforded this item. Accordingly, it is recommended that the reference in this subsection to 5 U.S.C. 5913 be deleted. It is futher recommended that the limitation be increased to the $75,000 exclusive of staffing, which should continue to be an operating expense of the Commission. The amount requested by the Commission is the minimum amount necessary to keep the historic residence of the agency head open. An authorization for a lesser amount would leave the Ccanission with no alternative but to close this historical U.S. landmark in Panama. Section 2(a) (6) of the bill would place a $4,000,000 limitation on the maintenance and alteration of facilities owned by the Government of Panama which the United States retains use rights pursuant to the Panama Canal Treaty. These facilities are principally housing for U.S. citizen employees and their dependants. Provisions of the executive agreement accompanying the Panama Canal Treaty of 1977 authorize the Commission to house its U.S. citizen employees in Commission housing areas adjacent to the Canal operating areas throughout the life of the Treaty. These provisions are considered to be an indispensable factor in our efforts for recruitment and retention of a sufficient number of qualified U.S. citizen employees to enable the Commission to efficiently and effectively operate the Canal during the Treaty period. Furthermore, it is a critical aspect of our commitment to maintain the quality of living and working conditions that previously were experienced by employees of the Panama Canal Company or Canal Zone Government. The proposed FY 1983 limitation, which is $1,000,000 less than the limitation imposed for FY 1982 and $1,733,000 less than the FY 1983 amount requested by the President, would pose a serious threat to operational effectiveness. Employee housing is considered by members of the U.S. workforce to be second in importance only to their pay and related benefits. The quality of Canal housing, on the average, is only fair. More than 57% of the housing inventory is over 30 years in age, and quarters in Panama are subject to accelerated deterioration due to the tropical environment. The restriction imposed for fiscal years 1981 and 1982 required that necessary maintenance be deferred. The agency's estimate for expenses related to property owned by Panama but used by the Commission is $5,733,000. It is considered that this amount, which is only a modest amount above the 1982 limitation, is essential to maintain an acceptable level of quality of housing for our workforce. The proposed limitation would result in an extremely adverse impact on employee morale with an attendant detrimental effect on the loyalty and performance and ultimately on the retention of the workforce. Furthermore, recognizing that the agency will not construct any new housing units in the future, it is incumbent on the Commission to maintain those

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112 Honorable alter B. Jones quarters available in a manner that will stretch the useful life of the houses to the maximum term possible. For the foregoing reasons it is recommended that the limitation for this item be set at the $5,733,000 authorization level requested by the Commission. Section 2(a) (7) of H.R. 6196 would place a $60,000 limitation on expenses of the Commission's Board, including travel and transportation expenses incurred by its members. The agency considers that this amount is unduly restrictive, given the present-day cost of air transportation and accommodations, per diem rates and the requirement for official Board functions. In addition, the binational composition of the Board and the political arena in which it functions make necessary considerable expenditures of funds for simultaneous translation and secretarial services. The limitation which H.R. 6196 would impose on this item is $16,000 less than that imposed for FY 1982 and has the potential for disrupting the orderly conduct of business by that body. It is accordingly requested that the limitation imposed by this subsection be deleted. Section 2(b) of the bill would authorizes $4,358,000 less for capital outlays than the amount requested by the Administration. The reduction will result in the deferral, if not cancellation, of projects vital to the efficiency and safety of operations during the United States' tenure. Included among the projects to be considered for deferral are the replacement of a Tug and Locks Miter Gate Repair facility, the replacement of one unserviceable dump scow, and the design of a second tie-up station north of Pedro Miguel. All of these improvements are necessary if the Commission is to meet its international commitments and handle the increasing size and number of vessels that are expected to transit the Canal both now and into the future. The repair facility and equipment being replaced is old and, in some instances, unsafe. The deferral of replacements for the repair facility and the dump scow impacts on the Commission's ability to maintain the Canal channel, tugs and locks miter gates. This ultimately may prove detrimental to U.S. shipping. It is recommended that the Commission's capital program request of $29,024,000 be authorized for FY 1983. Section 2(d) (1) of the bill provides that the cost specified in the budget for individual capital projects can be increased only if the Commission's Board has approved such increase and notified in writing the appropriate authorization and appropriations committees. It further provides that any of the committees may disapprove the increases for any capital project proposed by the Commission. Such increases would have to be accommodated within fund limitations imposed on project categories in which the item falls, as well as the total capital appropriation itself. The bill in effect requires a second approval for an authorized project whenever unforeseeable factors result in an increase in project costs. This will hinder the effective execution of the capital program and could result in the delay of certain projects and suspension and/or abandonment of work on some projects in progress. There is also the potential for significant inefficiencies with attendant additional costs. It is recommended that the provision requiring committee notification, with an option to disapprove cost increases for all previously approved individual projects, be either deleted from the bill or amended to require

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.113 Honorable Walter B. Jones notification only if reprogrammed amounts are to exceed certain dollar and percentage limitations. Section 3 of the bill provides that none of the appropriations authorized therein may be expended for meetings of the Commission's Board, unless such meetings are open to the public in accordance with the provisions of the Government in the Sunshine Act, 5 U.S.C. 552b. For the reasons stated below, I believe that this provision is inappropriated and should be deleted. As the Committee is aware, the Board of the Panama Canal Commission consists of five U.S. and four Panamanian members. The Commission is subject to the supervision of the Board, operates in a foreign country, and has a largely local-national workforce. At least half of the Board meetings are in Panama. It is extremely _important that the Board deliberate in confidence and with candor. It would not do so if all meetings were totally open to the public, especially in Panama. There would be too strong an incentive for political posturing instead of reasoned discussion. This would seriously detract from the atmosphere of managerial professionalism and openness which has been and must continue to be the hallmark of the Board if it is to properly discharge its assigned responsibilities. In mid-1980, the American Law Division of the Congressional Research Service considered the question but was unable to render an opinion regarding the applicability of the Government in Sunshine Act to the Panama Canal Commission. The Army General Counsel has held, however, that the Sunshine Act does not apply to the Commission because the Board does not "head" the agency in the sense intended in the statute. Although the Commission is nominally supervised by the Board, the Secretary of Defense or his designee has the power to direct the manner in which each of the five members of the Board who are nationals of the United States shall cast their votes. Because a majority of the Board meribers are nationals of the United States, the Secretary of Defense or his designee can direct the decisions of the Board and thus, in reality, has the power to head the Commission. Agencies with a single head are not subject to the Act. Thus, the unique status of the Commission provides the basis for the conclusion that the Act does not apply. The present Board regulations permit officials and staff of the Commission, and others to attend meetings upon invitation. The Chairman of the Board (as the designee of the Secretary of Defense to oversee Commission operations) has stated that any member of the Oversight Committee is invited to attend any Board meeting, and offered to fully disclose all proceedings. The Secretary provides copies of all approved Board minutes (which report Board proceedings in great detail) to the oversight committees of both Houses of Congress. Section 4 of H.R. 6196 would authorize the Secretary of the Treasury to transfer from the Panama Canal Commission Fund to the General Fund of the Treasury the unreirbursed balance of the amount appropriated for expense necessary for the Panama Canal Comission for fiscal year 1980. The enactment of this section would have a serious impact on Canal operations. This is so because under application of present law, the Treasury has taken the position that it cannot at any time warrant funds to the Commission in excess of the amount of revenues actually deposited in the FCC Fund. While other U.S.

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114 Honorable Walter B. Jones Government agencies receive their full appropriations upon action by the Congress, the Co7mission's appropriations are doled out throughout the year only as, and in the amounts that, cash receipts are collected by the agency and deposited into the Comission Fund. Since the U.S. Treasury's fund accounting is on a monthly basis, there is a lag of at least 45 days before the Treasury is able to credit the Commission with its daily revenue deposits against which the Treasury can issue warrants. Under this funding procedure, the Commission would not be able to meet its biweekly payroll nor its other financial obligations that came due on a daily basis. It is apparent that without some up-front monies, the Commission would not be able to meet those obligations. The Commission has been able to avoid serious interruption of Canal operation only because it was, in effect, extended a working capital balance as a result of its first-year appropriation coming from the General Fund of the Treasury. It should be recognized that the Commission makes daily revenue deposits to the Treasury, and while there is a segregation of Panama Canal Commission funds from the General Fund of the Treasury--that being an accounting segregation only--the Treasury has the use of those deposits immediately. Consequently, the transfer of the unreirmbursed balance of the fiscal year 1980 appropriation to the General Fund would in reality serve no useful purpose except to place the Commission in a financial predicament that arises only because of fund accounting requirements. For the foregoing reasons, I strongly urge the members of the Committee to delete this section from the bill. In summary then, it is the view of this agency that the enactment of H.R. 6196 with its substantial dollar cuts in the Commission's operating and capital authorization, and its dollar limitations on certain categories of operating and capital expenditures is unnecessarilly restrictive and would serve only to compromise the ability of the Commission to operate the Canal on an efficient, safe and businesslike basis. The need for budget limitations contained in this bill would be understandable if the Commission had not been able to pay its own way in the past. The fact of the matter is that the Commission, since its inception on October 1, 1979 and through the current fiscal year, has fully financed its operations and capital program from self-generated revenues. I, therefore, would urge your Committee to take this into account in approving the authorization bill for FY 1983. I believe the amounts proposed herein by the Commission provide the funding capability to meet our commitments to international shipping. The recommended changes also improve managerial capability of the Commission by excluding certain language that imposes significant time constraints on managers in performing their responsibilities for Canal operations. our recommendations in no way diminish the essential control and oversight responsibilities of the Congress. As required by Rule 13 of the Rules of the House of Representatives, there is enclosed an estimate of the cost which would be incurred in carrying out H.R. 6196 for the period 1983 through 1987. The Office of Management and Budget concurs in this position. Sincerely yours, D. P. McAuliffe;/ Administrator Enclosure

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115 PANbMA CANAL MISSION ESMATED BUDGET AUTHORITY,OUTLAYS AND RBOVERIES FOR THE PANAMA CANAL EMISSION UNDER H.R. 6196 (In thousands of dollars) Presi1983 dent's Estimate FY FY FY FY Budget HR 6196 1984 1985 1986 1987 Panama Canal Commission Budget Authority 452,589 416,750 464,787 508,497 537,833 582,423 Outlays 447,428 411,589 459,587 503,097 532,333 576,823 Less: Offsetting receipts 467,930 433,282 474,387 518,097 547,433 591,963 Net: Budget authority. -15,341 -16,532 -9,600 -9,600 -9,600 -9,540 Outlays -20,502 -21,693 -14,800 -15,000 -15,100 -15,140

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116 DEPARTMENT OF STATE w11was 0 ( 20520 JtN 3 0 1982 Dear Mr. Chairman: Thank you for your letter of April 29, 1982, requesting the views of the Department of State on H.R. 6196, a bill to authorize appropriations for the fiscal year beginning October 1, 1982, for the maintenance and operation of the Panama Canal, and for other purposes. For the reasons stated in our letter to you of April 23, 1981, the Department of State continues to believe that the unique makeup of the Board of the Panama Canal Commission may require greater flexibility in closing its meetings than the Government in the Sunshine Act affords (5 U.S.C. 552b), particularly to encourage managerial professionalism -and business-like frankness and to avoid political distractions and adverse influence from coverage by unfriendly foreign media. The Department of Stare continues to consider that pertinent legislation should provide for the most efficient management and operation of the Canal on a business-like basis. However the bill's reductions in operating expenditures and its limits on certain capital investment expenditures would jeopardize attainment of this objective. It is understandable that the Committee would wish to reduce expenditures at this time of austerity, but the reductions adopted would produce no discernable savings to the U.S. Government or to the taxpayer. These constraints could require the deferral of Canal maintenance and of replacement of equipment essential for safe and efficient operations. Difficulties in being able to utilize funds within these constraints would be compounded in the event, for example, of a delay in the opening of the transisthmian pipeline. The consequent increased toll revenues from continued oil tanker transit through the Canal would not be matched by adequate spending authority under H.R. 6196 to cover the associated costs. Additionally, the surplus revenues could result in a potentially large Article XIII(4)(c) contingent payment to Panama. The Honorable Walter B. Jones, Chairman, Committee on Merchant Marine and Fisheries, House of Representatives.

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117 Finally, the Department of State is unaware that the Commission has ever abused the discretionary authority provided to it by the Congress to manage, within appropriate guidelines, the capital program and other funds of the waterway honestly and efficiently in the best interests of the United States and world commerce. It would seem to serve no purpose, therefore, to further restrict the Commission's ability to manage the Canal. We support the Administration's proposed legislation as a more appropriate vehicle for ensuring the efficient management and operation of the Canal enterprise. The Office of Management and Budget advises that from the standpoint of the Administration's program there is no objection to the submission of this report. With cordial regards, Sincerely, Powell A. Moore Assistant Secretary for Congressional Relations

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118 Mr. HUBBARD. Again, I would mention that we will have, of course, the hearing today and the two distinguished witnesses, Mr. Gianelli and Mr. McAuliffe, and then the markup is scheduled for Thursday, April 29, that being Thursday of next week, at 2 p.m. With Mr. Gianelli and Mr. McAuliffe are Walter D. Bjorseth, Chief of Financial Management; Michael Rhode, Jr., Secretary of the Panama Canal Commission; Myron A. Schroeder, Chief of the Financial Planning Division; Robert J. Boatwright, Chief of the Budget Branch of the Commission; and Mr. Ed Chism, Staff Assistant to the Administrator. We also have with us the Secretary, Ms. Fuller, who is working in Mike Rhode's office. Thank you for being with us also, and we appreciate the attendance by each of you, including those who visit. Now we will call on William R. Gianelli, Assistant Secretary of the Army for Civil Works, and Mr. D. P. McAuliffe, Administrator of the Panama Canal Commission, to testify for us. We will hear from you first, Bill, as Secretary of the Army for Civil Works, and also Chairman of the Board of the Panama Canal Commission. The chairman of your subcommittee was in Panama March 7 through 14 last month for a good visit there and got to work again with Mr. McAuliffe and meet Mr. Chism, and to meet with many officials of our Government as well as the Government of Panama. Following my visit there Mr. Gianelli visited there for nearly a week. He is highly respected for his work. I might add he certainly is an outstanding Assistant Secretary of the Army for Civil Works and is respected by those of us in Congress who know him and have worked with him. We thank you for being with us today. We will hear you now. STATEMENTS OF WILLIAM R. GIANELLI, ASSISTANT SECRETARY OF THE ARMY (CIVIL WORKS) AND DENNIS P. McAULIFFE, ADMINISTRATOR, PANAMA CANAL COMMISSION, ACCOMPANIED BY WALTER D. BJORSETH, CHIEF, FINANCIAL MANAGEMENT; MICHAEL RHODE, JR., SECRETARY, PANAMA CANAL COMMISSION; MYRON A. SCHROEDER, CHIEF, FINANCIAL PLANNING DIVISION; ROBERT J. BOATWRIGHT, CHIEF, BUDGET BRANCH; AND EDWARD CHISM, STAFF ASSISTANT Mr. GIANELLI. Than you very much, Mr. Chairman, Chairman Jones. I am William R. Gianelli, Assistant Secretary of the Army, Civil Works, and Chairman of the Board of the Panama Canal Commission. It is a pleasure for me to appear before pou again as you receive testimony concerning the administration s authorization request for fiscal year 1983 operating and capital appropriations for the Panama Canal Commission. At the table with me today is Mr. Dennis P. McAuliffe, the Administrator of the Commission, whom all of you know, who will also have a brief statement. Mr. Chairman, I wanted to reaffirm that the administration has approved the budget submission of the Commission and that it is in accord with the program of the President. We believe that enact

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119 ment of this budget request will allow the canal to continue to be operated efficiently and that it will effectively serve world commerce. The canal has experienced a record transit of tonnage and record tolls review collected in both fiscal years under the management of the Panama Canal Commission. The Commission has recovered, through tolls and other revenues, all costs of operating and maintaining the canal, including interest, depreciation, capital for plant replacement, expansion and improvements, and the payments to the Republic of Panama for public services furnished the Commission and for the annuities required under the new treaty. The Commission therefore has operated at no cost to the U.S. taxpayer. I believe this is in accord with the congressional intent embodied in the treaty implementation legislation, Public Law 9670. As this committee is aware, the Commission has undertaken a number of capital investment projects to improve the waterway and to increase its capacity. We have purchased new tugs and locomotives, let the contract to build a tie-up station north of Pedro Miguel locks and installed high mast lighting. These projects are necessary to keep up with the ever-increasing number of large ships which transit the canal. As Chairman of the Board, I want to make the committee aware that there has been a spirit of cooperation between the United States and Panamanian members of the Board. We certainly have our differences, but both sides I believe have the best interests of the canal as their goal. The present method of operation-that is, with the Panamanians taking an active part in the operation of the board-will pay dividends in the future as we continue the transition to Panamanian control in the year 2000. In the meantime, the Panama Canal Commission is a U.S. Government agency and will act accordingly. This administration is continuing the tradition of strivingthrough prudent management practices and cost-effective actionsto minimize the cost of operating and, thereby, of using the canal. Nevertheless, a toll-rate increase is forecast for fiscal year 1983, due in large measure to the new trans-Panama oil pipeline, which is scheduled to be in operation during the latter part of this year. The waterway could lose as much as $45 million in annual revenues because of the anticipated reduction in the number of transits of vessels carrying Alaskan North Slope oil. This loss, which is directly attributable to the pipeline, is not expected to be made up by increases in other traffic over the next several years. The toll-rate increase is necessary to comply with the requirement of law that tolls be established to cover all costs of maintaining and operating the Panama Canal. Without this increase, the Commission will incur a substantial deficit in fiscal year 1983 which would have a compounding effect on future budget periods. We have begun the administrative procedures to place into effect on October 1, 1982, a tolls increase currently proposed in the amount of 9.8 percent in total. It should be noted that this is the first rate increase since inception of the new organization on October 1, 1979, and this 9.8 percent is obviously less than the 3-year inflation rate.

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120 The administration shares your concern and interest that the Panama Canal continue to provide continuous safe and efficient service to world shipping and, at the same time, meet our treaty commitments to Panama. The plans and programs submitted to you for fiscal year 1983 are in consonance with that concern and interest. As I stated earlier, they are in accord with the President's objective to maintain U.S. control over the continued operation of the waterway throughout the period of the treaty. We aim to continue effective management of the canal operation, investing in judicious improvement programs, meeting our commitments, and extending the useful life of the Panama Canal. The necessity for modernizing the canal and maximizing its safe, efficient, and cost-competitive operation is becoming more and more critical as alternatives to the Panama Canal are developed. Current and projected alternatives to the canal include the U.S. landbridge and rail system, the trans-Panama pipeline, which I alluded to earlier, and the Mexican landbridge. As mentioned earlier, the trans-Panama pipeline will have a significant impact on the canal in the immediate future. This pipeline, when completed, will divert the majority of Alaskan North Slope oil shipments currently passing through the Panama Canal. The pipeline is expected to become operational by November of this year, which I think is several months earlier than previously estimated. However, it is understood also that Alaskan oil shipments may exceed the throughput capacity of the pipeline, resulting still in some movement of that product through the canal in 1983 and beyond. Mexican and U.S. landbridges are not expected to have a significant impact on canal traffic. They will have limited capacities of their own and relatively high cost for their use. However, they are alternatives to the Panama Canal which must be taken into account. Mr. Chairman, in closing I would like to reiterate my appreciation to you and the committee for the opportunity to appear before you today and to thank you for your support in the past. If it meets with your approval, I recommend that Mr. McAuliffe present his statement and then both of us will be available for any questions the committee might have. Mr. HUBBARD. Thank you, Mr. Gianelli. Your suggestion is a good one. It is time for us now to hear from the Administrator of the Panama Canal Commission, a man I consider to be an excellent administrator, a great plus for our country in that position; also, a person I am proud to call a friend. Mr. McAuliffe, we will hear from you now. STATEMENT OF DENNIS P. McAULIFFE INTRODUCTION Mr. McAULIFFE. Thank you, Mr. Chairman.

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121 Mr. Chairman, members of the subcommittee and chairman of the full committee, I am Dennis P. McAuliffe, Administrator of the Panama Canal Commission. I am pleased to appear before you today with the Honorable William R. Gianelli to request authorization for the fiscal year 1983 budget programs of the Panama Canal Commission, the agency responsible for the operation of the Panama Canal. I have a summary statement to make, and I propose to submit to the record my full statement. Mr. HUBBARD. Without objection, so ordered. The full statement of both you and Mr. Gianelli are entered in the record. OVERVIEW OF FISCAL YEAR 1981 Mr. MCAULIFFE. Our second year of operation under the Panama Canal Treaty and the Panama Canal Act of 1979, like the first year, has been a successful one. We experienced another record year in both tonnage transited and tolls revenue collected. The number of oceangoing commercial transits increased by an average of 30 ships per month. Importantly, the trend toward larger vessels using the canal has continued. Vessels having beams of 80 feet or greater accounted for over 45 percent of total oceangoing transits, and of those "Panamax" size, 100 feet or more in beam, comprised over 16 percent. A significant statistic is the near break-even operation in fiscal year 1981. This is a noteworthy accomplishment considering that our original budgeted loss of $6.9 million was compounded by a number of large, unbudgeted financial requirements. We were able to absorb a portion of these costs through reprograming of large, unbudgeted financial requirements. We were able to absorb a portion of these costs through reprograming of resources. We also put into effect a cost-reduction program in early 1981 to reduce that projected deficit. Our final 1981 operating results, which are still being audited by GAO, reflect a minimal net operating loss of less than $1 million. For this same period, a total of $79.6 million in treaty-related payments were made to the Republic of Panama in fiscal year 1981. These payments were offset by $4.3 million for amounts overdue the Commission from the Government of Panama. CANAL MAINTENANCE AND IMPROVEMENTS We have been able, safely and efficiently, to accommodate the steady increase in canal traffic, in part due to our sustained efforts on canal maintenance and improvement projects. Our capital program was accelerated with the fiscal year 1981 investment increasing by more than 35 percent over that of the previous year. The additional investment was urgently needed at the time for capacity improvement projects because the capacity of the canal had been exceeded by the mounting ship traffic. Our primary emphasis has been placed on projects which will increase canal capacity. The projects now underway or planned will increase canal capacity from a level of 37 to 40 vessels per day to a level of 42 to 44 vessels per day, a capability that is required even now to meet the needs of the shipping industry.

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122 Major maintenance projects currently in progress, like the capital programs, contribute significantly to our capability to safely and efficiently transit ships through the canal. END OF TRANSITION PERIOD Article XI of the treaty provided for continued function of a U.S. police and court system in the former Canal Zone for a transition period of 30 months. That transition period ended March 31, 1982, and the Commission police force and U.S. court system ceased to exist April 1, 1982. Since the end of the transition period, Commission operations and activities have been normal. The situation has remained peaceful and cooperative. It is important to note that assurances were received from high-level officials of the Panamanian Government and the Guardia Nacional as to the continuation of canal operations and protection of U.S. citizen employees. LABOR MANAGEMENT RELATIONS The first collective bargaining agreement was negotiated with the pilots union and implemented January 2, 1981. As a result, the canal organization has benefited through increased productivity. The first agencywide union elections were held in 1981 with a high employee participation. Four unions, in addition to the pilots union, have been recognized by the U.S. Federal Labor Relations Authority. These unions are actively organizing and commencing collective bargaining talks with the Commission. MORALE AND QUALITY OF LIFE The morale and quality of life of our employees continue to be matters of concern. We have taken positive action to meet and address problems raised and have maintained a sensitivity to this important facet impacting on overall operational effectiveness. AUTHORIZATION REQUEST Our authorization request covers an appropriation requirement for the Panama Canal Commission in fiscal year 1983 totaling $452.6 million. This includes $423.6 million for operational requirements during the year and $29 million for capital equipment and construction to remain available until expended. All funds authorized for appropriation to the Commission are to come from the Panama Canal Commission fund. OPERATING EXPENSES The appropriation required for operating expenses in fiscal year 1983 is $423.6 million. The major cost components of this total include $207.9 million for personnel compensation, $75.4 million for treaty payments to Panama, and $68.6 million for supplies and materials.

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123 CAPITAL PROGRAM The Commission's capital program reflects $29 million in budget authority for 1983 and is dedicated primarily to improve traffic capacity and safety, as well as operational efficiency. Accordingly, $21.8 million of that amount will be applied to the transit operations function. This proposed capital program reflects our continued emphasis of insuring that the canal remains operationally viable now and for the future. PANAMA CANAL COMMISSION FUND Total deposits for fiscal year 1983 in the Panama Canal Commission fund are projected to be $467.9 million. This, coupled with the unexpended balance of the fund from fiscal year 1982, will exceed the requested appropriation for fiscal year 1983. TOLL-RATE INCREASE The tolls revenue projected for fiscal year 1983, which is being reviewed by this committee, reflects the need for a tolls-rate increase effective October 1, 1982. This increase is primarily due to the substantial loss in toll revenues resulting from diversion of Alaskan North Slope oil traffic, and is necessary to comply with the requirements of law that tolls be established to cover all costs of maintaining and operating the Panama Canal. We recently began the administrative procedures required to implement a proposal that calls for a 9.8-percent tolls increase on that date. The procedures provide for notification in the Federal Register followed by a public hearing where comments from canal customers on the increase are to be considered. After consideration of canal customers' views, the final step is approval by the President of the United States. CONCLUSION In conclusion, the Panama Canal Commission is committed to providing reliable, efficient service to world shipping. The operating and capital programs proposed for fiscal year 1983 will enable us to accomplish this and insure the canal's viability for the future. Detailed descriptions of the operating and capital programs for the Commission for fiscal year 1983 are included in the justification booklet previously furnished to the committee. Mr. Chairman, that concludes my prepared remarks. I shall be pleased to join with Mr. Gianelli in responding to questions. Thank you. [The statement of Mr. McAuliffe follows:]

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124 STATEMENT OF DENNIS P. McAULIFFE, ADMINISTRATOR, PANAMA CANAL COMMISSION INTRODUCTION MR. CHAIRMAN, MEMBERS OF THE SUBCOMMITTEE, I AM DENNIS P. McAULIFFE, ADMINISTRATOR OF THE PANAMA CANAL COMMISSION. I AM PLEASED 'IO APPEAR BEFORE YOU TODAY WITH THE HONORABLE WILLIAM R. GIANELLI TO REQUEST AUTHORIZATION FOR THE FISCAL YEAR 1983 BUDGET PROGRAMS OF THE PANAMA CANAL COMMISSION, 'IHE AGENCY RESPONSIBLE FOR THE OPERATION OF THE PANAMA CANAL. OVERVIEW OF FISCAL YEAR 1981 OUR SECOND YEAR OF OPERATION UNDER THE PANAMA CANAL TREATY AND THE PANAMA CANAL ACT OF 1979, LIKE THE FIRST YEAR, HAS BEEN A SUCCESSFUL ONE. WE EXPERIENCED ANOTHER RECORD YEAR IN BOTH 'TONNAGE TRANSITED AND TOLLS REVENUE COLLECTED. CARGO TONNAGE (LDNG TONS) INCREASED FROM 167.6 MILLION IN 1980 TO 171.5 MILLION 'IONS IN 1981. TOLLS REVENUE INCREASED FROM $293 MILLION IN 1980 TO $303 MILLION IN 1981--A 3.4 PERCENT INCREASE. THE NUMBER OF OCEANGOING COMMERCIAL TRANSITS INCREASED BY AN AVERAGE 30 SHIPS PER MONTH--FROM 13,614 TOTAL IN 1980 TO, 13,984 IN 1981. IMPORTANTLY, THE TREND TOWARD LARGER VESSELS USING THE CANAL HAS CONTINUED. IN 1981 THE AVERAGE SIZE OF THESE VESSELS WAS THE LARGEST IN THE HISTORY OF THE CANAL. VESSELS HAVING BEAMS OF 80 FEET OR GREATER ACCOUNTED FOR OVER 45 PERCENT OF 'IOTAL OCEANGOING TRANSITS; AND THOSE OF "PANAMAX" SIZE, 100 FEET OR MORE IN BEAM, COMPRISED OVER 16 PERCENT.

