ANNEX A

1. "Canal" includes the existing Panama Canal, the entrances thereto and the territorial seas of the Republic of Panama adjacent thereto, as defined on the map annexed hereto (Annex B), and any other inter-oceanic waterway in which the United States of America is a participant or in which the United States of America has participated in connection with the construction or financing, that may be operated wholly or partially within the territory of the Republic or Panama, the entrances thereto and the territorial seas adjacent thereto.

2. "Vessel of war" means a ship belonging to the naval forces of a State, and bearing the external marks distinguishing warships of its nationality, under the command of an officer duly commissioned by the government and whose name appears in the Navy List, and manned by a crew which is under regular naval discipline.

3. “Auxiliarý vessel” means any ship, not a vessel of war, that is owned or operated by a State and used, for the time being, exclusively on government noncommercial service.

4. "Internal operation" encompasses all machinery and propulsion systems, as well as the management and control of the vessel, including its crew. It does not include the measures necessary to transit vessels under the control of pilots while such vessels are in the Canal.

5. "Armament" means arms, ammunitions, implements of war and other equipment of a vessel which possesses characteristics appropriate for use for warlike purposes.

6. "Inspection" includes on-board examination of vessel structure, cargo, armament and internal operation. It does not include those measures strictly necessary for admeasurement, nor those measures strictly necessary to assure safe, sanitary transit and navigation, including examination of deck and visual navigation equipment, nor in the case of live cargoes, such as cattle or other livestock, that may carry communicable diseases, those measures necessary to assure that health and sanitation requirements are satisfied.

PROTOCOL TO THE TREATY CONCERNING THE PERMANENT NEUTRALITY AND OPERATION OF THE PANAMA CANAL

Whereas the maintenance of the neutrality of the Panama Canal is important not only to the commerce and security of the United States of America and the Republic of Panama, but to the peace and security of the Western Hemisphere and to the interests of world commerce as well;

Whereas the regime of neutrality which the United States of America and the Republic of Panama have agreed to maintain will ensure permanent access to the Canal by vessels of all nations on the basis of entire equality;

Whereas the said regime of effective neutrality shall constitute the best protection for a Canal and shall ensure the absence of any hostile act against it; The Contracting Parties to this Protocol have agreed upon the following:

ARTICLE I

The Contracting Parties hereby acknowledge the regime of permanent neutrality for the Canal established in the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal and associate themselves with its objectives.

ARTICLE II

The Contracting Parties agree to observe and respect the regime of permanent neutrality of the Canal in time of war as in time of peace, and to ensure that vessels of their registry strictly observe the applicable rules.

ARTICLE III

This Protocol shall be open to accession by all states of the world, and shall enter into force for each State at the time of deposit of its instrument of accession with the Secretary General of the Organization of American States.

[From the Congressional Record, Sept. 13, 1977-S14733]

THE CANAL TREATIES: REASON OR RISK?

Mr. HARRY F. BYRD, Jr. Mr. President, for weeks now the question as to whether the United States should surrender control of the Panama Canal has dominated the news.

It reached a crescendo last week when the President of Panama came to Washington and, along with President Carter, signed treaties which would end U.S. sovereignty over the canal and the Canal Zone.

The signing of the treaties and President Carter's many appeals for support of the treaties have received tremendous television coverage. The television commentators and others in the news media have joined the bandwagon in seeking to drum up support among the public.

It is time, I think, that the other side of the story be heard.

I have delayed public comment until the text of the new treaties were available. They became available only last week.

Careful reading has not reassured me that surrendering sovereignty over this important waterway is either wise or in the best military and economic interest of the United States.

I have reached the conclusion, however, that these treaties will be very expensive to the American taxpayer.

Fortunately, the signing of the new treaties by President Carter and by the Panamanian dictator, Gen. Omar Torrijos, does not put such treaties into effect.

