With respect to the relative importance of facilities, we view each of the activities conducted by the Company/Government and its related facilities as being interrelated and interdependent and as contributory to the effectiveness of overall operation of the canal. We would hope that all agree that the Panama Canal has traditionally maintained a very high level of effectiveness. The absence of any one of the activities has the potential to diminish that effectiveness to some degree, with cumulative losses eventually reaching a point of ineffectiveness.

Some facilities are so basic as to be considered vital to the operation of the canal. The anchorages, breakwaters, channels and harbors, the three sets of locks, dams, navigational aids, power stations, tugs and dredges are examples of vital areas and facilities. The canal, of course, cannot operate without personnel and in order to retain a skilled and professional work force, appropriate facilities must be available to house them in a secure and quality environment and to provide them with sufficient supporting services.

I believe we must not only consider facilities and activities each of which contribute in its own way on a selective, individual basis, but note that the cumulative effect of these facilities on canal operations needs also to be weighed.

With respect to geographical land requirements, and I am speaking only to operations and not to defense, the relinquishment to Panama of certain portions of the existing Canal Zone now would have little or no impact on effectiveness of operations, in fact I see practical advantage in relinquishment of jurisdictional responsibility over certain areas, examples being Gavilan Point, Shaler Triangle, and Fourth of July Avenue on the Pacific side. In others, I see practical advantages to Panama without commensurate disadvantages to canal operations: for example, the France Field parcel on the Atlantic side.

Therefore, under a new treaty relationship the present canal operating area could be reduced in size provided we were to retain sufficient lands and waters to accommodate canal operations and supporting activities.

In dealing with any transfer of facilities it is my view that they should be considered on a case-by-case basis against the following criteria: First, that as a minimum this agency's standards of quality, reliability and cost be met; second, in appropriate cases, that services to be provided this agency be made available on a priority basis; third, that the transfer not compromise our capability to respond to emergency situations involving the canal or its supporting facilities and personnel; and fourth, that any such transfers not seriously impair our ability to retain a stable and yet skilled and professional workforce.

With respect to environmental controls, the Canal Zone today is a very healthy place to live, but this is true only because of the extraordinary efforts of the United States starting with our highly successful disease eradication program just prior to actual canal construction and continuing through the present time.

I consider it indispensable to continue to maintain this high environmental standard in the operation of potable water and sewerage

systems, refuse disposal, control of food and beverage quality, control of mosquitos, pest insects, bats and rodents, air and water quality monitoring, and pesticide control.

In my judgment it is also essential that controls be maintained over the Chargers River watershed and the area in the vicinity of Gaillard Cut. Programs such as the Gaillard Cut bank stability program are necessary environmental measures which must be continued in order to assure that the waterway remains open and safe for shipping.

Speaking to the question concerning transfer of employee services, any diminution of employee services would incur opposition from our employees. As I mentioned earlier, the retention of a skilled and professional workforce is an essential ingredient of an effective canal operation.

It follows, therefore, that the absence of any one of the existing employee service activities would in some way adversely affect our employees and the cumulative losses could be serious enough to erode the workforce.

In my judgment, then, proposals related to the transfer of employee related services should be evaluated with the same care as would be applied to the transfer of any operational activities. An additional very important factor, equally applicable to the transfer of any activity, would be the need for special provisions in order to ameliorate any adverse impact on those employed in the transferred service.

In fiscal year 1977, gross costs estimated for all logistical services provided are $184 million. A comparable cost figure for similar services which might be obtained from Panamanian sources cannot be determined with the possible exceptions of water, power, and telephone service.

I have, in the record here, provided comparative data which show that costs to users would be significantly higher if standard Panama rates were to be substituted for existing Canal Zone rates on water, power, and telephone service.