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125 A SIGNIFICANT STATISTIC IS THE NEAR BREAK-EVEN OPERATION IN FISCAL YEAR 1981. THIS IS A NOTEWODRTHY ACCOMPLISHMENT CONSIDERING THAT OUR ORIGINAL BUDGETED LOSS OF $6.9 MILLION WAS COMPOUNDED BY A NUMBER OF LARGE, UNBUDGETED FINANCIAL REQUIREMENTS. WE WERE ABLE TO ABSORB A PORTION OF THESE COSTS THROUGH REPROGRAMMING OF RESOURCES. WE ALSO PUT INTO EFFECT A COST-REDUCTION PROGRAM IN EARLY 1981 TO REDUCE THAT PROJECTED DEFICIT. THE AUSTERITY MEASURES IMPLEMENTED WERE CAREFULLY DRAWN SO AS NOT TO IIPAIR THE EFFECTIVE OPERATION AND MAINTENANCE OF 'AM CANAL. OUR FINAL 1981 OPERATING RESULTS WHICH ARE STILL BEING AUDITED BY GAO REFLECT A MINIMAL NET OPERATING LOSS OF LESS THAN $1 MILLION. THIS RESULTED FROM TOTAL ACCRUED COSTS OF $467MILLION, OFFSET BY RECOVERIES OF OVER $466 MILLION. A 'IOTAL OF $79.6 MILLION IN TREATY-RELATED PAYMENTS WERE MADE TO THE REPUBLIC OF PANAMA IN FISCAL YEAR 1981. THESE INCLUDED A FIXED ANNUITY PAYMENT OF $10 MILLION, A PUBLIC SERVICES PAYMENT OF $10 MILLION, A NET TONNAGE PAYMENT OF $56.9 MILLION, AND A CONTINGENCY PAYMENT OF $2.7 MILLION. THE $2.7 MILLION CONTINGENCY PAYMENT REPRESENTED THE EXCESS OF OPERATING REVENUES OVER EXPENSES DURING FISCAL YEAR 1980 AND WAS REQUIRED BY PARAGRAPH 4(c) OF ARTICLE XIII OF THE TREATY. A SUPPLEENTAL APPROPRIATION WAS APPROVED DURING 1981 FOR THIS CONTINGENCY PAYMENT. 97-154 0-82--9

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126 THE 'IOI'AL TREATY-RELATED PAYMENTS 'IO PANAMA WERE OFFSET BY $4.3 MILLION FOR AMOUNTS OVERDUE THE COMMISSION FROM THE GOVERNMENT OF PANAMA. OF THIS OFFSET, $3.9 MILLION WERE FOR ACCOUNT RECEIVABLES ACCUMULATED PRIOR 'IO JUNE 1979. THE REMAINING ACCOUNT RECEIVABLES OWED TO THE FORMER PANAMA CANAL COMPANY AND CANAL ZONE GOVERNMENT, AMOUNTING TO SOME $8 MILLION, HAVE RECENTLY BEEN FULLY COLLECTED BY OFFSETS AGAINST TREATY-RELATED PAYMENTS TO THE GOVERNMENT OF PANAMA. IN 1981 ARRANGEMENTS WERE NEGOTIATED WITH THE DEPARTMENT OF THE ARMY'S MILITARY TRAFFIC MANAGEMENT CD)MMAND (MIVC) '1O TRANSPORT OMISSION CARGO ON COMMERCIAL VESSELS CONTRACTED BY THE MILITARY SEALIFT COMMAND (MSC)j, DEPARTMENT OF THE NAVY. THIS ENABLED US '1O RETIRE THE COMMISSION-OWNED FREIGHT VESSEL, SS CRIS'IOBAL, IN SEPTEMBER 1981, AFTER ALMOST 40 YEARS IN SERVICE. RETIREMENT OF THIS VESSEL WAS NECESSITATED BY THE INCREASING OPERATING COST COUPLED WITH THE DECLINE IN VOLUME OF TONNAGE BEING TRANSPORTED. THE COMMISSION IS CURRENTLY RECEIVING SATISFACTORY CARGO SERVICE ON ARMY-CONTRACTED LYKES LINE VESSELS SAILING FROM NEW ORLEANS.

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127 PROGRESS ON CANAL MAINTENANCE AND IMPROVEMENT PROJECTS WE HAVE BEEN ABLE, SAFELY AND EFFICIENTLY, TO ACCOMMODATE THE STEADY INCREASE IN CANAL TRAFFIC, IN PART, DUE TO OUR SUSTAINED EFFORTS ON CANAL MAINTENANCE AND IMPROVEMENT PROJECTS. OUR CAPITAL PROGRAM WAS ACCELERATED WITH THE FISCAL YEAR 1981 INVESTMENT INCREASING BY MORE THAN 35 PERCENT OVER THAT OF THE PREVIOUS YEAR. THIS WAS ACCOMPLISHED BY RESCHEDULING $10.2 MILLION IN CAPITAL PROGRAMS FROM 1982 TO 1981. THE ADDITIONAL INVESTMENT WAS URGENTLY NEEDED AT THE TIME FOR CAPACITY IMPROVEMENT PROJECTS BECAUSE THE CAPACITY OF THE CANAL HAD BEEN EXCEEDED BY THE MDUNTING SHIP TRAFFIC. OUR PRIMARY EMPHASIS HAS BEEN PLACED ON PROJECTS WHICH WILL INCREASE CANAL CAPACITY. THE PROJECTS NCW UNDEInAY OR PLANNED WILL INCREASE CANAL CAPACITY FROM A LEVEL OF 37 TO 40 VESSELS PER DAY TO A LEVEL OF 42 TO 44 PER DAYj A CAPABILITY THAT IS REQUIRED EVEN NOW 'O MEET THE NEEDS OF THE SHIPPING INDUSTRY. THESE PROJECTS INCLUDE EXPANSION AND MODERNIZATION OF THE LOCKS TOWING LOCOMOTIVE AND TUGBOAT FLEETS; INSTALLATION OF SPECIAL HIGH MAST, HIGH INTENSITY LIGHTING AT THE LOCK CHAMBERS, AND CONSTRUCTION OF A VESSEL TIE-UP OR MOORING STATION NEAR PEDRO MIGUEL LICKS.

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128 MAJOR MAINTENANCE PROJECTS CURRENTLY IN PROGRESS INCLUDE A MAJOR REHABILITATION OF THE LOCOTIVE 'IOW TRACK SYSTEM AT THE LOCKS, THE MULTI-YEAR LOCKS OVERHAUL PROGRAM, MIRAFLORES DAM SPILLWAY REPAIR AND STABILIZATION, AND MAINTENANCE DREDGING 'IO KEEP THE CHANNEL CLEAR. THESE PROJECTS, LIKE THE CAPITAL PROGRAMS, CONTIBUTE SIGNIFICANTLY 'IO OUR CAPABILITY 'ITO SAFELY AND EFFICIENTLY TRANSIT SHIPS THROUGH THE CANAL. END OF TRANSITION PERIOD--PHASEOUT OF POLICE AND COURTS ARTICLE XI OF THE TREATY PROVIDED FOR CONTINUED FUNCTION OF A U.S. POLICE AND COURT SYSTEM IN THE FORMER CANAL ZONE FOR A TRANSITION PERIOD OF 30 MONTHS. THAT TRANSITION PERIOD EXPIRED MARCH 31, 1982. CONSEQUENTLY, THE COMMISSION POLICE FORCE AND U.S. COURT SYSTEM CEASED TO EXIST APRIL 1, 1982. THE BALBOA POLICE STATION COMPLEX, INCLUDING THE MAGISTRATES COURT, WAS TURNED OVER 'ITO PANAMA ON APRIL 1, PURSUANT 'IO TREATY AGREEMENT. SINCE THE END OF THE TRANSITION PERIOD, COMMISSIONN OPERATIONS AND ACTIVITIES HAVE BEEN NORMAL. THE SITUATION HAS REMAINED PEACEFUL AND COOPERATIVE. IT IS IMPORTANT 'IO NOTE THAT ASSURANCES WERE RECEIVED FROM HIGH LEVEL OFFICIALS OF THE PANAMANIAN GOVERNMENT AND THE GUARDIA NACIONAL AS 'IO THE CONTINUATION OF CANAL OPERATIONS AND PRK)TECTION OF U.S. CITIZEN EMPLOYEES.

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129 EFFORTS 'IO HANDLE THE PERSONNEL REDUCTIONS ASSOCIATED WITH THE PHASEOUT OF THE POLICE AND COURT ACTIVITIES ARE PROGRESSING ON SCHEDULE. WE HAVE BEEN ABLE TO ABSORB MANY INDIVIDUALS WITHIN THE COMMISSION AND HAVE ASSISTED OTHERS IN FINDING EMPLOYMENT IN FEDERAL AGENCIES IN THE U.S. THIS HAS SERVED TO MINIMIZE THE PERSONNEL TURBULENCE ASSOCIATED WITH A REDUCTION IN FORCE. PERSONNEL ACTIVITY OUR SUCCESS IN MAINTAINING THE SAFE, CONTINUOUS, AND EFFICIENT OPERATION OF THE WATERWAY INDICATES OUR ACHIEVEMENT IN RETAINING AND DEVELOPING THE REQUIRED SKILLED WORKFORCE. THE DEGREE OF SUCCESS ACHIEVED IN RETAINING A SKITLE WORKFORCE IS DEMONSTRATED IN THE RELATIVELY LOW RATE OF RETIREMENTS AND RESIGNATIONS OF U.S. CITIZEN EMPLOYEES. THIS CATEGORY OF EMPLOYEES REPRESENTS THE SKILLED WORKFORCE NECESSARY 'IO ENSURE AN ORDERLY CONTINUATION OF CANAL OPERATIONS AND SMDI'H TRANSITION TO PANAMANIAN CONTROL.

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130 A 'IOI'AL OF 118 U.S. CITIZEN EMPLOYEES RETIRED DURING FISCAL YEAR 1981. THIS COMPARES WITH 185 U.S. CITIZEN RETIREMENTS DURING THE PREVIOUS FISCAL YEAR. RESIGNATIONS FOR THIS CATEGORY OF EMPLOYEES WERE 76 IN FISCAL YEAR 1981 AND 54 IN 1980. OF THE 'IOTAL 7,809 FULL-TIME PERMANENT COMMISSION EMPLOYEES AT FISCAL YEAR END 1981, 1,848 or 24 PERCENT WERE U.S. CITIZENS. INCREASED PANAMANIAN PARTICIPATION-TRAINING AND RECRUITMENT STEADY PROGRESS HAS BEEN MADE IN OUR EFFORTS 'IO MEET THE TREATY MANDATE OF INCREASED PANAMANIAN PARTICIPATION IN THE CANAL'S OPERATION. OUR EFFORTS INCLUDE PLACEMENT OF QUALIFIED PANAMANIANS IN KEY MANAGEMENT POSITIONS, A HIRING POLICY WHICH GIVES PREFERENCE 'TO PANAMANIAN CITIZENS, AND COMPREHENSIVE TRAINING PROGRAMS FOR PANAMANIAN EMPLOYEES. 'IWO KEY MANAGEMENT POSITIONS WERE FILLED RECENTLY WITH PANAMANIAN CITIZENS. IN NOVEMBER WE ANNOUNCED THE APPOINTMENT OF A PROMINENT PANAMANIAN, EXPERIENCED IN COMMUNICATION AND PUBLIC RELATIONS TO FILL THE POSITION OF DIREC'IOR OF PUBLIC

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131 AFFAIRS. THIS ENDED A LENGTHY SEARCH TO FILL THIS HIGHLY VISIBLE POSITION WITHIN OUR MANAGEMENT ORGANIZATION. THIS APPOIN'IMENT HAS SERVED TO STRENGTHEN OUR RELATIONS AND TIES WITH THE PANAMANIAN COMMUNITY. ALSO, THE PROMOTION OF A PANAMANIAN EMPLOYEE TO THE POSITION OF CHIEF OF THE DREDGING DIVISION WAS ANNOUNCED IN DECEMBER. THIS ENGINEER HAS CAPABLY SERVED SEVERAL YEARS AS THE ASSISTANT CHIEF OF THIS IMPORTANT ORGANIZATION. HE JOINS THE RANKS OF AN INCREASING NUMBER OF PANAMANIAN EMPLOYEES WHO FILL KEY POSITIONS IN OUR MANAGEMENT STRUCTURE. ADJUSTMENTS ARE CONTINUALLY BEING MADE TO OUR PERSONNEL STRUCTURE AS WE IMPLEMENT THE PANAMA CANAL EMPLOYMENT SYSTEM PROVIDED FOR IN THE TREATY AND IN THE PANAMA CANAL ACT OF 1979. THE NEW EMPLOYMENT SYSTEM IS SIMILAR TO THE FORMER CANAL ZONE MERIT SYSTEM. HOWEVER, THE PANAMA CANAL EMPLOYMENT SYSTEM ADDITIONALLY INCLUDES PROVISIONS FOR HIRING PREFERENCE FOR PANAMANIANS, A FIVE-YEAR ROTATION POLICY FOR NON-PANAMANIAN EMPLOYEES HIRED ON OR AFPER THE TREATY EFFECTIVE DATE, RECOGNITION OF PROFESSIONAL LICENSES ISSUED BY THE REPUBLIC OF PANAMA, AND REDUCTION OF THE NEED FOR OFF-THE-ISTHMUS RECRUI'TIENT THROUGH INTENSIFIED LOCAL RECRUITMENT EFFORTS AND SPECIAL TRAINING AND DEVELOPMENT PROGRAMS.

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132 TRAINING PROGRAMS ARE BEING CONDUCTED THAT WILL CONTRIBUTE TO INCREASED PANAMANIAN PARTICIPATION IN ALL AREAS AND LEVELS OF THE PANAMA CANAL COMMISSION, AS REQUIRED BY THE TREATY. THESE INCLUDE: -IDENTIFYING PANAMANIAN EMPLOYEES WITH THE POTENTIAL TO OCCUPY SUPERVISORY AND MANAGERIAL POSITIONS, AND DETERMINING THEIR TRAINING NEEDS; -REESTABLISHING A COOPERATIVE EDUCATION PROGRAM IN AN EFFOFI 'IO EMPLOY PANAMANIAN STUDENTS IN TRAINEE POSITIONS RELATED TO THEIR FIELDS OF STUDY; -PROVIDING CAREER COUNSELING TO ASSIST PANAMANIAN EMPLOYEES IN THE ADVANCEMENT OF THEIR CAREERS; -CC)RDINATING CLOSELY WITH PANAMANIAN AUTHORITIES ON THE AVAILABILITY OF SCHOLARSHIPS IN NAVAL AND MARITIME ACADEMIES IN THE UNITED STATES; -EXPANDING INDUSTRIAL SCHOOL FACILITIES FOR THE TRAINING OF MORE PANAMANIANS EACH YEAR IN TECHNICAL SKILLS; AND -DEVELOPING A PILOT TRAINING PROGRAM THAT IS DESIGNED TO TRAIN QUALIFIED PANAMANIAN NAUTICAL SCHOOL GRADUATES AS CANAL PILOTS.

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133 LABOR/MANAGEMENT RELATIONS THE FIRST COLLECTIVE BARGAINING AGREEMENT WAS NEGOTIATED WITH THE PILOTS' UNION AND IMPLEMENTED JANUARY 2, 1981. WE ARE PLEASED WITH THE RESULTS OF THIS AGREEMENT AFTER A YEAR'S EXPERIENCE, AS THE CANAL ORGANIZATION HAS BENEFITED THROUGH INCREASED PRODUCTIVITY. FIRST AGENCY-WIDE UNION ELECTIONS WERE HELD IN 1981 WITH A HIGH EMPLOYEE PARTICIPATION. AS A RESULT OF THESE ELECTIONS, FOUR UNIONS, IN ADDITION TO THE PILOTS' UNION, HAVE BEEN RECOGNIZED BY THE U.S. FEDERAL LABOR RELATIONS AUTHORITY. THESE UNIONS ARE ACTIVELY ORGANIZING AND COMMENCING COLLECTIVE BARGAINING TALKS WITH THE COMMISSION. MORALE AND QUALITY OF LIFE THE MORALE AND QUALITY OF LIFE OF OUR EMPLOYEES CONTINUE 'O BE MATTERS OF CONCERN. WE HAVE TAKEN POSITIVE ACTION 'O NEET AND ADDRESS PROBLEMS RAISED THROUGH OUR MANAGERS AND SUPERVISORS AS WELL AS THE OFFICE OF THE OMBUDSMAN, AND HAVE MAINTAINED A SENSITIVITY 'O THIS IMPORTANT FACET IMPACTING ON OVERALL OPERATIONAL EFFECTIVENESS.

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134 THE COOPERATION OF THE MILITARY COMPONENTS IN PANAMA THATNOW PROVIDE THE MAJORITY OF SUPPORI'ING ACTIVITIESSCHOOLS, COMMISSARIES, POSTAL FACILITIES, AND MEDICAL SERVICES--HAS CONTRIBUTED 'TO MORALE. A NUMBER OF SUPPORT PROBLEMS THAT EXISTED DURING THE FIRST YEAR OF THE TREATY HAVE BEEN RESOLVED OR ALLEVIATED. WE WILL CONTINUE 'IO SEEK A SATISFACTORY LEVEL OF QUALITY OF LIFE FOR OUR PEOPLE. AUTHORI ZATION REQUEST OUR AUTHORIZATION REQUEST COVERS AN APPROPRIATION REQUIREMENT FOR 'HE PANAMA CANAL CXiAMISSION IN FISCAL YEAR 1983 TOTALING $452.6 MILLION. THIS INCLUDES $423.6 MILLION FOR OPERATIONAL REQUIREMENTS DURING THE YEAR AND $29.0 MILLION FOR CAPITAL EQUIPMENT AND CONSTRUCTION TO REMAIN AVAILABLE UNTIL EXPENDED. ALL FUNDS AUTHORIZED FOR APPROPRIATION TO THE COMMISSION ARE TO COME FROM THE PANAMA CANAL COMMISSION FUND. OPERATING EXPENSES THE APPROPRIATION REQUIRED FOR OPERATING EXPENSES IN FISCAL YEAR 1983 IS $423.6 MILLION. THE MAJOR COST COMPONENTS OF THIS 'IOI'AL INCLUDE $207.9 MILLION FOR PERSONNEL COMPENSATION, $75.4 MILLION FOR TREATY PAYMENTS TO PANAMA, AND $68.6 MILLION FOR SUPPLIES AND MATERIALS.

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135 THE APPROPRIATION REQUESTED FOR 1983 REPRESENTS AN INCREASE OF $22.8 MILLION OVER THE AMOUNT APPROPRIATED FOR OPERATIONS IN 1982. MOST OF THIS INCREASE REFLECTS COST ESCALATIONS. HOWEVER, IT DOES INCLUDE $3.4 MILLION IN EARLY RETIREMENT COSTS RESULTING FROM THE CONVERSION IN THE CALCULATION METHOD BY OFFICE OF PERSONNEL MANAGEMENT 'TO A DYNAMIC FROM A STATIC BASIS. THE $75.4 MILLION FOR TREATY PAYMENTS TO PANAMA IS COMPRISED OF A $10.0 MILLION FIXED ANNUITY PAYMENT, A $10.0 MILLION PAYMENT FOR PUBLIC SERVICES THAT PANAMA IS TO PERFORM, AND $55.4 MILLION PAYMENT CALCULATED ON THE PANAMA CANAL NET 'IONS TRANSITED. CAPITAL PROGRAM THE COMMISSION'S CAPITAL PROGRAM REFLECTS $29.0 MILLION IN BUDGET AUTHORITY FOR 1983 AND IS DEDICATED PRIMARILY TO IMPROVE TRAFFIC CAPACITY AND SAFETY, AS WELL AS OPERATIONAL EFFICIENCY. ACCORDINGLY, $21.8 MILLION OF THAT AMOUNT WILL BE APPLIED TO TEE TRANSIT OPERATIONS FUNCTION. THIS PROPOSED CAPITAL PROGRAM REFLECTS OUR CONTINUED EMPHASIS OF ENSURING THAT THE CANAL REMAINS OPERATIONALLY VIABLE NOW AND FOR THE FUTURE. IT WILL EXTEND AND COMPLEMENT THE PROGRAMS ALREADY BEGUN THAT ARE DESIGNED TO INCREASE CANAL CAPACITY AND SAFETY

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136 OF OPERATIONS. THE SIGNIFICANT PROJECTS IN THE 1983 PROGRAM INCLUDE REPLACEMENT OF A TUGBOAT ($4.9 MILLION); REPLACEMENT OF AN INDUSTRIAL DIVISION DRYDOCK MARINE RAILWAY ($4.2 MILLION); REPLACEMENT OF A DUMP SCOW ($2.0 MILLION); REPLACEMENT OF CERTAIN LOCK TURNTABLES ($1.4 MILLION), AND OTHER TRANSIT RELATED EQUIPMENT ($2.6 MILLION) PANAMA CANAL COMMISSION FUND THE PANAMA CANAL ACT OF 1979 PROVIDES THAT NO FUNDS MAY BE APPROPRIATED TO OR FOR THE USE OF THE COMMISSION FOR ANY FISCAL YEAR IN EXCESS OF THE REVENUES ESTIMATED FOR DEPOSIT IN THE PANAMA CANAL COMMISSION FUND DURING THE YEAR, PLUS PRIOR DEPOSITS TO THE FUND REMAINING UNEXPENDED AT THE BEGINNING OF SUCH YEAR. THE 1983 REQUEST IS IN COMPLIANCE WITH SUCH PROVISIONS OF THIS ACT. THE OPERATING REVENUES TO BE DEPOSITED BY THE PANAMA CANAL COMMISSION INTO ThE PANAMA CANAL COMMISSION FUND DURING FISCAL

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137 YEAR 1983 ARE ESTIMATED AT $467.8 MILLION OF WHICH $335.9 MILLION WILL COME FROM TOLLS AND $131.9 MILLION FROM OTHER SERVICES. IN ADDITION, THE COMMISSION WILL DEPOSIT $0.1 MILLION FOR SALES OF FIXED ASSETS. TOTAL DEPOSITS FOR FISCAL YEAR 1983 IN THE PANAMA CANAL COMMISSION FUND ARE PRaJECTED TO BE $467.9 MILLION. THIS, COUPLED WITH THE UNEXPENDED BALANCE OF THE FUND FROM FISCAL YEAR 1982, WILL EXCEED THE REQUESTED APPROPRIATION. PROJECTED TOLL RATE INCREASE FISCAL YEAR 1983 THE TOLLS REVENUE BUDGETED FOR FISCAL YEAR 1983, WHICH IS BEING REVIEWED BY THIS COMMITTEE, REFLECTS THE NEED FOR A TOLLS RATE INCREASE EFFECTIVE OCTOBER 1, 1982. THIS INCREASE IS PRIMARILY DUE TO THE SUBSTANTIAL LOSS IN TOLL REVENUES RESULTING FRCM DIVERSION OF ALASKAN NORI'H SLOPE OIL ThAFFIC, AND IS NECESSARY TO COMPLY WITH THE REQUIREMENTS OF LAW THAT TOLLS BE ESTABLISHED TO COVER ALL COSTS OF MAINTAINING AND OPERATING THE PANAMA CANAL. WE RECENTLY BEGAN THE ADMINISTRATIVE PROCEDURES REQUIRED 'IO IMPLEMENT A PROPOSAL THAT CALLS FOR A 9.8% TOLLS INCREASE ON THAT DATE. THE PROCEDURES

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138 PROVIDE FOR NOTIFICATION IN THE FEDERAL REGISTER FOLLOWED BY A PUBLIC HEARING WHERE VIEWS FROM CANAL CUS'IOMERS ON THE INCREASE ARE TO BE CONSIDERED. AFTER CONSIDERATION OF CANAL CUSTOMER'S VIEWS, THE FINAL STEP IS APPROVAL BY THE PRESIDENT OF THE UNITED STATES. CONCLUSION IN CONCLUSION, THE PANAMA CANAL COMISSION IS COMMITTED TO PROVIDING RELIABLE, EFFICIENT SERVICE TO WORLD SHIPPING. THE OPERATING AND CAPITAL PROGRAMS PROPOSED FOR FISCAL YEAR 1983 WILL ENABLE US TO ACCOMPLISH THIS AND ENSURE THE CANAL'S VIABILITY FOR THE FUTURE. DETAILED DESCRIPTIONS OF THE OPERATING AND CAPITAL PROGRAMS FOR THE COMMISSION FOR FISCAL YEAR 1983 ARE INCLUDED IN THE JUSTIFICATION BOOKLET PREVIOUSLY FURNISHED TO THE COMITTEE. MR. CHAIRMAN, THAT CONCLUDES MY PREPARED REMARKS. I SHALL BE PLEASED TO JOIN WITH MR. GIANELLI IN RESPONDING 'TO QUESTIONS. THANK YOU.

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139 IMPACT OF TRANS-PANAMA PIPELINE Mr. HUBBARD. Thank you very much, Mr. McAuliffe and Mr. Gianelli. Because of the pipeline and perhaps other factors, do you predict a decline in traffic for fiscal year 1983 regarding the Panama Canal? Mr. GIANELLI. Let me say, Mr. Chairman, perhaps Mr. McAuliffe would like to add additionally that we think there is going to be a marked drop in traffic immediately after the completion of the trans-Panama pipeline. We do think, however, that eventually that traffic will build back up again in a few years. So, we view our immediate problem is in the next few years as that pipeline comes into operation. So I think we view it as a dropoff in traffic immediately, to be picked back up in subsequent years. Mr. HUBBARD. Is it correct that the pipeline will be completed and in operation by November of this year? Mr. GIANELLI. That is the current schedule, as we understand it from talking to the Panamanians and individuals involved in the constitution of the pipeline. Originally it was thought perhaps that it might not be completed until February of next year. The construction has been going very expeditiously, I am informed, and therefore, I think their expected date of operation now is perhaps November of this year. Mr. HUBBARD. For the record, would you give.the background as to who controls that particular pipeline and where it is in relation to the canal? Mr. McAULIFFE. We will submit that information for the record, yes, sir. [The information follows:] TRANS-PANAMA PIPELINE It is our understanding that the trans-Panama pipeline is a joint venture of the Government of Panama, Northville Industries of Melville, N.Y., and the Chicago Bridge & Iron Co. of Oak Brook, Illinois. The pipeline will apparently be under the operational control of Petro-Terminales, S.A., a Panamanian subsidiary of the owners. The pipeline is about 450 kilometers west of the Panama Canal near the Costa Rican border. Its Pacific terminal is a Charco Azul and its Atlantic terminal at Chiriqui Grande. Mr. McAULIFFE. The Northville Industries of New York is the controller of that operation. Northville Industries has an agreement with the Government of Panama that also assumes some share of the ownership. Northville Industries has contracted with Morrison-Knudsen for the actual construction of that pipeline. From Morrison-Knudsen sources we learned construction is on schedule and the pipeline should come on line by November. It is located across the Isthmus of Panama in the two provinces that adjoin Costa Rica. It goes over some very rough and mountainous terrain in that area. Mr. HUBBARD. Thank you. If this pipeline is finished in November of this year and if there is, in the near future, a decrease in the amount of traffic, therefore a decrease in tolls collected, then how can you justify the need for

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140 increasing substantially the operating and capital costs over the previous years? Mr. GIANELLI. Let me speak to that, if I could, Mr. Chairman. First of all, I think one of the problems we have with the canal operation is that the ships do not arrive on any definite schedule. Sometimes we will have a peak period where 50 or 60 ships may arrive in 1 day. As a result, there is a need, it seems to me, even though the overall traffic might drop off for a short period of time, to increase the capacity of the canal so that ships do not have to wait so long en route; in other words, they don't have to wait so long before they can transit. Certainly we need to do some things from a capital improvement standpoint, even though the overall capacity of the canal may not be tested. We do need to have some ability to take care of the ships as they arrive when they arrive in large numbers. Second, we do think that over the long haul the traffic will decrease as a result of the completion of the pipeline and will again build up to where it reaches certainly the present level after a few years. So, I think we need to look ahead for the increased need to have that capacity in the years ahead. Plus, a further consideration is that much of the equipment now is quite old and is in need of repair and certainly will take a considerable amount of capital improvement. So, when you add all of these things together, we feel our request for certain capital improvements is necessary, and we would like to maintain the canal in an operating condition which takes care of the traffic, which we expect will occur in the years ahead. Maybe Mr. McAuliffe has something to add to that, but that is the picture as I would see it. COMPARISON OF CAPITAL PROGRAM Mr. MCAULIFFE. In elaboration, there is a bit of a misconception when one looks at the amount of our capital program in 1982, comparing it with 1983. Originally, we had submitted a budget for 1982 that contained a capital program of approximately $28 million. That was substantially greater than the year or two immediately prior to that. As the chairman will recall, we submitted a request for a supplemental appropriation of approximately $10 million in 1981. That amounted to a shifting or an advancement of about $10 million of capital projects from 1982 back to 1981. Those were specifically designed to permit us to buy certain equipment and to start some projects designed to improve our capacity because we were faced with an unacceptably high congestion of ships at that time. Now, because we moved $10 million back into 1981, we are comparing 1982, at a level of about $20 million, with 1983, at a level now of $29 million. The fact is that we had intended to maintain a capital program of, let us say, close to $30 million for several years. That is not all designed for capacity improvement. There is a need to replace old, obsolete, and unserviceable equipment and facilities essential to the canal operation. That need is expected to

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141 drive a capital program of about $30 million a year at least through the mid-1980's. I would like to add, finally, that when you look at the specific projects proposed in the capital program for 1983, I believe you will note that well over 75 percent of that program is dedicated to maintenance and improvement of the waterway, and most of the rest of the money is dedicated to replacing old equipment all across the board in all of the Commission's activities. So, the bottom line of my comment, Mr. Chairman, is that the 1983 budget program appears to be high but in reality is not substantially higher than the previous year because of the acceleration of certain projects. It is not really designed to add substantially to our capacity. It is to round out certain capacity projects that were previously begun and then to modernize our plant, which is in dire need of modernization. APPROPRIATION REQUIREMENTS-TOLLS PROPOSAL Mr. HUBBARD. The President's 1983 budget for the Panama Canal shows total obligation of $454,566,000, including $28.5 million for new capital investments in the canal. However, the Commission is now proposing a 9.8-percent increase in the rate of tolls for use of the canal, based upon calculations that the 1983 cost would be substantially less than those shown in the budget. Question: What effect does this new calculation have on your appropriation request, if any? Mr. McAULIFFE. Mr. Chairman, the budget that we have put forward to the Congress assumes a toll increase of about 13 percent. The reason for that is that 13 percent equates pretty directly to the estimated amount of revenues that we shall lose next year from the operation of the trans-panama Pipeline. Through a number of management actions aimed at reducing costs, I have recommended to our Commission's board-and it has been reflected in an announcement that appeared last Friday in the Federal Register-a toll increase of 9.8 percent. As the manager of the Panama Canal, I have been very conscious of the need to keep our costs to our customers as low as possible because there are very real alternatives to the canal appearing, and we do not want to drive customers away as we handle our own financial requirements. So, that has stimulated my effort to try to keep the increase below the level of 10 percent. I propose, Mr. Chairman, that this action, which is a prudent management action, should not change our appropriation request, which has been submitted through the Office of Management and Budget to the Congress. That would include the full appropriation of $452,589,000, which includes $29,024,000 for capital outlay. This may raise a question in your mind as to what would happen to the appropriation if all of these moneys were not expended. If unused, the funds appropriated would be returned to the Panama Canal Commission Fund for subsequent use in another budget period. 97-154 0-82--10

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142 Mr. HUBBARD. Mr. McAuliffe, would you please submit for the record a list of what these cost cuts were? Mr. McAULIFFE. I am sorry, Mr. Chairman, a list of what was that? Mr. HUBBARD. The management cost cuts. Mr. McAULIFFE. I will be happy to do that, yes. Mr. HUBBARD. Please submit those for the record at your earliest convenience. [The information follows:] CHANGES IN COST PROJECTION FOR FISCAL YEAR 1983 The following tabulation identifies the principal changes in the cost projection for fiscal year 1983: Fiscal year 1983 total operating cost Amount President's budget. $457.9 T olls proposal. 437.0 R eduction 20.9 Reason for reduction: Funded expenses: a. Payroll savings associated with reduced workload and other ch an ges 8.7 b. Reduced supplies and materials requirement, particularly fuel for generating power due to lower cost escalation assumption. 7.3 c. Reduced tonnage payment to the Republic of Panama. 0.8 d. All other funded expenses, net 0.4 Total funded costs reduction (obligations). 17.2 Nonfunded expenses: e. Reduced provision for marine accidents outside the locks costing over $120,000 2.0 f. Reduced interest expense 1.6 g. All other nonfunded expenses, net 0.1 Total nonfunded expenses, reduction. 3.7 T otal reduction 20.9 MAJOR COST IN BUDGET Mr. HUBBARD. What is the biggest single item in your budget? Would this be forthe payroll of the employees of the Panama Canal Commission? Mr. McAULIFFE. Yes, that is. Payroll costs are, as a unit, the largest block of costs that we have. FORCE COMPARISON Mr. HUBBARD. Are there more employees at this particular time than there were in say October of 1979? Mr. McAULIFFE. No, sir, actually-our manpower strength is approximately 7,800 personnel, full time. That is somewhat below our authorization. Again, in an effort to reduce costs, I have been trying to consolidate functions and to work certain efficiencies which drive our personnel costs down.

