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in 1948. The appropriation request for 1949 is $24,184,800, which together with $1,169,660 to be carried forward from prior year appropriations will make a total of $25,354,460 available for obligation in the fiscal year 1949, or a decrease from 1948 of $1,896,650.

SUMMARY OF AVAILABLE FUNDS AND APPROPRIATIONS, 1948 AND 1949

There is shown below a comparative summary of available funds and appropriations for the fiscal years 1948 and 1949:

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The justifications for appropriation requirements for fiscal year 1949, which have already been furnished to the members of this committee, show, on pages 15 to 17, 80, and 91, the estimated net requirements of the Panama Canal for 1949, by projects or functions, under the appropriation titles of "Maintenance and operation, sanitation, and civil government,” respectively, together with a comparison of the corresponding allotments for 1948 and the expenditures for 1947. Pages 20 to 34, 83 to 89, and 94 to 109 give explanations of the increases in 1949 operating expenses as compared with the allotments for 1948, and pages 35 to 78 give justifications covering the improvement, betterment, and replacement program proposed for 1949. Pages 110 to 113 give the justification of the estimate for 1949 for "Construction, additional facilities, Panama Canal”. There is included on pages 114 to 121 certain information with respect to the Goethals memorial, repatriation of unemployed aliens, and postal funds. Pages 122'to 125 give a review of proposed legislation to supply authority in substantive legislation to support Panama Canal appropriations, and the justifications for the proposed changes in the 1949 appropriation language.

That concludes the general statement which I have prepared.
You are paying the operating expenses now, is that right?

General MEHAFFEY. Yes, sir; roughly, we are just about breaking even on operating expenses.

Mr. Engel. You are paying nothing as a return on the investment? General MEHAFFEY. A very small amount, if anything.

TOLL RATES

Mr. ENGEL. All right. Now, Governor, when were the toll rates fixed that are in force now?

General MEHAFFEY. They were fixed in accordance with an act of Congress passed in 1937 which authorized the President to fix tolls at not to exceed $1 a ton, net Panama Canal measurement, for laden ships, and a lesser amount for ships in ballast. Under that authorization to the President the tolls were fixed at 90 cents a Panama Canal net ton for laden vessels and 72 cents, or 80 percent of the laden rate, for vessels in ballast.

Mr. ENGEL. Those rates were fixed in 1938?
General MEHAFFEY. Yes, sir.
Mr. ENGEL. Pursuant to that act?
General MEHAFFEY. Yes, sir.
Mr. ENGEL. They have never been increased since then?
General MEHAFFEY. No, sir.

INCREASE IN OPERATING EXPENSES SINCE 1938

Mr. ENGEL. What has been the percentage of increase in your operating expenses since 1938?

General MEHAFFEY. I would have to compute that from the annual reports, but it is very considerable.

Mr. ENGEL. Well, everything has gone up, your wage rate has gone up, and everything has gone up since that time.

General MEHAFFEY. Yes, sir.

Mr. ENGEL. And the operating expenses of ships have gone up; have they not?

General MEHAFFEY. Yes, sir.
Mr. ENGEL. And freight rates have gone up; have they not?
General MEHAFFEY. Yes, sir.
Mr. ENGEL. And ocean freight rates have gone up?
General MEHAFFEY. Yes, sir.
Mr. ENGEL. And you own operating expenses have gone up?
General MEHAFFEY. Yes, sir.

Mr. ENGEL. And the cost of gasoline and oil and motor vehicles and repairs on your towing locomotives has gone up, and in fact every item of operating expense has gone up since 1938?

General MEHAFFEY. Yes, sir.
Mr. ENGEL. And we are still collecting the same tolls.
General MEHAFFEY. Yes, sir.

Mr. ENGEL. Can you give the committee any idea as to what the percentage of increase has been since 1938? " You can correct the figure later if you would like to.

General MEHAFFEY. It is about 79 percent.

Mr. ENGEL. That is, the operating expenses of the Canal have gone up 79 percent?

General MEHAFFEY. Yes, sir.

QUESTION AS TO ADVISABILITY OF INCREASED TOLL RATES

Mr. ENGEL. Is there any reason, in view of the fact that everything has gone up, including the freight rates which are collected by the ships that go through the Canal, why we should not go up in the toll rates charged to compensate us for this increased cost of operation?

General MEHAFFEY. We have given that matter a good deal of consideration since the war ended, Mr. Chairman.

Immediately following the war it seemed to be that shipping conditions were so unsettled that it was difficult to predict that shipping would perhaps not grow enough in the near future so that at the present rate of tolls our income would be sufficient to pay the operating expenses and perhaps a fair rate of return on the ret invested capital.

I think that the experience during the past year or two indicates that the traffic has settled down to what might be considered reasonably normal for the present time, and we are making a study of the tolls in the Canal Zone at this time, having in mind the possibility of recommending an increase to the full amount permitted by the law.

Mr. ENGEL. Would an increase of 10 cents a ton, which is the differential between the full amount provided by law and the amount you are now charging on a loaded ship, plus the differential you might charge on a ship in ballast, take care of the differential in operating expense or the increase in operating expense?

General MEHAFFEY. Yes, sir; it would entirely clear us on the operating expense. That is, it would cover the deficits which we have estimated for the next couple of years. We are now collecting tolls at the rate of about $18,000,000 a year, and the increase would produce one-ninth more than that, or roughly $2,000,000 more. Since the deficits in operating expenses which we have estimated for this year and next year are some $300,000 for this year, and perhaps $600,000 for next year, obviously that increase would be entirely sufficient to cover them.

Mr. ENGEL. In view of the fact that you have had a 79-percent increase in operating cost it does not seem to me that an increase of 10 percent in tolls would do it.

General MEHAFFEY. That is the maximum, of course, that can be made without additional legislation, and would be the first step.

Mr. ENGEL. I think the proper legislative committee should study it with the idea of increasing the amount authorized by law to be charged as tolls.

Mr. Case. If that is established in these hearings it would be appropriate for us in our report on the bill to call that to the attention of the legislative committee.

Mr. Mahon. There is no doubt, if I may interpose, but that you have not reached the point of diminishing returns and that if you did raise the rate for traffic through the Panama Canal it would not seriously affect the volume of traffic, would it?

General MEHAFFEY. I think it would require study to establish that conclusively, Mr. Mahon.

Mr. Mahon. Do you think there is really some question about that?

General MEHAFFEY. There might be, sir. When we announced the operating schedule for the Canal during the present overhaul period, we did get communications from some of the shipping companies asking if there would be considerable delays to shipping on

account of the overhaul, and intimating that if the delays were going to be considerable they might reroute their ships through Suez, or around the Horn.

Now, how much substance there was in that intimation it is hard

to say.

Mr. ENGEL. Well, delay in putting them through the locks might do that.

General MEHAFFEY. They were considering delay in the terms of money that it costs them.

Mr. ENGEL. Yes, but with the increase in ocean-freight rates that these ships are getting they certainly should not object to an increase in the tolls when we base it upon the increased cost of operation.

General MEHAFFEY. They will object.

Mr. ENGEL. But if they do object to it say, "All right, you can go around the Horn." You may lose a little traffic, but they would certainly not try to go around the Horn. It would certainly be cheaper to pay the increased toll through the Canal than to go away around the Horn.

General MEHAFFEY. On many trade routes, yes, sir. On some where there is perhaps a balance now between the Suez Canal and the Panama Canal we might lose some traffic.

