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 debates 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

$400,000,000, as is now claimed, the annual revenue needed will be approximately $20,000,000. Will the income of the Panama Canal exceed this amount if conducted as a business enterprise?

The above-mentioned report states:

"The investigation of the traffic available for the use of the canal led to the conclusion that about 10,500,000 tons net register of shipping will pass through the canal during the early years of its operation. The rate at which the Suez Canal tonnage and the commerce of the world is increasing indicates that an increase of at least sixty per cent in the traffic of the Panama Canal may be expected during the decade 1915-25. It is thus probable that there will be 17,000,000 tons of shipping using the canal during 1925. An increase of sixty per cent during the second decade of the canal's operation would bring the traffic up to 27,000,000 net register tons at the end of twenty years. The estimates are believed to be conservative. If the traffic of the Panama Canal shall be equal to these estimates, it will be possible to secure from moderate tolls enough revenues to enable the canal to be commercially self-supporting."

It is thus evident that the income from the Panama Canal will be sufficient to make it commercially selfsupporting if it is managed as a business enterprise by competent officials.

The foregoing is germane only if the canal can be made commercially self-supporting. The history of the Suez Canal will throw light on the subject, and the Isthmian Canal Commission report will give us the

best information available. The text of this report was written by Emory R. Johnson-one of the greatest transportation experts.

The Suez Maritime Canal Company is the owner and operator of this canal. Its cost of construction was about $125,000,000 to 1912.

Condensed income statement for 1911:

This amount ($24,900,000) was available for reserves, interest and dividends--and note that the investment was only about $125,000,000.

The United States needs about $20,000,000 a year for a period of say twenty-five years to conduct the canal as a business enterprise. This will make a total of $500,000,000 for the period. It is believed that the revenue during the first year will be about $10,000,000 and that it need not be less than $30,000,000 the twenty-fifth year. That would be an average annual income of $20,000,000, or the total of $500,000,000 for the period.

Now, grant free transportation to our coastwise traffic and what happens? The amount of income needed for the period is still $500,000,000. If the average yearly revenue from coastwise traffic would have been $4,000,000, the total would be $100,000,000. Other users would have to pay this amount in a higher rate. The resulting rate would not be just and equitable and would be established

in violation of the Hay-Pauncefote treaty. This is the claim of Great Britain. The claim is sustained.

The United States needs about $20,000,000 a year in revenue from the Panama Canal to cover interest, all operating charges, the annuity to Panama and a sinking fund charge of $4,000,000. Only $20,000,000 a year is needed to conduct it as a business enterprise. The income of the Suez Canal is now considerably in excess of this amount. The revenues of the Panama Canal will exceed the present income of the Suez Maritime Canal Company in twenty years, if conducted on business principles.

It seems to be the adopted policy of the United States to make the canal commercially self-supporting and to extinguish its liability therefor by an amortization charge to revenue. Business prudence and political wisdom demand that it shall be made commercially self-supporting, provided revenues large enough to enable the canal to carry itself can be secured without unwisely restricting traffic. Expert opinion is to the effect that this can be done.

Ex-President Taft has clearly stated the policy that the United States should pursue in managing the canal; namely:

"I believe that the cost of such a Government work as the Panama Canal ought to be imposed gradually but certainly upon the trade which it creates and makes possible. So far as we can, consistent with the development of the world's trade through the canal and the benefit which it is intended to secure to the east and west coastwise trade, we ought to labor to secure from the canal