fees. We are not going to send an aircraft carrier down there if they raise the fees 10 cents beyond what the shipping companies can pay. If they continue to escalate that, 10 cents on 10 cents on 10 cents, believe me we can stop that canal. We can make it cost-ineffective for Americans to go through there and we can create a problem where today we have none. We have nothing to be embarrassed about on that

score.

ISSUE OF U.S. FAIRNESS

My colleague who preceded me said we have to pass the litmus test of fairness. That is nonsense. We have passed the acid test of fairness to the world many times. We have evaluated the areas. We have given up the Bonin Islands, we have attempted to develop all of South America with the so-called Alliance for Progress which turned out to be neither. So, the problem with this is that we set a standard by this treaty and all we have to have is two 5 to 4 decisions against Panama and they will be right back in the United Nations or someplace claiming that we are ripping them off again. They will be there in the name of liberty and human rights and all the other kinds of things that appear to be a little bit anachronistic in this overall environment.

The United States has never tried to cut a fat hog in this canal. We have always tried to run it with fairness, albeit with some problems of race which we are now trying to solve.

PROSPECT OF TOLLS INCREASES

In answer to the prospect of tolls increases it has been said that the Panama Canal can withstand the initial tolls increase of 40 percent as well as subsequent increases that will be necessary under the proposed treaty. I do not agree with this. In the short run of a year or so you may not lose much traffic tonnage, but the long-range effect of the initial increase could be a loss of up to 50 million tons from the initial increase. That kind of loss will mean sooner or later we will be subsidizing the canal because we must have it in good working condition for our naval vessels in the future even if much of the commercial traffic has been diverted.

PANAMA CANAL COMMISSION STRUCTURE

One of the aspects of the Panama Canal Treaty which bothers me is the structure of the Panama Canal Commission. The five to four program going our way and then possibly in ten years going the other way in favor of Panama, and they change the administrators at the end of 12 years, I do not think is in our interest. I think we can have an equal partnership down there. The way this document is programmed where we have to hire Panamanians for all of the new jobs I suspect we have to give them an opportunity to escalate up in the system, but if they have to hire exclusively Panamanians when they are available to do the work this means that we will be hiring almost exclusively Panamanians from here on out. We have a provision that people that are hired from the States must revolve in a 5-year period of time. You are not going to be able to get people to go down there that will be revolving in a 5-year period of time.

PANAMANIAN PEOPLE, LATIN AMERICAN TREATY SUPPORT

Under the terms of article III of the treaty, it is clear that the Government of Panama will determine which Panamanians will sit on the Commission. We have already talked about that problem. I do want to talk about some of the other issues. In my testimony I mention everybody in Panama is not for this treaty. We have talked to lots of people down there. I have not been down there recently myself but there are lots of groups that do not support the proposed document. Colombia and the other adjacent countries should not support the document because this does not guarantee to them what they have had in the past, free passage. This gives Panama discretion to determine whether Colombia will have free passage and when they won't.

We are looking down the nose at confrontation between Panama and the former owner.

Senator SARBANES. Did you assert that Colombia did not support the treaty?

Mr. LEGGETT. What I asserted was that it is not in the interest of Colombia to support the treaty because they have guaranteed free passage under the existing operations by the United States. In the proposed treaty document it says that Colombia may be given special consideration as far as tolls go by the Republic of Panama at a later time.

Senator SARBANES. That is your view. You are not asserting what you understood to be the view of the Colombian Government.? Mr. LEGGETT. No; I am not.

ENVIRONMENTAL IMPACT STATEMENT REQUIREMENTS

Irrespective of the other issues raised by the proposed Panama Canal treaties, there is one issue which must not be ignored in the deliberations on these agreements. This issue concerns the National Environmental Policy Act's requirement for an environmental impact statement for all "proposals for legislation and other major Federal action significantly affecting the quality of the human_environment."

We have had this exact issue down there in Panama on whether or not we could use funds in the Darien Gap on the Isthmus of Panama to further the construction of the Pan-American Highway. That went to the District of Columbia court. They determined that they failed to comply with NEPA, and they threw out the contemplated action by the Government in building the highway.

The very fact that the administration and treaty proponents have cited the need for a new treaty relationship in order to improve the operating environment for the canal is reason enough to reference the importance of a good impact statement. Personally, I see the environmental impact statement raising both a hazard and an opportunity in the context of the deliberations of the committee.

As you know, the purpose of an environmental impact statement is to insure that the effects of major Federal actions on the human environment are considered in the formulation of policy for such actions. Unfortunately all evidence indicates that the effects of the treaties on the human environment were given no formal consideration under NEPA by the administration in the negotiation of the proposed canal

treaties. Surely the negotiators for the United States and Panama must have been constantly aware of the political ramifications of their decision, but in no event were the environmental ramifications of the treaties formally considered at the appropriate time.