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143 Mr. HUBBARD. Will the personnel be decreased when the traffic is decreased, come November of this year, or will the personnel remain the same? Mr. McAULIFFE. There will not be a direct reduction of personnel resulting from the expected decrease in traffic. Let me say that when the traffic is high, as it is at the present moment, we do have a practice of hiring on additional employees in a temporary mode; that is to say, temporary employees to function as deckhands and other manpower intensive functions around the locks and in some of our waterway facilities. When the traffic falls off, then our practice is to reduce those numbers of temporary employees. We expect to be doing that next year. Mr. HUBBARD. 7,800-that figure represents permanent, full-time employees? Mr. McAULIFFE. That is the actual strength. My authorized strength is approximately 8,000. All I am saying, Mr. Chairman, is that I feel an obligation to keep our manpower strength as low as we possibly can in order to keep our costs down, provided of course that we do not in that manner impair the efficiency or safety of our canal operation. APPLICABILITY OF PAY CAP Mr. HUBBARD. Do the Panama Canal Commission employees come under the so-called cap on Federal pay? Mr. McAULIFFE. Yes, they do. CANAL PILOT COMPENSATION Mr. HUBBARD. Can you explain, Mr. McAuliffe, how the pilots earn over $100,000 per year? Mr. McAULIFFE. The pilots are Federal employees and therefore subject to the pay ceiling. First of all, there are certain elements of premium pay, Sunday pay, pay for night duty, pay for certain activities such as hazardous duty which apply to many of them. Certain of this premium pay elements are carried under the ceiling and other elements are carried outside of the ceiling. I might add that same kind of rationale is applied to the computation of their base pay when it comes time to compute their retirement benefits. Mr. HUBBARD. Would you answer this? How many of these pilots, who are Federal employees, receive salaries in excess of $100,000? Mr. McAULIFFE. I don't know; $100,000 represents the approximate maximum pay that was received by a pilot last year. What I am getting around to, Mr. Chairman, is that there was included in the pilot's contract a provision for productivity bonuses that would be paid. This is outside of the realm of the pay ceiling and therefore out of the realm of the base pay computation for retirement purposes. This is an incentive designed to increase the number of ships that these pilots would move through the canal. The bonus comes into effect when they exceed a certain level of transits or assignments within a pay period.

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144 If I may, in summary form, just indicate that the more ships they move in a pay period, the more bonuses they collect. That is how this accumulation of $100,000 can come about. I would say that of the roughly 242 authorized pilots I have-and I have a few additional on a temporary arrangement-that a fairly small percentage of that actually reach or surpass $100,000. Those that do have worked exceedingly hard in order to make that kind of money. Mr. HUBBARD. Please inform them that Members of Congress said that they are receiving good pay. We are the ones who get the criticism, but they get a lot of money. Mr. McAULIFFE. I should add the Administrator is not included in that arrangement. PILOT-TRAINEE SALARIES Mr. HUBBARD. I realize that, but the pilots certainly are well paid. What about pilot trainees? What are they paid? Mr. McAULIFFE. I would say they are roughly in the $35,000 to $40,000 per annum range. Mr. HUBBARD. Is it correct that about 85 pilots do receive more than $100,000 annually in salary? Mr. McAULIFFE. I don't know, sir. That number sounds very high to me. We can certainly check that and provide that for the record, Mr. Chairman. Mr. HUBBARD. In fairness to them, I am sure it can be arguedand if their representatives were here, they would argue-that this is a highly sensitive job which requires expertise and special skills and you just can't hire anyone to be a pilot of one of these huge vessels. Mr. McAULIFFE. That is correct, Mr. Chairman. [The information follows:] PILOT COMPENSATION Fourteen canal pilots received total compensation over $100,000 in calendar year 1981. Mr. HUBBARD. I have other questions. I am asking questions for Mr. Lent and myself at this point, since he could not be here. Chairman Jones, do you have questions you would like to ask at this point? VIEW ON PANAMA CANAL TREATY Mr. JONES. Yes, thank you, Mr. Chairman. I would like to make a statement which is obvious. Mr. McAuliffe, as you well know the completion of the Panama Canal Treaty was not the most popular thing the United States ever did. As a matter of fact, it is my opinion that North Carolina lost a pretty good Democratic Senator by having voted in this connection. The unpopularity of the treaty itself still is felt in Congress. Some of the questions I am going to ask you are not meant in any way to embarrass you, but it is something our very able chairman, Chairman Hubbard, is going to have to answer at some time to the critics of the original treaty, to which opposition still exists

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145 in certain areas of the country. We don't need to belabor that point. FORCE COMPARISON The chairman asked you to compare, if you would, if you could, the number of persons now employed as of this stage of the latest figures you have compared to the number employed on October 1, 1979. I am not quite sure that you answered that question definitively. You said fewer, I believe was your answer. Do you have numbers, sir, that would go into the record? Mr. MCAULIFFE. Yes. My recollection is that our strength in October of 1979 was approximately 8,000. Our strength is now approximately 7,800. However, I would like to give the more precise numbers for the record. Mr. JONES. If you give us that for the record, it would be very helpful, I think. [The information follows:] PERMANENT AND TEMPORARY EMPLOYEES The force at October 18, 1979, consisted of 7,976 permanent employees and 1,023 temporary employees, compared to 7,665 and 1,293 respectively at April 1, 1982. Mr. JONES. I think also that we need to defend this committee's position with a breakdown of employment on October 1 as compared to this date, now, 1982, by grade, nationality, and payroll as between U.S. citizens, Panamanians, and third-country nationals. Mr. MCAULIFFE. We can certainly provide that information for the record. I don't believe I understand quite what you meant by payroll. The grade and nationality we certainly have readily available. Mr. JONES. Total amount paid each and each classification. Mr. MCAULIFFE. OK. I see. [The information follows:]

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146 Panama Canal Commission Summary of Work Force by Citizenship within Wage Category As of 10/ 18/79 WAGE CATEGORY 'II'AL US % TCN % RP % Apprentice 221 44 19.9 7 3.1 170 76.9 Canal Pilots 228 224 98.2 0 0.0 4 1.7 Executives 9 9 100.0 0 0.0 0 0.0 Floating Equipment 192 149 77.6 4 2.0 39 20.3 Fire Fighter 98 4 4.0 1 1.0 93 94.8 Fire Officer 41 13 31.7 0 0.0 28 68.2 Manual 1/ 4017 220 5.4 244 6.0 3553 88.4 Manual Leader4/ 338 45 13.3 34 10.0 259 76.6 Manual Supv j/ 311 148 47.5 10 3.2 153 49.1 Prod. Facilitating 45 31 68.8 2 4.4 12 26.6 Non-Manual Y/ 2175 982 45.1 46 2.1 1147 52.7 Power Branch 39 30 76.9 0 0.0 9 23.0 Police 229 176 76.8 1 0.4 52 22.7 Postal Group 4 3 75.0 0 0.0 1 25.0 Railroad 6 4 66.6 1 16.6 1 16.6 General Schedule 23 23 100.0 0 0.0 0 0.0 Total Perm Empl 7976 2105 26.3 350 4.3 5521 69.2 Total Temp Empl 1023 293 28.6 17 1.6 713 69.2 'IOTAL PCC 8999 2398 26.6 367 4.0 6234 69.2 1/ Detailed summaries of Manual and Non-Manual Wage Categories are attached. 2/ Reimbursable loan to Panama 3/ Includes clerical, admin., prof., & other white-collar employees. Panama Canal Commission Summary of Work Force by Citizenship within Wage Category As of 4/1/82 WAGE CATEGORY TOTAL US % TCN % RP % Apprentice 279 31 11.0 3 1.1 245 87.8 Canal Pilots 240 230 95.8 0 0.0 10 4.1 Executives 10 9 90.0 0 0.0 1 10.0 Fire Fighter 69 3 4.3 0 0.0 66 95.6 Floating Equipment 231 159 68.8 4 1.7 68 29.4 Fire Officer 40 7 17.5 1 2.5 32 80.0 Manual Y 3973 178 4.4 168 4.2 3627 91.2 Manual Leader 381 47 12.4 28 7.1 306 80.4 Manual Supv / 280 109 38.9 9 3.2 162 57.8 Non-Manual Y 3/ 1984 858 43.2 41 2.0 1085 54.6 Power Branch 38 23 60.5 1 2.6 14 36.8 Police Group 2f 120 79 65.8 0 0.0 41 34.1 Postal Group 6 6 100.0 0 0.0 0 0.0 General Schedule 14 14 100.0 0 0.0 0 0.0 Total Perm Empl 7665 1753 22.8 255 3.3 5657 73.8 Total Temp Empl 1293 137 10.5 17 1.3 1139 88.0 TOTAL PCC 8958 1890 21.0 272 3.0 6796 75.8 4/ Detailed summaries of Manual and Non-Manual Wage Categories are attached. 2/ Police Group terminated March 31, 1982; however, personnel actions are not reflected in source document used for this report. 3/ Includes clerical, admin., prof., & other white-collar employees.

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147 PANAMA CANAL COMMISSION NUMBER OF PERMANENT NON-MANUAL EMPLOYEES As of 10/18/79 GRADE U.S. PCT U.S. TCN PCT TCN R.P. PCT R.P. TOTAL 01 0 0.0 0 0.0 6 100.0 6 02 1 1.9 0 0.0 51 98.0 52 03 13 5.4 8 3.3 217 91.1 238 04 68 32.8 1 0.4 138 66.6 207 05 22 44.0 0 0.0 28 56.0 50 06 52 31.5 3 1.8 110 66.6 165 07 101 50.7 2 1.0 96 48.2 199 08 48 59.2 2 2.4 31 38.2 81 09 107 61.4 3 1.7 64 36.7 174 10 60 78.9 1 1.3 15 19.7 76 11 138 66.3 5 2.4 65 31.2 208 12 146 80.6 1 0.5 34 18.7 181 13 77 88.5 0 0.0 10 11.4 87 14 35 100.0 0 0.0 0 0.0 35 15 16 100.0 0 0.0 0 0.0 16 884 49.8 26 1.4 865 48.7 1775 NUMBER OF PERMANENT NON-MANUAL EMPLOYEES As of 4/1/82 GRADE U.S. PCT U.S. TCN PCT TCN R.P. PCT R.P. TCYTAL 01 0 0.0 0 0.0 6 100.0 6 02 0 0.0 0 0.0 31 100.0 31 03 4 2.9 5 3.6 128 93.4 137 04 76 34.7 2 0.9 141 64.3 219 05 27 29.6 1 1.0 63 69.2 91 06 40 28.7 2 1.4 97 69.7 139 07 68 42.2 3 1.8 90 55.9 161 08 30 51.7 2 3.4 26 44.8 58 09 87 54.0 3 1.8 71 44.0 161 10 49 74.2 2 3.0 15 22.7 66 11 107 61.4 2 1.1 65 37.2 174 12 122 67.4 3, 1.6 56 30.9 181 13 74 78.7 0 0.0 20 21.2 94 14 34 91.8 0 0.0 3 8.1 37 15 15 88.2 0 0.0 2 11.7 17 733 46.6 25 1.5 814 51.7 1572

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148 PANAMA CANAL COMMISSION NUMBER OF PERMANENT MANUAL NONSUPERVISORY EMPLOYEES As of 10/18/79 GRADE U.S. PCT U.S. TCN PCT TCN R.P. PCT R.P. TI'AL 01 0 0.0 4 7.1 52 92.8 56 02 0 0.0 4 5.4 70 94.5 74 03 0 0.0 4 4.7 81 95.2 85 04 2 0.1 50 4.8 974 94.9 1026 05 4 0.9 22 5.2 391 93.7 417 06 0 0.0 22 4.8 427 95.1 449 07 4 0.8 37 7.9 424 91.1 465 08 4 1.2 26 7.8 303 90.9 333 09 9 2.2 46 11.5 345 86.2 400 10 138 24.0 24 4.1 411 71.7 573 11 40 44.4 1 1.1 49 54.4 90 12 2 14.2 2 14.2 10 71.4 14 13 1 100.0 0 0.0 0 0.0 1 15 1 33.3 1 33.3 1 33.3 3 205 5.1 243 6.0 3538 88.7 3986 NUMBER OF PERMANENT MANUAL NONSUPERVISORY EMPLOYEES As of 4/1/82 GRADE U.S. PCT U.S. TCN PCT TCN R.P. PCT R.P. TOTAL 01 0 0.0 2 2.7 70 97.2 72 02 0 0.0 3 4.4 65 95.5 68 03 0 0.0 2 2.3 84 97.6 86 04 1 0.1 30 3.6 801 96.2 832 05 0 0.0 12 3.4 332 96.5 344 06 0 0.0 11 3.1 340 96.8 351 07 2 0.6 23 7.2 291 92.0 316 08 5 1.7 19 6.5 266 91.7 290 09 10 2.5 31 7.7 359 89.7 400 10 77 15.1 25 4.9 406 79.9 508 11 26 38.8 2 2.9 39 58.2 67 12 1 10.0 2 20.0 7 70.0 10 13 2 100.0 0 0.0 0 0.0 2 15 0 0.0 0 0.0 1 100.0 1 124 3.7 162 4.8 35061 91.4 3347

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149 PANAMA CANAL COMMISSION NUMBER OF PERMANENT MANUAL LEADER EMPLOYEES As of 10/18/79 GRADE U.S. PCT U.S. TCN PCT TCN R.P. PCT R.P. TOTAL 01 0 0.0 0 0.0 7 100.0 7 02 0 0.0 1 14.2 6 85.7 7 03 0 0.0 1 6.2 15 93.7 16 04 0 0.0 15 17.4 71 82.5 86 05 1 9.0 0 0.0 10 90.9 11 06 0 0.0 1 9.0 10 90.9 11 07 1 1.4 7 10.1 61 88.4 69 08 1 3.3 4 13.3 25 83.3 30 09 0 0.0 2 12.5 14 87.5 16 10 40 51.2 1 1.2 37 47.4 78 11 1 25.0 1 25.0 2 50.0 4 12 0 0.0 1 100.0 0 0.0 1 13 1 100.0 0 0.0 0 0.0 1 45 13.3 34 10.0 258 76.5 337 NUMBER OF PERMANENT MANUAL LEADER EMPLOYEES As of 4/1/82 GRADE U.S. PCT U.S. TCN PCT TCN R.P. PCT R.P. TOTAL 01 1 14.2 0 0.0 6 85.7 7 02 0 0.0 1 12.5 7 87.5 8 03 0 0.0 2 22.2 7 77.7 9 04 0 0.0 8 8.3 88 91.6 96 05 1 10.0 1 10.0 8 80.0 10 06 0 0.0 0 0.0 7 100.0 7 07 1 1.1 7 8.1 78 90.6 86 08 0 0.0 2 7.1 26 92.8 28 09 0 0.0 -1 7.1 13 92.8 14 10 34 38.2 3 3.3 52 58.4 89 11 6 60.0 1 10.0 3 30.0 10 12 0 0.0 1 100.0 0 0.0 1 13 1 100.0 0 0.0 0 0.0 1 44 12.0 27 7.3 295 80.6 366

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150 PANAMA CANAL COMMISSION NUMBER OF PERMANENT MANUAL SUPERVISORY EMPLOYEES As of 10/18/79 GRADE U.S. PCT U.S. TCN PCT TCN R.P. PCTR.P. TOTAL 02 0 0.0 0 0.0 4 100.0 4 03 0 0.0 0 0.0 1 100.0 1 04 0 0.0 1 8.3 11 91.6 12 05 0 0.0 1 2.2 44 97.7 45 06 0 0.0 0 0.0 5 100.0 5 07 0 0.0 1 14.2 6 85.7 08 0 0.0 0 0.0 9 100.0 9 09 0 0.0 2 8.3 22 91.6 24 10 43 58.9 2 2.7 28 38.3 73 11 27 72.9 0 0.0 10 27.0 37 12 8 72.7 0 0.0 3 27.2 11 13 37 97.3 0 0.0 1 2,6 38 14 9 81.8 1 9.0 1 9.0 11 15 10 100.0 0 0.0 0 0.0 10 16 1 100.0 0 0.0 0 0.0 1 18 1 100.0 0 0.0 0 0.0 1 136 47.0 8 2.7 145 50.1 289 NUMBER OF PERMANENT MANUAL SUPERVISORY EMPLOYEES As of 4/1/82 GRADE U.S. PCT U.S. TCN PCT TCN R.P. PCT R.P. TOTAL 02 0 0.0 0 0.0 5 100.0 5 03 0 0.0 0 0.0 1 100.0 1 04 0 0.0 0 0.0 5 100.0 5 05 0 0.0 2 4.1 46 95.8 48 06 0 0.0 1 25.0 3 75.0 4 07 0 0.0 0 0.0 4 100.0 4 08 0 0.0 0 0 0 4 100.0 4 09 0 0.0 3 13.6 19 86.3 22 10 28 36.3 2 2.5 47 61.0 77 11 21 77.7 0 0.0 6 22.2 27 12 5 50.0 0 0.0 5 50.0 10 13 30 78.9 0 0.0 8 21.0 38 14 11 84.6 0 0.0 2 15.3 13 15 7 100.0 0 0.0 0 0.0 7 16 1 100.0 0 0.0 0 0.0 1 18 .2 100.0 0 0.0 0 0.0 2 105 39.1 8 2.9 155 57.8 268

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151 PILOT PAY Mr. JONES. You also in your testimony, I believe, commented or testified that some of the pilots were making as much as $100,000 and so forth. Is that due-according to the information that I have, to the fact that they work the first part of the week, Monday, Tuesday, and Wednesday at regular base pay and the rest of the week is what we call overtime or bonus pay? Is that correct, sir? Mr. MCAULIFFE. That is approximately correct. For their first 40 hours, which can be reached on their third transit, they in effect make their base salary. There are some additional payments that would work in, if they are piloting a hazardous ship or when they are on at nighttime, but that would be fairly small in comparison with the bonuses that would result after their basic 40-hour requirement. The reason that I make this point, Mr. Chairman, is that the workday of the pilot, particularly the pilot of the large ship, is somewhere between 14 and 16 hours a day. That is from the time he starts out to report to work until he finishes his transit and is brought back, to the original starting point on the isthmus. Therefore, it is fairly easy for these pilots working those kinds of hours to accumulate 40 hours. COMPARISON OF COST REQUIREMENTS Mr. JONES. All right, sir. One or two other questions, if I might. I repeat myself. I am asking these questions in order that the chairman, when he is cross-examined before the full committee or the continuing authorization or the House floor or whatever it might be, that I am pretty certain some of these questions are going to be propounded, and I hope he would be able to have information to answer them. What are the differences between the figures shown in the budget and those used in the calculation of the new rates of tolls that you are recommending? Mr. MCAULIFFE. The principal difference, Mr. Chairman, is that the figures that have been used to put together our budget for 1983 were done on an assumption that the toll increase to be requested would be 13 percent. Therefore, there is a difference now. But we now have a lesser amount of revenues coming in to include a lesser amount of increase in the tolls. As I have been pointing out to the committee, we are striving to reduce our expenses. The bottom line of all of this, though, Mr. Chairman, is that as the manager and operator of the Panama Canal I am obliged by the law to balance all of our expenditures with revenues. That is the driving requirement that will keep accounts balanced. Mr. JONES. I suggest that some of the expenses you had in your January submission are now going to be reduced or cut. Is that correct, sir? Mr. MCAULIFFE. That is correct. We will try to bring down those expenses below the levels of what appears in our budget and in our green justification booklet. I am unable at the moment to predict those figures with accuracy, but I can say in a general sense that we have every intention of reducing those below the budget levels.

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152 Mr. JONES. Could you submit to the committee your own estimate, the Commission's own estimate of the figure involved? Mr. MCAULIFFE. We certainly can, Mr. Chairman. [The information follows:] COMPARATIVE BUDGET FIGURES The following tabulation identified the projections contained in the fiscal year 1983 President's Budget compared to those in the "Proposal to Increase Tolls." President's Proposal to budget increase tolls Operating expenses. $457,866 $437,008 Recovery of prior year losses. 596 Total operating costs. . . 458,462 437,008 Revenues other than tolls. 131,886 123,525 Net operating expenses to be recovered from tolls. 326,576 313,483 Capital advance to be recovered from tolls. 9,368 9,368 Total costs for recovery from tolls 335,944 322,851 Tolls at existing rates. 297,000 294,000 Tolls deficiency 38,944 28,851 Toll increase (percent) 13.1 9.8 CAPITAL FACTOR Mr. JONES. Paragraph 45 of the Commission proposal to increase tolls states that: A capital factor is included in the tolls base to make up a difference between capital costs and funds generated from the inclusion of depreciation as a cost in the toll base. Now, what is the amount of the capital factor in the present toll base and in the toll base used for the proposal? Mr. MCAULIFFE. The capital factor shown in the tolls increase booklet amounts to $9.4 million for 1983. That is identically the same as the capital factor which we had submitted for the budget, and the reason is that we propose no change in our capital program. Mr. JONES. Thank you, sir. MARINE ACCIDENTS What is the legal basis for including in the toll base a cost of operation of the canal, liability on claims of vessel damage, on which the Panama Canal Commission is expressly not liable under the provisions of the Panama Canal Act of 1979? Mr. MCAULIFFE. Mr. Chairman, we make provision for casualty losses and marine accidents within our budget. These amounts are used to establish reserves for these purposes, and then the actual costs are charged against the reserves. The costs of marine accidents and other casualty losses are of course charged to the reserve. The amount budgeted as an accrual for marine accidents covers all accidents without regard to location or amount.

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153 While the Commission is authorized to settle only limited amounts for accidents outside of the locks, the costs of these accidents have been included in the toll-rate base. Thus, funds to cover these accidents will be available in the Panama Canal Commission fund if the Congress directs that claims be settled at an equitable amount and appropriates funds from the Panama Canal Commission fund for this purpose. BALANCE OF FUNDS Mr. JONES. What is the balance in that particular fund at this time, sir? Mr. MCAULIFFE. The balance at the start of 1982 was $117.8 million, that is in the Panama Canal Commission fund. The balance for the start of 1983 is estimated at $127.5 million. We are presently striving to maintain a reserve of approximately $12 million per year for marine accidents. Mr. JONES. If you eliminated that $12 million for the next fiscal year, could you then reduce the totals by whatever percentage it might be? Mr. McAULIFFE. Yes; we could. Mr. JONES. That is another thing that I think will be very difficult to defend, this large surplus, that there is some question of the legality of the right to impose these fees. Mr. MCAULIFFE. The legality, Mr. Chairman, flows from our obligation, very clearly stated in Public Law 96-70, to cover all costs with revenues. The marine accidents have been traditionally a cost borne by the Panama Canal. Mr. JONES. One final question. I have other questions, Mr. Chairman, I would like to submit for the record, without objection. Mr. HUBBARD. Of course. [The questions follow:]

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154 QUESTIONS SUBMITTED BY CHAIRMAN JONES QUESTION. When will the three older tugs mentioned be retired? Has there been any recent study of the desirable fleet size for projected traffic? How long has the tug fleet numbered 18? Was there an addition to the fleet in 1982? ANSWER: Normally, tugboats being replaced are excessed within 90 days of delivery of the new unit. The replacement tugs mentioned in the justification are expected to be delivered sometime in FY 1982, 1984 and 1985. Under the above criteria the old boats would normally be retired and excessed within 90 days. However, we are considering retaining two as standby fireboats to improve our ability to handle serious ship fires in the Canal. The Commission has studied and reevaluated its tugboat requirements and has validated the need for a fleet of 18 towboats now and to 1986. The last addition to the fleet was delivered at the beginning of fiscal year 1982. QUESTION. Please show the history of spending on these two catergories for prior years. Are there peaks and valleys in this spending? ANSWER. Appropriation (in millions) 1981 1982 1983 Miscellaneous Floating Equipment $0.8 $1.5 $0.6 Other Transit Equipment $1.4 $3.1 $2.6 The level of spending in both categories would depend upon the kind and value of equipment being purchased. For example large cost items such as oil and sanitary improvements on tugboat performed one year and not required the next are the principal reasons for the disparity in the level of spending in Miscellaneous Floating Equipment in 1982 versus 1981 and 1983.

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155 QUESTION. Please provide your plans for future spending in this area with particular emphasis on scheduling of non-recurring capital items. The sum of the individual components does not appear to add up to 10.5 million. Please check the discrepancy. ANSWER: The Panama Canal Commission annually undertakes a review of its potential five-year capital requirements. This review is the primary source of the current budget year capital program. The review is highly tentative and the document generated is used internally as working paper which is subjected to constant revision and update. The document does, however, give the Agency a broad, general overview of the prospective plans with regards to the capital requirements of the Commission for the future. The major items identified in this working paper as potential projects for the Improvements, Replacements and Additions to Channel and Transit Facilities line item are as follows: Project FY 83 FY 84 FY 85 FY 86 FY 87 (In thousands of dollars) Replace Marine Railway #2 Replace Locomotive $4,237 $ 125 $ $ $ Turntables All Locks 1,350 1,500 1,650 1,800 Construct Tie-Up Station North of Pedro Miguel 254 3,730 4,510 Navigational Improvements 1,394 4,140 4,000 4,500 5,000 Improve Wingwall Knuckle Fendering All Locks 932 928 Add Lateral Culvert Bulkheads Gatun 300 750 2,000 470 Relocate Balboa Shore Station 1,330 670 Replace Flood/Dewatering System, Drydock, Industrial Division 2,240 Construct Sandblasting Facility, Industrial Division 1,600 Replace and Relocate Rigging Shop, Industrial Division 650 All projects are non-recurring except Navigational Improvement. There are two changes required. Item B (4) Navigation Improvements should have referenced the amount of design monies for the high mast lighting system at the cut at $500. In addition, item B(7) "other miscellaneous improvements" $218 should have been $295.

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156 QUESTION. Please supply data showing spending in this catergory in prior years so that we can see any trends which may exist. ANSWER: Appropriation for Maintenance and Repair operation follows: 1981 1982 1983 (In millions) 0.8 $0.8 $1.7 1 1/ The major reason for the increase in 1983 is the purchase of a truck crane ($0.3), oil recovery equipment ($0.3), and a bulldozer ($0.2) i.e., replacement of more costly items than were required in the previous two years. REROOFING EMPLOYEES QUARTERS QUESTION: Please provide information on the number of housing units plus itemization of the nationalities of the occupants. ANSWER: As of March 31, 1982, out of a total of 3,325 housing units, 2,721 are occupied as detailed below: EMPLOYER CITIZENSHIP Third United Country States Nationals Panama Total Panama Canal Commission 1725 20 79 1824 Department of Defense personnel transferred from the Panama Canal Company and Canal Zone Government with functions on October 1, 1979 540 5 34 579 Other DOD Civilian 156 156 U.S. Department of Defense Civilians 90 90 Federal Aviations Agency 30 30 Smithsonian Institute 20 20 ** Others 19 3 22 Total 2580 25 116 2721 ** Consultants, contractors, Religious organizations, U.S. Weather Service,etc.