Under our Constitution, any treaties negotiated by the President must be approved by the Senate of the United States by a two-thirds vote of that body. So the final decision as to whether the United States shall surrender perpetual sovereignty over the vital link between the Atlantic and the Pacific will rest with the Senate of the United States.

At this point, I think some history is in order.

This is not the first time a President has proposed surrendering our sovereignty over the Panama Canal and Canal Zone.

In 1967, President Johnson put a head of steam behind Panama's resolve to wrest the canal away from undisputed American control. Draft treaties prepared in 1967 made concessions of Panama which many Members of Congress felt were unwise and which were, indeed, a submission to Panamanian political blackmail.

So great was the congressional opposition to the proposed treaty that President Johnson never submitted the proposal to the Senate for consideration. I am pleased to say that I took an active and firm role in opposition to the Johnson proposal.

I see no fundamental difference between the Johnson proposal and the Carter proposal. Each would surrender U.S. sovereignty. The only real difference is that the Carter proposal would be much more expensive to the American taxpayer.

The Congress was told in 1967 that there would be a series of anti-American riots in Panama if the U.S. Government did not give the Panamanians what they want. We are being told the same thing today.

It is vitally important that the United States maintain a position of strength in Latin America, and the pivotal point in our defense arrangements is the Panama Canal and the Canal Zone.

I am persuaded that new treaties compromising our rights in the Canal Zone would weaken our country's defense posture in the Western Hemisphere—and, in addition, could be costly to the American consumer.

After all rhetoric is stripped away, the question of whether these treaties should be ratified boils down to three basic questions:

First, is it in the best economic and military interests of the United States? Second, what will it cost the American taxpayer-this year, next year, and in many years to come?

And, third, should we abandon our sovereignty over this vital waterway. The Panama Canal is a strategic waterway of considerable economic and military importance to the United States. Its uninterrupted and efficient operation in the years ahead is an important U.S. interest.

Proponents of the treaties insist that the treaties will safeguard our military and economic interests. But, in the same breath, these proponents argue that the canal is no longer important to the United States either economically or militarily.

Misleading figures are used to try to diminish the economic importance of the canal to the United States.

The Carter administration has publicized the figure of 8 percent as the amount of U.S. foreign trade that transits the canal. Yet, a figure which the administration neglects to cite is that 70 percent of all ships transiting the canal have the United States as their destination or their point of origin.

Equally misleading arguments have been made concerning the military value of the canal.

One argument is that U.S. aircraft carriers cannot transit the canal because of their size. This argument falls apart when one realizes that of the 461 Navy ships now in the active fleet, only the 13 aircraft carriers are unable to transit the canal. In other words, more than 97 percent of the U.S. Fleet is and will remain able to transit the canal.

History has clearly recorded how relatively quickly we were able to move elements of the Atlantic naval fleet to the Pacific after the attack on Pearl Harbor in 1941. We were able to make this quick transfer because American ships were given priority passage under the terms of the existing treaty. The canal was also heavily used during the Korean and Vietnam wars.

To make it even more current, present defense plans call for a large number of Navy ships to transit the canal in the event of an emergency. How can we assure ourselves we can do this if we do not control the canal?

Can these important U.S. interests be adequately protected under the terms of the proposed treaties?

The Carter administration maintains that they can, and points to the terms of the treaty which supposedly provide the United States with the permanent right to defend the neutrality of the canal from any threat for an indefinite period.

Further, the administration maintains that U.S. warships will have the permanent right to transit the canal expeditiously and without conditions.

However, upon close scrutiny of the actual texts of the treaties, the U.S. right to defend the neutrality of the canal is an implied right which is not clearly stated in the text.

There is no provision for how the United States might endeavor to defend the neutrality of the canal and, depending on how one interprets article V of the Treaty Concerning Permanent Neutrality, the United States might be precluded from taking actions which might be necessary to defend the neutrality of the canal.

Article V states 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."

This could be interpreted as prohibiting the United States from ever deploying military forces to Panama to defend the neutrality of the canal.