I should like to say that the opposite view with respect to toll is being taken by the National Federation of American Shipping, which is an organization representing some 90 percent, I believe, of American shipowners. The federation was reported in the newspapers as haring submitted a memorandum to the Commerce Committee of the Senate and the Merchant Marine and Fisheries Committee of the House, suggesting that since the Canal was built not only for commercial purposes but also for national defense, the entire cost of the Canal should not be charged against shipping in the calculation of toll rates, and expressing the opinion that the interest charge should be forgotten and written off to the national defense.

Mr. ENGEL. It is very nice for them to take that position. It is the position we would expect them to take, but it was not the position that they took when they raised their transoceanic freight rates, and it was not the position that their employees took when they increased the freight rates so that they are now paying a cook $5,000 a year. I had some experience on that in the transportation of the Army.

Mr. CASE. The shipping industry of the country has been brought up on the subsidy idea so much that whether it is İntracoastal Waterway or oceanic shipping they seem to expect that the taxpayers should keep the maritime business afloat.

General MEHAFFEY. Yes, sir.

Mr. ENGEL. Under the Hay-Pauncefote Treaty we have to charge our American ships the same toll rates that we charge other ships.

General MEHAFFEY. Yes, sir.

Mr. ENGEL. Despite the fact that we are maintaining the Canal, and despite the fact that we have our capital investment in there, we could not show preference to our own ships if we wanted to.

General MEHAFFEY. That is true.

Mr. Engel. While there might be some argument for giving that preference to ships sailing under the American flag, I certainly cannot see any argument in favor of giving that preference to ships sailing under the Russian flag, for instance.

General MEHAFFEY. I entirely agree with that, Mr. Chairman.
Mr. ENGEL. But we have no alternative.
Mr. Case. The only ships to which that treaty does not apply, as I
recall it, are ships of the American Navy itself.

General MEHAFFEY. Not ships of the American Navy alone, but ships of the United States Government.

Mr. CASE. Ships of the United States Government?
General MEHAFFEY. Yes, sir.

Mr. Case. But any private or commercial shipping registered under the American flag must pay the same rate under the treaty?

General MEHAFFEY. That is right.
Mr. TIBBOTT. By whom are these rates set?

General MEHAFFEY. They were authorized to be set by the President, with a limitation on the amount, by the law of 1937 which I mentioned a short time ago.

Mr. TIBBOTT. Then the American ships pay the same rate as the ships of other countries are charged?

General MEHAFFEY. Yes, sir.

Mr. TIBBOTT. What arrangement do you have for United States Government ships passing through the Canal?

General MEHAFFEY. When it is certified to us that a ship passing through the Canal is a Government ship or a ship which is entirely under the control of the Government, and that it is carrying only Government cargo, it goes through without the payment of tolls. That applies to ships of the United States Government, and also to government ships of Panama and Colombia.

Mr. ENGEL. They go through free? General MEHAFFEY. Yes, sir. They are, of course, relatively insignificant in number.

Mr. Engel. Is that the reason why some American ships register under the Panamanian flag?

General MEHAFFEY. No, sir; those are not Government ships. Mr. ENGEL. It is just the Government ships? General MEHAFFEY. It is just Government ships of Panama. Mr. ENGEL. Commercial ships sailing under the Panamanian flagGeneral MEHAFFEY. Pay the same tolls as anyone else.

Mr. Engel. Every time we send a ship through the Canal for less than the cost, we are subsidizing that ship to that extent, are we not?

General MEHAFFEY. Yes, sir. Mr. Engel. And 50 percent of the ships this last year going through the Canal were foreign ships? General MEHAFFEY. Yes, sir. Mr. ENGEL. Ships of all nations? General MEHAFFEY. Yes, sir. Mr. Engel. Including Russia? General MEHAFFEY. Yes, sir; some Russian ships. Mr. Engel. So that we find ourselves in the strange position of subsidizing Russian shipping; is that correct? General MEHAFFEY. Yes, sir.

Mr. ENGEL. I think it behooves us to increase the rates so that we can recover the cost.

Mr. SCRIVNER. General, I understood your statement was that the law left it up to the President to fix the rates.

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