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Senator Scott. Is there any difficulty in getting pilots for the ships that guide the vessels through the canal, or the tugs?

Governor PARFITT. There has been an increased turnover, but to date we have been able to get the necessary replacements.

Senator Scott. The pilots that are aboard the ship is what I should have said.

Governor PARFITT. Yes, sir. There has been an increased turnover, but we have been able to get replacements to date.

Senator Scott. In your personal opinion, Governor, would the toll charges by the Panamanians cover only the cost of the operation of the canal, as has been done by our Government in the past, or would the Panamanians attempt to operate the canal at a profit?

a I know I am asking you to speculate, but I look on you as an expert witness. As you know, an expert can express an opinion. Therefore, I am asking you as a judgment factor: In your opinion would the toll rates be increased in the event that the canal was operated by the Panamanians?

Governor PARFITT. Panama has over the years indicated that the United States has been overly generous and protective of shipping and shipping interests and have kept tolls inordinately low. They have indicated, on occasion, that if they were running the operation they would run it in order to maximize profits.

Senator Scott. One employee, I believe, of the canal indicated to me that it might be increased thirteenfold. That sounds like a terribly large increase. Would you say whether it is thirteen, or would you be of the opinion that there would be a substantial increase in the cost ?

Governor PARFITT. There would be a tendency on the part of Panama, were they running the canal to, as I say, maximize profits. There have been some studies which would indicate that tolls could be raised many multiples of the existing rate.

Our current studies reflect that that is an unreal estimate, and that the practical situation would inhibit inordinate raises of the type that you have indicated. Panama would not be able to do that.

Senator SCOTT. Returns would enter into this.

Governor PARFITT. Diminishing returns, because you would drive away traffic to other competing avenues of arteries of commerce.

Senator Scott. General, during our stay in Panama we also went to Argentina and Chile. We were told from time to time that the Government of Panama was waging a propaganda effort to influence world opinion in favor of obtaining control of the canal, and that our own Government was not reminding the world community as to how we had overcome hardship in constructing the canal, and how we had operated it for all the nations of the world without making any profit from its operation.

Again, requesting your personal opinion, General, has our Government presented its case as effectively as the Government of Panama?

Governor PARFITT. I feel that we have made an attempt to present our case, but I certainly do not feel that our case has been effectively made.

Senator Scott. General, would you consider the United States' control and its maintenance of the canal to be a military asset to this Nation?

Governor PARFITT. Yes, sir, I do.

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Senator Scott. In the event that the United States did not have the use of the canal, in your judgment, would we have to increase the size of our naval fleet in order to maintain its present effectiveness?

Governor PARFITT. I do not really believe that I am competent to respond to that, sir, but it would be my impression that lacking a canal, or the utilization of the canal, we would have to augment our forces.

Senator Scott. If I said to you that Admiral Reasoner, the Pacific Commander, said that we would have to, would you agree with that?

Governor PARFITT. My offhand feeling would be that we would have to augment our naval fleet lacking a canal.

Senator SCOTT. It has been said that it would cost $4 billion to build a substitute canal. Does this appear to you to be a reasonable estimate of the cost of a substitute canal ? Would you have a judgment? I am not asking for a precise figure, but do you think it would be somewhere in the ballpark of $1 billion at present day costs? Would that be unreasonable as an estimate?

Governor PARFITT. The studies in 1970 of a potential for a sea level canal or a third locks canal concluded that a sea level canal in its most optimum location would cost about $2.9 billion, and a third locks-a larger locks structure-would cost in the order of magnitude of $1.4 billion.

If we were to take those figures and escalate them to today's prices it would come to about $5.3 billion for a sea level canal and roughly $2.6 billion for a third locks plan.

Senator Scott. Governor, do you personally, as an individual, have any concern that a third party might become involved if a treaty is signed and ratified by the Senate—a third nation ?

Governor PARFITT. Certainly there is always concern lest influences which are not in the best interests of the United States become involved. That is a possibility which we have to concern ourselves with.

