The Panama Canal Commission is to be supervised by a nine-member Board, the membership of which is to be comprised of five nationals of the United States and four nationals of Panama."

The United States is to employ a national of the United States as Administrator of the Commission and a Panamanian national as Deputy Administrator through December, 1989. After that date the Administrator is to be a Panamanian and the Deputy Administrator a United States national.1

On the effective date of the treaty, "the United States Government agencies known as the Panama Canal Company and the Canal Zone Government shall cease to operate within the territory of the Republic of Panama that formerly constituted the Canal Zone."

99 82

Other than to specify the name of the agency to be established to operate the canal, and to provide for Panamanian participation in the supervisory Board and appointment of a national of Panama, first as the Deputy Administrator and later as Administrator, the treaty leaves the form of the agency and the description of its powers entirely to the laws of the United States.

The laws of the United States governing the funding and fiscal obligations of government agencies generally are summarized in Part IV of this memorandum, and the application of those laws to the various agencies presently involved in the administration of the Panama Canal is described in Part V.

B. Payments to Panama

Article III of the treaty provides that "the Panama Canal Commission shall reimburse the Republic of Panama" in the amount of $10 million per annum for certain described services in canal operating areas and housing areas presently provided in the Canal Zone by the Panama Canal Company and Canal Zone Government. Provision is made for adjustment of the amount of the payment in three years for inflation and "other relevant factors affecting the cost of such services." 88

Article XIII of the treaty provides that:

The United States of America transfers, without charge, to the Republic of Panama all right, title, and interest the United States of America may have with respect to all real property, including non-removable improvements in the present Canal Zone, on a time schedule set out in the Article.

84

The Republic of Panama shall receive "from the Panama Canal Commission" a return on the national resources dedicated to the operation of the canal in the form of three categories of annual payments:

85

a. "An annual amount to be paid out of Canal operating revenues" computed at the rate of 30¢ per Panama Canal net ton, or its equivalency, for each vessel transiting the canal after entry into force of the treaty for which tolls are charged;

b. A fixed annuity of $10 million to be paid "out of Canal operating revenues" and to "constitute a fixed expense of the Panama Canal Commission."

c. An additional annual amount of $10 million "to be paid out of Canal operating revenues" to the extent such revenues exceed expenditures with a provision for carry over of unpaid balances of this payment to future years.

C. Effect of treaty provisions for payment to Panama

Nothing in the language of the proposed treaty serves to take the stipulated payments to Panama out of the accepted principle that a treaty providing for the payment of money is not self-executing but, under the Constitution, requires appropriations by the Congress. In the 1903 treaty, the United States agreed to pay to Panama a lump sum of $10 million and annual payments of $250,000. Appropriations were required and have been obtained for all such payments. The prescription of the proposed new treaty that the payments to Panama are to be made by the Panama Canal Commission appears to be without significance in this context. The Commission is the agency of the United States that the treaty provides will be "constituted by and in conformity with the laws

80 Sec. 3(a).

81 Sec. 3 (c).
82 Sec. 10.
83 Sec. 5.

84 Sec. 2.

85 Sec. 4. At current levels of traffic. the payment for passenger and cargo vessels paying tolls on the basis of Panama Canal net tonnage, would be approximately $43 million. The section provides for adjustment of the 30¢ rate in future years to reflect changes in the wholesale price index.

88

of the United States of America" by means of which "the United States of America shall, in accordance with the terms of this treaty and the provisions of United States law" carry out its responsibilities under the treaty. The responsibilities are clearly those of the United States as a party to the treaty and as principal of the agency to be established under United States law. Presumably it would not be seriously contended that the effect of the constitutional provision limiting to the Congress the power to make appropriations can be circumvented by the device of providing in the treaty that a payment without appropriations is to be made by a named government agency instead of by the United States.

The purpose of the addition in Article XIII of the treaty of the language that the payments provided in that article are to be made by the Commission "out of canal operating revenues" is not immediately apparent. The "canal operating revenues" referred to are presumably the "tolls for the use of the Panama Canal, and other charges" which the United States (not the Panama Canal Commission) is authorized to "Establish, modify, collect and retain" by Article III, section 2(c) of the treaty. These revenues are the same in kind as those that have been derived by the United States from the Panama Canal since it was opened to commerce and which have been expended pursuant to appropriations by the Congress since that time.