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157 QUESTION: Please provide comparable cost information on aluminum roofing and built up types ANSWER: A comparison between roofing replacement materials (1982 dollars) is as follows: Aluminum Marble/Gravel Chips Contract price $220 per 100 sq. $300 per 100 sq. ADVANCEMENT OF 1982 CAPTIAL PROJECTS QUESTION. You indicated that some fiscal 1982 spending had been advanced into fiscal 1981. Please provide more information on this. ANSWER: Initially the Commission's capital program for 1982 amounted to $27.8 million. During the latter part of F.Y. 1980, the Commission began experiencing a high level of ship backlog at the Canal. The heavy congestion of vessels emphasized the need to reevaluate our capital improvement program. Action was taken to accelerate certain projects which would increase Canal capacity. A $10 supplemental was submitted and approved for F.Y. 1981. Projects planned for 1982 were advanced into 1981 and accordingly the 1982 capital was some $10 million less than was originally projected. The specific projects which were advanced into 1981 included: procurement of one tugboat, procurement of three towing locomotives and construction of a vessel tie-up station near Pedro Miguel locks. The need to replace old, obsolete and unserviceable equipment and facilities essential to the Canal operation is expected to drive a capital budget of approximately $30 million level through the mid1980's. DREDGING OPERATIONS QUESTION. What accounts for the large increase in dredging operation since 1981? ANSWER: The principal reasons for the increase in this line item in FY 1983 versus 1981 are cost escalation, sharp increases in fuel usage for dredges and associated equipment and resumption of a schedule of three dredge watch, seven days a week to meet operational requirements. 97-154 0-82--11

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158 QUESTION. What accounts for the large decrease in interdivisional services since 1981? ANSWER: The principal reason for the large decrease in the line item "interdivisional sales and services" is the change in handling of channel improvement dredging costs which in 1981 were costed to the capital program. These costs now remain in the operational accounts. NAVIGATION SERVICE AND CONTROL QUESTION. Why are the transit and port pilotage costs so much higher than in 1980? Are you renegotiating the pilots' contract now? ANSWER: Transit and port pilotage in 1980 amounted to $16.6 million, increasing $8.1 million to $24.7 million in 1983. Over $5 million of this increase is attributable to the pilot contract with the remainder being principally associated with pay escalation. In accordance with the reopener provision of the contract, substantive negotiations began on February 23, 1982 on the reassessment of impact of high mast lighting, official time for union representatives and consideration of alternative work plan. QUESTION: Please explain the large increase in depreciation since 1981. ANSWER: The increase in the line item depreciation and nonfund expense is principally associated with additional de reciation required for three new tugboats in 1982 and one replacement tugboat at a higher overall cost in 1983 LOCKS MAINTENANCE AND REPAIR QUESTION. What accounts for the large increase since 1981? ANSWER: The major elements of cost increases over the two years are additional major maintenance $4.5 million, cost escalation $2.8 million and the initial cost incurred by the Locks Division for Locks Overhauls. Overhaul costs incurred directly by the Locks Division are charged initially to this line item and then transferred to the overhaul reserve. The overhaul originally scheduled for FY 1981 was deferred to 1982 becaouse of the general excessive backlob during fiscal year 1981. The overhaul expenditures in these accounts are estimated at $2.3 million in 1982 and $1.3 million in 1983.

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159 LIAISON SERVICES QUESTION. Please give more detailed information on the responsibilities of this office and the need for these services. ANSWER: The Liaison Service was developed as a result of the various Panama Canal Treaty provisions, particularly those related to the Procedural Guarantees for United States citizen employees and dependents, criminal jurisdiction, and inviolability of Commission installations and archives. The unit began operation April 1, 1982 and includes 28 full-time permanent positions to provide round the clock services for two offices one each on the Atlantic and Pacific side of the Isthmus. These positions include 24 liaison agents and supervisors and 4 clerical support personnel. The Liaison Service activity is an intermediary between the Panama Canal Commission and its operating units and employees on the one hand and the Government of the Republic of Panama and its agencies on the other. It is designed to be a centralized contact point between the Government of Panama and the Panama Canal Commission in the areas of judicial and criminal-related matters. It may also include the retention of legal services to advise employees, their dependents in Panamanian judicial matters. CANAL SECURITY FO1E QUESTION. What accounts for the -increased costs since 1981? Is this force picking up any responsibilities and employees from the old Police Division? ANSWER: Increased costs in the Canal Security Force since 1981 are primarily the result of pay cost escalation, incumbency changes at higher overall costs, and the consolidation of the physical security, shipping security and emergency preparedness functions/personnel under the Canal Security Force. The Canal Security Force has assumed the centralized emergency communications function. Police personnel have been RIF'd into existing vacancies at grandfathered rates of pay. This is standard practice throughout the federal government. In addition, there have been other increases in Canal Protection associated with a reorganization involving the elimination of the Industrial Security Office and consolidation of Physical security, shipping security and emergency preparedness functions.

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160 BOARD OF LOCAL INSPECTORS QUESTION. What accounts for the large increase since 1981? Especially in light of the fact that no claim recommendations have reached Congress. ANSWER: The increase from FY 1981 is principally due to cost escalation and occupancy of a position that was vacant during FY 1981. The Board of Local Inspectors is responsible for the investigation of all marine accidents which occur in the Canal operating area, regardless of location or the extent of damages. Public Law 96-70 requires that accidents occurring in Canal waters outside the locks with claims for damages in excess of $120,000 are to be submitted to Congress. Vessel accidents occurring outside the locks with damage in excess of $120,000, although large in terms of dollars, are relatively few in number. The small number of these vessel accidents coupled with the submission delay on the part of ship operators/owners account for the major reason that no claims have been submitted to Congress yet. Only 10 claims have been received of which 2 have been submitted to the Office of Management and Budget for review prior to transmittal to the Congress. ACCRUAL FOR CASUALTY LOSSES AND MARINE ACCIDENTS QUESTION. Please explain the existence of this account and the amount budgeted for it. Isn't this in excess of projected claims which the Commission can satisfy on its own initiative. ANSWER: The provision for casualty losses and marine accidents of $12.2 million on page 18 provides $12.0 million for marine accidents and $0.2 million for other casualty loses. These amounts are used to establish reserves for these purposes. Actual costs are charged to the reserves. Estimates of a casualty loss are made shortly after each accident. The cost of marine accidents and other casualty losses are charged to this reserve. The amount budgeted as an accrual for marine accidents covers all accidents without regard to location or amount. While the Commission is authorized to settle only limited amounts for accidents outside of the locks, the costs of these accidents have been included in the toll rate base. Thus funds to cover these accidents will be available in the Panama Canal Commission Fund if the Congress directs that claims be settled at an equitable amount and appropriates funds from the Panama Canal Commission Fund for this purpose.

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161 PRINTING OFFICE QUESTION. What is the Government Printing Office's attitude regarding this operation? ANSWER: The Commission Printing Office is a U.S. Government Field Printing Plant authorized by the Joint Committee on Printing, Congress of the United States. The Printing Plant abides by all U.S. Government Printing and Binding Regulations and submits all reports required by the Committee. Printing not done by the Commission Printing Plant is procured through one of the regional off icies of the Government Printing Office. ADMINISTRATIVE EXPENSES EXECUTIVE DIRECTION QUESTION. Please account for the large increases shown for all categories except depreciation. ANSWER: Supervisory Board. The increase in this account is due principally to cost escalation with a modest provision ($18 thousand) associated with one additional meeting (from 3-4) in FY 1983 and the inclusion of representation for the Board in this line for 1983 Office of the Administrator and Staff. The increase is principally due to cost escalation, additional positions required for collective bargaining in 1982 and fuller occupancy of existing positions, offset in part by abolishment of 6 FTP position in 1983. 1981 1982 1983 Actual Est. Est. Limitation items included are: Official Reception and Representation 24 25 25 Residence of the Administrator 56 60 75 Office of the Commission Secretary. The increase is primarily due to cost escalation, full year occupancy of one position vacant part year in 1981 and increased requirement for office supplies. Office of Public Affairs. The increase in this line item is principally due to cost escalation and fuller occupancy of existing positions that were occupied only part of the year in 1981.

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162 Tour Guide Services. The increase is principally attributed to cost escalation and additional cost of maintaining the locks tourist pavilion. Consultants and Advisors. The increase is principally attributable to increased consultant and advisor requirements particularly for transit and canal related operations. QUESTION: What is the Commission's view of that part of the Department of Transportation's Appropriations Bill prohibiting the use of any funds to pay employees providing personal services. How does this affect the Commission's staff ANSWER. The staff at the house is not a "personal" staff but an official one that is charged with (1) assisting in carrying out day-to-day representational functions, (2) maintaining the residence and all the Commission's property in it, and (3) providing a level of security for the house, its property and its occupants. OPERATIONS DIRECTION QUESTION. Please explain the increase for the Office of the Engineer and Construction Director and the Office of the General Services Director. ANSWER: The increase in the Office of the Engineering and Construction Director is principally attributable to cost escalation and fuller occupancy of positions particularly, for an administrative type engineering position. The increase in the General Services Director's office is principally due to cost escalation, fuller occupany of positions and additional cost associated with consolidation of personnel and budget responsibilities in the Director's office rather than at the divisional level.

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163 ThANSPORTATION OF EMPLOYEE VEHICLES QUESTION. Please account for the dramatic increase over 1981 ANSWER: The principal reason for this increase over 1981 is that we are projecting the cost, beginning in FY 1982, on the basis of a new commercial water transportaion arrangement which we now have through the Military Sealift Command. The Commission owned ship, SS Cristobal, was deactiviated at the end of fiscal year 1981, and the projections reflect the higher cost of moving this type of cargo via ship between the United States and Panama. DEATH AND DISABILITY QUESTIONS. What trends is the Commission experiencing with regard to claims under the Federal Employee's Compensation Act. ANSWER: It is difficult to say there is any particular trend associated with the estimates for this line item. In FY 1982, however, the major reason for the significant increase is that, in addition to cost escalation, the estimates reflect the transfer of cost for performance of duty injuries, previously costed to the occupational health services.

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164 TOLLS PROCEDURE Mr. JONES. My final question, Mr. McAuliffe, is, What steps, remain before the recently proposed toll increase comes effective and what is the timetable for those steps? Mr. MCAULIFFE. The two major steps have already been accomplished toward the attainment of a toll increase. The first was the approval of our board and the second, which occured last Friday, is the publication of the announcement of our intention to raise tolls, which was published in the Federal Register. The next step will occur in early June and will be a public hearing at which, incidentally, Mr. Gianelli will preside. That hearing will take place in New York for the purpose of obtaining the comment of representatives of the steamship industry and other interested parties pertaining to the toll increase. Those comments will be duly considered by the Commission and its supervisory board. Then follows a precise recommendation as to a toll increase which is to be approved by the President of the United States a little later in the year in order to go into effect by the first of October. Mr. JONES. Well, I guess finally, Mr. McAuliffe, thank you very much for your candor and willingness to answer some of these questions. Believe me when I say I think it is in your own best interest that I ask some of these questions because it is very difficult, as I sit here in the position I now occupy, subject to the next election, to defend an increase from $420 million to almost one-half billion$452 million I believe it is-at the same time when the Panamanian nation itself, the nation of Panama, is building a pipeline over which we will have no control, neither your Commission nor anybody else's, as I understand it, and in direct competition or certainly in competition with the original Panama Canal. I think it remains to be seen how much revenue will be diverted. Nobody knows at this point in time. So, I am just pointing out that Chairman Hubbard, the able chairman that he is, has his work cut out for him. We will try to assist him every way we possibly can. Mr. Chairman, I yield back. Mr. HUBBARD. Thank you, Mr. Chairman. I appreciate your questions. There are several more that I have, along with Mr. Lent. We will look toward the noon hour as time for adjournment because the House does convene at noon. PILOT CONTRACT Let me ask you this: I think you know I ask this as your friend and also as one who formerly opposed the Panama Canal Treaty, but having been there on occasions, I realize that it was and is in the best interest of our Nation that the treaties be signed and ratified and in existence, especially with the turmoil there right now. Regarding the pilots, can you think of any other Federal employees anywhere who make in excess of $100,000, other than the President of the United States? Mr. McAULIFFE. No, I cannot, Mr. Chairman.

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165 Mr. HUBBARD. Does the salary of the pilots or the benefits they receive cause a morale problem among other employees of the Panama Canal Commission? Mr. McAULIFFE. Not an appreciable one. There were some who I believe did not look favorably upon this bonus arrangement. I do believe that as our people who live and work on the canal witness the kind of workload our pilots have taken on over the past 21/2 years, there has been much more acceptance of the need for this kind of a situation. Let me point out to you, Mr. Chairman, that we are getting our money's worth out of this contract. When I first joined the Commission, I found that one of the most difficult things in increasing and having our whole organization respond to an increase in the numbers of ships that we were facing was in having adequate pilots to take these ships through the canal. The work rules that were in effect, and had been in effect for years-if I may summarize some of the points, it is a very complex thing-provided no obligation and no incentive to a pilot to work beyond 40 hours a week. Therefore, if we had 100 ships waiting to go through, once that pilot hit his 40 hours, he went fishing, and there I was, left with all of those ships and some very capable men who were not willing to take them through. It was through a tradeoff that I was able to get these work rules rewritten and to provide incentives to where now I have little trouble in having pilots move ships through. They are literally standing in line waiting to do this. It has been-Mr. HUBBARD. I can understand. Mr. McAULIFFE. It has helped the canal and the traffic, and the thing is that they work hard and their hours are excessively long. It does raise some problems within their families and all of that, but nevertheless, there is compensation to balance it out. Mr. HUBBARD. You know, I am questioning you as a friend and one who is supportive of your efforts. However, let me just mention that having been to Panama on occasions, I do not consider that a bad area.in which to live. The temperature dips to 64 in the coldest months and goes up to about 90 in the hottest months, a beautiful place. With unemployment such as it is in our country, I am thinking that if the word spread that there were jobs for qualified pilots in the Panama Canal where the salaries were $50,000 or $40,000 for a 40-hour workweek, that you would have people standing in line to get those jobs. TRANSPORTATION OF PILOTS Am I correct that the pilots are even given free transportation from their homes to where they board ship? Mr. McAULIFFE. Yes, that is correct. Mr. HUBBARD. Let me just interject that Secretary Haig probably would have said that he worked more than 40 hours a week during the last couple of weeks. I believe he has. His salary is much less than these valuable pilots.

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166 There are a few Members of Congress, I am told, who work over 40 hours a week. Some go 7 days a week. My wife can assure you of one who does at times. But we don't have any incentive pay to speak of. I guess critics would argue about that, especially our tax deductions at this time, but I am serious. It is amazing to find out the many benefits these pilots have and to think of them as the only Federal employees of our country in the world who make salaries in excess of $100,000 except the President of the United States. REOPENER PROVISION-PILOT CONTRACT I believe you said the contract regarding these pilots is now being renegotiated? Mr. McAULIFFE. There are certain specific aspects of the contract wherein a provision was made in the contract to reopen those provisions at this time for negotiation. The major one has to do with the impact on the pilots and their working arrangements of our expanded use of nightlighting. We have constructed these high intensity, high mast lights at two of the three sets of locks. The third set will be put in shortly. This does have a certain impact on the pilot's schedules and so a provision has been written into the original contract to reopen it at this time. That is the principal one being looked at at this moment. Mr. HUBBARD. Mr. McAuliffe, what is the reason that we don't try for more pilots at a reasonable salary of $40,000 to $50,000 per year rather than this small network of pilots who are so overworked and who finish their 40 hours per week by Wednesday and then all other work is overtime? You said they work 14 to 16 hours a day, yet they are standing in line for more opportunities, which is very understandable. Why not give more jobs to Americans and Panamanians rather than pay these huge salaries of overtime to the few pilots we have? Mr. McAULIFFE. First, I would like to point out that there is a long leadtime involved in having a pilot who is qualified to take ships through the canal. There is a lengthy training period. There are, of course, prerequisites for a certain amount of experience at sea or on tugboats before even coming into the canal. Then there are steps to be attained as the pilot is fully functioning before he can take the very largest ships through the canal. One of these provisions is that it takes 7 years as a pilot to be able to qualify to take the largest ships through the canal. Now, I have considered increasing substantially the number of pilots, but I am constrained against doing so because once I agree to and bring on additional people to become pilots, I have locked myself into about a 5or 6or 7-year schedule before all of that pays off. Faced as I am with a reduced traffic next year and perhaps spilling into 1984, it just doesn't make good management sense to me to be increasing the pilot force at that time. That is one of the reasons that I have decided to leave the authorized strength of pilots about where it is, although I must say that I made arrangements last year to hire on a temporary basis

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167 some additional pilots who had retired from the force and came back for a year or two, depending on the individual case. Now, there is another factor, Mr. Chairman, that you bring out and which I have to take into account. It is that pilots, particularly pilots within the United States, are paid very well. I dare say that if I were to offer jobs limited at the $40,000 to $50,000 level, I would have a difficult time to fill up my ranks. That has been the experience in the period of let's say the late 1970's with the Panama Canal Company. While the pilots in the Port of New York or the Port of San Francisco and so on are not generally Federal employees, but are special employees either for the port authority or perhaps they work as a contract unit, the general truth is that they are highly paid individuals. Mr. HUBBARD. Do they receive commissary privileges? Mr. McAULIFFE. No, because there aren t those kinds of things available, but I would say that there are several ports-Mr. HUBBARD. I am talking about in Panama. Mr. McAULIFFE. No, there is a restrictive privilege policy for certain 6-4 pilot's dependents. The only reason I mentioned this, sir, was to point out that there is a competition in jobs for available pilots that does come into bearing and consideration when trying to recruit pilots. Mr. HUBBARD. Trainees make $35,000 to $40,000 per year? Mr. McAULIFFE. Correct. Mr. HUBBARD. I come from an area of the country where there would be many standing in line just to be a trainee in your Panama Canal area and qualify as a pilot to take the big ships through. They receive commissary privileges. Do they live in some of the Government housing there? Mr. McAULIFFE. Yes, sir. That is all provided there. Let me say the trainees I am talking about are generally either former ships masters or first mates or they have been tug masters, and you just have to pay the going fare to recruit them. Mr. HUBBARD. I won't wear this issue out. We will move on shortly. I am told these pilots get a 5-month vacation time. That is hard to believe. I am sure that that is wrong? Mr. McAULIFFE. That is incorrect. Mr. HUBBARD. How much vacation time do they receive? Mr. McAULIFFE. I think you may be referring to the pilots who are on what is called our 6-4 plan. Mr. HUBBARD. Six weeks on and 4 weeks off? Mr. McAULIFFE. Yes. Those pilots generally live in the United States and therefore do not have commissary privileges and all of that for a portion of the year. The bulk of our pilots do live in Panama and fit the description that you have mentioned. Mr. HUBBARD. They do have 6 weeks on and 4 weeks off there, too? Mr. McAULIFFE. No, the regular pilots do not. The regular pilots accrue leave just as other employees of the Panama Canal Commission. Mr. HUBBARD. The regular pilots at the Panama Canal don't have 6 weeks on and 4 weeks off?

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168 Mr. McAULIFFE. There are approximately 100 pilots who have signed on the 6-4 plan. They generally live outside of Panama and they work 6 weeks on and 4 weeks off through the entire year. So, those 4 weeks amount to their time off, you see. The bulk of the pilots, about 150, live in Panama and their leave time is the same as the other employees of the Panama Canal Commission. They work a normal 40-hour week, but obviously most of them are working much more than that. I would say it is closer to 60 hours a week, in order to qualify for the productivity bonuses. Mr. HUBBARD. Leaving that area, I think you can tell that there is some concern about what seem to be gross inequities regarding the salaries, time off, and benefits of these men who have qualified to be pilots. They are making far in excess of what your salary is, what Mr. Gianelli's salary is, what Secretary of State Alexander Haig's salary is, and many others. INCREASED REQUIREMENT-LOCKS In the justification report, Mr. McAuliffe, there is an increase of almost $9 million in the area of maintenance and repair of locks since 1981. Would you elaborate on the substantial increase in the funding for maintenance and repair of locks since 1981? Mr. McAULIFFE. The major elements of the cost increases over the 2 years since 1981 are additional major maintenance of $4.5 million, cost escalation of about $2.8 million, and the initial cost incurred by our locks division for lock overhauls. The overhaul costs incurred directly are charged initially to this line item and then transferred to the overall overhaul reserve. The overhaul originally scheduled for 1981 was deferred to 1982. The overhaul expenditures in these accounts are estimated at $2.3 million in 1982 and $1.3 million in 1983. TUG REQUIREMENT Mr. HUBBARD. Regarding the fiscal year 1983 capital program, in your fiscal year 1981 annual report you point out the declining use of Panama Canal Commission tugs because on October 1, 1980, all harbor movements in the ports of Balboa and Cristobal will be performed by tugs under contract with the National Port Authority of Panama. In fiscal year 1980 there were 46,310 tug jobs for Commission vessels and in fiscal year 1981 there were 41,718 tug jobs. At this point, why the need for additional tugs? Mr. McAULIFFE. We have studied and reevaluated our requirements for tugs and have determined a need for a fleet of 18 towboats or tugboats now and out to 1986. This is a higher number of our fleet than had been stated back in 1979 and 1980 because we have found a substantially increased workload for our tugboats in handling the increase in the large beam ships that have increasingly made up our day-to-day traffic through the canal. It was very apparent to me in 1981 that we were woefully short of tugboats to handle our requirements. There were many times when I had to short our fleet, let's say, on the north side of the

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169 canal to bring a tugboat over to the south side in order to meet our requirements. This kind of thing convinced me, corroborated by some very thorough study, that we needed a fleet of 18. We were then operating with a fleet of about 15. It wasn't until 1982, with the delivery of the procurement made in 1981, that we were able to bring our fleet up to the number of 18. The tugboats that are shown in our 1983 and subsequent years programs are not for an increase in our fleet but to replace some old boats that no longer now have the power and capability to handle the kind of assignments that they are expected to handle in assisting these large ships. MARINE RAILWAY Mr. HUBBARD. The budget justification includes $4.2 million to buy a marine railway. What is the capacity of the system you plan to replace? What is the capacity of the system you want to buy, and why is this additional capacity needed? Mr. McAULIFFE. The maximum lift capacity of this marine lift is 1,800 tons. The normal or nominal lifting capacity is 1,220 tons, which is being planned for. The marine railway, which we presently have at our industrial division, is obsolete and significant portions of that system are unserviceable because of age and wear and tear. We need, in effect, to replace that entire lifting system so that we can pull tugboats, miter gates, and other large pieces of equipment out of the water and up onto a table so that emergency and other repairs can be made. We may frequently handle two tugs on this table, assuming they are not our two biggest tugs. Also, we plan to handle up to two of the miter gates at a time within this equipment, again provided that we are not trying to put the largest of our miter gates on that lift. Mr. HUBBARD. Some who have been to Panama have questions regarding two mobile vessel lifters that were purchased in 1979 for $77,000. The word is that they have never been used. If so, why were they ever purchased in the first place? Mr. McAULIFFE. Those two mobile lifts that you refer to, Mr. Chairman, are intended and designed to lift launches out of the water. They are available and in use at our industrial division and are used for that purpose. Mr. HUBBARD. They are in fact used? Mr. McAULIFFE. They are in fact used, yes. Mr. HUBBARD. How many vessels which are 1,800 tons do you lift in your industrial division? Mr. McAULIFFE. We don't have any single item that is quite that size. As a normal rule we will be lifting one or two tugboats at a time, and they weigh about 500 to 700 tons each. I mentioned we will be lifting two miter gates at a time, and they weigh up to about 700 tons each. Mr. HUBBARD. Do you need that capacity, 1,800 tons? Mr. McAULIFFE. Yes, we do.

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170 Mr. HUBBARD. Is it true that, according to the treaty, the United States can only repair our own vessels? Mr. McAULIFFE. That is correct. We are prohibited in the treaty from engaging in commercial activities. Therefore, while it had been the practice of the Panama Canal Company to contract for the repair of vessels in its drydock facility, we are prohibited from doing that. Our plans are all centered around our own equipment. PASSENGER CARRYING VEHICLES Mr. HUBBARD. Mr. McAuliffe, in testimony before the Appropriations Committee in March of 1982, you have indicated you plan to increase the number of passenger carrying vehicles from 150 in fiscal year 1981 to 185 in fiscal year 1983. Am I correct about that? If I am correct, what is the reason for this increase? This would be testimony you gave before the Appropriations Committee in March, where you said you planned to increase the number of passenger carrying vehicles from 150 in fiscal year 1981 to 185 in fiscal year 1983. Mr. McAULIFFE. The increase in our passenger carrying vehicles is the result of a changeover program which we initiated in 1980 whereby nonpassenger carrying vehicles comprised of large sedan, delivery, utility and carryall types which are not conducive to safe transportation of employees and have a high purchase price and excessive costs of operation and repairs would be replaced by more compact sedans. These sedans have a lower purchase price, are cheaper to maintain, use less fuel and provide more varied use in motor pool service. We have been moving on this changeover program through the current fiscal year and hope to complete it in 1983. When completed, it will more fully meet the Commission's operational requirements. Mr. HUBBARD. How many employees of the Panama Canal Commission are transported or given transportation by this fleet of vehicles? Mr. McAULIFFE. Well, for one thing our pilots are heavy users of these sedans. These sedans compile an enormous amount of mileage going back and forth across the isthmus, picking up, delivering, and returning pilots to their worksite, as well as many other operational personal. Mr. HUBBARD. From their home? The fleet of vehicles picks up the pilots at their homes and delivers them to their jobs and then they are returned from the jobs to their home? Mr. McAULIFFE. Yes, but not all in one trip. The pilot is first delivered to a point where he receives his assignment. He completes certain requirements before he takes on that assignment, then he does the assignment. If for example he winds up on the Atlantic side after his work assignment, he will be picked up from the pilot's room on that side to be brought back to the Pacific side to a central point. From there he is delivered to his home. Mr. HUBBARD. Couldn't he catch the train from Colon to Panama City?

