PANAMA CANAL TREATIES

WEDNESDAY, OCTOBER 5, 1977

UNITED STATES SENATE, COMMITTEE ON FOREIGN RELATIONS, Washington, D.C.

The committee met, pursuant to notice, at 9:53 a.m., in room 4221, Dirksen Senate Office Building, Hon. John Sparkman (chairman of the committee) presiding.

Present: Senators Sparkman, Church, Clark, Glenn, Stone, Sarbanes, Case, Javits, Percy, and Griffin.

The CHAIRMAN. Let the committee come to order, please.

Senator Gravel, I am very sorry to keep you waiting. I would like to have had more members here for your presentation. In fact, 10 have indicated they would be here today. I understand several are on the way now. Since we have a rather lengthy list of witnesses on today's agenda, I think we had better proceed with your testimony. Your statement will be included in the record of today's hearing. We are very glad to have you here, Senator Gravel. I know that you have given a great deal of attention to this matter, and we are glad to hear from you.

STATEMENT OF HON. MIKE GRAVEL, U.S. SENATOR FROM ALASKA

Senator GRAVEL. Thank you very much, Mr. Chairman. I appreciate your patience, and I fully expect that the other members will soon come in and they will obviously have my text available to them. I would like to start out by saying that it is characteristic of people who are mean and weak to resist change.

It is characteristic of those people who are strong and noble in character to want change, and particularly so when it comes to righting injustice.

JUSTICE OF TREATIES

I want to underscore that, notwithstanding anything else I say this morning, I think the most important statement that I can make with respect to these two treaties that are before this committee and that will eventually be before the Senate is that they are just. It is characteristic of the United States to be noble and strong, and that is why we are trying to right a great injustice. There will be many things that I will state, but I think that is my most important point. I think we all recognize, and you have already received testimoney, how we acquired the Panama Canal. The statement made by Theodore Roosevelt in Berkeley after he left office summarizes it well. He

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said: "I took the Isthmus," and that is really characteristic of what did happen. He took it to no great advantage for the Panamanians. In fact, I think the best quote we have on that point is from the Secretary of State, John Hay, when he stated that the treaty was "not so advantageous to the Panamanians."

In essence, we bullied our way through this original agreement.

People can say that the canal has been of great benefit to the Panamanians. For one thing, it is what brought about their independence. I think that same argument could be used with us toward the French. The reward should be their friendship, and we should need nothing

more.

PANAMANIAN STANDARD OF LIVING

I think it should be perceived that the Isthmus of Panama is one of the most valuable pieces of real estate in the Western Hemisphere. Therefore one would expect that the people who own this real estate might at least enjoy a standard of living comparable to the highest standard of living in the Western Hemisphere. Of course, such is not the case. When you make a comparison of the gross national product on a per capita basis, you see that for the people of Panama it is somewhere around $800, and for the people of the United States is somewhere around $6,000-plus. We may have given them some benefits as a result of our presence, but those benefits do not come near equaling what would have been their birthright through the normal development of the geography which they hold.

ECONOMIC IMPORTANCE OF CANAL

The next point to which I would like to turn concerns the economic importance of the canal. If we cannot convince opponents with the argument on the basis of justice, perhaps those who are against these treaties can be convinced by the economics in question.

I think that the economic perception that we have falls very short of what is reality in the world today.

The Panama Canal represents 5 percent of world seaborne trade. That is not what you would call a great amount. Americans have the illusion or misperception that our trade is highly dependent upon Panama. Such is not the case. It only represents 16.8 percent of U.S. waterborne commerce. In point of fact, the United States only represents one-third of all the transportation that goes through the Panama Canal.

If the canal were closed, the major people who would be hurt would be the Panamanians themselves. But, what would be the impact upon the United States?

If it were closed today, and if we measured for the next 10 years— because that would be the period of time needed to correct the economic dislocation-the loss to the world would be about $100 million. Since we account for a third of the traffic through the canal, that would mean that the American consumers would lose around $34 million as a result of closure of the Panama Canal. But this would be offset by expansion of our railroad and port capabilities on the west coast of the United States so that we could handle the items that are no longer transiting a closed canal.

When we want to measure, what we should do is measure this annual $34 million loss against its impact in a trillion-plus dollar economy. Obviously the impact would be minuscule and the American consumer would not even feel the closure of the canal.

You must compare what we jeopardize in economic importance— we have economic exports as a Nation in excess of $120 billion a year— $39 billion of that goes to Third World countries, which are very concerned about our present status in Panama. $15 billion of those exports go to South America, to Latin America, which is extremely concerned about our situation in Panama.

