But the State Department had allies in the Defense Department, officials from both recounted. Among them were Deputy Secretary William P. Clements Jr. and Robert F. Ellsworth, the Assistant Secretary for International Security Affairs.

As complaints from the Panamanian Government of Gen. Omar Torrijos Herrera mounted about the lengthening pause in negotiations, Mr. Kissinger convened a meeting of the National Security Council in July.

"Defense was not leaned on," Mr. Kissinger recently recalled. "Before that they just didn't have a position."

Directive From Ford

But it took a second National Security Council meeting Aug. 9 and a directive from President Ford the same day to all the agencies concerned to break the Pentagon deadlock, participants related.

"We were asked to go back and scrub our arguments very hard and to be as forthcoming as we could be," a defense official said. "We found a little more give."

As a result, the Administration was able to work out a compromise on the critical question of treaty duration.

The compromise envisions transfer of canal operations to Panama by the year 2000 but United States defense of the canal for about 40 years.

In addition, an Administration official said, the Pentagon won concurrence for its demand that the new treaty provide for negotiation of a future bases agreement with Panama permitting the United States to continue participating in the defense of the canal.

Agreement on this negotiating position permitted Ambassador Bunker to resume treaty talks with the Panamanian Government on Sept. 8. According to a State Department official, the talks have gone "pretty well."

Mr. METCALFE. Our next witnesses are the members of the National Maritime Union of America.

Will you please identify yourself, gentlemen, for the record..

I

STATEMENT OF SHANNON J. WALL, PRESIDENT, NATIONAL MARITIME UNION, ACCOMPANIED BY RENE LIOEANJIE, REGIONAL REPRESENTATIVE OF NMU IN PANAMA; EDWARD GASKIN, BUSINESS AGENT, NMU, IN PANAMA; AND TALMAGE SIMPKINS, EXECUTIVE DIRECTOR, AFL-CIO MARITIME COMMITTEE

Mr. WALL. Yes, Mr. Chairman.

I am Shannon Wall, the President of the National Maritime Union.

I am accompanied here today by Mr. Rene Lioeanjie, who is general representative of the NMU in Panama; Mr. Edward Gaskin, who is business agent of the NMU in Panama, and Tal Simpkins, who is executive director of the AFL-CIO, Maritime Committee. Mr. METCALFE. All of whom are very well-known with us on the committee.

I appear here not only as President of the National Maritime Union, but also as chairman of the AFL-CIO Maritime committee. Off the record, Mr. Gaskin's father was one of the original builders of the Panama Canal, so he has a good deal of background and history to go along with his presentation.

We appreciate this opportunity to appear and to testify on the subject that is of major concern not only to our members in the Panama Canal Zone, but also to the seamen who man the Americanflag merchant marine vessels.

The reported losses for the past 2 years, plus the projections for this fiscal year, would indicate that the Panama Canal is in trouble unless something is done. There is not much that can be done about the drop-off of transits due to the slump in world commerce. But there are some things that can be done, and some things that should not be done, in the vital areas within our control.

The proposal to change the rate of pay of the nonmanual positions 4, 5, and 6 and the manual grade 10 from the U.S. pay base to the Canal Zone base, while it would, in effect, freeze these workers' pay for over the 10 years, is a crushing blow to their present morale and future aspirations.

We question where this proposal came from. We certainly doubt if it came from anyone in the zone who has a knowledge and an understanding of the problems which exist there. This attempt to make up for the financial deficit by taking from the workers creates more problems, by magnifying long-standing discriminations and bad feelings, than the dollars saved would solve.

The Caribbean wage scale-the historical forerunner of the present Canal Zone area wage scale-was established by the Isthmian Canal Commission around 1903 in order allegedly not to conflict with the economy of the surrounding Caribbean and Latin American countries from which local labor was being recruited by the U.S. Government.

When the U.S. Government entered the scene in that part of the world in 1903, there existed a completely different set of conditions than those that exist today.

In order to provide incentives for workers to brave the then-known health hazards of this area, U.S. officials, from the very outset, had to plan to provide for the total needs of its army of imported workers-United States and tropical labor alike. Armed with a treaty giving it wide powers, it is not surprising that the Canal Commission set up a miniature U.S. city government almost overnight in the zone with its own health department and hospitals, post offices, police force, schools, bakeries, storehouses, commissaries, clubhouses, playgrounds, et cetera.