Senator Scott. General, of course we are again requesting your personal views—not your official views as the Governor or the views of the Government of the United States. As an individual and as an army general, do you have any concern that the canal might fall into Communist hands if the United States turns complete control over to the Panamanian Government, if our military stepped out entirely?

have any concern about—and I know this is a difficult question, but I am asking for your personal opinion on this—the canal falling into Communist hands?

Governor PARFITT. Yes; I have some very real concern in that regard. I would hope that the treaty would in some way provide assurance against that.

Senator Scort. I heard during my trip that in the event that it was, regardless of what was put in the treaty and regardless of the number of years that were specified for the gradual turnover or the completion of the turnover, the Panamanians might well nationalize the canal after they obtained possession of the canal. Would you have any concern about this—about them not following

— the precise words that are in the treaty? I am asking for your personal views again.

Governor PARFITT. One must, again, concern himself with that because the history of our relationship with Panama has been replete with

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amendments and adjustments to treaty documents. Therefore the answer would be yes; I would be concerned about the potential for that.

Senator Scott. During our trip on behalf of the Armed Services Committee we were told by numerous individuals that some of the top advisers to the Panamanian Government were Communists, and that this was common knowledge in Panama.

As one who has been in Panama—and I am not going to ask for any names or identify anybody at all. I personally intend to do that in executive session before our Armed Services Committee.

COMMUNIST ADVISERS FOR PANAMANIAN GOVERNMENT

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As one who has been in Panama for a number of years, what is your personal opinion as to Communists within the structure of the Government of Panama. Do you feel there are or that there are not Communists there?

Governor PARFITT. I believe the general consensus is that the Panamanian Government itself is not Communist-leaning, but advisers in various places within the Government are in fact Communists.

Senator Scott. This would be advisers to General Torrijos? Some of his advisers are believed to be Communists?

Governor PARFITT. That is correct.

Senator SCOTT. As I understand it, General Torrijos became the Chief of State taking over from a lawful government. I would assume that you are familiar with the history of the country of Panama. Does it have a history of being an unstable government?

Some figures were given to me that it was volatile, and that there have been 59 different governments in the past 70 years. Do you know if that is a fairly accurate statement? I would not hold you to the exact figures, but over the years has it been a volatile government?

Governor Parfitt. Well, over the years it has been a volatile situation, but I do not think that the number you have indicated is completely representative of the actual facts. Many of those changes in government were not in the context of an upset or an overthrow or a change, really, but included in the changes in Presidents because of the absence from the country of a President, and so forth.

In summation, yes, it is a volatile situation. It is not nearly as extreme as those figures would indicate.

Senator Scott. Well now, in your personal opinion, General, do you believe that the Panamanian officials are of the opinion that demonstrations and disturbances of various kinds tend to influence our Government to accede to their desire that the Canal be turned over to them, and that they can more readily obtain a treaty by demonstrating and by resorting to various kinds of violent action?

Governor PARFITT. I am concerned that there may be this impression amongst some. There are indications to that effect. Senator Scott. General, I am very grateful to you for your candid

I comments here. If time would permit I would like to have further questions, but certainly it would be unfair for me to take any more time. We are running behind schedule. I would like an opportunity, if you are free, after while to just visit with you privately for a bit on a personal basis.

Thank you very much for being with us.
Governor PARFITT. Thank you, sir.

Senator ALLEN. Thank you, Senator Scott.
Senator Hatch?

Senator Hatch. Governor, would you review for our benefit the total payments, if you can, for the Canal Zone property, including the annual annuity payments to Panama? I do not think they are in your statement. You list the total cost.

Governor PARFITT. I will provide the precise figures for the record.

[The aforementioned information was subsequently supplied for the record.]

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TOTAL PAYMENTS AS A RESULT OF THE 1903 TREATY

1. Reflected on company books as title and treaty rights

a. Payment to Republic of Panama-

$10,000,000

b. Payment to individual property owners (depopulation

of C.Z.) --
c. Payment to French (land rights).
d. Madden Dam Area land rights, 1924–1932.

