THE PANAMA CANAL TOLLS QUESTION.

[By Lewis M. Hosea, Cincinnati, late judge of the Superior Court.]

To the Committee on International Relations, United States Senate:

The common people, of whom Lincoln said, "The Lord must have loved them, for he made so many of them," are saying to-day that they have a right to use the canal without tolls for passage between their own ports because they bought the ground, built the canal, and taxed themselves to pay for it, and therefore own it. This may seem to many a narrow and incorrect view, and yet, as often before in other matters, it may when all is said prove fundamentally correct, for the real question is the fundamental one of the rights of ownership, and the matter of exemption from tolls is important only as an incident of such ownership.

No great question is ever settled until rightly settled. It required a Civil War to finally settle the fundamental meaning of our National Constitution-whether it provided for perpetual union of the people as a Nation, or a dissoluble partnership of States; and negro slavery was but an incident and occasion making such settlement

necessary.

The extraordinary attitude of the President in coercing Congress to undo its former action asserting rights of the people incidental to ownership, to abandon those rights at the demand of a foreign power which contributed nothing to the building of the canal yet has been admitted to a full and equal share in its international benefits, has precipitated an acute country-wide stage of discussion of the subject. He declares, substantially, that it is a moral question; that the United States, having incautiously made a treaty with England by which it abandoned all incidental rights of ownership arising out of our construction of the canal at our sole expense, "national honor requires us to live up to the bargian by accepting that interpretation of the treaty because England claims to have so understood it.

In consequence, we are to-day witnessing the humiliating spectacle of one branch of our National Legislature undoing and reversing its former deliberate action, in accordance with a mere dictum of the President.

That this should actually be accomplished in one branch of Congress is little less amazing than that it also throttled debate, and thus stifled fair discussion and enlightenment on the question.

The President's insistence upon this course, had it rested upon policy merely, might have been defensible; but as it also assumes to determine adversely the question of right, it is demonstrably wrong in principle, and is altogether likely to lead to disastrous consequences in the future.

The baselessness of his assumption appears from considerations based on elemental principles, as I shall endeavor to make clear.

Two of these are principles of the common law of both England and the United States, with which the treaty-making authority of both countries must be conclusively presumed to have been familiar in making the Hay-Pauncefote treaty under which the discussion arises, namely:

(1) Whosoever deals with a trustee, knowing him to be such is bound to take notice of his powers and limitations.

This is especially true of public officers who are mere agents and trustees of the public, charged with the performance of specific duties and entrusted with powers suitable to that end. An act of a public officer, therefore, within the scope of his duty and power, binds the public; but if the act be not within the scope of such duty and power, it does not bind the public; and one thus dealing with a trustee can take no benefit from his wrongful act.

If therefore, under familiar legal principles common both to England and the United States, neither the President nor the Senate had power or authority to make a treaty with England surrendering the local and interstate rights of the people incident to the construction of the canal and its use as a local highway connecting United States territory, then, if the treaty does surrender such rights, it is void. But here comes in the second elemental principle of the law common to both countries, namely: (2) A law (a treaty has the force of law) is to be interpreted so as to uphold rather than destroy its validity, if this can be done by giving reasonable effect to its language, and resolving all doubtful phraseology in favor rather than agianst its legal validity. That the treaty-making authorities of the United States have no power to surrender local rights of the people by treaty is clearly demonstrable.

As all the world knows, our Government, based on the ultimate sovereignty of the people in their collective capacity as the source of power, is dual in character; the State in control of local matters; the United States in control of interstate and international relations, under clearly defined constitutional limitations.

In respect of purely interstate rights of the people the power of the Federal Government is a delegated power in trust, limited to regulation, and is a duty which, by its inherent nature, can not be delegated to nor can the responsibility be shared with any other power or authority.

It follows that if a treaty by the United States does invade the domain of local and interstate rights and is to be construed as a formal abandonment of those rights, it is simply void and of no effect.

THE HISTORICAL ASPECT OF THE QUESTION.

Thus far we have considered only the foundation principles that must necessarily govern the meaning of any treaty even if its language be as cogent and unequivocal as that of our commercial treaty to which I shall presently refer. An interpretation on any other basis would render the treaty absolutely void.