According to the governing laws and regulations, a draft environmental impact statement should have been prepared when negotiations were reinitiated with Panama in 1971 or 1973. A final environmental impact statement should have been prepared and filed with the Council on Environmental Quality 30 days before the signing of the treaties on September 7. Neither of these requirements were fulfilled. It is clear that the executive branch has been acting in violation of NEPA and NEPA inspired regulation to this point in time.

The Department of State's attention to these requirements may be improving. However, the deadline for comments on the draft impact statement issued a week before the treaty ceremonies has been extended. Hopefully a final adequate impact statement will be available in the future.

I stress the need for an adequate final environmental impact statement because it is possible that the courts, should they find the requirements for environmental consideration lacking, might enjoin implementation of the treaties or their effectuation upon ratification. It would be unfair to Panama and its people as well as the people of our own country to debate or pass upon a treaty which would possibly be laid aside by the courts. It would be insensitive and destructive of good relations to raise expectations and then have them dashed.

I urge the committee to exhort the Department of State to prepare the best impact statement possible. I believe that the only adequate statement would be one that properly addresses all aspects of the treaties, including employment conditions, water quality and pollution considerations, sea level canal effects, the inspection of transiting vessels, and so on. If the Department of State knew the Senate would not consider the proposed treaties until a proper assessment has been completed, that would increase their attention to the task.

The environmental impact statement in connection with the treaties need not take on the hue of just an onerous obligation because the courts could be involved. It can be one of the most useful tools available to the Committee on Foreign Relations to assess the real impact of a new treaty on the isthmus. Detractors of the treaties have said that the presentation of the agreements has been rife with hypocrisy and deceit. Since an adequate statement must be credible and take into account all relevant input, the impact statement requirement can stand as one test of the sincerity of the presentation. If those groups which are knowledgeable of the situation on the isthmus will contribute their most puissant observations and if the Department of State makes a good faith effort to write a responsible impact statement, then the committee and the Senate will have available to it a body of knowledge which only months of hearings could have otherwise accumulated.

I have a number of documents which will be provided to the committee in due course. I will be pleased to respond to any questions you have.

[Representative Leggett's prepared statement follows:]

PREPARED STATEMENT OF THE HONORABLE ROBERT L. LEGGETT

As a Member of Congress concerned about this nation's posture in the world, I have been a serious student of U.S.-Panamanian relations for several years. I served as Chairman of the House Panama Canal Subcommittee during the 93rd Congress, and have been the Ranking Majority Member of the Subcommittee subsequent to that Congress. I have conducted several inspection visits of the Canal Zone since 1973, and have had occasion to discuss the Panama Canal issue with high officials of the Republic of Panama as well as individual Panamanians.

During the time I have been conversant with Canal affairs, I have tried to serve as a catalyst for new thinking and needed change in U.S. operations of the Panama Canal and Canal Zone. For example, I pushed for an end to the vestiges of discrimination which have been badges of colonialism for the U.S. in Panama. I supported the first necessary tolls increases. Finally, the knowledge that I gained convinced me of the need for serious negotiations between the U.S. and Panama respecting Canal matters.

As an indication of my support for serious negotiations I point out my efforts in the House in 1975 and 1976 to defeat the so-called Snyder amendments to discontinue funding of the treaty negotiations. When I spoke in the House Chamber in those years in opposition to the Snyder Amendment, I colored my support for negotiations with a warning that a treaty negotiated strictly under the "8 Points" as signed by Secretary Kissinger in 1974 would not be acceptable to me or many other Members of Congress. I also stated that I was supportive of negotiations but should there be negotiated a treaty arrangement with Panama that did not adequately protect legitimate U.S. interests, I would come before the Senate Foreign Relations Committee and so indicate.

In my judgment the proposed treaties do not adequately protect U.S. interests. They do not provide the United States with adequate power to restrain Panama's desire to use the Canal to promote its own economic ends. They do not contain in any depth provisions to protect U.S. security interests. They do not provide for a continuing U.S. role in the Canal's management, and they are especially irritating in that they really foreclose without necessity the opportunity for the U.S. to have a presence after the year 2000. These are some of the problems with the two treaties and their implementing documents.

So I appear here today as a self-styled representative of a number of persons in the U.S. who are qualified to speak on the subject of U.S.-Latin American relations and who believe we should have a new treaty with Panama but not these pacts that have been negotiated. As the public becomes more educated with respect to the Panama Canal, I expect the numbers in this group to expand. The toll levels and structure of the Panama Canal are the financial mechanisms by which that waterway either lives or dies. The attractive rates under which the Canal has operated for more than 60 years have benefited the shipping industry, Canal employees, Panama's economy, and consumers worldwide. Consumers and producers in the United States have in the aggregate a larger interest and have especially benefited by the Canal's toll rates because one-third of all the ports of origin and destination in connection with Canal transits are U.S. ports. Japan and many Latin American countries also greatly benefit from moderate stable toll rates.