3,965, 254

326, 016 437, 619

[blocks in formation]

(Combined with lc., payments to French total $40,000,000). 3. Payment to Colombia (not reflected on Company books)

Indemnity to Colombia for loss of Panama

25,000,000

4. Payment to Panama for annuity

a. 1913–1920 (Capitalized as construction costs).
b. 1921-1951 (Dollar value in gold changed, 1933)
C. 1952–1976 (Dollar value in gold changed, 1973 and 1974:

includes payment by State Department, 1956–76)

2,000,000 10, 990, 000

43, 610, 992

Total

56, 600, 992

Total payments to Panama, France and Colombia ----

$136, 003, 865

Note: The above figures report actual dollars paid at the time of payment and have not been adjusted to reflect the value of payments in terms of 1977 dollars.

Senator Hatch. I do not wish to put you on the spot, but I would just like to have the American people know a little about this.

Governor PARFITT. Titles and treaty rights were bought. We paid $10 million to Panama as part of the treaty and roughly $4 million for the acquisition of property from ownerships that existed—buying out the ownerships.

We paid $40 million to the French company for the interest that they had. In 1922, we paid $25 million to the Colombian Government under a separate treaty.

We also paid at the outset, in the treaty arrangement of 1903, $250,000 a year in gold in an annuity. That was escalated over time.

Senator HATCH. That is to Panama?

Governor PARFITT. That is to Panama directly. That was increased to about $430,000 in 1934 and to approximately $1.9 million in 1956. Then there have been some adjustments for the devaluation of the dollar to the current level of payments of $2.3 million per year, which is the annuity paid to Panama now.

Senator Hatch. If we were to take the extra payments for the canal to the French Company, to Panama, to Colombia, et cetera, and weight them in terms of present dollars, can you tell me what that would have been worth?

Governor PARFITT. Not in present dollars, sir. The actual unrecovered investment, as I indicated, is $752 million. That is in historic dollars.

Senator HATCH. To categorize this as a matter of a few million dollars cost to the United States to operate the canal would be somewhat misleading and probably unenlightening. It has cost us many hundreds of millions of dollars to have the canal. If you count the present value of what that money was-the present value of the moneys that were spent then would be several hundred millions of dollars.

Governor PARFITT. Yes, in fact as indicated in my testimony, if you took the actual acquisition cost of all of our in-use property plant and equipment, which is about $855 million, and inflate it as you suggested, it would come to about $3.5 billion.

Senator HATCH. That is a lot of money. Governor PARFITT. Yes, sir. Senator Hatch. What percentage—we are paying a little over $2 million a year now in annuity payments to the Government of Panama. What percentage of the total income for the Government of Panama is that payment; do you know?

Governor PARFITT. That in itself is very small. I think you may be alluding to the fact that quite apart from the direct annuity payment there is an inflow to the Panamanian Government annually, or to the economy of Panama, not to the government, of somewhere between $240 million and $250 million annually.

Senator Hatch. In other words, if this canal was not there, what major industries in Panama would keep that country alive and well economically?

Governor Parfitt. Well, certainly it can be said that the presence of the Panama Canal has infused much money into the Panamanian economy, and is responsible for the high standard of living in that part of Central America.

Senator HATCH. Some people have said that the canal is almost obsolete anyway, and by the year 2000 it would have to be either totally rebuilt or revamped. Do you agree with that opinion ?

Governor PARFITT. No; I do not believe so. At the current moment our estimates would indicate that up through the turn of the century there will be adequate capacity in the canal--at least until the end of the century—to take care of all of the tonnage that is projected for passage across the Isthmus.

Senator Hatch. If we have the sea-level canal or the proposed system of the new locks, we could keep the canal pretty well modernized well into the 21st century?

Governor PARFITT. Yes, sir.

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