In this case the so-called British view can not be sustained upon any reasonable construction of the treaty itself and without ignoring actual conditions then existing. (1) The Clayton-Bulwer treaty of 1850 declares the purpose of the United States and England as

"Setting forth and fixing in a convention their views and intentions with reference to any means of communication by ship canal that may be constructed between the Atlantic and Pacific Oceans by way of the River San Juan de Nicaragua and either or both of the lakes of Nicaragua or Managua to any port or place on the Pacific Ocean.” It is further provided that neither country shall ever obtain or maintain for itself any "exclusive control," etc. The treaty contemplates the construction by "persons or company" to whom England and the United States are to extend encouragement to build the canal, but compel its use as an international highway under proper regulations to the end of-

"Constructing and maintaining the said canal as a ship communication between the two oceans for the benefit of mankind on equal terms to all.”

Article VIII of this treaty declares their joint desire also to establish a general principle "with reference to any communication across the Isthmus whether by canal or rail" by extending their protection thereto, in consideration of which the parties owning or constructing the same are required to impose no other charges or conditions of traffic than the aforesaid Governments shall approve as just and equitable; and that said canal or railway shall be open to the subjects of the United States and Great Britain on equal terms, and likewise to all other nations who may join them in granting such protection.

(2) The Hay-Pauncefote treaty of 1901 (under which this discussion arises) states in the preamble that it is entered into to remove any objection which may arise out of the convention of the 19th of April, 1850, commonly called the Clayton-Bulwer treaty, without impairing the "general principle" of neutralization established in Article VIII of that convention.

Article I of this new treaty declares that it shall supersede the Clayton-Bulwer treaty; consequently, we must look to the new treaty alone for the statement and definition of the “principle of neutralization."

Article II declares that:

"Subject to the provisions of the present treaty the said Government (United States) shall have and enjoy all the rights incident to such construction, as well as the exclusive right of providing for the regulation and management of the canal."

Immediately following comes a distinct declaration by the United States, and it is well to notice the connection here, namely, (a) the Clayton-Bulwer treaty is entirely abrogated; (b) all rights of ownership are conceded to the United States subject to the present treaty only; and (c) the United States (in art. 3) is stating, in its own person and behalf as notice to all the world, just what it intends to do and to permit, as a compliance with this treaty in carrying out the "principle of neutralization." We come now to

"ART. III. The United States adopts as the basis of the neutralization of such canal the following rules, substantially as embodied in the convention for the free navigation of the Suez Canal-that is to say: (1) The canal shall be free and open to the vessels of commerce and of war of all nations observing these rules on terms of entire equality, so that there shall be no discrimination against any such nation or its citizens or subjects in respect of the conditions or charges of traffic or otherwise. Such conditions and charges of traffic shall be just and equitable."

* * *

The above citations from the treaties include all that bear upon the present discussion; and it seems sufficiently clear that the "principle of neutralization" means nothing more than that the canal shall be open to all as a national highway. In a word, it recognizes the moral right of all other nations to share in the benefit of a high

way which is of such transcendent importance to the world at large as to preclude any individual or single right to monopolize it.

The Supreme Court of the United States has decided a principle substantially identical with that involved in this discussion, arising under our commercial treaty with England which was claimed on behalf of a British ship to conflict with our law exempting coastwise vessels from harbor dues.

A British vessel claimed exemption from harbor dues upon the ground, among others, that the treaty gave its vessels the same right of exemption as United States coastwise vessels. The case finally reached the Supreme Court and the following decision, rendered in 1904 by Justice (now Chief Justice) White, sufficiently shows the exact point in question:

"Nor is there merit in the contention that, as the vessel in question was a British vessel coming from a foreign port, the State laws concerning pilotage are in conflict with a treaty between Great Britain and the United States providing that:

"No higher or other duties or charges shall be imposed in any port of the United States on British vessels than those payable in the same ports by vessels of the United States.'

"Neither the exemption of coastwise steam vessels from pilotage resulting from the law of the United States, nor any lawful exemption of coastwise vessels created by State law, concerns vessels in the foreign trade, and therefore any such exemptions do not operate to produce a discrimination against British vessels engaged in foreign trade and in favor of vessels of the United States engaged in such trade." (Smith . Olsen, 195 U. S., 332.)

Here, it will be perceived, is language in a treaty apparently explicit and inclusive; and yet, in recognition of the fact that it was a treaty with a foreign nation, and therefore necessarily confined to vessels engaged in "foreign" (international) trade, the British contention was held to be untenable.

CONCLUSION.