Another point of concern is this: An unstable Panamanian government could make unwise decisions which might make more likely the need for sending U.S. troops to defend the canal.

There are other disturbing parts of the treaties which raise concerns for the protection of U.S. interests.

According to article II of the treaty concerning permanent neutrality, even in time of war there must be no discrimination against the vessels of any nation. This sounds fine, except that it would require that warships of an enemy of the United States would not only be permitted to transit the canal but that a U.S. warship would have to wait its turn for passage while the ships of other nations both commercial or combatant took their turn at entering the canal.

This provision alone raises serious doubts in my mind as to whether these treaties can adequately protect the interests of the United States.

Our ability to defend the canal and keep it operating would be severely compromised if enemy ships are to be permitted to enter the canal. An intentionally scuttled ship could close the canal for an extended period.

Another area of concern relates to the ability of a small, unstable, and economically weak country such as Panama to handle the responsibility for operating and maintaining the canal and operating it on a nondiscriminatory basis.

Panama has had a turbulent political history with a rapid succession of governments and several military coups, the latest of which brought Omar Torrijos to power in 1968.

It was only a few years before that that the President of Panama was assassinated; his First Vice President then assumed office, but was shortly deposed as having been involved in the assassination. The Second Vice President then became President; and he was thrown out the next year.

Panama's economy has been growing steadily worse in recent years despite the substantial boost to the economy resulting from the canal and the U.S. presence in the Canal Zone and despite the fact that the United States has provided $368 million in economic assistance since 1945.

The country's indebtedness has grown from $167 million when General Torrijos took power to approximately $1.5 billion at present, causing a very heavy debt servicing burden on the already weak economy. It is estimated that debt service alone will consume 39 percent of Panama's budget this year.

These facts are cause for real concern over Panama's ability to operate and efficiently maintain the canal, especially in light of the growing deficits of the canal over the past several years.

Now let us look at the potential cost of these treaties.

Despite the fact that the Carter administration has claimed that the financial terms of these treaties will not involve any congressional appropriations, it is clear that these treaties will cost the American taxpayer many, many dollars. The United States has invested an estimated $7 billion of taxpayers' dollars in the canal and the Canal Zone since the construction of the canal began. Much of this money is in the form of real property and nonremovable improvements which would be turned over completely to Panama, according to the terms of the treaties.

The investment of $7 billion in then-year dollars would, of course, be worth far more than that in 1977 dollars.

In addition, the terms of the treaties call for approximately a 2,000-percent increase in the annual financial compensation to Panama from the current amount of $2.3 million per year to an estimated $50 million. When multiplied by the 23 year period involved, this comes to a staggering $1.15 billion.

According to the terms of the treaties this compensation is to come exclusively from canal revenues as follows: $10 million per year from toll revenues; an additional share of 30 cents per ton from toll revenues. (Note: This share of the tolls is tied to the U.S. wholesale price index so it is likely to rise substantially in the years ahead.) Up to an additional $10 million per year only if canal traffic and revenues permit.

However, the canal has been operating at a deficit in recent years. The canal operated at a $7.6 million loss in fiscal year 1976 and is projected to lose $24 million more during fiscal year 1977.

Thus, when a greatly increased share of the tolls is paid to Panama the deficit will increase even further without a huge increase in toll rates.

Only last Friday, Ambassador Sol Linowitz, who negotiated the treaty for the United States, stated that the United States would have to raise shipping tolls for the canal by 25 to 30 percent, if the treaties are ratified.

These increased charges, of course would be passed on to the American

consumer.

In addition to the $7 billion cost of the plant and equipment, the estimated $1.15 billion Panamanian share of the tolls, and the additional cost to the consumers, there are two other costs that may be incurred as a result of these treaties.

The first potential cost is the Carter administration pledge to Panama to arrange for an economic program of loans, loan guarantees and credits which would be underwritten by U.S. taxpayers.