There is every indication that reasonable tolls essential to the Canal will end under the proposed Panama Canal Treaty. This appears certain as a result of several factors: the reprehensible indexing provision in Article XIII for royalties; the policy likely to emerge from repeated references made by many Panamanian officials to the need for increases in tolls in the hundreds of percents; the Panamanian Government's desperate need for cash flow; and the comparative uneconomical structure of the new Panama Canal Commission. I will handle these four factors in reverse order.

Because the present Panama Canal operation involves hundreds of separate special operations, and because it produces for itself many of the items it uses, the Canal enterprise has certain similarities to the U.S. multinational corporation-that is, the pricing policies will allow it to value the products it produces at a cost lower than that of the outside competitive market. If the proposed treaties are ratified and the Panama Canal Commission loses many of those

ancillary services the Canal Company now runs, you will find an increase in the cost of some of the individual items to be purchased for the Canal.

Additionally, you will have a net loss of funds because some of the profitable ancillary activities now run by the Canal Company will be transferred to Panama..

There also may be a slight increase in overhead costs for the Canal operation because some of the supervision interrelated with the Canal now done by the Canal Zone Government will have to continue under the new treaty arrangement. Clearly, there will be financial difficulties associated with setting up the new Panama Canal Commission, especially during the thirty-month transition period. So you would think that the Panama Canal Treaty would seek to unburden the Canal Commission of more financial commitments. Of course, this is not the case and the money out of Canal tolls to Panama will go from $519,000 to almost $60 to $70 million immediately. One reason for this, I believe, is the fact that without immediate additional revenues, the Panamanian Government will have to roll-over more of or reschedule some of its debts.

The economic compensation package in the negotiated Panama Canal Treaty underscores the tendency of Panama to turn toward the Canal to solve its financial problems. With Panama's debt service now approaching 39 percent of its national budget, the Canal is seen as the lever for prosperity. Will Panama turn to the Canal again under the new proposed treaty to meet its debt obligations or finance politically popular projects? In my judgment it will, which is the reason we need more tolls protection.

There is a tendency with some sectors in Panama to blame the Canal for all of Panama's problems. There is a belief that there is some sort of infinite wealth there, which of course is incorrect. Unfortunately, some Administration officials now seem to be buying this same argument. Mr. Solomon, for example, in his prepared statement for this Committee, indicated that a "major cause of Panama's economic slowdown (in the 1970's) was the uncertainty over the future of the Canal." The thrust of this statement does not stand up against the facts. According to a report of the U.S. Embassy in Panama in 1976, high cost output and lack of private investment opportunities are the chief reasons for Panama's economic troubles. "Uncertainty", per se, over the Canal is not even mentioned by the Embassy as a problem for the Panamanian economy.

The initial factor I mentioned with respect to tolls policy was the indexing factor. It is difficult for me to understand why the U.S. negotiators accepted in Article XIII this idea of indexed royalties for Panama on Canal tonnage rather making Panama subject to same kind of risk-taking to which the U.S. is subjected in operating this waterway. We face the unsettling prospect under the Panama Canal Treaty of the U.S. taxpayer being forced to subsidize the Canal in the event that tolls revenues are decreasing and our payment to Panama increasing at the same time. Furthermore, the inflationary index provision is a terrible international precedent for the U.S. if, as the Administration says, the whole world is watching the Canal Treaty fight.

In answer to the prospect of tolls increases, it has been said that the Panama Canal can withstand the initial tolls increase of 40 percent as well as subsequent increases that will be necessary under the proposed treaty. I do not agree with this. In the short run of a year or so you may not lose much traffic tonnage, but the long-range effect of the initial increase could be a loss of up to 50 million tons from the initial increase. That kind of loss will mean sooner or later we will be subsidizing the Canal because we must have it in good working condition for our naval vessels in the future even if much of the commercial traffic has been diverted.

One of the aspects of the Panama Canal Treaty which bothers me is the structure of the Panama Canal Commission. The five United States and four Panamanian Commissioners who sit to oversee Commission operations will have an enormous amount of power and I wonder who will balance that power.

The Congress of the United States, the present legislature for the Canal Zone, will have to implement the Panama Canal Treaty if it is ratified and will continue to affect Canal affairs. But the existence of executive agreements to carry out the purposes of the Treaty will take a considerable amount of authority from the Congress with respect to Canal operations and U.S. Isthmian military operations. That authority will instead be with the Panama Canal Commission and the Combined Board for defense.