Food was imported from the United States to maintain the essential needs of this work force. Thus, from the very outset there was established on the Canal Zone a basically North American and U.S. cost-of-living economy throughout the zone and the terminal cities of the Republic. It is to be noted that all employees-both United States and non-United States-were granted the right to purchase on the zone, regardless of residence, at identical prices. This was subsequently changed in 1957.

Today, a can of corned beef, which sells for $1.65 in a Canal Zone Commissary, 99 cents in Detroit, and $1.16 in Brooklyn, N.Y., sells in Panama City for $1.90. Premium gasoline sells throughout the Republic of Panama for at least $1 per gallon.

When viewed today from the economic standpoint-and this has been true for the past 50 years at least-the American dollar and the Panamanian "Balboa" are used interchangeably on the entire isthmian economic scene. The purchasing power or value of both is identical, and anyone familiar with the facts will agree that this

condition is not true of Costa Rica, Haiti, Colombia, San Salvador, Barbados, Jamaica, Trinidad, and many others of the surrounding countries.

It is vitally important to point out here that even though some non-U.S. citizens, who work on the Zone, were "drawn originally from neighboring Central American countries and the West Indies, the vast majority of non-U.S. citizen employees of the zone are Panamanian nationals. It is important to add here also that none of these employees live or fulfill their day-to-day needs in these so-called surrounding countries, where the cost-of-living is substantially lower than that prevailing on the Isthmus of Panama.

They, therefore, must reside on the zone or in the nearby cities of the Republic of Panama and must purchase all their basic commodities and household and personal goods in a predominantly North American economy at North American prices while receiving wages geared to a "Canal Zone Area" standard.

Canal Zone labor unions have long been of the opinion that the coverage of the Canal Zone workers under the U.S. minimum wage law in 1966 effectively underscored the inadequacy and indefensibility of any continued adherence to a dual wage philosophy in the zone. Whenever the argument is advanced that "this policy is in accord with the general policy of the United States in its overseas areas to establish prevailing local rates of pay and conditions of employment for local native employees," we hasten to point out that there are certain fundamental differences involved insofar as the Canal Zone is concerned.

We partly concede that in the instances of temporary bases established in Europe, Asia, and parts of the Western Hemisphere other than Panama—this policy may be construed as a relatively realistic one; but in the case of the Canal Zone, it must be remembered that this strip of land was leased-as widely proclaimed-in perpetuity. Unlike the shorter sojourns made by the Army and/or Navy in France, England, and other countries, the U.S. Government officially considered its tenure as of unusually long duration.

What we have here is a clear-cut compounding of an historical inequity being proposed and designed to achieve dubious economic savings at the expense of non-U.S. citizen employees, the vast majority of whom are between grades NM-1 through 6 and MG-1 through 10.

H.R. 12641, this legislation provides for the temporary deferment of payment to the Treasury on the net direct investment of the Government in the Panama Canal Company. As we understand it, this legislation would do three things:

First, the annual interest paid by the Panama Canal Company to the U.S. Treasury on the Government's net direct investment in the Canal would be reduced by an offsetting interest earning on the cash that the company has on deposit with the Treasury;

Second, interest payments on the government's investment would be paid to the extent earned; and

Third, the interest charges not earned would be added to the net direct investment of the Government in the Panama Canal Company. This differs from the current situation in that the Panama Canal

Company does not earn interest on the cash on deposit with the Treasury and when the income from tolls does not provide sufficient funds to make interest payment on the investment, tolls are to be increased.

This legislation is defined as temporary and we urge its enactment. The heavy burden of costs which the canal must bear can and should be lightened.

The canal, until 1973, bore its full cost burden, although even then some critics felt revenue that could be used for further improvements was being siphoned off to cover expenses that were arguably outside the range of reasonable responsibilities for those who benefit from the use of the passage.

Then the Suez Canal was reopened, the price of oil shot up, and world trade began slumping. Nothing else could happen but that transits would decline and revenues fall.