So, with our continued presence in Panama, which has a benefit of some $34 million a year to the consumers, we jeopardize very directly $15 billion, and we jeopardize indirectly $39 billion. In point of fact, in a trillion-plus dollar economy, the Panama Canal's economic importance is minuscule and not even perceptible.

EFFECT OF SEA-LEVEL CANAL ON MOVING OIL

Mr. Chairman, I would like to go next to another point that I think is important, one which is very perceptible. This is what I think is the plus side of the equation that we would experience as a result of these two treaties being ratified. That would be to be able to place us in a mode wherein we could investigate the possibilities of a sea-level canal and through commercial arrangements or contractual arrangements see that that sea-level canal is brought into being.

What brought my interest first to the sea-level canal was the fact of Alaska's difficulty in seeing its oil brought to market.

[The charts referred to appear at the end of Senator Gravel's prepared statement following his oral statement.]

Here I would like to point to the first chart that you see right there [indicating] of the United States. It has a whole ribbon of lines.

The chart is an actual picture of all of the oil and gas pipelines in the United States today. You see that the lines run essentially from the area of Texas and the Southwest up to the Northeast, the latter being the Ohio-Pennsylvania-New Jersey regions. That is the industrial bowl of the United States. That is really where our economic might comes from.

So, quite obviously, we have to transfer energy from the area where it is discovered to the area where it is mainly used. That is the reason we have that particular infrastructure that you see on this chart.

When we look to the other chart that is up there [indicating] you see the line that traverses Alaska, and that is the Alaska Pipeline. That will bring down a substantial portion of already discovered oil to the west coast of the United States.

So, when you put those two maps together you can see that what we have to do is sort of begin to obsolesce the infrastructure that exists in that left-hand chart [indicating] so that we can bring in the oil not where it is being discovered, but now where it will be discovered. That is in the Northwestern part of our Western Hemisphere. This would mean that we would have to begin to build infrastructural systems from the west coast of the United States coming to the eastern part of the United States.

Now the environmental consequences of this are horrendous and they are presently being experienced because we have been delayed in getting the approval to move Alaskan oil.

These [indicating] are the various systems by which we would transport the oil to the eastern markets within the context of the United States. The first one, of course, is the Sohio project; the second one is the Northern Tier; then there is the Trans-Mountain Reversal; and the Kitimat.

The Sohio project was applied for in excess of 2 years ago. The company has spent in excess of $40 million studying the project and is presently being denied the ability to move oil.

What Sohio did was buy from El Paso two gas lines that it would convert to oil lines and move oil from Longbeach, Calif., to Midland, Tex. You can see when it gets into Midland, Tex., it can then be distributed to the central parts of the United States. That I would guess we will not secure, and if we do, the best we will get will be 500,000 barrels a day.

The other proposal is, of course, the Trans-Mountain proposal that goes from the Puget Sound area up into Edmonton, and then is redistributed back down to Minnesota and into the Montana area to take care of what we call our northern tier refineries. That is being opposed because people do not want supertankers coming ino the Puget Sound area. Frankly, as well as I know the Puget Sound area, I don't blame them. Nor do I blame the people in Los Angeles for not wanting the Los Angeles basin to continue to be polluted and to cause a diminution of their air quality. They are fighting for what present investment they have.

The other alternative is the line coming through Canada at Kitimat, the blue line [indicating]. That would come over to Edmonton and similarly that would distribute to the northern tier refineries.

Those are basically the systems that would bring oil from the west coast and from Alaska into the central part of the United States. All of them are in trouble because of environmenal reasons.

The Arthur D. Little Co. made a study, and that is this chart here [indicating], of what it would cost to move that oil from the west coast of the United States into the central part of the United States. They have analyzed in addition to that a trans-Guatemalan line over here [indicating], which is very vital in our considerations. They have analyzed the Trans-Guatemalan, Trans-Mountain, Northern Tier, Sohio, and Panama transshipment to get this into the major marketplaces of the United States. The major marketplaces in the United States are in the gulf coast and the east coast.

The black lines represent imports, and if we are to back out with the oil coming in and save the infrastructure system, then we have to bring it to those exact locations. Incidentally, we on the west coast of the United States have a surplus because we don't have the capacity in our refineries to handle our sour crude from Alaska. But in the gulf coast they do have the capacity to handle our sour crude.

Comparatively, the cheapest one involved is the Sohio line because most of the pipe is already there. That can ship oil from Valdez to Houston at $2.06 a barrel. You can ship via the present Panama Canal at $2.46 a barrel. So you can obviously see that if you bring a super