It may be that the objective of the provision of the treaty for making the payments "out of canal operating revenues" was to identify such payments as part of the cost of operation for purposes of establishing rates of tolls. Such a construction necessarily assumes that revenues will be sufficient to cover both the payments to Panama and operating expenses other than such payments and leaves unanswered the obvious question of the results of a disparity between the amount of revenues and the total of such expenses-is such a deficiency to be absorbed by the United States Government by appropriations to cover losses, or by Panama through acceptance of less than the amount of the payments stipulated by the treaty? In either case, the provision for payment out of revenues does not appear to affect the constitutional requirement for appropriations to carry the provisions into effect.

The provision of section 4 (c) of Article XIII for payment of $10 million "out of canal operating revenues to the extent that such revenues exceed expenditures of the Panama Canal Commission" bears some resemblance to the present provision of law requiring the agency operating the canal to pay into the United States Treasury annually in reduction of the investment of the United States in the canal, such funds of the agency as are in excess of requirements for working capital and forseeable plant replacements and expansion.87

Viewed in that light the provisions of section 4 (c) of Article XIII would substitute Panama for the United States as the beneficiary of funds in excess of those required for operating and capital expenses, and effectively precludes further reduction of the U.S. Government's investment in the canal. This, of course, would represent a substantial departure from one of the present laws governing operation of the canal; a matter left by the treaty to the discretion of Congress. In any event, like the provision of Article XIII for annual payments based on the aggregate measurement tonnage of ships using the canal during the year, the qualification introduced by section 4 (c) relates to the determination of the amount of the payment, not to the necessity for Congressional appropriations to authorize payment.

The provisions of Article XIII of the treaty for payments to Panama "out of Canal operating revenues" also invite comparison with the provisions of the various acts of Congress referred to above appropriating or making available for expenditure revenues of the Panama Canal without such revenues having been covered into the Treasury. Viewed in that light, the payment provisions would represent an attempt to provide permanent appropriations for the treaty payments, an objective clearly precluded by the constitutional limitation to the Congress of the power to make appropriations.

Finally, it is not considered that the provision of Article XIII section 4(a) for calculation of the payment to Panama to be made annually under that sec

86 Article III sec. 3.

87 Act of June 29, 1948, § 2, 62 Stat. 1076, now incoporated in 2 C.Z. Code § 70. 88 Presumably, legislation enacted by the Congress to constitute the Panama Canal Commission would establish fiscal requirements to be met by the Commission as has been done for the present operating agency by the Act of June 29, 1948 (62 Stat. 1076) as amended by the Act of September 26, 1950 (64 Stat. 1041).

tion affects the constitutional requirement that treaty provisions for payment of money be carried into effect by Congressional appropriations. That section provides for payment of an annual amount computed at the rate of $.30 per Panama Canal net ton, "or its equivalency" for each vessel transiting the canal for which tolls are charged. The rate of $.30 per Panama Canal net ton "or its equivalency" is to be adjusted periodically for changes in the wholesale price index.

The obvious difference between the payment provided in this section and the annual payments originally provided in the 1903 treaty and modified by the 1936 and 1955 treaties, is that the latter estabilshed a fixed sum while section 4(a) of the new treaty provides for a variable annual payment depending on the measurement tonnage of ships paying tolls for use of the canal. Apart from an inherent ambiguity as to the meaning and effect of the phrase "or its equivalency" as used in the section, the required computation is a straightforward arithmetical calculation. The provision for adjustment of the rate per ton used in the calculation to reflect changes in the wholesale price index is new only in the standard applied for the adjustment; annual payments under the existing treaties are adjusted for fluctuations in the price of gold in relation to the dollar. In any event, there is no basis for concluding that the provisions of section 4(a) for calculation of the payment or adjustment of the rate used in the calculation obviate the necessity for appropriations as required for the payments under the existing treaties.

In an early opinion upholding the constitutional validity of a treaty providing for the issuance (but not the payment) of bonds to an Indian tribe, the Attorney General correctly stated the rule applicable to the payments provided by the proposed treaty as follows:

"According to Article I, section 9, of the Constitution, as construed by the practice of the Government, an Act of Congress is necessary to appropriate money to pay the public debt, however created. The change of the form of the debt from a general stipulation in the treaty to bonds with a particular provision does not take away that necessity." 89

PREPARED STATEMENT OF H. R. PARFITT, GOVERNOR OF THE CANAL ZONE Mr. Chairman and members of the Committee, I am Harold R. Parfitt, Governor of the Canal Zone and President of the Panama Canal Company. The Panama Canal Company and Canal Zone Government are both U.S. Government agencies and are responsible, respectively, for the operation of the Panama Canal and the administration of the Canal Zone. At your request, I am submitting for the record information regarding land and water areas and major assets and facilities contemplated to be turned over to Panama under the treaties now pending ratification.

