Hon. LEONOR K. SULLIVAN, THE GENERAL COUNSEL OF THE TREASURY, Chairman, Committee on Merchant Marine and Fisheries, House of Representatives. DEAR MADAM CHAIRMAN: Reference is made to your request for the views of this Department on H.R. 12641, "Providing for the temporary deferment of payment to the Treasury on the net direct investment of the Government in the Panama Canal Company." Section 62 of Title 2, Canal Zone Code, requires the Panama Canal Company to pay interest to the Treasury on the net direct investment of the Government in the Company at a rate or rates determined by the Secretary of the Treasury as required to reimburse the Treasury for its cost. Section 62 also provides that payments of interest charges shall be made annually to the extent earned and if not earned shall be made from subsequent earnings. H.R. 12641 would amend section 62 in two respects. The first amendment would provide that cash of the Company on deposit with the Treasury shall be subtracted from the net direct investment before computing the interest to be paid to Treasury. On July 15, 1975 the Company initiated, with the Department's concurrence, the use of interest offset for funds deposited with the Treasury. We understand that the General Accounting Office holds that legislation is necessary to continue this practice of interest offsets. The second amendment would provide that any deferred payments of interest shall be added to the net direct investment. The effect of this amendment is to make clear that any deferred payments shall bear interest. We would recommend two amendments to correct technical deficiencies and to conform the proposal to current Administration policy: (1) on lines 1 through 3 on page 2 delete "at a rate or rates determined by the Secretary of the Treasury as required to reimburse the Treasury for its cost." and insert "at a rate determined by the Secretary of the Treasury, taking into consideration the average market yield during the month preceding each fiscal year on outstanding marketable obligations of the United States of comparable maturities." (2) delete the last sentence on page 2 and insert "Interest payments may be deferred with the approval of the Secretary of the Treasury, but any interest payments so deferred shall themselves bear interest." These amendments would put the interest rate determination and interest deferral provisions on the same basis as those which apply to a large number of Federal agencies. The Congress applied a similar interest rate formula to borrowings by the Panama Canal Company from the Treasury in Public Law 93-607, approved January 2, 1975. In view of your request for the expedition of this report, it has not been possible to obtain the customary clearance by the Office of Management and Budget prior to its submission. Sincerely yours, RICHARD R. ALBRECHT, Mr. METCALFE. At this point in the record I would also like to have inserted a series of questions which the subcommittee has addressed to the Panama Canal Company and the General Accounting Office on the subject of the amendment to vessel measurement rules and the general finances of the Panama Canal, and the answers to those questions. If I can get unanimous consent to put these questions and answers in the record, I believe they will be particularly helpful to those who may be reading and analyzing our proceedings. Hearing no objection, the correspondence will be entered in the record at this point. [The information follows:] Hon. H. R. PARFITT, U. S. HOUSE OF REPRESENTATIVES, COMMITTEE ON MERCHANT MARINE AND FISHERIES, Governor, Canal Zone, Panama Canal Company, Washington, D.O. DEAR GOVERNOR PARFITT: The Panama Canal Subcommittee and its parent Committee on Merchant Marine and Fisheries are deeply concerned about the deteriorating financial position of the Panama Canal organization. Our concern has been manifested on several occasions and in several official documents. The most recent of those documents was the December 8, 1975, letter of Committee Members to the President of the United States. For those of us for whom the Panama Canal has been a special concern, the financial developments of the last three years as respects the Canal have been greatly disturbing. History shows that the greatly predominant source of Canal revenues has been transit tolls collected from Canal users. Because Canal users have always been attracted by the economy of Canal rates and the stability of those rates, the magnitude and rapidity of fee increases since 1974 threatens to give the users a negative rather than positive perception of the value of the Panama Canal. If the value of the Panama Canal is diminished in the views of its users, we may find that the successive increases in Canal fees of the last three years are counterproductive and possibly portend a situation which will ultimately terminate the role of the Canal as a major thoroughfare of international oceanic commerce. In short, it seems clear that this issue goes to the very root of the viable existence of the Panama Canal itself. The issue which we believe deserves our most immediate attention is, of course, the one which is now awaiting final disposition-the proposed measurement rules changes of the Canal organization. Serious questions have been raised about the possible adverse impact of these proposed changes on usage of the Canal by vessels of industrialized countries, particularly those of the United States. Other questions which have been intelligently raised include the rippling adverse economic impact of the rules changes on port activity and employment in the United States. It now seems possible that the depressing economic impact of the proposed rules could frustrate in part recovery from economic recession both in the United States and other countries in the industrialized world. The U.S. and world recession has, of course, been the major factor in the downturn of Panama Canal traffic, and recovery from this recession is a prerequisite to an increase in Canal revenues. Thus, preliminarily it would seem that the effects of the proposed rules changes could well be both counterproductive and injurious to the long-range financial position of the Canal. As a result of these concerns related to the measurement proposals, in Part I of the attached questions we request an analysis of the impact of the proposed measurement rules. We hope that, in answering our questions, you will contribute any supplementary information which may lead to better analysis of the subject factors. We are very much aware that the Report of the Panama Canal Company's Panel on Measurement Rules, dated November 6, 1975, did examine many of the questions that are addressed in Part I. We do not believe that Report was intended to be nor was it in fact explicit enough to fully answer the claims of the parties at issue. Notwithstanding the probing analysis of the impact of the measurement rules which we expect to result from this inquiry, we are aware that the debate over the measurement rules changes is not likely, in and of itself, to produce solutions to the overriding problems