AFTER RECESS.

The committee met at 2.30 o'clock p. m. after recess. The CHAIRMAN. The committee will come to order. Prof. Johnson, I think you might resume your testimony.

STATEMENT OF PROF. EMORY R. JOHNSON—Continued.

Prof. JOHNSON. Mr. Chairman, in opening the statement this morning I said that the exemption of the coastwise ships from the payment of Panama Canal tolls raises two general questions, one of domestic policy and one of international obligations. I also said that I proposed to discuss both questions only with reference to their economic aspects. This morning I considered free tolls from the point of view of domestic policy, and with your permission I should like to say something about the economic aspects of this question as an international one.

The exemption of the American coastwise shipowners from the payment of Panama tolls raises international questions, historical, legal, and economic. Concerning the historical and legal considerations that affect the interpretation to be given the Hay-Pauncefote treaty, I shall not speak; but there are certain economic consequences of toll exemption which I wish to consider.

The much-quoted section 1 of Article III of the treaty provides that the canal shall be open to the vessels of all nations, observing the rules laid down in the treaty, "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," and in determining the obligations of the United States under the treaty, it is necessary to inquire whether the exemption of the owner's of the ships engaged in the coastwise trade of the United States from Panama tolls will effect a discrimination against any foreign "nation or its citizens or subjects in respect of the conditions or charges of traffic, or otherwise." To answer this inquiry, the effect of the exemption from Panama tolls of the coasting trade and of the coastwise carriers of this country upon the conditions under which foreign traders and carriers will compete, American merchants and shipowners must be considered.

In a short article published in the April, 1914, issue of the North American Review, I have called attention to the handicap which toll exemption for our coastwise shipowners will impose upon foreign traders and carriers in competing with American merchants and ship owners. The discrimination against the citizens and subjects of foreign countries will be specific and will be such as it would seem the Hay-Pauncefote treaty was intended to prevent. Unless the facts presented in the following statement are incorrect, it seems certain that the exemption of American coastwise shipowners from Panama Canal tolls will work a violation of the Hay-Pauncefote treaty.

The CHAIRMAN. That is your opinion as a matter of law?

Prof. JOHNSON. The opinion which I have just expressed is that if specific discriminations against the citizens and subjects of other countries result from the exemption of American coastwise shipowners from tolls it would seem to be in contravention of the treaty.

The CHAIRMAN. You know that President Taft thought otherwise, and that Mr. Knox, Secretary of State, thought otherwise?

Prof. JOHNSON. Í differ from high authority always with regret. I am aware that President Taft had that view, and that Secretary Knox did.

The CHAIRMAN. I only alluded to it as indicating my own impression. It is a matter of a very important legal question, and I did not know whether you wished to be understood as volunteering your view on that subject.

Senator SIMMONS. I understood he was not presenting it from a legal standpoint at all. He was presenting it from an economic standpoint. I understood the professor's contention was that if the coastwise trade was exempt from tolls, it would necessarily involve a discrimination against the citizens and subjects of other countries, and that is not a legal proposition at all.

Senator THORNTON. He also said that if the statements made by the parties who contracted it were correct, it would be a violation. Prof. JOHNSON. I shall attempt no discussion of the legal questions, but wish to put before you very concisely certain very apparent discriminations that will result to foreign traders and shipowners if American coastwise shipowners do not pay Panama tolls. The four specific questions involved are:

Does Panama toll exemption for the owners of ships serving the trade between the two seaboards of the United States, and toll payment by the owners of ships serving the trade between the two seaboards of Canada and Mexico, discriminate against any "nation or its citizens or subjects?"

Does toll exemption for the owners of ships serving the trade between the eastern seaboard of the United States and our west coast, and toll payment by the owners of ships serving the trade between European countries and the west coast of the United States, result in "no discrimination against any such nation or its citizens or subjects. in respect of the conditions or charges of traffic or otherwise?"

Does Panama toll exemption for the owners of ships taking goods from New York to San Francisco or to Seattle for reconsignment and export thence to the Orient, and the payment of tolls by the owners of ships serving the trade from Europe to the Orient, discriminate against the citizens or subjects of European countries?

Does Panama toll exemption for the owners of ships carrying from Seattle or San Francisco to New York goods that have been brought to the west coast of the United States from the Orient, and the payment of tolls by vessels carrying goods directly from the Orient and Australia to New York, discriminate against the foreign carriers and merchants?]

I do not know how fully the committee cares to have these questions

considered.

Senator SIMMONS. I would be very glad if you would take every one of these four specific questions which you have propounded in the form of a query and in answering them give your reasons why you think they would or would not work a discrimination.

Prof. JOHNSON. Let us take, if you please, the first question-as to free tolls for ships moving between the two seaboards of the United States and toll payments for shipments moving between the two seaboards of Canada or the two seaboards of Mexico. To illustrate,

lumber and fish are now shipped from British Columbia and from Washington and Oregon to the eastern seaboard of the United States. After the canal is opened the trade will be large and the competition between American and Canadian traders will be active. Canadian producers will be served by or (particularly in lumber shipments) will use vessels that pay tolls, while American traders will ship by vessels that do not pay canal charges. In so far as goods are shipped by vessels that are chartered by the traders and producers, the costs of securing transportation to the eastern seaboard of the United States via the Panama Canal will be affected by the payment or exemption from payment of tolls, and the Canadian citizens will suffer a definite discrimination "in respect of the conditions or charges of traffic."

Senator BRISTOW. Professor, since you have finished with that, I will ask you this: The English ships carry traffic at a lower rate than American ships, do they not?

Prof. JOHNSON. At a lower cost; certainly.

Senator BRISTOW. The rate is lower, is it not?