Each of our three public utility systems are interconnected with Panama's in some fashion. In a purely technical sense, therefore, it may well be feasible to integrate the respective systems. Recognizing, however, that utilities impact directly on our ability to sustain operations and as such are facilities vital to the canal, consideration of further integration of these systems should be subject to the criteria emphasized throughout my testimony; that is, quality, reliability and cost, priority for canal requirements, impact on employees, and emergency preparedness.

Mr. Chairman, I have tried to forthrightly address the questions set forth in your letter and I very sincerely hope the information I have provided will be helpful toward the purpose of these hearings. Should the committee desire additional data concerning my testimony I would be pleased to furnish it.

This concludes my statement.

Senator ALLEN. Thank you very much, Governor Parfitt, for a very fine statement.

Senator Scott, the senior minority member of the subcommittee, was recently in Panama on a factfinding mission, where he was able to talk with Governor Parfitt.

I am going to ask you to start the questioning if you will, Senator Scott.

Senator SCOTT. Thank you, Mr. Chairman.

Let me first welcome the Governor to our committee. Certainly you extended every courtesy to me and to those with me on our visit to the Canal Zone. We are grateful to you for this. We appreciated the candor that you and your associates showed in sharing your views in an informal manner regarding the matters relating to the canal and to its future.

You know, as our Chairman has indicated, that the Judiciary Committee as well as the Armed Services Committee has an interest in this matter. In fact, I believe that all of the Members of the Senate and perhaps the American people have an interest in the future of the canal.

I would ask you, if you will, in responding to these questions to give your personal opinion on the matters that I am going to present to you. I know that you are the executive head of the entire Canal Zone and Governor of the Canal Zone and that you are in overall charge of the operation of the canal. You also are President of the Panama Railroad, but you are a Major General in the U.S. Army. I would think that that would play a part in the views that you would express to this committee.

as

I just hope that you will share your personal thoughts as candidly you did in an informal way a few weeks ago.

I understand from a conversation during our recent visit that the United States not only acquired rights in the canal by virtue of the 1903 Treaty with Panama, but our Government also purchased title to the property that was held in private ownership and paid the private citizens the market value for this property. Is this your understanding?

Governor PARFITT. That is correct, sir. Approximately $4 million was spent in that fashion.

Senator SCOTT. Four million dollars to private owners?
Governor PARFITT. Yes, sir.

Senator SCOTT. In 1903.

Has the State Department, Governor, solicited your views on the question of whether or not we should transfer title or control of the canal to Panama? I heard your previous remarks, but on the basic question as to whether we should transfer title or control of the canal to Panama, have your views been solicited?

Governor PARFITT. I have to qualify my answer to that question, sir. My responses to inquiries and questions concerning the treaty stem from the starting point of the Principles of Agreement, the socalled "Tack-Kissinger" agreement. Since that was consummated and agreed upon before my assignment as Governor, and since that is an executive agreement, that is a premise upon which I submit my advice concerning the treaty negotiations.

Within that framework I have responded, from the point of view of the operator, to the negotiator, as to what I deem to be the essential needs in terms of control to insure continued effective operation of the Panama Canal.

Senator SCOTT. Let me go back to the basic question, General. Has the State Department asked you whether or not in your judgment we should transfer title or control of the Panama Canal to the country of Panama?

Governor PARFITT. They have asked me in general terms about my view of the impact on the operation of some of the initiatives that they are proposing, which involve transfer of title and in some cases ownership and control.

I have responded, in a classified mode, with my point of view on this issue. It varies with different facilities and different parcels of land and so forth.

Senator SCOTT. On the wisdom-the judgment factor of whether or not we should transfer the title or control of the Canal to the country of Panama, have your views been solicited on that general question? Governor PARFITT. That is correct, sir.

Senator SCOTT. They have been solicited on whether or not we should transfer title to the Canal Zone to the country of Panama?

Governor PARFITT. I really have a hangup on the word "title," sir. They have queried me on the degree of control that is essential for the operator in operating the Panama Canal.