Can we allow the canal to become so expensive as to dry up its traffic and then perhaps like the eastern railroads of the United States have to be "bailed out" by some publicly sponsored and financed corporation? What benefit would that bring to anyone?

That does not seem a rational way, but an answer is at hand. The Canal Company simply must be relieved of some of its cost burdens. There are costs of the Canal Zone Government that, if not beyond the obligations of the users to support, certainly ought to be examined to see if these could not be dealt with in such a way as to avoid overburdening the costs of using this valuable artery.

Some $9 million of the Panama Canal Government's $23.5 million budget, paid by the Canal Company, goes to cover expenses of operating customs and immigration, postal service, police and fire protection, a judicial system and civil defense.

We do not expect our fire departments and police departments to pay their own costs. They perform essential services for the public and are supported in that vein.

We, therefore, suggest that these expenses be paid out of the General Treasury in the name of national defense.

"Self-sustaining" and "pay-as-you-go" are fine-sounding theories until the circumstances are examined.

The company, already hit by its first-ever deficit in fiscal 1973, was under the self-sustaining requirement, left little option but to raise tolls. This was done in 1974. However, conditions have changed little since certainly not for the better-and tolls have again been boosted by a change in the ship admeasurement system and Canal Company officials have left little doubt that another general increase is coming within the year.

The question now is: How can higher tolls really help when the higher tolls can be avoided by many carriers by using, not only the competing Suez Canal, but also the growing practice of moving international freight overland in landbridge and mini-bridge services?

The answer would seem to be that toll collections will not be helped and much like our experience with public transportation in the Nation's cities, costs rise, fares are increased, patronage falls off, revenues fall, fares are again hiked, and the cycle ends in financial collapse.

While we may not be verging on such a downward spiral with the canal, that possibility exists. Sea-Land Service, a big U.S.-flag user of the canal, has warned, in effect, that if tolls go up much more, it will cease using the canal. Other carriers are likely facing similar circumstances.

As an example of the effect of landbridge, the following is taken from a recent Seatrade publication study on "Soviet Shipping":

The Russian's ". trans-Siberian landbridge has creamed off cargoes from the shipping lines." The Russian landbridge “. has surpassed even the expectations of the Soviets, and its carriage of 70,000 containers in 1975 dwarfs the 30,000 container traffic predicted by consultants McKinsey & Co. back in 1969." The canal still has value. The defense of the country certainly still counts the quick passage for warships between the two oceans as a definite strategic and tactical advantage.

Commerce continues heavily dependent upon the canal, both our own and that of other nations. It would seem that the canal then retains commercial value as a useful, and hopefully competitive, means of moving this country's trade, and that of much of the world. Carriers have never objected to paying tolls to help support the canal. They do not now. Now, however, they are being forced to pay, in effect, through tolls, the original $380 million investment plus the value of the treaty rights and titles, now valued at close to $332 million.

The St. Lawrence Seaway was saved from a somewhat similar dilemma by being excused from having to pay interest to the Treasury on the U.S. Government's share of the development of that waterway-a joint United States-Canadian undertaking with far less commercial and strategic value.

Without bogging down in the details of falling transits and revenues, which the appropriate authorities will supply, or the legal requirements, it seems quite clear that a fundamental rethinking of handling this kind of publicly provided project with broad benefits is in order.

Gentlemen, this concludes our formal statement. We wish to add just certain informal thoughts if we may.

First we are here to offer our views on the financing of the canal enterprise and on H.R. 12641, our views and causes as seen by the NMU and possible solutions.

We submit our remarks have covered pretty well the outline of that intent.

NMU is made up of some 25,000 American seamen. We have some 6,000 to 7,000 canal workers, majority of whom are non-U.S. citizens. In fact, I think it is indisputable that we are the largest union in the Canal Zone.

We have been concerned about the operation of the canal for many years. We certainly have appreciation for the effort of Governor Parfitt during these difficult times.

NMU has had a presence in the Republic, in the Panama Canal Zone for 15 years. And I have made during that time at least annual visits, quite often more, over this period of time, I have often found that the various heads of the departments of the Canal Company have either been coming from or going to meetings in which projections of the operation of the canal for either a 5-year term or a