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The common law of England and America, the public policy especially of America at the very time this treaty was being negotiated, enforced with unsparing rigor the duty of equal charges and equal service by all public utilities to all the public which they were to serve. Discrimination is outlawed. All must pay the same charge for identical units of service.

The general principles underlying charges that are just and equitable are no longer subject matter for debate. They have been established by court decisions-state and national, including the United States Supreme Court. There is difference of opinion as to what may be included in the investment account on which a reasonable return must be allowed. In the case of the Panama Canal, the amount of the bona fide investment is easily determined. Therefore, where difference of opinion exists in the regulation of public utilities none can exist here.

The difference of opinion in this (tolls) case is in regard to rates. Must American shippers pay the same rate as foreign shippers for identical units of traffic?

The principles as established in the regulation of national, state and municipal utilities compel all to pay the same rate for an identical unit of service. The same principle applies to the Panama Canal, which is an international utility whereof the United States is merely the trustee as far as concerns the fixing of tolls. It cannot honorably apply one principle in the regulation of national, state and municipal utilities and another principle, in short, the monopoly principle, in the management of the Panama Canal.

A rate that is just and equitable provides for operating expenses, interest on the investment and a reasonable amount for amortization of the principle. This fixes the amount to be collected from the users of the canal over a normal business period. The volume of traffic then determines the rate to be charged. The rate is a resultant of the amount to be collected to make the canal commercially self-sustaining and the volume of traffic. A rate determined in this way is just and equitable and it must be determined in this way to be just and equitable. Exempting any traffic from the payment of its proportionate share of the tolls means that the traffic not exempted from payment must contribute through a higher rate the amount which should have been levied on the traffic relieved from payment.

The tolls levied under the Panama Canal act cannot be made just and equitable as these terms are understood in the regulation of national, state and municipal utilities. The whole outlay must be levied on the traffic as soon as the volume of traffic permits. The act requires that no tolls be levied on our coastwise traffic and permits our foreign commerce to be relieved from any payment whatsoever. The entire outlay, therefore, must be levied on the remainder of the traffic through the canal, thereby imposing thereon a rate that is higher than one that is just and equitablethe rate assured to non-nationals by the Hay-Pauncefote treaty.

The United States need not assess taxpayers with canal construction and operating expenses if it manage the canal as a business enterprise. If it has already assessed taxpayers therefor, it has failed in the proper

exercise of its function as trustee of this international utility and should immediately employ an expert accountant for the purpose of introducing business methods into the management of the canal. It is not enough that the construction department be efficient. The accounting department should keep the records so that the entire outlay can be charged to revenue as rapidly as income permits. The amounts charged to taxes should be treated in the canal accounts as a suspense-debit and the United States treasury should be reimbursed as soon as the debit can be extinguished from surplus revenue.

It is not necessary in a long-period project such as the Panama Canal that revenue exceed operating expenses and interest on the investment in its initial stages for the undertaking to be commercially self-supporting. It is only necessary that in a normal business period (say twenty-five years) the revenue exceed total operating outlay and interest on investment. The deficit of the initial period is merely a suspense-debit to be amortized when revenue exceeds operating outlay. Thus viewed, the Panama Canal will be commercially self-sustaining from the beginning, if the history of the Suez Canal and similar projects are any criterion.

The management of the Panama Canal is similar to that of a transportation company. A railway through new territory will have a deficit period in which traffic is developed. This deficit with accrued interest thereon is extinguished by being .charged to surplus revenue after traffic has been developed and the company has revenue in excess of the annual operating expenses and interest charges.

This is a birds'-eye-view of the Panama Canal situation today. The outlook is for a deficit period of about ten years. Thereafter there will be an annual increase in surplus for an indefinite period if a reasonable rate is charged the users of the canal. During this period, the earlier deficit can be extinguished by being charged to surplus revenue. If the canal is properly managed, there will be no indirect subsidy to foreign shipping, as the canal will be a commercially self-supporting enterprise kindergarten financial arguments in the congressional de bates on the repeal of the tolls-exemption clause of the Panama Canal act to the contrary notwithstanding.

Hence, it is evident that the United States can in due course levy the entire Panama Canal expenditures including interest and investment on the traffic. The Hay-Pauncefote treaty permits it. A charge that is just and equitable requires it. No traffic not exempted by reason of securing leasehold rights to the Canal Zone can be relieved from contributing its proportionate share to this end. The total traffic through the canal, less the amount exempted in securing leasehold rights, including our public vessels, fixes the amount of traffic on which the amount to be levied must be assessed during a normal business period. The rate is the resultant. If levied in this way, it is just and equitable.

Just what kind of discrimination is alleged against the Panama Canal act. Let us illustrate the principle thereof. Assume a railway enterprise that needs an income of $150,000 a year for operating expenses and a reasonable return on its investment. If there are 1,500 users, each must pay $100. All use the facility the same

amount and each user pays his porportionate share of the needed revenue. The revenue of the company is $150,000. The charge is just and equitable. A railway is a public utility. Let it grant free transportation to 300 theretofore users who paid their proportionate share. Only 1,200 users of the facility thereafter pay. The company still needs $150,000 income a year. The charge thereafter is $125 instead of $100 to those compelled to pay. In short, free transportation to some means a higher charge to the remainder-a charge that is not just and equitable. This is the kind of discrimination complained of by Great Britain. This is the Panama Canal tolls question in a nutshell.

What amount of revenue is needed to make the Panama Canal commercially self-supporting? The Isthmian Canal Commission report says:

“The annual revenue ultimately required to make the canal commercially self-supporting will be about $19,500,000. It is estimated that the operating and maintenance expenses will amount to $3,500,000 yearly, and that $500,000 will be required for sanitation and for the government of the Zone. The interest on $375,000,000 at three per cent per annum amounts to $11,250,000, and the treaty with Panama guarantees an annuity, beginning in 1913, of $250,000 to the Republic of Panama. The sum of these four items is $15,500,000. If to this there be added one per cent per annum on $375,000,000 to accumulate a sinking fund to amortize the investment, the total expenses will be $19,250,000."

The Isthmian Canal Commission report is somewhat out of date as to cost of construction. If cost is

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