Senator SCOTT. General, what I am trying to get at is the overall treaty. As I understand what you are saying to us, on various portions and various matters-and I do not know what the questions have been, maybe personnel matters or something like this on the basic matter that I believe we are concerned with, which is whether or not this should be done the overall transfer of the Canal from the United States Government to the Government of Panama-have they solicited your opinion on this overall? Have they said, "Should we do this or not do it?" I am talking about the overall question.

Governor PARFITT. I must go back again, sir, to the fact that the Principles of Agreement, which were signed in 1974, established the concept that the Executive would undertake to consummate an agreement with Panama which canceled the 1903 Treaty, which transferred sovereignty to Panama, which ended perpetuity, and which transferred jurisdiction promptly to Panama. All of these things were matters consummated before my entry on the scene. Therefore, no questions have been asked me in this regard.

The questions posed to me have been, using as a premise the TackKissinger Agreement, how should we consummate and flesh out a treaty and what would the impact be on the operator or on the operational capability?

Senator SCOTT. If I interpret your answer correctly, on the overall question as to whether or not this would be a wise thing to do, you are saying no, it is not.

Governor PARFITT. That is correct.

Senator SCOTT. Thank you.

We would like to have your personal opinion, your opinion as an individual, as someone who is familiar with Panama and the surrounding areas, as someone who has worked there, and as someone who has been a military officer for a number of years on a number of questions. In your opinion, General, would the Panamanians maintain the canal at the level that it has been maintained by the United States? Would their standards be as high in the maintenance of the canal as the United States?

Governor PARFITT. I foresee serious problems there. Certainly it would take a considerable amount of training between now and the turnover of the canal to Panama to bring them up to the state of effectiveness that we now have.

Certainly that is envisioned in the treaty that is underway. There would be a transition period during which we would train and upgrade technicians, particularly.

Senator SCOTT. You are saying that the present employees would train the Panamanians, some of the present employees being Panamanians and some being American citizens?

Governor PARFITT. The concept would be that the numbers of Americans who are in highly skilled positions would, over a period of time, be replaced by Panamanians who were selected and trained to perform those skills.

It is conceived that over time this could be accomplished.

Senator SCOTT. You are saying that the management employees would have greater difficulty. The Panamanians would have greater difficulty as far as management employees are concerned?

Governor PARFITT. No, I think that their biggest difficulty would be in the area of technical skills, such as pilots and highly skilled electricians and mechanical experts-those sorts of people. Additionally, in the management area the problems arise from the fact that a small country such as Panama would have competing needs. Therefore, moneys that are generated through a canal operation would not necessarily be made available to the operator. At least there would be tendencies to make them available for other competing needs. We do not have that problem today, since the canal enterprise is self-sustaining and permitted to use the money generated for replacements and addition and for maintenance. There would be a very real problem for Panama to face up to the hard question of how funds generated would be utilized.

POPULATION OF CANAL ZONE

Senator SCOTT. As I understood you a few mintues ago you said that the Canal Zone had a population of 37,000 people. How many of these are permanent residents of the Canal Zone?

Governor PARFITT. All are permanent residents, sir.

Senator SCOTT. Do they all work for the Canal?

Governor PARFITT. No, approximately 10,000 of those are Canal Zone Enterprise employees and their families; U.S. citizens. Approximately 4,000 are non-U.S. citizen employees and their families. The remainder are primarily military and their families and dependents.

Senator SCOTT. I was told that an employee of the canal-an American employee-when he retired, he could no longer live in the Canal Zone. Is this an accurate statement?

Governor PARFITT. That is correct, sir. Nobody can live in the Canal Zone unless he is employed or a dependent of one who is employed. Senator SCOTT. That is really what I was getting at, and I appreciate it.

You mentioned resignations in recent years. Would that, in your judgment, be tied to the proposed treaty?

Governor PARFITT. Yes. I believe it is definitely tied to the treaty and corollary actions related to the treaty. The apprehensions that the treaty raised has motivated a movement of individuals to seek employment elsewhere.