Part I below details the legal basis for acquisition of the property comprising the Canal Zone. Part II gives, in terms of major time periods, the contemplated timetables for the turnover of land and water areas and for the turnover of major assets and facilities.

At the outset it is necessary to make clear that upon entry into force of the treaty Panama will assume plenary jurisdiction over the former Canal Zone. Panama will grant to the United States the right to use certain land and water areas. The right, title, and interest of the United States in all other areas will pass immediately to Panama.

The timetable in Part II which identifies the areas which will pass immediately also identifies those areas which will be turned over to Panama during the life of the treaty as U.S. use rights cease. The treaty also provides for a review every five years, or at such times as the two parties may agree, of the land and water areas made available to the United States, for any agreed elimination or change in such areas.

PART I.—BASIC AUTHORITY FOR ACQUISITION OF CANAL ZONE LAND AND WATER AREAS The basic authority pursuant to which the United States acquired the property comprising the Canal Zone is found in (a) the so-called Spooner Act of

so XIII Op. Atty. Gen. 354 at 360 (1870).

June 28, 1902, 32 Stat. 481, (b) the 1903 Treaty with the Republic of Panama, (c) the Act of August 24, 1912, 37 Stat. 560, and (d) President Taft's Executive Order of December 5, 1912.

Sections 1 and 2 of the Spooner Act provided as follows:

"Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the President of the United States is hereby authorized to acquire, for and on behalf of the United States, at a cost not exceeding forty millions of dollars, the rights, privileges, franchises, concessions, grants of land, right of way, unfinished work, plants, and other property, real, personal, and mixed, of every name and nature, owned by the New Panama Canal Company, of France, on the Isthmus of Panama, and all its maps, plans, drawings, records on the Isthmus of Panama and in Paris, including all the capital stock, not less, however, than sixty-eight thousand eight hundred and sixty-three shares of the Panama Railroad Company, owned by or held for the use of said canal company, provided a satisfactory title to all of said property can be obtained.

"SEC. 2. That the President is hereby authorized to acquire from the Republic of Colombia, for and on behalf of the United States, upon such terms as he may deem reasonable, perpetual control of a strip of land, the territory of the Republic of Colombia, not less than six miles in width, extending from the Caribbean Sea to the Pacific Ocean, and the right to use and dispose of the waters thereon, and to excavate, construct, and to perpetually maintain, operate, and protect thereon a canal, of such depth and capacity as will afford convenient passage of ships of the greatest tonnage and draft now in use, from the Caribbean Sea to the Pacific Ocean, which control shall include the right to perpetually maintain and operate the Panama Railroad, if the ownership thereof, or a controlling interest therein, shall have been acquired by the United States, and also jurisdiction over said strip and the ports at the ends thereof to make such police and sanitary rules and regulations as shall be necessary to preserve order and preserve the public health thereon, and to establish such judicial tribunals as may be agreed upon thereon as many be necessary to enforce such rules and regulations. The President may acquire such additional territory and rights from Colombia as in his judgment will facilitate the general purpose hereof."

In the 1903 Convention for the Construction of a Ship Canal (Hay-Bunau Varilla Treaty) the United States and Panama recognized that sovereignty of the Colombian territory referred to in the Spooner Act was actually vested in the Republic of Panama. In Article II of that treaty, Panama granted to the United States, in perpetuity,—

“*** the use, occupation and control of a zone of land and land under water for the construction, maintenance, operation, sanitation and protection of said Canal of the width of ten miles extending to the distance of five miles on each side of the center line of the route of the Canal to be constructed; the said zone beginning in the Caribbean Sea three marine miles from mean low water mark and extending to and across the Isthmus of Panama into the Pacific ocean to a distance of three marine miles from mean low water mark with the proviso that the cities of Panama and Colon and the harbors adjacent to said cities, which are included within the boundaries of the zone above described, shall not be included within this grant. The Republic of Panama further grants to the United States in perpetuity the use, occupation and control of any other lands and waters outside of the zone above described which may be necessary and convenient for the construction, maintenance, operation, sanitation and protection of the said Canal or of any auxiliary canals or other works necessary and convenient for the construction, maintenance, operation, sanitation and protection of the said enterprise.