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171 Mr. McAULIFFE. It is possible, Mr. Chairman. However, the practice of picking up and delivering pilots to and from their homes was established well before World War II. This practice was written into their work rules and has remained there. Mr. HUBBARD. The only reason I make an issue of that is, let me assure you, many Americans even resent Speaker O'Neill and even Senate Majority Leader Baker and Senate Minority Leader Robert Byrd being picked up at their homes by limousines and vehicles owned by the Government and driven to the Capitol and back home. I don't know for sure what the American people would think if they knew that pilots making over $100,000 a year in the Panama Canal were also given Government transportation to and from their worksite from home. These facts apparently are not known by my constituents or they would be writing about the pilots rather than complaining about Tip O'Neill getting free transportation from his house to the Capitol. CAPITAL PRIORITY RANKING What is the order of priority assigned to the capital projects included in the budget? Mr. McAULIFFE. I am prepared, Mr. Chairman, to submit a detailed listing reflecting the order of priority of our capital projects. As I indicated in my earlier comments, the bulk of these projects are designed to replace old equipment, obsolete equipment, unserviceable equipment, and there are only a few of them in here that serve to enhance capacity. In those cases, they are associated with work that was previously begun. If you wish, this is a very extensive listing, and I am prepared to provide it for the record. Mr. HUBBARD. Yes, please do, Mr. McAuliffe. Please do submit your answer to that question for the record. [The information follows:] Fiscal year 1983 capital program priorities Projects in progress: Transit projects: Thousands Replace m arine railway No. 2. $4,237 Im prove dredge M indi 102 Subtotal transit projects 4,339 Recurring (annual) projects: Transit projects: Replace and add equipment-transit. 2,214 Replace launches and launch engines 1,086 Miscellaneous improvements to transit facilities 671 Miscellaneous navigational improvements and replace buoys. 594 Subtotal. 4,565 Utilities projects (water, power and communication system improvem ents). 2,403 Employee quarters improvements projects. 904 General support projects: Miscellaneous general supporting projects. 725

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172 Replace m otor vehicles. 1,640 Replace and add miscellaneous equipment. 802 Improvements to commission buildings and supporting service facilities. 547 Subtotal. 3,714 Nonrecurring projects: Transit projects: Replace and add tugboats. 4,900 Im prove traffic surveillance. 1,394 Add lateral culvert bulkheads-Gatun locks 300 Design subsequent phases of tie-up station. 254 Improve wingwall knuckle fenders-all locks. 932 R eplace dum p scow s 1,996 Miscellaneous improvements to facilities. 892 Replace turntableall locks. 1,350 S u btotal. 12,018 General support projects: Improvements to supporting services facilities. 172 Reprogramed projects: Transit projects: Funds for replace and add equipment reprogramed to project to im prove dredge M indi. 425 Lighter barge replacement funds reprogramed to improve dredge M indi. 484 S u btotal. 909 Total: T ransit projects 21,831 U tilities projects. 2,403 Quarters im provem ent projects 904 G eneral support projects 3,886 T otal 29,024 EMPLOYEE CONDUCT Mr. HUBBARD. In the United States in recent months there have been many bills introduced in the State legislatures which are trying to severely crackdown on drivers who drink alcoholic beverages because of the increase of accidents that they are causing and the tremendous increase in deaths on our highways. I am informed that the pilots who talk about their 14to 16-hour workdays drink alcoholic beverages while they are transiting these ships down the canal. Is that a way of life among the pilots? Mr. MCAULIFFE. No, it is not supposed to be. I have heard of incidents such as you mentioned, and investigations are conducted to try to get to the facts of the matter. But from where I stand, Mr. Chairman, any employee, including pilots, is prohibited from consuming intoxicating beverages while on duty or from being intoxicated while on duty. Mr. HUBBARD. We have been discussing in recent hearings accidents, causes of accidents, and you say there is a rule against drinking alcoholic beverages while a pilot is piloting these huge vessels through the narrow Panama Canal? Mr. MCAULIFFE. Yes, Mr. Chairman. Now, concerning marine accidents, one of the factors that is looked for in any marine accident occurring in the canal is evidence of drinking or intoxication on

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173 the part of a pilot, or for that matter, any other member of our crew. It could be a locomotive operator who may possibly have been at fault or other employees that work in and around the locks and the waterway. The fact of the matter is that these investigations have failed to disclose any evidence of this type as being a cause of an accident, at least not in recent years. There have been some instances in the past where this did surface and rather severe actions were taken against the employees who were so much at fault. Mr. HUBBARD. Do the owners of these huge vessels realize that some of the pilots are transiting these big vessels through the narrow Panama Canal while drinking alcoholic beverages? Mr. MCAULIFFE. Let me say that the owners of the ships going through the canal are not at all hesitant to report any discrepancies in the functioning of our pilots. If there should be an accident, they are usually the first ones to come forward with allegations against the performance of duty of our pilots. We do have a number of ways to check on whether or not there has been drinking of intoxicating liquors or an intoxication on the case of any of these employees who might be involved in accidents. It is the Commission policy that such conduct not be permitted and where evidence can be shown to the contrary, then we have a basis for disciplinary action. Mr. HUBBARD. Let me just say this: It has been purported that even with staff of the Panama Canal Commission and staff of the Panama Canal/Outer Continental Shelf Subcommittee aboard ship that the pilots have drunk alcoholic beverages right in the presence of these staff people, I am told, including the secretary to Mike Rhode and, being frank about it, including the young lady who sits on my left, who is a staff member, Robin McClung. So, this is not an hallucination by some chairman who had been told about this by some crew member who passed through once upon a time. This is coming firsthand from people who have been aboard ship recently that there is drinking of alcoholic beverages by the pilots, which seems to be irresponsible, taking that big ship through a narrow canal with expensive cargo aboard. I guess they don't have to drive home and they can have more to consume aboard ship. Mr. MCAULIFFE. Let me just share your view that that kind of conduct certainly does appear to be irresponsible and the specific instance to which you refer has been the subject of considerable inquiry and consideration since that time. CAPITAL REPROGRAMING Mr. HUBBARD. Regarding the reprograming, without formal procedures for submitting reprograming requests to Congress, how can we on this committee maintain oversight of the Panama Canal Commission budget in the best way? Mr. MCAULIFFE. It is our intention, Mr. Chairman, to keep your committee informed of any substantial reprograming actions. Of course, we are sensitive to the need to seek approval of our supervision board prior to notification of the Congress in the event that we 97-154 0-82-12

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174 do any reprograming, in the capital program, from one of the four major groupings within that program to another. We have not, I don't believe, actually accomplished any of those kinds of major reprogramings yet, but we are conscious of our need for informing the committee about it. Mr. HUBBARD. How much fiscal year 1982 money is available due to slippage in the Mindi program? Mr. McAULIFFE. I don't believe I have that information with me, Mr. Chairman. Maybe I can submit that for the record. Mr. HUBBARD. Sure. [The information follows:] DREDGE MINDD" The fiscal year 1982 project to improve Dredge Mindi had $2,154,000 available for funding of the purchase and installation of a spot advance system. Design of this project is particularly complicated and has required more time than originally anticipated. The delay in completion of the design signaled that only the funds for procurement of the materials for the spot advance system would be obligated in fiscal year 1982 and that the balance of funds for installation of the system would not be expended until fiscal year 1983. The funds for installation of the spot advance system which are consequently identified as slippage in the fiscal year 1982 program amount to $775,000. The $775,000 in identified slippage for the project to improve Dredge Mindi will be used to fund an unbudgeted project of $350,000 for replacement of three compressors for the Drillboat Thor and $425,000 for procurement of two additional foam pumper fire trucks. Mr. HUBBARD. While the 1983 budget contains $102,000 to complete the Mindi project improvements, does this reflect slippage in the 1982 program? Mr. McAULIFFE. It is possible that some amount of that money may be due to slippage in completing the improvements on the dredge Mindi, however, if I may, Mr. Chairman, I would like to clarify that for the record. Mr. HUBBARD. Sure. [The information follows:] The $102,000 identified in fiscal year 1983 capital program does not reflect the slippage from the fiscal year 1982 program. The $102,000 is the amount originally anticipated as required to complete the project of the spot advance system for the dredge Mindi. Mr. HUBBARD. The budget justification material contains a request for $405,000 for two firetrucks with foam capability. Am I correct that the Commission voted at the March 1982 supervisory board meeting to buy those trucks with excess fiscal year 1982 funding available due to slippage and the very same Mindi improvement program we have been mentioning. Mr. McAULIFFE. I believe that is correct. Mr. HUBBARD. If so, then-and you answered yes-is the $405,000 included in the fiscal year 1983 budget for two firetrucks still required? Mr. McAULIFFE. The answer is yes. We are looking for four with funds available in 1982 and the money in the 1983 program would bring our total up to six. Mr. HUBBARD. You need four? Mr. McAULIFFE. We need six, Mr. Chairman. We have a major deficiency in our firefighting capability in the canal; that is, to fight possible chemical or oil fires. I have decided that we do need

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175 a foam dispensing capability at each of the three locks and then, in addition, a capability that could move to other places as required. That is what is behind our stated requirements for six foam pumpers. Mr. HUBBARD. Part of the reprograming approved at the March 1982 supervisory board meeting included deferral of $484,000 for lighter barge from fiscal year 1983 to fiscal year 1984. Can we then eliminate the $484,000 for lighter barges in your fiscal year 1983 budget? In other words, at the March meeting last month the supervisory board deferred $484,000 for a lighter barge from this coming fiscal year to fiscal year 1984. If that be accurate-and I compliment Robin McClung of our staff for noting that in her attendance there-why can't we eliminate the $484,000 then for lighter barges in your fiscal year 1983 budget request? Mr. McAULIFFE. We cannot eliminate it, Mr. Chairman, because the money is, I believe-and I would like to clarify that also for the record-needed on some of these other projects within the same project grouping that has been submitted in our budget. As I said, I would like to clarify that for the record. [The following was submitted for the record:] The $484,000 included in the fiscal year 1983 program for the project Replace Lighter Barge is still required. The funds will be reprogramed to the project to improve the dredge Mindi to restore the idle slippage in that project for fiscal year 1982 that was reprogramed to fund the unbudgeted requirement for procurement of compressors for the Drillboat Thor at a cost of $350,000. Mr. HUBBARD. Then you can understand why at the outset of this line of questioning I asked without formal procedure for submitting reprograming requests to us, how can we properly maintain oversight of the Panama Canal Commission budget? I think you see my point. Did you approve any reprograming at the board meeting in March? Mr. McAULIFFE. I do not believe so, Mr. Chairman, but I would like to check that for the record. I can't recall any major reprograming between the four major project grouping offhand, but again, I would like to clarify the answer for the record. [The information follows:] CAPITAL CHANGES There were three capital changes made at the March board meeting. All projects fall within the scope of the "Transit Project" grouping. They include: (1) Purchase of two additional foam pumpers for fire control purposes; (2) Purchase of three skid-mounted replacement compressors for drillboat Thor; and (3) Modify Cristobal signal station. Mr. HUBBARD. The chairman certainly believes Mr. McAuliffe is giving his best answers to each question correctly, and we of course will give you a chance to modify or supplement any of the answers you have heretofore given. If it is possible, because the markup is Thursday of next week, could we have those to us by Monday? Mr. McAULIFFE. Surely, surely; very definitely. Mr. HUBBARD. I would suggest because of the numerous questions that Chairman Jones, the staff, and I had today, that you be pres

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176 ent, if you can, Mr. McAuliffe, and perhaps Mr. Gianelli, if your schedule will allow. I really believe it would be to your advantage in seeking the fiscal year 1983 authorization that you be present to answer questions if members who are not now present have any. That can be considered proper, even though we are in markup, so if the members have questions that the members themselves don't know, if you are available it would be very helpful to us. The chairman, Congressman Jones, ranking minority leader and our members, Mr. Lent, Mr. David Bowen, Congressman from Mississippi, and others not in attendance at this point want to submit other questions. We will certainly give them permission to do so, and we will get those to you. Hopefully as many questions as possible can be answered and the answers reach us by Monday. Mr. McAULIFFE. Yes, sir. Mr. HUBBARD. We express appreciation to you, Mr. Gianelli, and Mr. McAuliffe. The Chair requests unanimous consent that the hearing record remain open for 5 days for written questions to be submitted to the Department of Defense and Panama Canal Commission by the subcommittee members. The Chair wishes to express appreciation to our reporter, Michele Mancuso, Ed Welch, John Long, Merrill Whitman, Janie Lawson, Jana Oakley, and Bud Drago for their excellent assistance and a special thanks to Robin McClung, whose trip to Panama was well worth the expense, I believe. Once again, to those who accompany you, Mr. Gianelli and Mr. McAuliffe, we express appreciation to them for their helpfulness in trying to provide the best answers possible, as we were asking these rapid-fire questions on everything from beer to tugs. This particular hearing of the subcommittee now stands adjourned. [The following was submitted for the record:]

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177 QUESTIONS SUBMITTED BY CONGRESSMAN HUBBARD CAPITAL ADVANCE QUESTION. Paragraph 47 of the current proposal to increase tolls also states that tolls generated as a result of this factor are treated as capital advances "rather than tolls revenue" and "as such the funds are reserved and can be used only for capital purposes." What is the legal basis for this determination? ANSWER. There are two sections of Public Law 96-70 which must be read in conjunction with each other to determine the appropriate handling of the capital advance. Section 1602(b) provides that one of the elements in the toll rate is "capital for plant replacement, expansion, and improvements." This section permits the inclusion of capital costs in the toll rate. This same subsection also provides that tolls are not to be set at rates calculated to produce revenues to cover the contingency payments to the Republic of Panama under paragraph 4(c) of Article XIII of the Panama Canal Treaty of 1977. Section 1341 defines the costs that are to be covered before making the contingency payment to Panama and includes "amounts in excess of depreciation and amortization which are programmed for plant replacement, expansion, and improvements. "This latter section established the method of calculaton for the capital advance and also provides that it is to be reserved from the contingency payment to Panama. This effectively reveals the intent of Congress to establish a system of financing capital and reserving amounts so collected to be available solely for capital. Amounts collected for the capital advance are deposited in the Panama Canal Commission Fund along with all other receipts. The following table presents the financing of the capital program from depreciation and the capital advance for the year 1980 to 1983: Actual Projected FY FY FY FY 1980 1981 1982 1983 (In millions of dollars) Source of capital funds: Depreciation and other non-fund expenses. 18.4 18.3 20.4 19.7 Capital advances. 6.9 9.9 .7 9.4 Funds available for capital. 25.3 28.2 21.1 29.1 Capital appropriations received 23.3 31.6 19.8 29.0 Annual over (under) recovery of Capital appropriation. 2.0 (3.4) 1.3 .1 Cumulative over (under) recovery Of capital appropriation. 2.0 (1.4) ( .1)

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178 BALANCES OF APPROPRIATIONS QUESTION. What is the current unexpended balance of appropriations to the Commission for capital projects and for operating expense? ANSWER. Based on amounts warranted by the U.S. Treasury, the unobligated balance through March 1982 in the Panama Canal Commission appropriation accounts is $78.9 million. This is comprised of $17.5 million for capital projects and 61.4 million for operating expenses. Capital funds are required for the completion of approved capital programs. For the operating account there is still pending unwarranted appropriation authority of some $140 million which will be transferred to the Commission appropriation account each month in installments as Treasury recognizes our deposits to the Panama Canal Commission Fund. The last and final transfer for the year is expected in July of this year. It is expected that the operating appropriation will be fully utilized. HOUSING ELIGIBILITY QUESTION. Regarding residence quarters in the Canal, who is eligible for assignment to housing managed by the Commission? ANSWER. Eligibility for assignment is as follows: a. U.S. citizen employees of the Commission and their families. This includes other categories of persons which may be agreed upon by the two parties (certain Panamanian citizen employees are included in this category). b. Certain Panamanian citizen employees that were "grandfathered" into quarters based upon residing in quarters prior to the Treaty. c. Certain U.S. citizen employees of the United States Forces, and their families, in positions that were transferred from the Panama Canal Company/Government to the DOD at entry-in-force of the Treaty, such as employees of the schools and hospitals. d. Certain skilled, technical or professional employees of the Commission who are nationals of third parties, who are eligible by treaty provisions for Commission housing.

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179 EXECUTIVE DIRECTION QUESTION. The justification show an increase of 32% in the request for appropriations for Executive Direction (page 26). Please furnish for the record an analysis of the appropriation request for each of the activities under this heading, with comparative figures for 1980, 1981, and 1982. The information follows: ANALYSIS OF EXECUTIVE DIRECTION 1980 1981 1982 1983 Supervisory Board Supplies and Materials 7 Commission Services 21 19 20 22 Others 16 40 56 79 Total 44-/ 59 76 101 Office of Administrator and, Staff Payroll. 2,899 3,168 3,601 3,833 Supplies and materials. 54 50 85 93 Commission Services 250 286 307 306 Others 157 170 221 234 Total 3,360 3,674 4,214 4,466 Office of Commission Secretary Payroll 104 146 170 187 Supplies and materials 4 11 15 20 Commission Services Others 79 98 101 128 Total 187 255 286 335 Office of Public Affairs Payroll 279 292 348 391 Supplies and materials 9 9 13 14 Commission Services 180 166 225 252 Others 120 173 189 236 Total 588 640 775 893 Tour Guide Services Payroll 143 125 175 188 Supplies and materials 10 4 2 2 Commission Services 187 43 40 44 Others 2 Total 342 172 217 234 Consultants and Advisors Commission Services 1 3 3 Others 325 152 276 375 Total 326 152 279 378 Total funded cost. 4847 4952 5847 6407 Depreciation. 8 3 3 Total costs. 4847 4960 5850 6410 1/ Two meetings only.

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180 QUESTIONS SUBMITTED BY CONGRESSMAN BOWEN TRANS PANAMA PIPELINE QUESTION. I understand that you are now planning on the Trans-Panama pipeline becoming operational in November instead of February. How many transits and how much revenue will you lose as a result of this change? ANSWER: The advancing of the opening date for the Trans-Panama pipeline is expected to result in an additional loss of some 240 transits worth approximately $10.0 million. QUESTION. How accurate is this November opening date? ANSWER: We have been in close contact with the oil people with regard to construction of the pipeline. The November date is a date which they have given us and is considered the most likely date at this time. APPROPRIATIONS QUESTION. I heard that the Commission has recently announced a lower toll increase requirement than is reflected in the justification booklet. Apparently, the lower tolls requirement is a result of lower cost. Are there any benefits to the U.S. Government or the U.S. taxpayer if the. appropriations request for the Commission in F.Y. 1983 is reduced? ANSWER: There are no benefits to the U.S. Government or the U.S. taxpayer in terms of appropriating resources to the Panama Canal Commission. As you know, the Commission is required to deposit all revenues into a special fund known as the Panama Canal Commission Fund. From this fund, the Commission receives its appropriation. The appropriations in any year cannot exceed the estimated deposits for that year plus any unexpended balance remaining in the fund. Therefore, appropriated funds to the Panama Canal Commission in no way burden the U.S. Government or the U.S. taxpayer. QUESTION. What happens to funds that are appropriated in any given year but are not used? ANSWER: If unused, the funds would be returned to the Panama Canal Commission Fund for subsequent use if required in another budget period.

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181 QUESTION. If the full amount of the President's budget is appropriated, how would you manage the difference in the appropriations requirements between the 1983 President's Budget and the requirement reflected in the tolls proposal? ANSWER: The Commission's objective is to minimize the cost of operating the Canal. Appropriated monies are not expended unless they were absolutely needed. If they are not required, then they would be returned to and remain in the Panama Canal Commission Fund for subsequent use. QUESTION. What would be the effect if the Commission's appropriation request was reduced and the opening date of the pipeline was delayed several months? ANSWER: There is a possibility in this scenario, where everything remains the same, that additional revenues would be generated without the ability to increase cost to handle the additional traffic. If this were to happen, it is possible that the Commission would generate a profit which could well go to the Republic of Panama in the form of a contingency payment. CAPITAL QUESTION. What are your objectives with capital items planned for FY 1983? ANSWER: There are two major objectives underlying the 1983 capital program. One is to round out several of our capacity projects, accomplishing essential items that are needed right now, in an attempt to improve on the canal waters time and marine saftey and thus serve to keep the Canal as attractive to world shipping as possible. The other objective is to replace some of the old and obsolete equipment and facilities with modern productive investments. QUESTION. Why is the capital program increasing in FY 1983 over FY 1982 in view of the decrease in workload for that year? ANSWER: The increase in 1983 is somewhat deceiving. Actually, the FY 1982 program was initially projected at around $28 million but, due to some reprogramming, with the approval of Congress, the amount in 1982 was reduced to $20 million. A supplemental request for F.Y. 1981 was approved by Congress that allowed the Commission to advance projects from 1982 into 1981. This provided for acceleration of urgently needed capacity-improvement projects, such as procurement of towing locomotives and a tugboat. Over 75% of the FY 83 capital program will be dedicated to the maintenance and improvement of the waterway in order to upgrade the quality of service to Canal customers and marine safety.

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182 QUESTION SUBMITTED BY CONGRESSMAN LENT CAPITAL REPROGRAMMING QUESTION. The budget justification material contains a request for $405, 000 for two fire trucks with foam capability. Isn't it true you voted at the March 1982 Supervisory Board meeting to buy those trucks with excess fiscal '82 funding available due to slippage in the MINDI Improvement Program? If so, is the $405,000 included in the Fiscal '83 budget for the two fire trucks still required? If it is, why? ANSWER. The Supervisory Board did vote to utlize the slippage in the FY 82 project to improve Dredge MINDI to fund the procurement of two additional fire trucks with foam capability at their meeting in March 1982. It is, however, important to make the distinction that slippage as used with reference to the MINDI and other projects does not connote that the funds are excess. Slippage comprises funds required for completion of a project or a program which cannot be obligated as scheduled. Savings are funds which are identified as excess. The $405,000 included in the FY 83 budget for two fire trucks plus $20,000 included in the FY 83 budget for replacement of miscellaneous small equipment is still required. The funds will be reprogrammed to the project to improve the Dredge MINDI to restore the idle slippage in that project for FY 82 that was reprogrammed to purchase two fire trucks with foam capabilities at a cost of $425,000. QUESTION. At the March 1982 Board meeting, I understand you voted to buy three skid-mounted compressors for drill boat THOR using excess Fiscal 82 funds due to slippage in the MINDI program. Is it true those three compressors will cost $350,000? Is the $83,000 in the budget justification for portable air compressors still required? ANSWER. The Supervisory Board did vote to utilize the slippage in the FY 82 project to improve Dredge MINDI to fund an unbudgeted requirement or the procurement of three skid-mounted compressors for the Drillboat THOR at their meeting in March 1982. The three skid mounted compressors being purchased for $350,000 for the Dredging Division will be used on a full-time basis on the THOR or in the shop area of the Dredging Division at Gamboa. The $83,000 in the FY 83 program for a portable compressor will be utilized full-time in the repair of Canal vessels in the Industrial Division area at Mt. Hope. There is a continuing requirement for all four units. QUESTION. Please provide a compilation of all reprogramming since Fiscal 1980 to the present showing the date, account, source of funds, and into which account money was placed and for what purpose? ANSWER. The following tabulation is provided.

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FY 1980 CAPITAL PROGRAM $36,625 Appropriated (Dollars in Thousands) Date of Original Revised ReproAmount in Amount in Projects Reprogrammed gramming Project Project Purpose Treaty relocation cost 6/ 8/80 $ 2,232 $ 2,759 -Unanticipated higher cost related to Channel improvements o. 5,000 4,700 treaty relocations. Launch repair facility Mt. Hope 1,800 1,653 Miscellaneous transit facilities improvements. 356 276 00 Channel improvements 7/29/80 4,700 4,550 -To meet higher than anticipated bid Replace and add tugboats 3,800 3,950 price for tugboat purchase. Channel improvements 8/25/80 4,550 4,401 -To purchase components ordered. with new Add towing locomotives 4,320 4,469 locomotives that were misclassified as expense. Improve wingwall knuckle fendering system 9/30/80 258 108 -To provide funding for contract Replace and add tugboats 3,950 4,100 modifications.

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FY 1981 CAPITAL PROGRAM Original Appropriation of $21,350 Thousand Increased by Supplemental to $31,560 Thousand (Dollars in Thousands) Date of Original Revised ReproAmount in Amount in Projects Reprogrammed gramming Project Project Purpose Add three towing locomotives 10/21/80 $ $ 3,500 -Reprogramming from other 1981 projects Channel improvements ". 5,000 3,430 for the purchase of three towing Replace launch and launch engines ." 924 610 locomotives.The Committees were notified Replace and add transit equipment 1,979 1,169 of this capacity related Misc. transit facilities improvements 1,176 370 reprogramming. Replace and add tugboats PL96-536 4,000 8,600 -Reprogramming for capacity related 00 Construct tie-up station-N.Pedro Miguel 1,400 3,080 projects. Supplemental passed both of Add towing locomotives 3,500 7,430 Houses of Congress as part of Public Law 96-536. Tie-up station-N. Pedro Miguel 8/18/81 3,080 4,509 -To provide financing of higher than Replace and add equipment ". 1,119 1,519 anticipated costs of the tie-up Replace and add tugboats 8,600 7,925 station and the purchase of two Add towing locomotives ". 7,430 6,330 foam pumpers for fire control Chamber lighting-all locks 1,260 1,226 at the locks. Misc. transit facilities improvements 535 515 Tie-up station-N. of Pedro Miguel 9/29/81 4,509 4,803 -To cover the increased cost of the Replace and add transit equipment 1,519 1,686 tie-up station and the purchase of two Replace and add towboats ". 7,925 7,767 more foam pumpers needed for fire control Towing locomotives ". 6,330 6,230 at locks. Savings from favorable bids Channel improvements. ". 3,430 3,227 on tugboats and towing locomotives used for this purpose and for the reprogramming of 8/18/81.

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FY 1982 CAPITAL PROGRAM $19,766 Thousand Appropriated (Dollars in Thousands) Date of Original Revised ReproAmount in Amount in Projects Reprogrammed gramming Project Project Purpose Dredge MINDI 7/ 8/81 1,568 2,154 -To provide for additional needed Misc. transit facilities improvements 1,534 1,759 electrical rehabilitation work on the Replace and add transit equipment 1,528 2,057 Dredge MINDI, for replacement of the Impr. and additions to other floating equip. 1,340 Miraflores Tug Landing, and for other required miscellaneous transit equipment such as oil pollution control devices. Replace and add transit equipment 3/25/82 2,057 2,832 -To provide funding for the purchase of 3 Improve Dredge MINDI 2,154 1,379 compressors for Drillboat THOR and 2 foam pumpers for fire control at the locks. The foam pumpers project was a 1983 project advanced to 1982. Funding was provided from the Improve Dredge MINDI project. This was possible because of design problems with a particular system for the MINDI and the long lead time to procure it. This will result in installation of that system in 1983. At that time funding will be restored from the foam pumper project. Chamber lighting-all locks 830 610 -Reprogramming of minor savings for the Misc. transit facilities improvements 801 1,021 miscellaneous transit facilities improvements project.

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FY 1983 CAPITAL PROGRAM $29,024 Thousand Presented to Congress (Dollars in Thousands) Date of Original Revised ReproAmount in Amount in Projects Reprogrammed gramming Project Project Purpose Replace and add transit equipment 3/25/82 $ 425 -The purchase of 2 foam pumpers scheduled in FY 1983 was advanced to FY 1982 using funds that could not be expended that year for improvements to the Dredge MINDI. The foam pumper funds will be available to restore financing to the 1MINDI project. Impr. and additions to misc. floating equip. 484 -The planned purchase of a lighter barge will be deferred until 1984 in order to restore the funds of the MINDI project that were used to purchase 3 skid mounted compressors for the Drillboat THOR in 1982. Improve Dredge MINDI 909 -To restore funding and provide for modifications to the MINDI project.

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187 CANAL ACCIDENTS QUESTION. What steps are you taking to reduce accidents in the Canal? ANSWER. In an effort to respond to the increasing levels of large ships using the Canal, the Commission continues to adopt major Canal improvements having both productivity and safety benefits. Projects implemented or being pursued such as new tugboats, towing locomotives, closed circuit television, radar, Locks fendering, etc., are given specific attention. Additionally, we have developed a comprehensive program designed to evaluate productivity and efficiency, and to improve overall maritime safety. The program incorporates an evaluation process to focus especially on levels of operations and productivity in all of the varied transit functions, on safety practices and standards on maritime, and the expertise demonstrated by the personnel dedicated to the supervision and operation of the waterway. QUESTION. Have there been any accidents since 1973 where alcohol was identified as a cause? Please provide relevant accident reports with information on corrective or disciplinary action taken? ANSWER. A review of the records reveals that since 1973 one marine accident occurred where alcohol was identified as the cause. Board of Local Inspectors Investigation No. 38-74 will be forwarded separately. The employee found at fault was removed from the service on September 11, 1974. QUESTION. Does the $12 Million per year set aside for marine accidents include accidents outside the locks in excess of $120,000? Approximately, how many such claims are outstanding? What is their status? What is the legal authority for this set aside. ANSWER. Yes, the $12 million accrual for marine accidents does include the cost of accidents outside of the locks where the claims are in excess of $120,000. Since October 1, 1979, when section 1415(b) of the Panama Canal Act of 1979, P. L. 96-70, approved September 27, 1979, went into effect, there have been 31 marine accidents, the claims for which would be subject to that provision of law, i.e., they were accidents that occurred in Canal waters outside the locks and the damages are estimated to exceed $120,000. As of the present time, only 10 claims have been received that are attributable to the aforesaid 31 accidents. Two of the ten (for damages to the vessels SWAN ARROW and TEXACO CONNECTICUT) have been sent to the Office of Management and Budget for clearance prior to submission to the Congress for adjudication as required by the statute in question. The work of processing the other eight, includes analysis of the detail submitted and correspondence with

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188 the vessel operator claimants seeking additional data or supporting documents. The agency's experience, which is believed to be the same as that which prevails generally in the field of maritime claims and litigation, has been that there is ordinarily extended delay on the part of, the ship operators and owners in making the claim and, subsequently, in furnishing the billings, memoranda, accounting data, certificates, and other documents that are necessary to explain and support the amount demanded. Of the eight claims now under consideration, two were filed recently; one is being analyzed in the light of additional documents recently received; and in five cases, the Commission is awaiting documentation that the claimants have been asked to supply. We view the Panama Canal Act of 1979 as requiring the Commission to include the cost of these accidents in our toll rates. Section 1602(b) requires that rates of tolls be set to recover as nearly as practicable all costs of maintaining and operating the Panama Canal. In section 1341(e), there is a requirement to determine operating expenses in accordance with generally accepted accounting principles. These principles require that all costs be recognized in the accounts of the Commission, and thus be included in the toll rate base. PERSONNEL QUESTION. In your testimony before the Appropriations Subcommittee of March 10, 1982, you said that the collective bargaining agreement negotiated with the pilots union and implemented on January 2, 1982, has resulted in increased productivity. Can you tell us what provisions have increased productivity? Will other union negotiations be modeled after the pilots' contract? ANSWER. The major contributor to increased pilot productivity is the assignment bonus. This bonus establishes a monetary incentive for pilots to work beyond the average of three assignments a given week thereby improving overall transit capacity. Due to the variety of job categories involved and the uniqueness of the pilot function, it would be dif f icult to model other union contracts after it. It is expected, however, that those unions will seek similar agreements; however, their success is questionable. QUESTION. In the minutes of your December Supervisory Board meeting, the yearly cost of the pilots' contract is estimated to be $3 million. Has that been found to be accurate? ANSWER. The gross cost of the Pilot Contract in FY 1981 was $4.5 million. Although it is difficult to establish a meaningful correlation between the increased cost of the contract and revenues earned there is a relationship. That is, the provisions of the contract have allowed the agency to effectively respond to frequent

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189 heavy surges in traffic without substantial degradation to customer service. This was particularly evident during recent periods of high vessel congestion. It is therefore considered that contract costs are effectively offset by the overall benefits realized. QUESTION. Do the Panama Canal Commission employees come under the so-called cap on Federal Pay? If so, how can pilots earn over $100,000 per year? ANSER. Pay of Commission employees, generally, is subject to the limitation established by 5 U.S.C. 5308 because their pay is adjusted in the manner described in 5 U.S.C. 5307, i.e., they are granted each year a wage increase equal to the increase granted to General Schedule employees pursuant to 5 U.S.C. 5305. The pay limitation imposed by section 5308 (i.e., level V of the Executive Schedule) currently is set at $57,500. Although basic pay of Canal pilots is subject to the foregoing limitation, due to the nature of their work assignments, pilots have the capacity to earn in excess of the pay ceiling due to other elements of their pay not being subject to the limitation. These elements include overtime, Sunday and holiday pay, and assignment bonuses authorized by the collective bargaining agreement with the pilots. SENSITIVE POSITION QUESTION. On page 167 of the transcript of the March, 1981 Supervisory Board meeting, the discussion focused on the fact that Panamanians have already been included in "sensitive position". Please tell us which "sensitive positions" have already been filled by Panamanians. ANSWER. The position of Deputy Administrator, occupied by a Panamanian citizen, has been designated Critical-Sensitive. Prior to November 9, 1981, eight non-U.S. citizen Pilots and 93 non-U.S. citizen Guards occupied Noncritical-Sensitive positions. On that date, these positions and those in the same job catego ies which were occupied by U.S. citizen employees were removed' from the listing of sensitive positions. 97-154 0-82--13

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190 STRIKES QUESTION. Has the Canal Commission ever experienced a strike or work slowdown? What provisions have been made to assure the Canal's operation in the event of a work slowdown or strike? ANSWER. The Panama Canal Commission has not experienced any labor confrontations such as strikes or work slowdowns. A contingency plan has been developed, however, for maintaining various degrees of continuity in the transit-related operations so that the Canal will remain operational over a limited time frame, but at reduced levels of capacity. Depending on the severity of the situation, the plan envisions utilization of management and supervisory personnel as well as local military augmentation and possibly external augmentation from DOD and DOT. MINIMUM WAGE QUESTION. What, if any, is the minimum wage in Panama? Is it uniform or does it vary between Panama City and the Canal area? What is the current minimum wage impacting the Port Authority of Panama? ANSWER. The minimum hourly wage in the Republic of Panama varies according to occupation and work district. The general minimum wage in the city of Panama, for occupations with no specifically designated minimum wage, is currently $.66 an hour. The minimum hourly wage in the city of Panama for construction workers is currently $.79. Panama requires that a minimum hourly wage of $2.90 be paid to employees of local private companies who perform work under contract with U.S. government agencies in the Canal area. This $2.90 minimum wage must be paid also by private companies in Panama to their employees who provide services to shipping companies in the Canal area. (The U.S. Government is attempting to have this minimum wage requirement eliminated because it is our position that it is contrary to provisions of paragraph 2 of Article IX of the treaty.) The Port Authority generally pays a minimum wage of $1.27 per hou; however, their stevedore employees receive a minimum of $1.85 per hour. However, employees of the Canal organization who transferred to the Port Authority as a result of treaty implementation are paid a $2.90 minimum hourly rate.

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191 FISCAL YEAR 1983 CAPITAL PROGRAM QUESTION. In your Fiscal 1981 annual report, you point out the declining use of Panama Canal Commission tugs because on October 1, 1980 all harbor movements in the ports of Balboa and Cristobal will be performed by tugs under contract with the National Port Authority of Panama. In Fiscal 1980, there were 46,310 tug jobs for Commission vessels and in Fiscal 1981 there were 41,718 tug jobs. Why do you need additional tugs? ANSWER. All tugboat procurements scheduled are to replace aged, underpowered tugboats and will not increase the existing fleet of a total of eighteen tugboats. QUESTION. The budget justification includes $4.2 million to buy a marine railroad. What is the capacity of the system you want to buy? Why is this additional capacity needed? ANSWER. The FY 83 budget justification includes $4.2 million to replace a marine railway with a marine lifting table. The $4.2 million is the amount required to fabricate the lifting table itself, to install the hoisting equipment and controls and to construct the adjacent working areas. The hoisting equipment and controls and the engineering know-how are being acquired this year (FY 82). The existing marine railway is obsolete and in poor condition and requires extensive repairs--which are not economically justifiable. The marine lifting table to replace the existing marine railway has a nominal lifting capacity of 1220 long tons and an effective lifting capacity of 750 long tons. The nominal capacity does not take into account the weight of the table itself, nor the weight of the required cradles and blocking. The effective lifting capacity of the marine lifting table is the same as that of the existing marine railway which accommodates the maximum load anticipated without any excess capacity. The physical characteristics of the marine lifting table accommodates not only all of our tugs and barges, but also the locks miter gates. This added capability allows us to overhaul all ninety gates in a location where personnel and equipment are readily available resulting in significant savings. In addition, the operating costs for the marine lifting table will be less than those for the existing marine railway, due to the time that would be saved in docking, staging, rigging, handling materials, and undocking floating equipment.

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192 OUESTION. Is it true that in 1979, you bought two mobile vessel lifters for $77,000? What is their capacity? Is it true they have never been used? If so, why were they purchased? ANSWER. The travel lifts arrived in August 1979, in advance of the completion of the Launch Repair Facility. They are rated at 50 tons capacity and they are the only equipment that can remove launches from the water and move them into the facility or from the facility to another maintenance site and back into the water. During FY 82 they were used regularly in connection with 23 haulouts of launches. QUESTION. In testimony before the Appropriations Committee in March, 1982, you said you planned to increase the number of passenger-carrying vehicles from 150 in Fiscal'81 to 185 in Fiscal '83. What is the reason for this increase? ANSWER. The number of passenger-carrying vehicles is projected to increase from 150, in FY 1981 to 162 in FY 1982, to 185 in FY 1983 a total of 35. This increase, as shown below, is mainly the result of a changeover program, initiated in FY 1980, whereby nonpassenger-carrying vehicles comprising large sedan-delivery, utility and carry-all types, which are not conducive to safe transportation of employees, have a high purchase price, and excessive costs of operation and repairs, are being replaced by compact sedans. These compact sedans have a lower purchase price, are cheaper to maintain, use less fuel, and provide a more varied use in pool service. Trucks Passengerand Carrying Others Total FY 1981 actuals 150 701 851 Changeover program 12 (12) Additions 1 1 FY 1982 estimate 162 690 852 Changeover program 23 (23) Excessed (over-aged) (19) (19) Replacements/additions 19 10 29 FY 1983 estimate 185 677 862 As noted above, the overall infcrease in our~tUotal vehicTd~fleet is 11 vehicles from FY 1981 to FY 1983.

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193 QUESTION. How many and what types of tugs do you have? How old are the tugs and what is the scheduled retirement date for each? How many are now Contract? How many do you plan to buy over the next five years? ANSWER. The Marine Bureau has a total of eighteen diesel-powered tugboats. One replacement tug is currently being constructed and is scheduled for delivery later this fiscal year. The Marine Bureau intends to purchase three replacement tugs during the next five years; one in FY 1983, one in FY 1984 and the third in FY 1986. MARINE BUREAU TUGBOATS Year Service Tug Built Life Balboa Tugs U.S. ARRAIJAN 1936 1966 1 U.S. BUFCESS 1977 2007 U.S. CULEBRA 1944 1974 2/ U.S. RODMAN 1966 1995 4/ U.S. ROUSSEAU 1967 1997 U.S. SAN PABLO 1944 1974 3 U.S. SCHLEY 1968 1998 U.S. STEVENS 1961 1991 U.S. TRINIDAD II 1968 1998 U.S. PARFITT 1981 2011 U.S. ALIANZA 1981 2011 U.S. PROGRESO 1981 2011 Cristobal Tugs U.S. HARDING 1970 2000 U.S. MEHAFFEY 1970 2000 U.S. MORROW 1970 2000 U.S. GOETHALS 1961 1991 U.S. WALLACE 1961 1991 U.S. WALKER 1977 2007 1/ To be replaced in FY 1982 (FY 1981 funding) 2 To be replaced in FY 1984 (FY 1983 funding) 3 To be replaced in FY 1985 (FY 1984 funding) 4, To be replaced in 1987 (FY 1986 funding) due to having insufficient horsepower and the overall general condition of the tug. QUESTION. Concerning your quarters improvements program, your budget justification show a request for $904,000. How many U.S. employees work for the Panama Canal? How many are living in Panama Canal Commission housing? Are there non-Commission employees living in Commission housing? If so, is this a violation of the Treaties? If so, how much is the Panama Canal Commission reimbursed? ANSWER. There are currently 1,890 U.S. citizens employed by the Panama Canal Commission. Of these, 1,753 are permanent employees and 137 are temporary.

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194 There are 1,725 U.S. Commission employees assigned to PCC housing, based on the status of occupancy as of March 31, 1982. There are non Commission employees living in Commission housing. The principal group being those employees of the former Canal agencies whose function was assumed by the Department of Defense on Treaty date. This is not a violation of the treaties. Housing of certain non-Commission employees in Commission housing is permited by various provisions of the Panama Canal Treaty and related Treaties and other agreements as follows: (1) Under Article I Definitions, United States citizen employees also means, as stated in Paragraph 2(b): "Other categories of persons which may be agreed upon by the two parties." (2) Housing for certain United States Military civilian employees is authorized under Paragraph 3(a) of the Agreed Minute to the Agreement in Implementation of Article III of the Panama Canal Treaty, which reads in part: "It is understood that during the five years following the entry into force of the Panama Canal Treaty, certain United States nationals employed by the United States Forces, as such employees of medical and educational facilities, and their dependents, shall be considered to be United States citizen employees and dependents." (3) Housing for United States Military personnel is authorized by the Housing Subcommittee Agreement of May 2, 1980. In Paragraph 3 of the agreement it states: "The Republic of Panama authorizes the Panama Canal Commission the use of housing units within the housing areas to house U.S. and military personnel and their dependents stationed in defense sites when there are no housing units available within defense sites." (4) By the diplomatic exchange of notes between the United States and the Republic of Panama dated August 29, 1980, and effective September 1, 1980, Cardenas (FAA housing) ceased to be an area subject to separate bilateral agreement and became a Commission Housing Area as provided for in Annex A, Paragraph 2(o) of the Agreement in Implementation of Article III of the Panama Canal Treaty. The exchange of notes also authorized the Panama Canal Commission to provide housing to FAA and FHA employees stationed in the Republic of Panama. (5) Employees of the Smithsonian Institute and other categories of persons (e.g., contractors, religious organizations, U.S. Weather Service, etc.), who were authorized Panama Canal Company housing prior to the Panama Canal Treaty were "grandfathered" at entry-into-force. The Panamanian Co-Chairman of the Housing Subcommittee, in paragraph IIC of a Memorandum for the Record relating to a Housing Subcommittee meeting on April 25, 1979, expressed his opinion that "status quo treatment" could apply to non-Panama Canal employees assigned quarters.

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195 The Commission is reimbursed approximately $1,900,000 by non-Commission employees occupying its housing (based on the status of occupancy as of March 31, 1982). U.S. PAYMENTS TO PANAMANIAN SOCIAL SECURITY QUESTION. I understand an agreement has been reached concerning requiring U.S. payments to the Panamanian Social Security. Have you made your mid April refunds to Panamanian employees in accord with that agreement? How much was paid out in total refunds to Commission employees, and what was the average payment? ANSWER. Yes, an agreement has been reached. The refunds to Commission employees totaled $333,694.59. The average refund amounted to $132.00. QUESTION. Will a supplemental appropriation be required to make payments to the Panamanian Social Security System? ANSWER. No, the Commission will fund the contributions from appropriations already enacted. QUESTION. Is the Department of Defense responsible for making payments to the Panamanian social security system? ANSWER. Yes, for employees of the U.S. forces covered under the Panama Social Security System. QUESTION. What is the deadline for payment? ANSWER. The agreement provides for each agency to negotiate its own individual payment schedules; however, it does not establish a deadline for payment. QUESTION. Should Congress expect a supplemental appropriation request to cover these costs? ANSWER. It is not yet determined whether DOD will require a supplemental appropriation to cover these payments.

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196 PUBLIC SERVICE PAYMENT QUESTION. The Treaty requires that the $10 million a year annual public service payment to Panama be re-examined at three year intervals beginning on October 1, 1982 to determine whether those payments need adjustment. The GAO has been unable to conduct its audits of these payments for lack of access to Panamanian accounts. The State Department's annual report to Congress dated March 8, 1982, stated Panama has not yet provided the U.S. with a cost reporting system to carry out the terms of Treaty Article 3 and understanding (1) of the resolution of ratification of that accord. What is the status of this re-examination? ANSWER. GAO (Panama Office) has not been able to conduct its public service audit because the only figures provided by Panama were monthly invoices consisting solely of one-twelfth of the total $10 million public service payments. Such invoices did not provide the necessary detail to conduct an audit. QUESTION. What steps have you taken to expedite examination of these costs to determine proper payment? ANSWER. The Commission has made a series of proposals to Panama suggesting the cost accounting concepts and reports that would normally be required to support an audit. Panama's position has been that adoption of an accounting system is an internal matter. The Commission is in the process of preparing a alternate proposal, which will be coordinated with the U.S. Embassy and the GAO in Panama. It is expected that this proposal will be forwarded to Panama in the near future.

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197 ELIMINATION OF U.S. POLICE QUESTION. What saving will accrue to the Commission as a result of termination of Police protection? Will these costs be transferred to Panama and payable under the public service payment? ANSWER. Savings resulting from termination of the Commission police activity should approximate $3.0 million in 1982 and about double that for 1983, when full-year savings will be realized. These savings are reflected in the President's Budget. The Commission is required to reimburse Panama for the actual costs incurred in providing specified public services, including police protection. BALANCE IN TREASURY QUESTION. Isn't it a fact that the Panama Canal Commission fund in the Treasury is running a balance of $100 million? Could we not reduce the Fiscal '83 budget by an equal amount? ANSWER. No, because the Commission has no access to the Panama Canal Commission Fund except through the appropriation process. The F.Y. 1983 appropriation request for the Panama Canal Commission totals $452.6 which is the amount required to operate and maintain the Canal in F.Y. 1983. To reduce that amount by $100 million would reduce the resources available to run the Canal by over 20%. A reduction of this magnitutide would result in closure of the Canal. The Panama Canal Commission Fund is a special depository account where receipts are deposited and from which funds are appropriated by the Congress. A balance in this account is required for the orderly management of the Commission's finances. The beginning of the year balance is used to provide the initial partial funding for the Commission's appropriations at the start of the year. Deposits in the fund during the year are transferred periodically by the Treasury to the Commission's appropriation accounts. When the total appropriation has been transferred the subsequent receipts will be allowed to stay in the Commission Fund to start the process again the next year. There is generally an administrative lag in making these transfers during the year by the Treasury. At best the transfer is not accomplished until the month following the actual deposit into the Commission fund. Many times it occurs much later. Thus, a sizeable balance is always required tocover the float period and to permit orderly financing of commission programs. The U.S. Treasury has full use of these funds as well as amounts in the appropriation accounts until the appropriated amounts are expended. In this regard agencies with appropriations from the general fund of the Treasury receive their annual appropriation when the appropriation act is enacted into law. They do not receive periodic authority for spending based on the amount of actual deposits.

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198 AVAILABILITY OF REPORTS TO PANAMA QUESTION. Does the Deputy Administrator provide monthly reports on the Canal operations to Panamanian government officials similar to those your offices provide congress? If so, please provide copies for the past eight to nine months for the record. ANSWER. No, the Deputy Administrator does not provide monthly reports on Canal operations to Panamanian government officials. The Deputy Administrator does meet periodically with the Republic of Panama Representative to the Coordinating Committee, the staff of Panama's Treaty Affairs Office, the Minister of Foreign Relations, and other government officials. These are informal meetings for the exchange of information on matters of interest to the Commission and Panama which require high level cooperation or coordination. The Deputy Administrator's participation in these meetings have proven invaluable in fostering and maintaining the good relationship that evolved since the Treaty went into effect. NEED FOR PANAMANIAN LEGAL ASSISTANCE QUESTION. In testimony before the Appropriations Committee on March 10, you said it may be necessary to obtain some legal assistance in Panama to assist in representing the Commission and its employees in the Panama Judicial system. Have you made such a determination? For what reasons would you need such assistance? ANSWER. Based on experience gained since entry into force of the 1977 Panama Canal treaties and related agreements, the Commission has determined that it will have a continuing need for services of Panamanian attorneys to represent the agency or its employees in legal proceedings before Panamanian courts. Although the Commission itself enjoys immunity from the jurisdiction of the Republic of Panama, the great majority of Commission employees do not enjoy such immunity. A recent case in point involved a Panamanian citizen Commission employee operating a Government vehicle who struck and killed a child. The case fell within the jurisdiction of Panamanian law enforcement and judicial authorities. Because the accident occurred while the employee was performing official duty and based on a determination that the incident might cause the United States to be subject to respond in damages, a Panamanian attorney was retained by the Commission to represent the employee in question. It is anticipated that there will be many similar incidents in the future. Accordingly, where the acts or omissions complained of involve injury to persons or damage to property for which the United States might be subject to respond in damages, it is deemed necessary and prudent to retain competent Panamanian attorneys to represent the interests of the Panama Canal Commission and the United States in legal proceedings before the courts of Panama. In addition, there may be situations arising in the future where the Commission chooses to avail itself of Panamanian legal and judicial procedures to effect actions whereupon it would be necessary to retain Panamanian legal counsel.

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199 SCHEDULED LDSS OF BENEFITS QUESTION. With the scheduled October 1, 1984 elimination of PX, commissary and postal privileges now accorded U.S. employees, do you believe this will act as a major turning point in employee morale? ANSWER. The elimination of PX, commissary and postal privileges now accorded U.S. Commission employees may have serious impact on the morale of U.S. employees and possibly affect retention of our experienced senior employees. Although the added cost of purchasing on the local economy may be compensated in part with a future cost-of-living allowance, shopping inconveniences, product nonavailability, and especially the loss of a reliable postal service with the U.S. will be major concerns of employees. QUESTION. Have you experienced any pressure to seek continuation of these or other benefits? ANSWER. Representatives of employee and community groups have expressed strong hopes that arrangements could be made for continuation of these privileges beyond 1984. QUESTION. Have you experienced any pressure to expand these benefits to Commission employees not now eligible such as Panamanian employees? ANSWER. Residents of the former Canal Zone who had agency purchase and postal privileges and lost them upon treaty implementation have in the past expressed an interest in obtaining the restoration of these privileges. RECREATIONAL FACILITIES QUESTION. What do costs for recreational facilities and services include? ANSWER. The costs for recreational facilities and services include the maintenance and/or operation of swimming pools (5), tennis courts (8), memorials/monuments (9), playshelters (3), youth centers (2), and ball parks for providing off-duty recreational activities for the benefit of all Commission employees and dependents.

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200 ENTERTAINMENT COSTS QUESTION. Do you pay for dues memberships for your employees? ANSWER. The Commission ceased paying dues memberships for employees when it was determined about a year ago that appropriated funds could not be expended for that purpose. The Commission's predecessor agency, the Panama Canal Company, traditionally assumed the cost of membership in the Pan Am Clipper Club and Braniff International Club for a select group of employees who had cause to travel frequently on official business, and the cost of membership in a private club in Washington for the Secretary to entertain business guests. This long-standing custom of the Company was inadvertently carried forward by the Committion until it was brought to light in July 1981 that such payments could not be made from appropriated funds. No further payment of membership dues for employees has been made since that date. QUESTION. How do you cover the costs of the Gaslight Club and the Clipper Club? ANSWER. As indicated above, the Commission no longer covers the cost of membership to clubs such as these. BOARD MEETING TRANSCRIPTS QUESTION. You have been sending us transcripts of the past Board meetings. Have they been modified or edited in some way? If so, why? ANSWER. The transcripts, which are provided to the subcommittee within ten working days of Board meetings, are not edited or modified. The committee should be aware that unedited transcripts contain errors and therefore, cannot be accepted as the precise record. BOOKING SYSTEM QUESTION. I understand the booking system test has been resumed. How much revenue do you expect the booking fees to generate? ANSWER. Because both use and application of the booking system is dependent on the day-to-day traffic situation at the Canal, a meaningful prediction of the amount of revenue expected for the test period cannot be made. However, for the period January through March, which period saw some abnormal backlog situations due to the performance of lock overhaul work, revenues from the booking system amounted to $1.7 million.

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201 QUESTION. Are you depositing these revenues in the Panama Canal Commission Fund in the Treasury? ANSWER. Yes. All receipts of the Commission are deposited in the Treasury to the Panama Canal Comission Fund. QUESTION. How do these revenues affect the appropriation request? ANSWER. Potential revenue from the booking system was not taken into account in formulation of the budget or in the annual estimate of Commission revenue deposits into the Panama Canal Commission Fund and, therefore, have no effect on the appropriations requested by the Commission. Whatever revenues are actually realized will accrue to the balance in the Panama Canal Commission Fund.

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202 ADDITIONAL QUESTIONS SUBMITTED BY CONGRESSMAN LENT QUESTION. Please list those laws in the United States from which the Panama Canal Commission is exempt? ANSWER. Compilation of a comprehensive listing of all United States statutes, treaties to which the United States is a party and other provisions of law which specifically, or by implication, exempt the Panama Canal Commission from coverage, cannot be accomplished within the restrictive time frame imposed. However, the Department of State has compiled a listing of those provisions of U.S. law which were superseded by entry into force of the 1977 Panama Canal treaties. See Panama Canal Treaties: Hearings on Executive N before the Senate Comm. on Foreign Relations, 95th Cong. lst Sess. (1977) (Part 1 Administration Witnesses) at pp. 80-83. QUESTION. On page 15 of your justification, you request $3.785 million to overhaul miter gates number 116 -119. When will this program begin? What is the annual cost of the program? When do you expect to complete the program? If the program is ongoing, to what are you referring on page 23 of the Tolls proposal with regard to completion of the miter gate overhauls? (see Section "General Repair, Engineering, and Maintenance") ANSWER. The major overhaul of Miter Gates 116 through 119 is part of a program commencing in 1983 to rehabilitate the operating and safety gates at the extreme ends of each locks chamber. The overhaul schedule. is generally based on a 30-year cycle. Current program through FY 1989 provides for the overhaul of 7 sets of miter gates. Completion of the miter gate overhaul mentioned in Page 23 of the Tolls Proposal refers to costs transferred to Locks Overhaul for 1983 miter gate overhaul work performed by General Repair, Engineering and Maintenance activities (Industrial, Maintenance, Electrical, and Dredging Divisions) In other words, these activities are projected to perform or complete, more work for other units in 1983 than they did in 1981, including the first year's work on the miter gate overhaul. QUESTION. What is the FY '82 and FY '83 cost of the new wage scale approved by the Board at its December, 1981 meeting? ANSWER. The estimated additional payroll cost of the new wage scale approved by the Board at its December 1981 meeting is $450,000 for FY '82 and $700,000 for FY '83.

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203 QUESTION. Mr. Gianelli's testimony before the Panama Canal/OCS Subcommittee on April 20, 1982, says "The waterway could lose as much as $45 million in annual revenues because of the anticipated reduction in the number of transits of vessels carrying Alaska north slope oil". (page 4) Why does paragraph number 5 (page 4) of your March, 1982 Tolls proposal say "The loss of this important segment of traffic, which is expected to begin in November 1982, will deprive the Canal of some $50 million of tolls and $4 million of related transit service revenues, based on current trends." (emphasis added) ANSWER. The reduction of approximately $45 million in tolls revenue expected to result from the loss of the ANS oil was based on the estimated revenue from that source for 1982. Since January 1982, however, ANS oil shipments have increased sharply, averaging more than 700 thousand barrels daily compared to the budget esimate of 500 thousand barrels per day, and indications are that this trend will continue until the pipeline is in operation. If these high levels are sustained, the ANS annual movement would have generated some $50 million in tolls revenue in 1983. QUESTION. Does the Panama Canal Commission employ Shorthand reporters or court stenographers? If so, are they used to prepare the transcript of the Supervisory Board meetings? If not, why not? ANSWER. The Commission employs three shorthand reporters in the Office of the Board of Local Inspectors. They are not used to prepare Supervisory Board transcripts. The designated responsibility of these reporters is to record verbatim the proceedings of the Board of Local Inspectors and transcribe their notes into the Board's official reports of marine accidents. These reporters carry a heavy wqorkload and must be on call to cover meetings of the Board of Local Inspectors whenever marine accidents occur and the Board is convened. In view of the fact that they could be preempted virtually at any time because of their primary responsibility to the Board of Local Inspectors, we have not found it practical to use these shorthand reporters for meetings of the Commission's Supervisory Board.

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204 QUESTION. On page 25 of your justification, it states the Panama Canal Commission performs "certain printing services provided other government agencies". Please list the agencies you do printing jobs for, and what the jobs are. ANSWER. Printing services provided other Government agencies include the following: Agency Job DODDS (Schools) Printing of college catalogs, diplomas, envelopes, miscellaneous school programs and forms. Manufacturing of rubber stamps. U.S. ARMY Printing of certificates, various manuals, brochures and CFC materials. Die-cutting. Numbering of forms, ID cards and checks. U.S. NAVY Printing of monthly newspaper, various manuals, brochures, letterheads, invitations and miscellaneous U.S. AIR FORCE SMITHSONIAN INST. U.S. EMBASSY Minor miscellaneous printing services. QUESTION. Are all Panama Canal pilots eligible to elect the"6/4" Plan? ANSWER. Only Panama Canal Commission Pilots who have reached the CP-03 (completion of one year of service) pay level are eligible to elect the 6-4 Plan. QUESTION. A letter from Mr. Gianelli to the Comptroller General of the United States dated January 25, 1982 said there is a possibility that the Trans-Panama pipeline would become operational before February 1, 1983. In the event, the Commission would be required to place into effect a modestly higher tolls increase, perhaps approximately 16%-17%, to recover the additional loss of tolls income." What events between January 25 and the March 1982 approval of the 9.8% tolls increase permit a lower the projected rate increase? ANSWER. Mr. Gianelli's letter of January 25, 1982 alluded to the possibility of an increase in the tolls requirement resulting from a change in the opening date of the Trans-Panama pipeline and the associated tolls revenue loss (approximately $10 in tolls income equates to an additional tolls requirement factor of around

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205 3%). At that point, the Commission had no indication of any changes affecting its operating expense requirements in FY 1983. Subsequently, however, the operating programs were reviewed and reevaluated and the results concluded that a lower tolls increase would be required. The revised estimate also assumes a modest increase in transits, other than Alaskan North Slope oil. QUESTION. On page 12 of the transcript of the March 1982 Supervisory Board meeting, the Administrator said ". some problems can be anticipated with the passing of March 31 ." What might these problems be? ANSWER. The problems to which the Administrator alluded concerned the areas of health services and law enforcement. With the end of the transition period, non-U.S. Commission employees and their dependents lost eligibility to use U.S. Army MEDDAC facilities, and considerable effort is being made to assure that adequate medical care is available to them from other sources in the Republic of Panama. In the area of law enforcement, there has been concern that the termination of the joint patrol program and the assumption of full police responsibility by Panama's Guardia Nacional be carried out smoothly and without any lapse of coverage. In both areas, careful planning and coordination with Panamanian authorities have minimized actual problems and, as stated at the end of the Administrator's comment to which the question refers, we have been successful in dealing with matters in these areas. QUESTION. Please provide a translated copy of Minister Rodriguez's prepared remarks submitted for the record at the March 1982 Supervisory Board meeting. (transcript p. 15-16) ANSWER. The information follows:

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206 ADDRESS BY MR. RICARDO ALONSO RODRIGUEZ, MINISTER O' THE PRESIDENCY AND MEMBER OF THE PANAMA CANAL COMMISSION BOARD OF DIRECTORS ON MARCH 25, 1982, ADMINISTRATION BUILDING, PANAMA CITY

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207 ON BEHALF OF THE PANAMANIAN MEMBERS OF THE PANAMA CANAL COMMISSION BOARD OF DIRECTORS, I EXTEND A WARM GREETING TO THE U.S. 13ARD.MEMBERS. WE WISH TO TAKE THE OPPORTUNITY A.T THE OPENING OF THESE MEETINGS TO VOICE A SERIES OF OBJECTIONS THAT MAY SERVE AS FRAMEWORK FOR THESE DISCUSSIONS, AND TO HAVE THEM INCLUDED IN THE RECORD. WE HAVE RECEIVED FROM THE DIRECTORS A REPLY TO OUR PREVIOUS STATEMENTS ON SPECIFIC SUBJECTS AND DISAGREEMENTS CONCERNING THE INTERPRETATION OF THE TORRIJOS-CARTER TREATIES AND THE PANAMA CANAL OPERATION, WHICH WE TAKE AS AN EFFORT TO DEFINE POSITIONS AS THE BASIS FOR SEEKING SOLUTIONS THAT WILL BE FAIR AND IN THE COUNTRY'S INTEREST. NOTWITHSTANDING THIS, WE MUST POINT OUT THAT THE UNITED STATES' REPLY HAS AN ESSENTIAL ELEMENT THAT RENDERS IT NEGATIVE, ROUTINE, AND MIDDLING. OUR PREVIOUS OBJECTIONS WERE -RAISED AS STATEMENTS, CRITICISM, CHARGES, AND CONTRIBUTIONS INTENDED TO ERASE THE COLONIALISTIC VESTIGES AND THE BUREAUCRATIC LETHARGY OF THE CANAL ADMINISTRATION, AND IT SO HAPPENS THAT THE ANSWERS WERE WRITTEN BY MEMBERS OF THE CANAL MIDDLE MANAGEMENT ThAT IS, THOSE WHO WERE CRITICIZED PREPARED THE DEFENSE OF THEIR OWN INTERESTS AND PRIVILEGES AND OF THEIR COLONIALISTIC CONCEPT. WE TRIED TO PROVIDE INFORMATION AND CLEARLY ESTABLISH OUR POSITION TO ALLOW THE UNITED STATES TO INITIATE THEIR OWN INVESTIGATIONS, CORRECT THEIR ERRORS AND ELIMINATE OBSTACLES)

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208 BUT THE RESULT WAS AN "ESTABLISHMENT" RESPONSE. NEVERTHELESS, IT MAY STILL BE CORRECTED AND THOSE WHO HAVE THE AUTHORITY TO DECIDE COULD OIN US IN ADOPTING RESOLUTIONS THAT MAY CLEAR THE WAY TO' BRING INTO THE IMPLEMENTATION OF THE TORRIJOS-CARTER TREATIES AND THE OPERATION OF THE CANAL COOPERATION, RESPECT FOR THE INTERESTS OF BOTH COUNTRIES, AND ABOVE ALL, JUSTICE. THIS LAST ELEMENT CANNOT BE FORGOTTEN. A PEOPLE WHO HAVE BEEN .THE VICTIM OF ARROGANCE AND SERVITUDE CAN ONLY ACCEPT BEING TREATED WITH JUSTICE AND DIGNITY. IN THE SEPARATE DOCUMENT WHICH WE ARE DISTRIBUTING TO THE DIRECTORS, WE DISCUSS EACH ANSWER PREPARED BY CANAL COMMISSION SUBORDINATE EMPLOYEES. WE MUST NOW EXPRESS OLD AND NEW CONCERNS WHICH I HOPE WILL BE BETTER RECEIVED TO AVOID DEADLOCKS ON DISCREPANCIES. A CONSTRUCTIVE EXAMPLE WAS THE SOLUTION TO THE EMPLOYERS' CONTRIBUTION TO THE PANAMA SOCIAL SECURITY TO COVER DEATH, DISABILITY AND OLD AGE BENEFITS. WE SAT DOWN SERIOUSLY TO NEGOTIATE AND SOLUTIONS WERE FOUND; THE SITUATION WAS STUDIED OBJECTIVELY AND MANY DIFFICULTIES THAT OBSTRUCTED SOCIAL (SECURITY) COVERAGE OF WORKERS UNDER PANAMANIAN LAWS WERE RESOLVED. END OF THE TRANSITION PERIOD STARTING ON JANUARY 9, 1964, AS A RESULT OF THE VIOLENT ENCOUNTERS IN' WHICH 21 DIED AND HUNDREDS OF PANAMANIANS WERE WOUNDED, OUR COUNTRY STARTED NEGOTIATIONS WITH THE UNITED STATES. TO ABOLISH ONCE AND FOR ALL THE DISGRACEFUL HAY-BUNEAU

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209 VARILLA TREATY WHICH CULMINATED, UNDER MAJOR GENERAL OMAR TORRIJOS HERRERA, WITH THE TORRIJOS-CARTER TREATIES. THEY REPRESENT A NEGOTIATION EFFORT IN WHICH OUR COUNTRY STRESSED THAT THE KEY ITO ARRIVE AT SOLUTIONS CONSISTENT WITH THE LEGITIMATE RIGHTS OF OUR COUNTRY WAS THE ACKNOWLEDGEMENT OF THE SOVEREIGNTY OF THE STATES THAT SAT AT THE NEGOTIATIONS TABLE. OUR COUNTRY'S ACTIONS WERE BASED ON THIS CONCEPT AND WE ARE NOW ABLE TO AFFIRM THAT THE ACHIEVEMENT OF'THE TORRIJOS-CARTER TREATIES WAS THE RESULT OF OUR WILL TO BE AN INDEPENDENT AND SOVEREIGN NATION, AND THE UNITED STATES HAD TO ADMIT THAT WHAT WAS NOT EVEN NEGOTIATED IN 1903 COULD NOT BE UPHELD AS THE. BASIS OF A RELATIONSHIP BETWEEN OUR COUNTRIES. FOR THAT REASON, THE TORRIJOS-CARTER TREATIES HOLDS A SPECIAL MEANING IN THE RELATIONS BETWEEN PANAMA AND THE UNITED STATES OF AMERICA, BECAUSE OF THE MANNER IN WHICH THEY WERE NEGOTIATED, THEIR CONTENT AND OBJECTIVES. IT IS OBVIOUS TO EVERYONE THAT ALTHOUGH THE FULL ASPIRATIONS OF BOTH PARTIES WERE NOT MET, IT IS TRUE.THAT THIS WAS A STEP BY PANAMA TOWARD OBTAINING ITS INDEPENDENCE AND THE REVERSION OF ITS TERRITORY KNOWN AS THE CANAL ZONE, AS WELL AS MOVABLE AND IMMOVABLE PROPERTY OF SIGNIFICANT VALUE. FOR THEIR PART, THE UNITED STATES OBTAINED THE ASSURANCE THAT THE CANAL WOULD .BE OPERATED EFFICIENTLY ON THE BASIS OF JUST AND REASONABLE TOLLS, UNDER CONDITIONS OF EQUALITY FOR ALL NATIONS, THA'I' OUR TERRITORY WOULD NOT HARBOR FORCES AGAINST

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210 THE SECURITY OF THE UNITED STATES OF AMERICA, AND THAT THE CANAL WOULD NOT RUN THE RISK OF BECOMING INVOLVED IN WAR CONFLICTS THAT MAY CAUSE ITS DESTRUCTION. THUS ANALYZED, THE CONTENT OF THE TORRIJOS-CARTER TREATIES REFLECTS TO A; GREAT EXTENT THE CONCRETE REALIZATION OF THE NATIONAL ASPIRATION OF GENERATIONS OF PANAMANIANS OF DOING AWAY WITH THE COLONIALISTIC IMAGE OF THE UNITED STATES OF AMERICA IN PANAMA AND, CONSEQUENTLY, A GRADUAL PHASE-OUT WAS ARRANGED UNDER CONDITIONS THAT WILL GUARANTEE THAT PANAMA WILL BE FULLY PREPARED IN THE YEAR 2000 TO OPERATE, MAINTAIN AND PROTECT THE CANAL AND PROVIDE EFFICIENT SERVICES TO THE INTERNATIONAL .COMMUNITY. TO MAKE THIS FEASIBLE, A POLITICO-JURIDICAL PRINCIPLE THAT HAD AND HAS TO BE THE GOVERNING FACTOR OF THE TORRIJOS-CARTER TREATIES AND THEIR APPLICATION IS THE PRINCIPLE OF COOPERATION BETWEEN THE TWO NATIONS MENTIONED SPECIFICALLY IN THE PANAMA CANAL TREATY, ITEM 4,ARTICLE I, WHICH READS AS FOLLOWS: "IN VIEW OF THE SPECIAL RELATIONSHIP ESTABLISHED BY THIS TREATY, THE UNITED STATES OF AMERICA AND THE REPUBLIC OF PANAMA SHALL COOPERATE TO ASSURE THE UNINTERRUPTED AND EFFICIENT OPERATION OF THE PANAMA CANAL." THIS STATEMENT SHOULD BE REPEATED AND, MOREOVER, KEPT IN MIND IN EACH OF OUR' DISCUSSIONS'TO CLEAR THE WAY FOR CONSTRUCTIVE SOLUTIONS TO OUR DIFFERENCES. ON OUR PART, WE SHALL FAITHFULLY COMPLY WITH THE TREATIES AND PARTICULARLY WITH

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211 THE PRINCIPLE OF COOPERATION, TO ENSURE, NOW AND IN THE FUTURE, THE EFFICIENT AND NEUTRAL OPERATION OF THE CANAL. WE DEMAND THE SAME ATTITUDE FROM THE PEOPLE OF THE UNITED STATES BECAUSE, IF WE BOTH APPLY THE SAME PERSPECTIVE, NOT ONLY WOULD MINOR DISAGREEMENTS BE .ELIMINATED, BUT WE WOULD BE STRIVING TOWARDS A FUTURE OF CLOSE COLLABORATION, COORDINATION AND SINCERE FRIENDSHIP BETWEEN PANAMA AND THE UNITED STATES OF AMERICA. THIS SEVENTH MEETING OF THE BOARD COINCIDES WITH THE TERMINATION OF THE TRANSITION PERIOD SET FORTH IN THE PANAMA CANAL TREATY OF 1977 IN ITS ARTICLE XI. IN COMPLIANCE WITH ITS PROVISIONS, ON APRIL 1, 1982, THE UNITED STATES COURTS AND POLICE DEPARTMENTS SHALL CEASE TO OPERATE AND THE PANAMANIAN JURIDICAL SYSTEM WILL BEEFFECTIVE THROUGHOUT OUR NATIONAL TERRITORY, A SIGNIFICANT STEP TOWARDS ACHIEVING OUR TOTAL INDEPENDENCE. PEACEFUL AND FRIENDLY COMPLIANCE WITH THIS FACT WILL ENHANCE THE PRESTIGE OF THE UNITED STATES AND PANAMA, AND WILL BECOME AN EXAMPLE FOR ALL THE OTHER COUNTRIES OF THE WORLD OF HOW TO CONDUCT RELATIONS BETWEEN NATIONS, AND THE BEST WAY TO ELIMINATE THE REMNANTS OF COLONIALISM THAT STILL REMAIN IN THE WORLD. IT IS WORTH NOTING THAT THE PANAMA CANAL COMMISSION WILL CEASE TO RENDER THE RESIDUAL GOVERNMENT SERVICES CARRIED OVER FROM THE FORMER CANAL ZONE GOVERNMENT. LAST YEAR THE COMMISSION

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212 SPENT $7 MILLION DOLLARS IN MAINTAINING A POLICE FORCE AND MORE THAN '$300 THOUSAND DOLLARS IN MAINTAINING COURTS. FROM NOW ONr THIS MONEY WIfL AUGMENT THE FUNDS AVAILABLE FOR OPERATION AND MAINTENANCE OF THE CANAL. DURING T 4 ESE THIRTY MONTHS, THE REPUBLIC OF PANAMA HAS EFFICIENTLY ASSUMED ITS GOVERNMENT FUNCTIONS IN THE FORMER CANAL ZONE, WHILE THE CANAL HAS BROKEN RECORDS IN TRANSITS AND REVENUE FROM ITS OPERATIONS. MANY GOVERNMENT AGENCIES FROM THE REPUBLIC OF PANAMA DESERVE CREDIT FOR THE FORMER, AND THE PANAMA CANAL COMMISSION ADMINISTRATOR AND DEPUTY ADMINISTRATOR, FOR THE LATTER.NOTWITHSTANDING THE ABOVE, THERE ARE STILL PROBLEMS WHICH MUST BE EXPLAINED HONESTLY IN SEARCHING FOR JUST AND REASONABLE SOLUTIONS, KEEPING IN MIND THAT THEY REQUIRE CORRECTIVE ACTION BY THE UNITED STATES, SO THAT IT MAY COMPLY WITH THE OBJECTIVES OF 'THE TORRIJOS-CARTER TREATIES AND ALSO ERASE THE IMPRESSION LEFT BY ACTIONS THAT ARE OUT OF STEP WITH OUR TIMES AND HAVE RESULTED FROM PREVIOUS ACTIONS. SOME OF THESE ACTIONS WERE BASED ON VALUES CONTRARY TO THE PRINCIPLE OF HUMAN EQUALITY, AND OTHERS BASED ON ARROGANT POLICIES. LABOR PROBLEMS AT THIS MEETING, WE BRING TO THE CONSIDERATION OF THIS BOARD OF DIRECTORS, THE PROBLEMS CONCERNING DISCRIMINATORY PANAMA CANAL COMMISSION WAGE SCALES, THE ILLEGAL DEDUCTION

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213 OF THE TAX FACTOR AND THE COST-OF-LIVING ALLOWANCE DUE PANAMANIAN EMPLOYEES WHOSE TERMS AND CONDITIONS OF EMPLOYMENT BECAME LESS FAVORABLE, IN AN EFFORT TO FIND A SOLUTION THROUGH ADMINISTRATIVE CHANNELS. THIS BOARD HAS THE POWER TO REMEDY THE SITUATION. NEVERTHELESS, IF THE U.S. MEMBERS DO NOT SHOW A WILLINGNESS TO RESOLVE THESE SITUATIONS, THE REPUBLIC OF PANAMA RESERVES THE RIGHT TO DENOUNCE ThIS PROBLEM AT INTERNATIONAL FORUMS AND TO DEMAND AN IMMEDIATE SOLUTION THROUGH DIPLOMATIC CHANNELS OR INTERNATIONAL ARBITRATION, AS THIS IS NOT ONLY AN INJUSTICE TO PANAMANIAN EMPLOYESS, BUT .A CLEAR VIOLATION OF THE PANAMA CANAL TREATY OF 1977. REPLACEMENT OF U.S. PERSONNEL ONE OF THE OBJECTIVES OF THE TORRIJOS-CARTER TREATY IS THE GRADUAL REPLACEMENT OF U.S. EMPLOYEES BY PANAMANIANS AT ALL LEVELS OF OPERATION AND ADMINISTRATION OF THE PANAMA CANAL. WE HAVE OBSERVED, HOWEVER, THAT THERE IS A CONTINUED REDUCTION OF U.S. WORK FORCE, YET IT IS NOT BEING REPLACED BY PANAMANIANS. FOR EXAMPLE, AS OF OCTOBER 1, 1979, THERE WERE 2,398 U.S. CITIZENS EMPLOYED BY THE PANAMA CANAL COMMISSION IN CANAL OPERATIONS. TO OUR SURPRISE, BY SEPTEMBER 30, 1981, THERE WERE 1,959 U.S. CITIZENS OR 439 LESS, BUT THE NUMBER OF PANAMANIAN EMPLOYEES HAD NOT INCREASED BY THE SAME PROPORTION NOR HAD THE VACANCIES BEEN FILLED WITH THEM. WHAT DOES THIS MEAN? AT FACE VALUE, IT SEEMS TO. POINT TO ONE OF THESE FACTS: AN EXTRAORDINARY BUREAUCRATIC BURDEN THAT IS COSTLY AND USELESS, 97-154 0-82---14

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214 OR SIMPLY NONCOMPLIANCE WITH TREATY OBJECTIVES, OR BOTH. THE BASIS FOR THIS CONCLUSION IS SIMPLEs IF THESE POSITIONS WERE NECESSARY TO OPERATE TH CANAL, THEY COULD NOT BE ABOLISHED. FOR THIS REASON, AND IN ORDER TO -HAVE EXACT FIGURES, WE WOULD LIKE TO BE INFORMED HOW MANY POSITIONS THAT WERE LEFT VACANT BY U.S. CITIZEN EMPLOYEES HAVE BEEN ABOLISHED, DOWNGRADED, OR FROZEN, AND HAVE A LISTING MADE, BY NATIONALITY, OF THE ONES THAT HAVE BEEN FILLED. THE ABOVE RATIO CHANGED SINCE JANUARY 1982 DUE TO THE HIRING OF TEMPORARY PERSONNEL FOR MAINTENANCE WORKS IN THE PANAMA CANAL; THIS ALTERS THE RATIO BUT NOT OUR CONTENTIONS. UNJUST TREATMENT OF PANAMANIANS IN THE MARINE DIVISION (sic) FOR THE RECORD, WE WANT FORMALLY TO PROTEST THE PRESENT DISCRIMINATORY TREATMENT SHOWN TO PANAMANIAN TUGBOAT WORKERS BY U.S. OFFICIALS OF THE MARINE DIVISION (sic). INVESTIGATIONS MADE BY US REVEAL THAT INCIDENTS HAVE TAKEN PLACE WHICH COMPLETELY DENY THE SPIRIT OF BINATIONAL COOPERATION EXPLICIT IN THE LETTER OF THE TREATY. WE THUS FIND THAT PANAMANIANS ARE BEING REQUIRED MORE RIGOROUS TESTS AND EXAMINATIONS THAN U.S. CITIZENS, LEADING US TOTHE CONCLUSION THAT THIS IS BEING DONE TO HINDER THE ENTRANCE OF PANAMANIANS TO THAT WORK FORCE. THE INVESTIGATIONS CONDUCTED WHENEVER AN ACCIDENT OCCURS ARE CONDUCTED THOROUGHLY WHEN A PANAMANIAN IS INVOLVED, BUT THIS IS NOT DONE WHEN THE TUG CAPTAIN IS A U.S. CITIZEN.

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215 SIMILARLY, THE SEVEREST PENALTIES ARE METED OUT TO PANAMANIANS BUT U.S. CITIZENS RECEIVE VERY LIGHT ONES, IF ANY. THERE IS AN OBVIOUS PR9JU PICE AGAINST PANAMANIANS ON THE PART OF SOME TUGBOAT CAPTAI[NS AND ADMINISTRATIVE PERSONNEL OF THE MARINE DIVISION (sic), WHO HAVE TAKEN IT UPON THEMSELVES TO HARASS PANAMANIAN EMPLOYEES WORKING ON THE TUGBOATS, PARTICULARLY FELLOW CITIZENS WHO DEMAND THEIR RIGHTS. BASED ON THE ABOVE, WE REQUEST THE ADMINISTRATOR TO CONDUCT AN IN-DEPTH INVESTIGATION OF THIS PROBLEM, IN ORDER TO TAKE THE NECESSARY MEASURES FOR.ItS SOLUTION AND AVOID CONFRONTRATIONS THAT MAY RESULT -IN DETRIMENT OF THE EFFICIENT OPERATION OF THE PANAMA CANAL. DISCRIMINATORY AUSTERITY THE PANAMANIAN REPRESENTATIVES AT THIS BOARD OF DIRECTORS HAVE SUPPORTED THE AUSTERITY PROGRAM, PROPOSED AND IMPLEMENTED BY THE ADMINISTRATOR, TO ELIMINATE SUPERFLUOUS EXPENSES. WE NOTE WITH DISAPPOINTMENT, NEVERTHELESS, THAT THE MAJORITY OF THE ACTIONS ARE LIMITED TO ELIMINATING PANAMANIAN EMPLOYEES. YET THERE ARE STILL A NUMBER OF POSITIONS IN THE ORGANIZATION THAT ARE NOT ABOLISHED BECAUSE THEY ARE HELD BY U.S. CITIZENS SOME EXAMPLES OF THIS ARE THE FOLLOWING: PERSONAL REPRESENTATIVE OF THE ADMINISTRATOR (sic) AND REPRESENTATIVE OF THE RESIDENT ADVISORY COMMITTEES. ASSISTANTS (sic) TO THE DEPUTY DIRECTOR OF THE OFFICE OF EXECUTIVE PLANNING.

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216 CHIEF, TREATY AFFAIRS DIVISION, TWO TREATY AFFAIRS SPECIALISTS. ASSISTANT, DEPUTY GENERAL COUNSEL. ASSISTANTS, DEPUTY-CHIEF FINANCIAL OFFICER. ASSISTANT TO THE DEPUTY MARINE DIRECTOR. ASSISTANT TO THE DEPUTY DIRECTOR, ENGINEERING AND CONSTRUCTION.' DIRECTOR, LOGISTICS SERVICES, GENERAL SERVICES. DIRECTOR, SUPPORT SERVICES, GENERAL SERVICES. THE POSITIONS MENTIONED ABOVE ARE IN ADDITION TO THOSE OF DEPUTY DIRECTOR AND DEPUTY CHIEF, AND ARE HELD BY U.S. CITIZENS. IMROVEMENT NEEDS WE MAINTAIN THAT THE UNITED STATES OF AMERICA, IN COMPLYING WITH THE TORRIJOS-CARTER TREATY AGREEMENTS AND IN THE BEST INTEREST OF ITS MERCHANT MARINE MUST PROMOTE A POLICY FOR CANAL INVESTMENT AND MAINTENANCE THAT WILL GUARANTEE ITS EFFICIENT OPERATION BEYOND THE YEAR 2000. HOWEVER, WE CAN SEE SIGNS OF THE APPLICATION OF A POLICY THAT IGNORES SIGNIFICANT ACTIONS IN THE FIELD OF INVESTMENTS 'AS AN OFFSHOOT OF LAW 96-70, OF THE ATTITUDES OF CERTAIN OFFICIALS IN THE COMMISSION'S OFFICE OF EXECUTIVE PLANNING, AND OF A NEARSIGHTED. PERSPECTIVE REGARDING TRUE U.S. INTERESTS, WHICH CAUSES.DELAYS .IN FUNDING PROJECTS SUCH AS THE WIDENING OF CULEBRA CUT AND THE CANAL ENTRANCES, IF SHIP CONGESTION AFTER 1990 IS TO BE AVOIDED. THESE PROJECTS

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217 ARE BEING DELAYED ON THE BASIS OF THE CONTENTION THAT HYDRAULIC STUDIES ARE NEEDED TO DETERMINE THE OPTIMUM WIDTH REQUIRED, DESPITE THE F.ACT THAT STUDIES PREPARED BY THE CANAL IMPROVEMENT STEERING COM4 ITTEE IN 1978 CLEARLY STATE THAT THE CUT MUST BE WIDENED TO MINIMUM OF 700 FEET TO ENABLE THE CANAL TO HAVE THE CAPACITY FOR 42 SHIPS A DAY. THE SAME IS TRUE REGARDING THE SEARCH FOR TECHNOLOGIES FOR FOG NAVIGATION. WE KNOW OF REPUTABLE FIRMS THAT HAVE APPROACHED THE ADMINISTRATION JUST TO BE DISCOURAGED BY THE .OFFICE OF EXECUTIVE PLANNING WHO HAVE TOLD THEM THAT PROPOSALS CANNOT BE ACCEPTED BECAUSE THEY MUST BE SOLICITED. WE DEMAND THIS SITUATION TO BE REVIEWED OBJECTIVELY TAKING INTO ACCOUNT THE INTERESTS OF THE PANAMANIAN AND U.S. MERCHANT MARINE AND' CANAL USERS, PARTICULARLY THE ECONOMY OF MANY SOUTH AMERICAN COUNTRIES WHICH DO NOT HAVE ANY OTHER ALTERNATIVE BUT TO USE THE CANAL. CONSIDERATION OF THE SUBJECT OF THE WIDENING OF CULEBRA CUT AND THE ENTRANCES TO THE CANAL, INCLUDED FOR THIS MEETING (AT OUR REQUEST) WOULD BE APPROPRIATE (AT THIS TIME). THE PANAMA CANAL COMMISSION DOES NOT REPLACE THE CANAL ZONE GOVERNMENT WE HAVE OBSERVED THAT THE COMMISSION SPONSORS THE SO-CALLED "RESIDENTS ADV-ISORY COMMITTEES," A .NAME THAT DISGUISES THE CIVIC COMMITTEES (sic) WHICH WERE PART OF THE CANAL ZONE GOVERNMENT STRUCTURE ANlD WERE ABOLISHED BY THE TREATY.

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218 THESE CIVIC COMMITTEES MET IN THEPAST WITH THE CANAL ZONE GOVERNOR TO DISCUSS GOVERNMENT POLICIES AND COMMUNITY PROBLEMS, AS PART OF THE COLONIALISTIC SYSTEM THAT HAD ERECTED A FIFTH BOUNDARY WITHIN OUR COUNTRY. NOW, THESE COMMITTEES MEET WITH NO JUSTIFICATION TO COMPLAIN TO.THE ADMINISTRATOR ABOUT THE ACTIONS OF THE GOVERNMENT OF THE REPUBLIC OF PANAMA AND OF THE U.S. ARMED FORCES AND OTHER COMMUNITY MATTERS THAT ARE TOTALLY ALIEN TO THE ADMINISTRATOR'S FUNCTIONS AND AUTHORITY. IT IS OUR UNDERSTANDING THAT MEMBERS OF THE "RESIDENTS ADVISORY COMMITTEES" ARE GIVEN TIME OFF WITH PAY TO ATTEND MEETINGS WITH THE ADMINISTRATOR OR REPRESENTATIVE; THE COMMISSION PAYS SECRETARIAL SERVICES FOR THE MEETINGS) THEY USE UP THE TIME OF THE ADMINISTRATOR, THE DEPUTY ADMINISTRATOR AND OF OTHER EXECUTIVES, AND PAID TRANSPORTATION IS PROVIDED FOR THOSE -MEMBERS WHO MUST TRAVEL FROM COLON TO PANAMA OR VICE VERSA.WE FORMALLY REQUEST THAT THE CANAL ADMINISTRATION BE SEPARATED FROM THE ACTIVITIES OF THE U.S. COMMUNITY IN REGARD TO ANYTHING WHICH DIRECTLY OR INDIRECTLY INVOLVES GOVERNMENT ACTION AND COMMISSION EXPENDITURE.

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219 ERRORS IN COMPUTING PAYMENTS TO PANAMA WE REITERATE OUR COMPLAINT TO THE ADMINISTRATION REGARDING THE INCORRECT MANNER OF COMPUTING PAYMENTS TO PANAMA UNDER 'THE PROVISIONS OF!ARTICLE XIII,PARAGRAPH 4(C), OF THE TREATY, WHEREBY EXPENSES AND COSTS NOT SPECIFIED IN THE TREATY AND NOT DIRECTLY RELATED TO THE OPERATION OF THE CANAL ARE DEDUCTED FROM THE REVENUES. WE THEREFORE REQUEST THAT BEFORE CONCLUDING THE MEETINGS WE BEGIN TODAY, THE FOLLOWING INFORMATION REGARDING FISCAL YEAR ACTIVITIES FOR 1979-1980 AND 1980-1981 BE PROVIDED TO US. 1. DEBT AND DISABILITY COMPENSATION PAID TO WORKERS FOR CASES PRIOR TO OCTOBER 1, 1979. 22. COMPENSATION PAID BY THE PANAMA CANAL COMMISSION FOR DAMAGES TO SHIPS OR THEIR CARGO FOR CLAIMS OR LOSSES PRIOR TO OCTOBER 1, 1979. 3. EXPENSES PAID FOR U.S. TRAVEL, REPATRIATION, (AND) VEHICLE TRANSPORTATION TO WHICH U.S. EMPLOYEES WERE ENTITLED PRIOR TO OCTOBER 1, 1979. 4. ALIEN CASH RELIEF PAYMENTS) FOR RIGHTS GRANTED PRIOR TO OCTOBER 1, 1979. 5. ANNUITANT WELFARE PROGRAM EXPENSES FOR RIGHTS GRANTED PRIOR* TO OCTOBER 1, 1979. 6. UNEMPLOYMENT COST FOR RIGHTS GRANTED PRIOR TO -OCTOBER 1, 1979. 7. SEVERANCE PAY FOR WORKERS TERMINATED PRIOR TO OCTOBER 1, 1979.

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220 B. INTEREST PAID TO U.S. GOVERNMENT. (THIS COST IS NOT INCLUDED IN THE TREATY AND WAS ARBITRARILY CREATED BY LAW P6-70). 9. BUDGETARY APPROPRIATIONS TO CQMPLY WITH EARLY RETIREMENT LAW. (THIS COST WAS NOT INCLUDED IN THE TREATY AND WAS ARBITRARILY CREATED BY LAW 96-70). 10. PAYMENT TO THE ARMED FORCES FOR SCHOOL SERVICES TO U.S. PANAMA CANAL. COMMISSION EMPLOYEE DEPENDENTS. 11. PAYMENT OF PUBLIC UTILITY SERVICES PROVIDED TO U.S. HOUSING.

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221 THE PANAMA CANAL COMMISSION HAS PENDING PAYMENTS TO THE REPUBLIC OF PANAMA. WE REITERATE OUR POSITION OF REQUESTING THAT THE PANAMA CANAL COMMISSION PAY THE REPUBLIC OF PANAMA 17.3 MILLION BALBOAS DUE IT FOR NOT COVERING THE B/10.0 MILLION AGAINST THE SURPLUS ACCOUNT, AS STIPULATED BY THE TORRIJOS-CARTER TREATY. THESE PAYMENT DEFICITS TO THE REPUBLIC OF PANAMA ARE DUE TO EXPENSES AND COSTS CHARGED.TO CANAL OPERATIONS, REJECTED BY US BECAUSE THEY VIOLATE THE TREATY AND DO NOT PERTAIN TO SUCH .OPERATIONS. FINANCIAL-OPERATIONS FOR FISCAL YEAR 1981 SHOWED A SURPLUS. OF B/2.7 MILLION, PAID TO THE REPUBLIC OF PANAMA, LEAVING A BALANCE OF B/7.3 MILLION PENDING. THE FINANCIAL OPERATIONS OF THE COMMISSION CLOSED WITH A DEFICIT OF B/0.4 MILLION, AND FOR THIS REASON THE PANAMA CANAL COMMISION DID NOT MAKE ANY PAYMENT TO THE REPUBLIC-OF PANAMA. THIS LEAVES A BALANCE PENDING OF B/17.3 MILLION. WE THEREFORE FORMALLY REQUEST THAT THE PANAMA CANAL COMMISSION TAKE THE NECESSARY ACTION TO PAY IMMEDIATELY THE AMOUNT DUE AND TO GENERATE THE REQUIRED SURPLUS TO MEET FUTURE COMMITMENTS WITH THE REPUBLIC OF PANAMA.

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222 LIAISON OFFICE. OUR GOVERNMENT FLATLY REJECTS AND COMPLETELY REFUSES TO RECOGNIZE THE ESTABLISHMENT OF THE SO-CALLED LIAISON OFFICE ANNOUNCED BY THE ADMINISTRATION. IN ADDITION TO BEING AN UNNECESSARY BUDGETARY AND BUREAUdRATIC BURDEN, IT WILL ALSO BE A PERMANENT SOURCE OF FRICTION WITH THE PANAMANIAN CIVILIAN AND MILITARY AUTHORITIES. WE FLATLY OPPOSE HAVING THE PANAMA CANAL COMMISSION SPEND ANY MONEY WHATSOEVER IN HIRING ATTORNEYS IN PANAMA TO PROVIDE LEGAL SERVICES TO U.S. EMPLOYEES OF THE PANAMA CANAL COMMISION EMPLOYEES. WERE THEY TO BE OFFERED, THE U.S. EMBASSY SHOULD PROVIDE SUCH SERVICES, WITHOUT USING FUNDS THAT CORRESPOND TO CANAL OPERATIONS AND MAINTENANCE. TRANSFER OF HOUSING UNITS. THERE IS NO EXPLANATION FOR NOT HAVING TRANSFERRED TO THE REPUBLIC OF PANAMA THE MINDI AND COCO SOLO HOUSING UNITS ON THE ATLANTIC SIDE -THAT HAVE BEEN VACANT FOR SEVERAL MONTHS. FURTHERMORE, THE PANAMA CANAL COMMISSION, WITHOUT ANY AUTHORIZATION, HAS PROCEEDED TO RENT TO MILITARY PERSONNEL AND U.S. ARMED FORCES CIVILIAN EMPLOYEES, HOUSING UNITS WHICH BELONG TO PANAMA AND WHICH USE IS LIMITED TO U.S. EMPLOYEES OF THE PANAMA CANAL COMMISSION. THESE HOUSING UNITS ARE SURPLUS TO THE NEEDS OF THE PANAMA CANAL COMMISSION, BUT INSTEAD OF

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223 TRANSFERRING THEIR USE TO PANAMA AS PROVIDED BY THE TREATY, THE UNITS HAVE ARBITRARILY BEEN RENTED TO U.S. CITIZENS. ALL VACANT HOUSING UNITS SHOULD BE IMMEDIATELY TRANSFERRED TO PANAMA, FOR IN ADDITION TO BEING A TREATY VIOLATION, UNNECESSARY MAINTENANCE EXPENSES' ARE CAUSED TO THE PANAMA CANAL COMMISSION. IN THE CASE OF HOUSING UNITS RENTED TO U.S. MILITARY PERSONNEL, THE PANAMA CANAL COMMISSION ASSUMES A TOTALLY UNWARRANTED SUBSIDY. HARRASSMENT FROM CONGRESS. WE ARE DEEPLY CONCERNED WITH THE ATTITUDE OF CERTAIN U.S. CONGRESS MEMBERS WHO INSIST IN CREATING NEW CAUSES FOR CONFLICT BETWEEN THE REPUBLIC OF PANAMA AND THE UNITED STATES OF AMERICA AND THE EFFICIENT OPERATION OF THE CANAL. LAW 96-70 IS A DRAMATIC EXAMPLE OF WHAT WE ARE AFFIRMING HERE, AND NOW THE HEARINGS HELD BY THE MERCHANT MARINE AND FISHERIES SUBCOMMITTEE ON FEBRUARY 26, 1982, BRINGS THE MATTER TO THE FORE. MEMBERS OF THE SUBCOMMITTEE INTEND TO INTRODUCE ADDITIONAL LEGISLATION TO LAW 96-70 TO INCREASE CONGRESS CONTROL IN THE MANAGEMENT OF THE PANAMA CANAL COMMISSION AND DIMINISH THE ROLE OF THE BOARD OF DIRECTORS. ALL OF THIS IS TAKING PLACE IN OPEN CONTRADICTION WITH THE AGREEMENTS OF THE TORRIJOS-CARTER.TREATIES. AS IF THIS WERE NOT ENOUGH, SUBCOMMITTEE MEMBERS UNWISELY SUMMONED FORMER REPRESENTATIVE ROBERT E. BAUMAN, WHO WAS EXPELLED FROM CONGRESS FOR IMMORAL ACTS, TO GIVE HIS OPINION ON THE SUBJECT.

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224 LAW 96-70 IS NOT CONSISTENT WITH THE TORRIJOS-CARTER TREATIES AND THE AMENDMENTS PROPOSED IN THE SUBCOMMITTEE DO NOTHING BUT MAKE THE SITUATION WORSE. WE MAINTAIN THE POSITION THAT THE'TREATY DESIGNATES THIS BOARD OF DIRECTORS AS THE COMMISSION'S HIGHEST GOVERNING BODY, AND THEREFORE, THE DIRECT INTERFERENCE OF THE PRESIDENT OF THE UNITED STATES, THE SECRETARY OF DEFENSE, THE SECRETARY OF THE ARMY, OF THE FEDERAL AUTHORITY ON LABOR RELATIONS, THE CONGRESS OR ANY OTHER U.S. GOVERNMENT AGENCY IS CONTRARY TO THE LETTER AND SPIRIT OF THE AGREEMENT. FULL PANAMANIAN JURISDICTION SOME U.S. CITIZENS REFUSE TO-ACKNOWLEDGE THAT THE REPUBLIC OF PANAMA HAS FULL JURISDICTION OVER THE AREAS MADE AVAILABLE TO THE UNITED STATES FOR MANAGEMENT, OPERATION, MAINTENANCE AND PROTECTION OF THE CANAL, AND FOR THIS REASON THEY TRY TO OBSTRUCT PANAMANIAN ADMINISTRATIVE AND JUDICIAL AUTHORITIES IN THE PERFORMANCE OF THEIR DUTIES WITHIN SUCH AREAS. WE DO OUR UTMOST TO INSPIRE CONFIDENCE AND TRUST TO ALL U.S. CITIZENS TO THE EFFECT THAT OUR COURTS AND OFFICIALS WILL ACT ACCORDING TO THE LAW, WITHOUT -DISCRIMINATION, AND THE FACTS SHOW WE HAVE DONE THIS. WE, THEREFORE, REQUEST THAT U.S. CITIZENS MAKE AN AUTHENTIC EFFORT AT COOPERATION AND FRIENDSHIP SO THAT FULL JURISDICTION BY PANAMA START AND EVOLVE IN ACCORDANCE WITH OUR CONSTITUTIONAL PROVISION THAT "PANAMANIANS AND ALIENS TO BE EQUAL BEFORE THE. LAW."

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225 LACK OF COURTESY TOWARD BOARD MEMBERS. IT IS UNFORTUNATE, BUT WE MUST POINT OUT THAT WE ARE NOT EXTENDED THE PROPER COURTESIES. THE WASHINGTON MEETING WAS AN ELOQUENT EXAMPLE. WE WERE NOT TREATED IN ACCORDANCE WITH PROTOCOL, OR AS REQUIRED BY OUR POSITION WITH THE PANAMA CANAL COMMISSION. TO MAKE THINGS MORE UNPLEASANT, WE HAD TO PAY BOARD EXPENSES OUT OF OUR OWN POCKETS, AND WHEN WE REQUESTED REIMBURSEMENT, REGULATIONS GOVERNING U.S. OFFICIALS WERE APPLIED. THE LACK OF COURTESY ALSO EXTENDED TO ACTIVITIES IN PANAMA. FOR EXAMPLE, WHEN WE INSPECTED THE OVERHAUL AT GATUN LOCKS, WE WERE NOT FURNISHED A HELICOPTER, BUT ONE WAS PROVIDED FOR A VISIT OF PRIVATE INDIVIDUALS TO SUCH AREAS. IN VIEW OF. THE ABOVE SITUATIONS, WE HAVE DECIDED THAT IN THE FUTURE WE WILL NOT ATTEND ANY MEETINGS OUTSIDE THE CITY OF PANAMA, UNLESS THIS IS CORRECTED. FINALLY, WE HAVE BEEN REFUSED REIMBURSEMENT OF AIR TRANSPORTATION EXPENSES FOR HAVING USED A PANAMANIAN FLAG AIRLINE, AIR PANAMA IN THIS CASE, ON THE PREMISE THAT UNDER TO FEDERAL LAWS, U.S. AGENCY EMPLOYEES MUST TRAVEL ON U.S. AIRLINES.

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226 ANNEX COMMENTS ON REPLIES SUBMITTED BY U.S. REPRESENTATIVES

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227 REPLY TO DOCUMENT ENTITLED "ORGANIZATIONAL AND FUNCTIONAL MATTERS PERTAINING TO THE PANAMA CANAL COMMISSION." THIS DOCUMENT, INTENDED TO CLARIFY WHAT IT CALLS "ERRONEOUS CONCEPTS" BROUGHT UP AT THE AUGUST BOARD MEETING, ONLY CONFIRMS OUR OPINION IN THE SENSE THAT THE PANAMA CANAL COMMISSION DOES NOT HAVE A MODERN ORGANIZATION STRUCTURED TO MEET THE CONDITIONS UNDER THE TREATY AND THE CHANGES IN THE SHIPPING BUSINESS. THE COMMISSION IS A COPY OF THE FORMER .BUREAUCRATIC ORGANIZATION WHOSE FUNCTIONS WERE MORE OF A GOVERNMENTAL NATURE THAN A BUSINESS ONE WHEN THE CANAL OPERATED FROM THE VANTAGE POINT OF A MONOPOLY, AS THE ALTERNATIVE FOR USERS WAS A LONGER AND MORE EXPENSIVE ROUTE. THE CANAL NOW OPERATES IN A DIFFERENT ENVIRONMENT, AND THE PANAMA CANAL COMMISSION HAS AS ITS SOLE FUNCTION THE MANAGING OF THE BUSINESS OF VESSEL TRAFFIC. EFFORTS TO MINIMIZE CANAL ACCIDENTS. TAKING INTO ACCOUNT THE GROWTH IN THE NUMBER AND SIZE OF VESSELS, THE HIGH COST OF REPAIRS, THE HIGH INDEMNIZATION FOR DOWN TIME AND THE ASTRONOMICAL SUMS PAID FOR MARITIME ACCIDENTS, WE HAVE RECOMMENDED THE ESTABLISHMENT OF AN OFFICE THAT WOULD SPECIALIZE IN STUDYING THIS PROBLEM, PROPOSING SOLUTIONS, SEEING THAT THE SAFETY PROGRAMS ARE CARRIED OUT, AND EVALUATING THE RESULTS. THIS OFFICE'S MAJOR EFFORT WOULD BE TO

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228 PREVENT ACCIDENTS. WHAT THE PANAMA CANAL COMMISSION IS NOW DOING IS WORKING ON THE BASIS OF ACCIDENTS THAT HAVE TAKEN PLACE, DISREGARDING THE ELEMENTARY PRINCIPLE OF GOOD MANAGEMENT THAT IS TO PREVENT ANYTHING THAT MAY HAVE AN ADVERSE IMPACT ON THE FIRM. TO CONTINUE WITH THIS SYSTEM IS TO CLING ON TO OBSOLETE PRACTICES NOT USED ANY LONGER BY MODERN AND DYNAMIC ENTERPRISES. INSOFAR AS DISCIPLINARY ACTIONS, WHAT WE HAVE RECEIVED IS INFORMATION ON WHICH ACTIONS HAVE BEEN TAKEN IN CONCRETE CASES, BUT IT IS GENERAL INFORMATION) SPECIFIC CASES ARE MENTIONED WHERE THE COMMISSION PILOT WAS RESPONSIBLE, WITHOUT STATING WHETHER HE WAS SANCTIONED AT ALL. OBVIOUSLY, IN ANY ORGANIZATION SERIOUS OFFENSES RESULT IN PENALTIES WITHOUT INCURRING IN HARASSMENT AND THEY REQUIRED TO ENSURE EFFICIENCY OF SERVICE, MORE SO IN THE CASE OF VESSELS TRANSITING THE CANAL, AS ACCIDENTS HAVE A SEVERE IMPACT ON CANAL ECONOMY. MARKETING AND PROMOTION FUNCTIONS. A FIRM THAT PROVIDES. INTERNATIONAL SERVICES IN A INCREASINGLY .COMPETITIVE MARKET MUST HAVE A MARKETING AND PROMOTION OFFICE. TO BELIEVE THAT THIS FUNCTION WILL BE PERFORMED BY THE OFFICE OF PUBLIC AFFAIRS IS NOT TO KNOW WHAT THE BUSINESS WORLD IS LIKE. THE OFFICE OF PUBLIC AFFAIRS HAS ENOUGH WITH PROMOTING GOOD RELATIONS WITH EMPLOYEES, UNIONS, THE COMMUNITY, THE PANAMA GOVERNMENT OFFICES, TOURISTS VISITING THE CANAL, AND U.S. GOVERNMENT OFFICIALS.

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229 ECONOMIC STUDIES FOR MARKET RESEARCH MY RECOMMENDATION FOR THE CREATION OF THIS OFFICE IS GIVEN IN THE LIGHT OF THE POOR EXPERIENCE OVER RESULTS WE HAVE HAD WITH THE EXECUTIVE PLANNING OFFICE. THIS OFFICE HAS PURPORTEDLY BEEN ASSIGNED TO PERFORM A KEY FUNCTION IN ANY BUSINESS, AND COMBINE IT WITH ITS REGULAR FUNCTIONS OF CONDUCTING MANAGEMENT, ENVIRONMENTAL AND ENERGY STUDIES, CANAL CAPACITY STUDIES, CANAL TRAFFIC STATISTICS, INDUSTRIAL ENGINEERING, AND INVESTMENT ESTIMATES. WHAT IS NEEDED IS AN OFFICE THAT WILL DETERMINE THE IMPACT OF WORLD ECONOMY, PARTICULARLY IN THE TRANSPORTATION FIELD, ITS IMPACT ON THE CANAL IS COMPETITIVE CAPACITY A KNOWLEDGE OF MARKETS AND RECOMMENDATIONS TO ESTABLISH POLICIES THAT MAY ALLOW FOR A GREATER PARTICIPATION IN EXISTING AND POTENTIAL MARKETS. TRAFFIC AND SUPPORT FUNCTIONS. ON THE BASIS OF OUR OBSERVATIONS DURING THESE 30 MONTHS, WE HAVE POINTED OUT THAT IT IS NECESSARY THAT THE MOST IMPORTANT BUREAU, THE MARINE BUREAU, HAVE AN ORGANIZATION THAT MAY ALLOW ITS DEVELOPMENT IN ACCORDANCE WITH ITS NEEDS. AT THE PRESENT TIME THE MARINE DIRECTOR HAS NO CONTROL WHATSOEVER OVER THE PROGRAMS FOR IMPROVEMENT, SHORT,. MEDIUM AND LONG RANGE PLANNING, ETC., SINCE THE OTHER DIVISIONS AND OFFICES ARE THE ONES THAT MAKE THE DECISIONS AND ACT ACCORDING TO THEORETICAL 97-154 0-82--15

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. 230 STUDIES WHICH ARE OFTEN UNREALISTIC. EXPERIENCE IN THIS REGARD HAS BEEN TERRIBLE, AND MARINE BUREAU OFFICIALS ARE UNJUSTLY BLAMED. THE ENGINEERING DIVISION SHOULD DEVOTE ITSELF SOLELY TO CARRYING OUT PROJECTS, BUT THESE SHOULD BE PLANNED AND DECIDED BY THE MARINE BUREAU. ORGANIZATIONAL STRUCTURE THE BEST INDICATION THAT WE WERE RIGHT IN OUR CRITICISM IS THE ELIMINATION OF THE OFFICE KNOWN AS THE PROTOCOL OFFICE, A NOSTALGIC CARRYOVER FRQM A GOVERNMENT, FOREVER ABOLISHED BY THE TREATY. WE INSIST ON THE ELIMINATION OF A SERIES OF OFFICES WHICH ONLY PERPETUATE THE PATERNALISTIC REGIME THAT GUARANTEED ZONIANS FROM BIRTH UNTIL DEATH A SERIES OF PRIVILEGES FOR THESE U.S. CITIZENS WHICH WERE EVEN BETTER THAN ANY EMPLOYMENT BENEFIT POLICIES APPLIED IN THE TERRITORIAL UNITED STATES. THIS TYPE OF BUREAUCRACY, THIS TYPE OF EXPENSE I-S UNACCEPTABLE -IN A BINATIONAL ENTERPRISE OF A STRICTLY BUSINESS NATURE.

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231 REPLY TO THE DOCUMENT ENTITLED: "U.S. MEMBERS RESPONSE TO POINTS RAISED BY PANAMANIAN MEMBERS CONCERNING THE OPERATION OF THE PANAMA CANAL COMMISSION." OVERSIGHT OF COMMISSION BUDGET BY U.S. CONGRESS: IN OUR STATEMENT OF DECEMBER 1981, WE CRITICIZED THE EXCESSIVE MEDDLING AND BUREAUCRACY BY CONGRESS IN THE PROCEDURE FOR APPROVAL OF THE COMMISSION BUDGETi CIRCUMSTANCES WHICH WERE CONFIRMED BY THE STATEMENTS OF THE U.S. BOARD MEMBERS WHEN THEY ADMITTED THAT THE LACK OF FUNDS FOR THE COMMISSION AT THE START OF FY 1981 CAUSED, IN FACT, ADMINISTRATIVE ANGUISH, TO THE EXTENT THAT FOR SEVERAL MONTHS, THE AGENCY WAS FORCED TO WORK WITH THE PREVIOUS FISCAL YEAR BUDGET. THIS MAY HAVE CAUSED IN COMMISSION EMPLOYEES A GENERAL INSATISFACTION AND A POSSIBLE INTERRUPTION OF THE CONTINUOUS AND EFFICIENT OPERATIONS OF THE CANAL. THE NEED TO ESTABLISH A PROGRAM. THE ADMINISTRATOR HIMSELF, AND THIS IS SHOWN BY THE TRAFFIC PROJECTIONS, HAS PUBLICLY ADMITTED THAT EVEN WITH THE IMPROVEMENTS BEING UNDERTAKEN BY THE COMMISSION AND IN THE EVENT THE NORTH SLOPE OIL BUSINESS IS COMPLETELY LOST, THE CANAL WILL REACH ITS SATURATION POINT IN 1990. FURTHERMORE, ENGINEER VAN HOORDE HAS POINTED OUT THAT THE WORK OF WIDENING OF CULEBRA CUT AND THE ENTRANCES OF THE CANAL WILL TAKE SOME TEN YEARS.* THIS IS 1982, WHICH MEANS THAT IT IS ALREADY LATE TO START THIS PROJECT. THE ADMINISTRATION, HOWEVER,

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232 DELAYS PERFORMANCE OF THE PROJECT WHILE THE SO-CALLED EXECUTIVE PLANNING OFFICE BECOMES ENTANGLED IN A SERIES OF ACADEMIC, THEORETICAL AND UNIMPORTANT STUDIES. ABSENCE OF SHORT, MEDIUM AND LONG RANGE PROGRAM FOR REPLACEMENT OF OBSOLETE AND WORN-OUT EQUIPMENT. OUR RECOMMENDATION .TO BRING IN OUTSIDE CONSULTANTS TO CONDUCT STUDIES IS MADE AS A RESULT OF THE EXPRESS INABILITY WITHIN THE CANAL ORGANIZATION STAFF. THE CONDITION OF THE PORTS, THE RAILROAD, THE LATE ACQUISITION OF LOCOMOTIVES AND TUGBOATS TO REPLACE THOSE ALREADY OBSOLETE AND, MORE RECENTLY, THE ADMINISTRATOR'S REQUEST WITH REGARD TO THE "THOR" DRILL BARGE AND OTHER EQUIPMENT FULLY CONFIRMS THAT WE WERE RIGHT, ASIDE FROM THE FACT THAT NO ONE CAN FAIL TO SEE THAT THE INVESTMENT AND IMPROVEMENT PROGRAM UNDERTAKEN IS THE RESULT OF THE INSISTENT DEMANDS AND CRITICISMS BY PANAMANIAN BOARD MEMBERS. PANAMA RECOMMENDATIONS ON AMENDMENTS TO PUBLIC LAW. AT THIS POINT WE WISH TO REMIND THE CHAIRMAN THAT YOU PROMISED TO TAKE TO THE APPROPRIATE CONGRESS COMMITTEES THE DOCUMENT PREPARED BY THE PANAMANIANS AND THIS HAS NOT BEEN DONE. PANAMA AREA PERSONNEL BOARD. WITH REGARD TO THIS BOARD AND ITS INTERFERENCE WITH ACTIVITIES THAT CORRESPOND TO THE BOARD OF DIRECTORS OF THE PANAMA CANAL COMMISSION, IT IS KNOWN THAT ITS OPERATION IS NOT

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233 REDUCED SPECIFICALLY TO COORDINATION BETWEEN U.S. GOVERNMENT AGENCIES IN THE REPUBLIC OF PANAMA FOR UNIFORMITY IN PERSONNEL POLICIES AND PRACTICES, BUT THAT IT UNDERTAKES DECISIVE ACTIVITIES INSOFAR AS WAGE ASPECTS AND PERSONNEL PROMOTION, WITHOUT EVEN ABIDING BY THE DIRECTIVES ISSUED BY THE BOARD OF DIRECTORS, OR BY CLEAR TREATY PROVISIONS WITH REGARD TO THE INCREASING PARTICIPATION OF PANAMANIANS IN ALL LEVELS OF EMPLOYMENT OF THE COMMISSION. ITS SPHERE OF INFLUENCE AND PARTICIPATION -IS WELL ABOVE THE STATED OBJECTIVES. RESPONSIBILITY FOR MARINE ACCIDENTS. THE ADMINISTRATION'S POSITION IS A CONFIRMATION OF THE FEAR OF THE POWER OF CANAL PILOTS. WE DO NOT QUESTION THEIR PROFESSIONAL ABILITY, BUT WE HAVE MANY COMPLAINTS FROM THE PERSONNEL WORKING WITH THEM, PARTICULARLY OF THEIR HABIT OF TAKING LIQUOR ON BOARD AND DRINKING IT. THE BOARD OF LOCAL INSPECTORS IS COMPOSED OF PILOTS, AND FOR THIS REASON THE INVESTIGATION BECOMES AN EXERCISE IN DILUTING RESPONSIBILITY. OFFICIAL TRANSLATOR PANAMA CANAL COMMISSION

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234 QUESTION. In testimony before the Subcommittee, the Administrator discussed the reasons it might not be prudent to increase the pilot force at this time. Yet pages 22 and 23 of your March, 1982 Tolls proposal indicate a major Navigation Service and Control expense is for "the addition of two tug crews" and, under Locks Operation and Maintenance, "the addition of 64 linehandlers." Why are these additional personnel required in view of the projected loss of traffic beginning in November 1982? ANSWER. Additional tug crewing provides for 7 Marine Engineers and 15 Oilers to man 3 new tugboats during FY 1981/1982. Additional 64 linehandlers at the Locks provides for establishing greater depth in support in internal relief and training programs. That is, linehandlers at the Locks perform dual responsibilities; assisting lockages and performing limited maintenance. The additions provide increased support in the maintenance area and are partially offset by a reduction in linehandlers assigned to Locks operations associated with the loss of Alaskan North Slope.

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235 CANAL ZONE GOVERNMENT Board of Local Inspectors Balboa Heights, C.Z. OCT 211974 TO DISTRIBUTION LIST The Proceedings, Findings of Fact and Opinion of the Board of Local Inspectors which inquired into the circumstances surrounding the striking of the M.V. STAR MALMANGER by the Panama Canal Company tug ROUSSEAU in Balboa Harbor at about 1825 hours, May 24, 1974, with personnel injuries to various members. of the crew of the tug ROUSSEAU, are forwarded for your information. The Record of the Proceedings has been reviewed, and the Findings of Fact and Opinion of the Board of Local Inspectors are approved. A. Dertien Supervising Inspector Board of Local Inspectors Distribution List Governor General Counsel (2) Comptroller (2) Captain Ove Hultin, Pilot, PCC Captain Birger Hadland, Master, M.V. STAR MALMANGER Mr. David de Castro Robles, Counsel for M.V. STAR MALMANGER and SKULD (Underwriters) C. B. Fenton & Company, Agents, M.V. STAR MAIMANGER Chairman, Board of Local Inspectors Chief, Transit Operations Division Director, Engineering and Construction Bureau Port Captain, Balboa Port Captain, Cristobal Panama Canal Pilots Association (2) Records Section Accident Case 38-74'

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236 CANAL ZONE GOVERNMENT Board of Local Inspectors Balboa, Canal Zone September 30 1974 Supervising Inspector Board of Local Inspectors Balboa Heights, Canal Zone M.V. STAR MALMANGER Tug U.S. ROUSSEAU Sir: The Board of Local Inspectors convened in the Board Room of the Port Captain, Balboa, at 1100 hours, May 25, 1974, to conduct ali inquiry into the circumstances surrounding the striking of the M.V. STAR MALMANGER by the Panama Canal Company tug ROUSSEAU in Balboa Harbor at about 1825 hours, May 24, 1974, with personnel injuries to various members of the crew of the tug ROUSSEAU. The Board, having thoroughly inquired into all the facts and circumstances connected with the accident, finds from the evidence adduced and the records of the Panama Canal Company as follows: FINDINGS OF FACT 1. That the M.V. STAR MALMANGER is a dry bulk carrier of Norwegian Registry, gross tonnage: 18470; net tonnage: 11245; length overall: 564'; beam: 85.15'; mean authorized draft: 35'-07" TFW. The vessel was built in 1968 at Malmo (Sweden) by Kockums, M/V A/B. The vessel is owned by Westfal-Larsen & Co., A/S, operated by Star Shipping, charterered by Star Shipping, Bergen, Norway, and is represented locally by C. B. Fenton & Company. Master of the vessel is Captain Birger Hadland, and the Panama Canal Company Pilot assigned for the northbound transit was Captain Ove Hultin. 2. That the tug U. S. ROUSSEAU is a towboat of U.S. (Panama Canal Company) Registry, gross tonnage: 300.60; net tonnage: 80.30; length overall: 109'; beam: 2 9 '; mean authorized draft: 17'3", TFW. The vessel was built at Slidell, Louisiana by Southern Shipbuilding Corporation. The vessel is owned by the Panama Canal Company. 3. That the circumstances surrounding the accident were substantially as follows:

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237 On May 24, 1974, Captain Ove Hultin was assigned to pilot the M.V. STAR MALMANCER from anchorage to Pier 18C, Balboa. At 1740 hours, the vessel's anchor was hove up and it proteeded up the channel toward Balboa. Between Buoys 10 and 12, Pacific Entrance Channel, the tug ROUSSEAU with 'tugmaster Captain A. Greubel in charge, was running parallel to .the .M.V. STAR MALMANGER on the vessel's starboard side preparatory to going alongside the starboard bow to assist in the docking maneuver. Suddenly at 1836 hours the tug sheered violently to port and struck the vessel head on, just forward of the vessel's. bridge at Hatch No. 7, damaging the vessel and causing injury to -the tugmaster and .three members of the tug's crew. The M.V., STAR. MALMANGER proceeded .to tie up at Pier 18C. With the assistance of.the.tug boatswain, the tug was tied up to Pier 12 without further incident. 4. That the night was dark,. atmosphere clear, with visibility good at the time of this accident. 5. That the wind was out .of .the southeast at 5 to 10 miles per hour, and was.not a factor in this accident. 6. Thatthe -accident occurred -approximately one hour after high water and the tide was not a factor in this accident. 7. That all .the machinery and auxiliary equipment on the M.V. STAR MALMANGER was operating properly at the time of this accident. 8. That the-officers and.crew of the N.V. STAR MALMANGER were at their proper stations at the time of this accident. 9. .That the M.V. STAR MALMANGER is equipped with. rudder-angle and engine-revolution-indicators, which were readily visible to the pilot, andoperating properly at the time of this accident; 10. That all .the pilot's orders to the helm and engine of the M.V. STAR MALMANGER were promptly and properly executed. 11. That the tug ROUSSEAU was equipped with rudder-angle and engine-revolution -indicators, which were functioning properly at the time of this accident. 12. That the tug ROUSSEAU's engines are bridge-controlled and automated. 13. That the .tug ROUSSEAU's engines were functioning properly at the time of this accident.

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238 14. That the.tugmaster testified that the tug ROUSSEAU had a steering failure at the time of this accident. 15. That the tug Shore Station Engineer checked out the steering gear of the tug ROUSSEAU immediately when the tug docked after the accident and found it functioning properly. 16. That the tug. monitor display on the tug ROUSSEAU did not show that a malfunction had occurred. 17. That Mr. Iribarrenn, Oiler, tug ROUSSEAU, stated to the Acting Port Captain that no one had reset the monitor system after this accident. 18. That the, Oiler testified that there had been no alarm bell of the monitor 'system on the tug ROUSSEAU for any malfunction before the accident, at the time of this accident, or after this accident. 19. That the .V. STAR MALMANGER was proceeding at six knots at the time of this accident. 20. That the tugmaster on the ROUSSEAU momentarily turned around to look at the tug's log just prior to this accident. 21. That the Acting Port Captain went to Gorgas Hospital with the injured personnel from the tug ROUSSEAU. 22. That the Acting Port Captain testified that while assisting Captain Greubel at the hospital, he detected a strong odor of alcohol from Captain Greubel and that his eyes were bloodshot. 23. That Captain Greubel refused to submit to a blood alcohol test after this accident. 24. That a blood alcohol test was made by the examining physician in connection' with Captain Gruebel's injury. 25. That. Captain Gruebel refused to permit the findings of the blood alcohol test to be released for this investigation. 26. That the master of the M.V. STAR MALMANGER had no criticism of the manner in which the pilot performed his duties at the time of this accident. 27. That the pilot of the M.V. STAR MALMANGER had no criticism of the manner. in. which the master and crew performed their duties at the time of this accident.

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239 28. That the master of the M.V. STAR MALMANGER had no.opinion of what caused this accident. 29. That the pilot of the M.V; STAR MALMANGER had no opinion of what caused this' accident. 30. That the opinion of the tugmaster of the ROUSSEAU of the cause of the accident was steering gear failure on the tug. 31. That there was no injury to any personnel of the M.V. STAR MALMANGER due to this accident. 32. That there was no damage or loss of cargo of the M.V. STAR MALMANGER due to this accident. 33. That there was no loss of ship stores or fuel of the M. V. STAR MALMANGER due to this accident. 34. That the M.V. STAR MALMANGER was operating for the Star Shipping Company, of which his owner is one of three owners. 35. That the master of the M.V. STAR MALMANGER did not know the daily charter hire or daily operating costs of the vessel. 36. That the M.V. STAR MALMANGER was not delayed due to this accident or this investigation. 37. That there was damage to the M.V. STAR MALMANGER as indicated in Appendix I of the Record of Proceedings in this case, which appendix along with all other appendices in this case, will be considered a part of these findings of fact, and the estimated costs of repairs are as follows: Temporary Repairs: Not necessary Permanent Repairs: $38,500.00 Drydocking is not necessary for repairs. Gas freeing is not necessary for permanent repairs. A gas-free certificate is required for area of repairs.

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240 1. That the cause of this accident was the violent sheer to port taken by the tug ROUSSEAU. (a) That the cause of the sheer to port of the tug ROUSSEAU was the inattention of the tugmaster to his duties while his tug was underway. and (b) That the tugmaster was under the influence of intoxicants at the time of this accident. 2. That there was fault on the part of the tugmaster, Captain Greubel, in that he was inattentive to his duties and under .the influence of intoxicants at the time of this accident. 3. That there was no fault on the part of the pilot, Captain Ove Hultin. 4. That there was no fault. on the part of the M.V. STAR MALMANGER, her master or crew. 5. That there was no fault on the part of any other Panama Canal Company employee. Respectfully submitted, A. Stohrer, Chairman Board of Local Inspectors A. L. LoganeK er Board of Local Inspectors C. W. Lewis, ember Board of Local Inspectors Attachment: Record of Proceedings [Whereupon, at 12:10 p.m. the subcommittee adjourned.] 0

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UNIVERSITY OF FLORIDA 3 1262 08128 009 0


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