In the light of these fundamental principles, it can not be maintained upon any known principle of documentary construction, that the equality with other nations provided for in the Hay-Pauncefote treaty with England, as to the use of the canal, contemplated or included American coastwise vessels plying exclusively between our own ports; this being a matter purely of interstate concern which could not be the subject of treaty with a foreign nation.

It could not have been in the minds of the signatories in making the treaty to deed away such exclusively local rights, for no such power existed in President or Senate, and the scope of the treaty necessarily excluded it.

It is to be borne in mind that in the treaty of 1850 the United States and England were dealing with international relations solely, held by them in common in respect of a canal to be built by third parties as a private enterprise.

It was felt that, as nature had provided but one place for it, the public international interests transcended the rights of individuals to such an extent that the civilized world could not afford to have it monopolized by individual interests. Therefore the treaty of these two great nations was notice to any proposing builders that the highway when built must be international in character and use. The right assumed by them was a right of compulsion arising out of inherent conditions like the right of self-defense. But, in the intervening half century that ensued the commercial growth of the United States brought totally new conditions into existence. The proposed canal became a necessity to the United States as a connection between its two coast lines separated by the isthmus constituting a marine barrier menacing the future safety of its wide domain in view of changed foreign conditions.

Under these new conditions the canal came to have a totally new and double aspect. No longer was the question one of international commerce merely as relating exclusively to an international highway, but it also had a tremendous significance to this country as a necessary connecting marine link between its own ports for the benefit of its interstate commerce and the speedy transfer of its Navy from one ocean to another in case of foreign aggression.

It was with reference to this last-named function of the canal solely, that the Government of the United States had a right to build the Panama Canal and tax its own people for the cost. In doing so, however, and with reference still to its international aspect, this Government had the right to make a treaty in relation to its international use, because such use was the unused increment of a public utility which by law is often leased to and used by private business; and it was to the national advantage that it should be so used.

MA

1

I repeat for emphasis, the truism that the sole right of our Government to build the canal by the taxation of our people lies in this private right of ownership of a highway connecting our widely separated coast lines, and is precisely the same right formerly exercised by the United States in building the "National Road" from Washington across the Alleghenies to Pittsburgh and across the country westward as an interstate highway, at the public expense.

The Clayton-Bulwer treaty of 1850, based upon the joint compact of the two powerful signatories to extend their "protection" to a canal to be built (as was the Suez Canal) by private enterprise, primarily for private advantage and incidentally for international uses, had no application whatever to a canal to be built by the United States over its own land and primarily for its own benefit, excepting in so far as it was morally bound in view of the inherent geographical conditions to extend its use as an international highway to all other nations without "discriminating against any such nation."

The United States needed no partner in the enterprise, either in building it or protecting" it when built. The sole relationship to and the sole right of England in the matter under the Clayton-Bulwer treaty lay in the joint guarantee of protection to a third party building the canal, as against seizure and diversion to private uses. The abrogation of the treaty of 1850 by the treaty of 1901 divested England of every vestige of right or interest except the original moral right, possessed by all other nations as well, in the international functions of the canal. This is the sole right or basis of right recognized in behalf of England in the Hay-Pauncefote treaty, namely, maintenance of the "general principle" of neutralization or internationality; and the significance of the explicit definition by the United States in its own behalf in the form of "rules" to be observed by all nations-England included-set forth in this treaty, can not be misunderstood. Coming immediately after the abrogation of the treaty of 1850 and the recognition by England of all rights of construction and ownership in the United States, this explicit declaration of rules made by the United States itself as the condition of the use of the canal by "such nations" as observed them, is unmistakably addressed to the outer world, and is not a compact with England in any other sense or relation than as one of "such nations" and contains no intimation of any surrender of its own rights of use in any manner or to any extent that does not deprive other nations of the international use.

To say that the signatories on behalf of Great Britain did not fully understand all this is to impugn their intelligence, for the entire matter harks back to elemental principles recognized by both countries alike.

There is, therefore, no moral question involved. The United States made no incautious or misleading agreement with England. There is in the treaty no surrender of any individual rights by the United States. The treaty covers only international relations of parties and international uses of the canal. It expressly recognizes all rights of ownership in the United States and even specifies control and management separately for mere emphasis.