"The Republic of Panama further grants in like manner to the United States in perpetuity all islands within the limits of the zone above described and in addition thereto the group of small islands in the Bay of Panama, named Perico, Naos, Culebra and Flamenco."

Article VI of the 1903 treaty provided that the grant in Article II, set out above, did not invalidate private titles in the Zone but further explicitly provided that rights of private land owners were to be subordinated to the rights granted to the United States by the treaty. The treaty provided for the establishment of a Joint Land Commission to determine damages for owners of property whose rights were impaired by the construction, maintenance, operation,

sanitation, or defense of the canal. Between 1903 and 1912 the United States acquired land as necessary for the construction effort and paid such compensation as was awarded by the Land Commission.

In 1912, the Congress enacted the Panama Canal Act, section 3 of which provided as follows:

"That the President is authorized to declare by Executive order that all land and land under water within the limits of the Canal Zone is necessary for the construction, maintenance, operation, sanitation, or protection of the Panama Canal, and to extinguish, by agreement when advisable, all claims and titles of adverse claimants and occupants. Upon failure to secure by agreement title to any such parcel of land or land under water the adverse claim or occupancy shall be disposed of and title thereto secured in the United States and compensation therefor fixed and paid in the manner provided in the aforesaid treaty with the Republic of Panama, or such modification of such treaty as may hereafter be made."

Acting pursuant to that authority, President Taft issued the following Executive order on December 5 of that year:

"By virtue of the authority vested in me by the Act of Congress entitled 'An Act to provide for the opening, maintenance, protection and operation of the Panama Canal and the sanitation and government of the Canal Zone,' approved August 24, 1912, I hereby declare that all land and land under water within the limits of the Canal Zone are necessary for the construction, maintenance, operation, protection and sanitation of the Panama Canal, and the Chairman of the Isthmian Canal Commission is hereby directed to take possession, on behalf of the United States, of all such land and land under water; and he may extinguish, by agreement when practicable, all claims and titles of adverse claimants to the occupancy of said land and land under water."

One further provision of the 1903 treaty is worthy of note. In Article VI of that accord Panama granted to the United States

"*** all rights which it now has or hereafter may acquire to the property of the New Panama Canal Company and the Panama Railroad Company as a result of the transfer of sovereignty from the Republic of Colombia to the Republic of Panama over the Isthmus of Panama and authorizes the New Panama Canal Company to sell and transfer to the United States its rights, privileges, properties and concessions as well as the Panama Railroad and all the shares or part of the shares of that company; but the public lands situated outside of the zone described in Article II of this treaty now included in the concessions to both said enterprises and not required in the construction or operation of the Canal shall revert to the Republic of Panama except any property now owned by or in the possession of said companies within Panama or Colon or the ports or terminals thereof."

PART II-A.-TIMETABLE FOR CONTEMPLATED TURNOVER OF LAND AND WATER AREAS

The land and water areas to be turned over to Panama are listed below in the following format:

1. Areas to be turned over to Panama upon entry into force: a. Panama Canal Company/Canal Zone Government Land Areas; b. Military Land Areas; and c. Water Areas.

2. Land areas to be turned over to Panama during the life of the treaty: a. Panama Canal Company/Canal Zone Government Areas and b. Military Areas.

3. Provision for additional turnovers during life of treaty.

4. Transfers at conclusion of treaty.

1. Areas to be turned over to Panama upon entry into force.-a. Panama Canal Company/Canal Zone Government land areas within the present Canal Zone that would be turned over to Panama upon entry into force of the proposed treaty arrangement approximate 82 sq. miles and are generally described below. (For specific delineation, consult Attachment 1 to Annex "A" to the Agreement in Implementation of Article III of the Panama Canal Treaty, "General Map of the Lands and Waters of the Panama Canal Treaty".)

NOTE. The division between the Pacific Side of the Isthmus and Atlantic Side of the Isthmus is approximately at Gamboa.

Pacific Side of Isthmus East of the Canal-At the Pacific entrance to the Canal the Balboa Port area including the La Boca Tank Farm, the Balboa