involved in financing the Canal enterprise. Only a thorough analysis of the Canal organization's total financial position could lead toward that. Thus, in Part II of the attachment we attempt to ask questions which will lead to an in-depth analysis of the problems and prospects involved in the financing of the Canal. Our questions are not designed to usurp the daily administration of the Canal organization, which is the obligation of the Company/Government, but rather to fulfill the responsibilities of our bodies in overseeing the Canal operation and studying what is probably its most serious problem today. Against the background of information on Canal finances Part III of the attachment is aimed at finding a feasible solution to the financial problems defined in the answers to Part II. The many alternative propositions presented in Part III constitute some of the chief suggestions made by persons inside and outside the Government for improvement of the Canal's financial position. The inclusion of these propositions in Part III does not indicate in any way our endorsement of any of them or any suggestions that the particular proposition be adopted. Our sole desire is that the wisdom of each of these propositions be assessed according to the criteria stated in Part II in order that we in Congress may attempt to help resolve the Canal's problems with all needed information at hand. Despite the number of questions which we have asked, there will undoubtedly be important information which may not have been raised by the questions. We hope you will be able to furnish this kind of information where you feel it appropriate in your response. All information gathered by this inquiry will, of course, serve as the basis for further Committee/Subcommittee study of the Canal's financial position. We are aware that the information requested in all three Parts of the attachment necessitates extensive and time-consuming research. It is our supposition, however, that nearly all of the basic data needed to respond to our inquiry has been collected in the process of recommending the measurement rules change, of studying toll sensitivity, and of measuring Canal value. It is not our desire that the Panama Canal organization, at an obvious time in Canal history for financial austerity, spend large sums of money to provide answers to this inquiry. We do believe that the Canal organization has adequate resources to answer the questions, and we would like to be so informed if that is not the case. Should the information provided us by the anal organization and the General Accounting Office (in response to another letter) prove insufficient for our purposes, then we shall not hesitate to pursue other paths to obtain it. Inasmuch as the proposed measurement rules are now awaiting Presidential action and because the Panama Canal needs immediate relief and changes, we hope to receive a reply as quickly as possible. Sincerely, LEONOR K. (MRS. JOHN B.) SULLIVAN, RALPH H. METCALFE, Chairman. Chairman, Subcommittee on the Panama Canal. Attachments: Parts I, II and III-Questions. PART I. ANALYSIS OF THE IMPACT AND EQUITY OF PROPOSED RULES FOR THE MEASUREMENT OF VESSELS From the inception of the proposal to change Canal measurement rules, there has been a good deal of discussion and debate as to their equity as between Canal users and their potential impact. It is our desire to obtain from the Canal organization a thoroughly scientific and complete exposition of the probable impact and equity of the proposed rules. Specific data can tell us not only more precisely where the costs and benefits of these measurement proposals are likely to accrue but why users of the Canal look upon the proposed rules as they do. In analyzing the factors which will determine the rules impact, we are especially interested in the impact of the factors and the aggregate of the measurement rules on the following: (1) vessels on those trade routes which provide a large amount of Canal transits; (2) vessels of the flags of registry of nations which make up a large part of Canal traffic (such as the United Kingdom, the United States, Greece, and Japan); (3) the various types of vessels which transit the Canal; (4) the major commodities and categories of commodities carried as cargo by vessels which transit the Canal. For each of these four divisions, we hope that you would be able to provide information related to at least the largest five fractions in each division; that is, the five trade routes which provide the greatest number of Canal transits, the five chief commodities which are Canal cargo, and so on. If information on a wider group in each category can be assembled at little more effort, then the wider range of information would be appreciated. We hope that you will be able to utilize all the statistical and scientific tools which can provide explicit responses to our questions, including statistical estimates of probability, correlation, and regression, where appropriate. We also hope that all the standard economic concepts related to costs and benefits would be applied and that the conclusions derived from them made clear so that one does not necessarily have to be an economist to understand the organization's report. In the analysis of the impact of the measurement rules it would be desirable if the total aggregate effect of the rules could be assayed and then the effect of the deck cargo provision of the rules could be listed as a separate figure/ statement. The information which it is of the utmost importance for the Committee and Subcommittee to have is as follows: [The following are the questions of the Committee continued in Section I and the responses to them by the Panama Canal Company:] Part I ANALYSIS OF THE IMPACT AND EQUITY OF PROPOSED VESSEL MEASUREMENT RULES OF THE PANAMA CANAL COMPANY (Editorial Note: In reading data submitted by the Panama Canal Company in response to questions on the impact and equity of proposed measurement rules, it should be noted that the President approved the proposed rules with the exception of the proposal to assess deck cargo. Thus, most of the data presented in Section I of the Company's response include the deck cargo provision in the calculations, and as such, it should be remembered in these cases that the effect cited in the responses concerning the proposed rules is not the effect of the rules as put into effect.) (1) What impact will the proposed rules changes have on vessels on those trade routes which provide a large amount of Canal transits? The impact of the measurement rules on "vessels on those trade routes which provide a large amount of Canal transits" is shown in Table 1. The aggregate effect of all rules changes falls most heavily on the most important Panama Canal trade route, East Coast United States/Asia. The greatest impact of the "on deck cargo rule” is also on the East Coast US/Asia route. General cargo Refrigerated cargo Bulk carriers TABLE 1.-IMPACT ON VESSEL TYPE BY TRADE ROUTES OF PROPOSED AMENDMENTS TO MEASUREMENT RULES, FISCAL YEAR 1975 Impact of Impact of Impact of rule change (thousands) |