The second set of potential costs would be incurred if for some reason the canal were closed to U.S. traffic.

According to a Department of Commerce report issued in May of 1975 there would be:

A 71-percent increase in the average annual consumption of fuel by carriers of U.S. foreign trade;

A 31-day increase in average shipping time;

A $932 million increase in the yearly total delivered price of all exports, which would price our farm products out of Pacific markets; and

A $583 million increase in the yearly total delivered price of all imports including $78 million for intercoastal deliveries, thus adding to U.S. inflation.

These costs would be borne by our citizens in the form of increased consumer costs and a higher rate of inflation, and also in the loss of jobs.

Any serious disruption in canal trade would result in serious dislocations in the U.S. economy.

In Virginia, for example, the Port of Hampton Roads, would be seriously affected. A great deal of coal and coke is shipped from Hampton Roads through the canal to Japan and other countries.

Other States would suffer as well, as a great deal of American agricultural products are also exported through the canal.

Thus, the cost to the American citizen as a result of the treaties could be twofold: First, the transfer of American property and foreign aid dollars to Panama; and second, increased inflation with a higher cost of living if canal trade is disrupted.

It is estimated that the overall cost of the Panama Canal treaties to the American taxpayer eventually will be roughly $10 billion.

Based on this amount, that means we would be paying Panama_more than $24,000 an acre for the privilege of giving U.S. territory to Panama. That would amount to approximately $5,000 for every man, woman, and child in Panama.

Ironically, because of our past assistance, Panama already has the highest per capita income in Central America and one of the highest of all of the 25 Latin American nations.

The issue of sovereignty is the third great concern.

Contrary to the assertions of administration officials and others, the United States has a secure legal position as sovereign over the Canal Zone. This position has been upheld by the U.S. Supreme Court in 1907 and again as recently as 1972. By article III of the 1903 treaty, full jurisdiction over the Canal Zone was granted to the United States "to the entire exclusion of the exercise by the Republic of Panama of any sovereign rights, power, or authority."

Since 1904 the United States has effectively controlled the territory and the inhabitants of the Canal Zone. The United States conducts the defense of the Canal Zone and performs all of the activities which are recognized in international law as the acts of a sovereign.

The U.S. rights of sovereignty in the Canal Zone are the foundation of our ability to remain there to operate and defend the canal.

Despite this clear record and unchallenged legal status, officials of the State Department continue to state and/or imply that the Canal Zone is really Panamanian property and that the United States does not have full sovereignty over the Canal Zone.

However, on March 7 of 1974 under questioning by me in a Senate Finance Committee hearing, Secretary of State Kissinger admitted that the United States had sovereignty over the canal and the Canal Zone.

He stated that he had committed the United States "to negotiations leading to the transfer of sovereignty." That is a part of the official record.

The United States paid Panama for a territorial grant and is the sovereign power in the Canal Zone.

Now I want to discuss another disturbing provision of one of the proposed new treaties. I refer to article XII of the Panama Canal treaty.

Specifically, paragraph 2, section (b) of article XII states:

During the duration of this Treaty, the United States of America shall not negotiate with third States for the right to construct as inter-oceanic canal on any other route in the Western Hemisphere, except as the two Parties may otherwise agree.

Article XII would, therefore, prevent the United States from negotiating with any other nation for the right to construct an inter-oceanic canal anywhere in the Western Hemisphere until the next century unless Panama agrees to permit such negotiations.

Only then could we even begin the long and tedious task of negotiating, and then constructing, a new canal.

This veto power by Panama would put the United States at the mercy of that nation, insofar as any waterway connecting the Atlantic and Pacific is concerned. It is bad enough to give away the Panama Canal-and to pay the Panamanians for the privilege of giving it to them. But, I submit, it is even worse to block ourselves by treaty from having the opportunity to negotiate with other nations for the right to construct an inter-oceanic canal in the Western Hemisphere. In summary, I am convinced the proposed Panama Canal treaties: