CHAPTER III

The Financial Aspects of Tolls-Exemption

In the proper consideration of this aspect of the question, we must determine what traffic through the canal is exempt from payment of tolls under existing treaties. The public vessels of the United States through the canal are exempt from the payment of tolls by understanding with Great Britain. Article XIX of the treaty with Panama states: "The Government of the Republic of Panama shall have the right to transport over the canal its vessels and its troops and munitions of war in such vessels at all times without paying charges of any kind." Great Britain has conceded the right of the United States to enter into a treaty with Colombia exempting their public vessels from the payment of tolls, if thereby it will get a clear title to the Canal Zone. No other traffic through the canal is exempt from payment of tolls through treaty stipulation. None can be made exempt by legal enactment.

The Panama Canal act provides:

SECT. 5. "That the President is hereby authorized to prescribe and from time to time change the tolls that shall be levied by the Government of the United States for the use of the Panama Canal: Provided, That no tolls, when prescribed as above, shall be changed, unless six months' notice thereof shall have been given by the

President by proclamation. No tolls shall be levied upon vessels engaged in the coastwise trade of the United States.

"Tolls may be based upon gross or net registered tonnage, displacement tonnage, or otherwise, and may be based on one form of tonnage for warships and another for ships of commerce. The rate of tolls may be lower upon vessels in ballast than upon vessels carrying passengers or cargo. When based upon net registered tonnage for ships of commerce, the tolls shall not exceed one dollar and twenty-five cents per net registered ton, nor be less, other than for vessels of the United States and its citizens, than the estimated proportionate cost of the actual maintenance and operation of the canal. If the tolls shall not be based upon net registered tonnage, they shall not exceed the equivalent of one dollar and twentyfive cents per net registered ton as nearly as the same may be determined, nor be less than the equivalent of seventyfive cents per net registered ton. The toll for each passenger shall not be more than one dollar and fifty cents. The President is authorized to make and from time to time to amend regulations governing the operation of the Panama Canal, and the passage and control of vessels through the same or any part thereof, including the locks and approaches thereto, and all rules and regulations affecting pilots and pilotage in the canal or the approaches thereto through the adjacent waters."

The foregoing is construed by Senator Root as follows:

"The President is authorized to impose tolls not

exceeding one dollar and twenty-five cents per net registered ton, except for vessels of the United States and its citizens, and not less than seventy-five cents per net registered ton, and is prohibited from imposing any tolls upon vessels engaged in the coastwise trade of the United States. He is required to impose tolls of at least seventyfive cents per net registered ton upon all foreign vessels. He is authorized to impose no tolls upon any American vessel, and is required to impose no tolls upon American vessels engaged in the coastwise trade."

Objections are made by Sir Edward Grey to the provisions of the Panama Canal act as given abovefirst, because no tolls are to be levied upon ships engaged in the coastwise trade of the United States; second, because a discretion appears to be given to the President to discriminate in fixing tolls in favor of ships belonging to the United States and its citizens as against foreign ships. Sir Edward Grey states:

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* * The Panama Canal act in its present form conflicts with the treaty rights to which His Majesty's Government maintain they are entitled.

"Under Section 5 of the act the President is given, within certain defined limits, the right to fix the tolls, but no tolls are to be levied upon ships engaged in the coastwise trade of the United States, and the tolls, when based upon net registered tonnage for ships of commerce, are not to exceed one dollar and twenty-five cents per net registered ton, nor be less, other than for vessels of the United States and its citizens, than the estimated proportionate cost of the actual maintenance and operation of the canal.

*

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the upkeep of the canal.

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"The effect of these provisions is that vessels engaged in the coastwise trade will contribute nothing to Again, in the cases where tolls are levied, the tolls in the case of ships belonging to the United States and its citizens may be fixed at a lower rate than in the case of foreign ships, and may be less than the estimated proportionate cost of the actual maintenance and operation of the canal.

"These provisions (1) clearly conflict with the rule embodied in the principle established in Article VIII of the Clayton-Bulwer treaty of equal treatment for British and United States ships, and (2) would enable tolls to be fixed which would not be just and equitable, and would therefore not comply with Rule 1 of Article III of the Hay-Pauncefote treaty.

"It has been argued that as the coastwise trade of the United States is confined by law to United States vessels, the exemption of vessels engaged in it from the payment of tolls cannot injure the interests of foreign nations. It is clear, however, that the interests of foreign nations will be seriously injured in two material respects.

"In the first place the exemption will result in the cost of the working of the canal being borne wholly by foreign-going vessels, and on such vessels, therefore, will fall the whole burden of raising the revenue necessary to cover the cost of working and maintaining the canal. The possibility, therefore, of fixing the toll on such vessels at a lower figure than one dollar and twenty-five cents per ton, or of reducing the rate below that figure at some future time will be considerably lessened by the exemption.

"In the second place, the exemption will, in the

opinion of His Majesty's Government, be a violation of the equal treatment secured by the treaty, as it will put the 'coastwise trade' in a preferential position as regards other shipping. Coastwise trade cannot be circumscribed so completely that benefits conferred upon it will not affect vessels engaged in the foreign trade. To take an example, if cargo intended for a United States port beyond the canal, either from east or west, and shipped on board a foreign ship could be sent to its destination more cheaply through the operation of the proposed exemption, by being landed at a United States port before reaching the canal, and then sent on as coastwise trade, shippers would benefit by adopting this course in preference to sending the goods direct to their destination through the canal on board the foreign ship.

"Again, although certain privileges are granted to vessels engaged in an exclusively coastwise trade, His Majesty's Government are given to understand that there is nothing in the laws of the United States which prevents any United States ship from combining foreign commerce with coastwise trade, and consequently from entering into direct competition with foreign vessels while remaining 'prima facie' entitled to the privilege of free passage through the canal. Moreover, any restriction which may be deemed to be now applicable might at any time be removed by legislation or even perhaps by mere changes in the regulations.

"In these and in other ways foreign shipping would be seriously handicapped, and any adverse result would fall more severely on British shipping than on that of any other nationality.