Neither, therefore, is there any merit in the contention that the exemption of our coastwise vessels from tolls increases inequitably the charge to other nations. The treaty neither creates nor implies any obligation to equalize charges or prorate expenses between itself and other nations on the basis of maintenance. Upon recognized principles of commercial equity it is entitled to cost, interest, and a reasonable profit from its use by other nations.

Respectfully submitted.

APRIL 10, 1914.

LEWIS M. HOSEA.

[Senate Document No. 11, Sixty-third Congress, first session.]

PANAMA CANAL TOLLS.

INSTRUCTION OF THE SECRETARY OF STATE OF JANUARY 17, 1913, TO THE AMERICAN CHARGÉ D'AFFAIRES AT LONDON, AND THE BRITISH NOTES OF JULY 8, 1912, AND NOVEMBER 14, 1912, TO WHICH IT REPLIES, TOGETHER WITH A NOTE OF FEBRUARY 27, 1913, FROM THE BRITISH AMBASSADOR TO THE SECRETARY OF STATE.

The Secretary of State to Chargé d'Affaires Laughlin.

No. 1833.]

IRWIN B. LAUGHLIN, Esq.,

DEPARTMENT OF STATE, Washington, January 17, 1913.

American Chargé d'Affaires, London, England.

SIR: I inclose a copy of an instruction from Sir Edward Grey to His Britannic Majesty's ambassador at Washington, dated November 14, 1912, a copy of which was handed to me by the ambassador on the 9th ultimo, in which certain provisions in the Panama Canal act of August 24 last are discussed in their relation to the Hay-Pauncefote treaty of November 18, 1901; and I also inclose a copy of the note addressed to me on July 8, 1912, by Mr. A. Mitchell Innes, His Britannic Majesty's chargé d'affaires, stating the objections which his Government entertained to the legislation relating to the Panama Canal, which was then under discussion in Congress. A copy of the President's proclamation of November 13, 1912, fixing the canal tolls, is also inclosed. Sir Edward Grey's communication, after setting forth the several grounds upon which the British Government believe the provisions of the act are inconsistent with the stipulations of the Hay-Pauncefote treaty, states the readiness of his Government "to submit the question to arbitration if the Government of the United States would prefer to take this course," rather than "to take such steps as would remove the objections to the act which His Majesty's Government have stated." It therefore becomes necessary for this Government to examine these objections in order to ascertain exactly in what respects this act is regarded by the British Government as inconsistent with the provisions of that treaty, and also to explain the views of this Government upon the questions thus presented and to consider the advisability at this time of submitting any of these questions to arbitration.

It may be stated at the outset that this Government does not agree with the interpretation placed by Sir Edward Grey upon the Hay-Pauncefote treaty, or upon the Clayton-Bulwer treaty, but for reasons which will appear hereinbelow it is not deemed necessary at present to amplify or reiterate the views of this Government upon the meaning of those treaties.

In Sir Edward Grey's communication, after explaining in detail the views taken by his Government as to the proper interpretation of the Hay-Pauncefote treaty, "so as to indicate the limitations which" His Majesty's Government "consider it imposes upon the freedom of action of the United States," he proceeds to indicate the point in which the canal act infringes what he holds to be Great Britain's treaty rights.

It is obvious from the whole tenor of Sir Edward Grey's communication that in writing it he could not have taken cognizance of the President's proclamation fixing the canal tolls. Indeed, a comparison of the dates of the proclamation and the note, which are dated, respectively, November 13 and November 14 last, shows that the proclamation could hardly have been received in London in time for consideration in the note. Throughout his discussion of the subject Sir Edward Grey deals chiefly with the possibilities of what the President might do under the act, which in itself does not prescribe the tolls, but merely authorizes the President to do so; and nowhere does the note indicate that Sir Edward Grey was aware of what the President actually had done in issuing this proclamation. The proclamation, therefore, has entirely changed the situation which is discussed by Sir Edward Grey, and the diplomatic discussion, which his note now makes inevitable, must rest upon the bases as they exist at present and not upon the hypothesis formed by the British Government at the time this note was written.

Sir Edward Grey presents the question of conflict between the act and the treaty in the following language:

"It remains to consider whether the Panama Canal act, in its present form, conflicts with the treaty rights to which His Majesty's Government maintain they are entitled.

"Under section 5 of the act the President is given, within certain defined limits, the right to fix the tolls, but no tolls are to be levied upon ships engaged in the coastwise trade of the United States, and the tolls, when based upon net registered ton