Prof. JOHNSON. You are speaking of chartered vessels, now?

Senator BRISTOw. Any kind of a ship that will go from Vancouver. The rates from Vancouver to New York would be lower than from Seattle to New York, would they not?

Prof. JOHNSON. I think charter rates are. I think that there are more facilities.

Senator BRISTOw. Why do not the shippers on the United States side of the line send their material over to Vancouver, and then send it around by English ships?

Prof. JOHNSON. I do not know just what difficulties would be encountered.

Senator BRISTOW. That would be a violation of the navigation laws; it would be an evasion, would it not?

Prof. JOHNSON. It would be an evasion of the navigation laws. Senator BRISTOW. Just as clear as what you suggest would be a violation of the Panama Canal act?

that

Prof. JOHNSON. I understood, if I may be allowed to say so, Senator Perkins made the statement two years ago that there was more or less of an evasion of our navigation laws under present conditions.

Senator BRISTOW. Yes; just as there is an evasion of any law. They will evade it where they can.

Senator PERKINS. They ship from Seattle over to Victoria, and then to Vancouver, and it is an evasion in that way.

Senator BRISTOW. It is an evasion of the law. In order to discriminate in the way you have suggested, they would have to evade the navigation laws or evade the Panama Canal act?

Prof. JOHNSON. Of course the normal movement of the trade will be in accordance with the requirements of law rather than by routes that result in the evasion of the law.

I will illustrate my second query, which was: If the ships moving from New York to San Francisco do not pay tolls, and if those who send goods from Europe to San Francisco use ships that do pay tolls, will the European shipowners and traders, in competing with the American traders and shipowners, have the handicap of the tolls which the American trader and shipowner do not pay?

Take the matter of the steel required in the western part of the United States for the erection of buildings and the construction of bridges, railroads, and irrigation works can be shipped by the United States Steel Corporation, the Bethlehem Steel Co., the American Bridge Co., the Maryland Steel Works, and other American corporations in chartered vessels of course under the American flag that will not be required to pay tolls at Panama; while the British, German, Belgian, and other possible European producers of steel in order to get their goods to the western part of the United States in competition with American producers will be obliged to employ ships subject to Panama Canal tolls. It is certain that the citizens or subjects" of European countries will feel that the payinent of tolls by them and the nonpayment of such charges by their American competitors establishes a discrimination "in respect of the conditions or charges of traffic."

I think there can be no question as to that fact.

Senator BRISTOW. As a matter of fact, you know that the rates from England to San Francisco are less than the rates from New York to San Francisco by water, do you not?

Prof. JOHNSON. They often are.

Senator BRISTOw. We had the testimony yesterday that it was from $2.50 to $3.50 a ton, did we not?

Prof. JOHNSON. Sometimes; yes.

Senator BRISTOw. Suppose there was a toll of a dollar a ton or $1.25 a ton charged, still the subsidized English ships can deliver the English products in competition with the American bottoms to the Pacific coast at a less rate than the American ships can with free tolls? Prof. JOHNSON. That may be so.

Senator BRISTOw. Then wherein do you think there is a damaging discrimination to the English producer?

Prof. JOHNSON. I do not know that I used the word "damaging." Senator BRANDEGEE. But it is damaging to that extent, is it not? Prof. JOHNSON. But I call attention to the fact that if the British exporter or ship owner pays tolls and the American producer and exporter in competing for the same trade does not pay tolls, that that is a discrimination.

The CHAIRMAN. Do you not think the American ship is discriminated against by the British ships, in that the British ship is subsidized by the Government, and the American ship is dependent upon. its own enterprise?

Prof. JOHNSON. I will agree with you there.

The CHAIRMAN. Do you claim that there would be any equality between the foreign and the American ships if the foreign ships were permitted to pass through the canal without the payment of tolls? Prof. JOHNSON. Do not misunderstand me as saying whether that is right or wrong, but simply as stating that the freedom from toll payments by the American exporters is an advantage to the American exporters as compared with the British exporters. The British exporter has his advantages, otherwise he could not get into the trade. In times past he has had to get in over a tariff, and although, as Senator Bristow points out, the freight rates are often very low from

England, Germany, and Belgium to the western coast, they are still rates which cover a very much longer distance and are not always so much lower as the Senator indicates.

The CHAIRMAN. Professor, I desire to have you state upon the record whether you recognize the accuracy of the statement that while there might be an equality in law between the foreign vessels and the American vessels if the foreign vessel were permitted to go through the canal without the payment of tolls, that as a matter of fact there would be a positive inequality to the disadvantage of the American ships?

Prof. JOHNSON. I will answer your question in the affirmative. As your question implies, the American ship is under a very definite handicap. It costs more to operate it, and the American ship is without Government subvention, and the payment of tolls would be another additional cost upon the American ships. There is no question about that. But the question is whether the exemption of coastwise ships does not work a discrimination which would not be worked if the American coastwise owner paid the tolls.

Senator SIMMONS. Professor, I do not understand, and I want to know if you understand that the purpose of this section of the treaty was to equalize traffic conditions upon the water between nations. I do not assume that that was its purpose at all. Its purpose was to recognize the conditions of ocean traffic and to provide that the Government would not place any condition of passage through the canal which would discriminate against the citizens or the vessels of other countries. And that being so, it would make no difference so far as the effect of this treaty provision is concerned whether the rates charged by American vessels and foreign vessels were the same, or very dissimilar, as in fact they are, and were at the time the treaty was made.

Prof. JOHNSON. I think we would all understand, Senator, that the purpose of the Hay-Pauncefote treaty was to lay down the conditions under which the Panama Canal could be used, and that could be the only purpose of the treaty.

BRIST

BENSON

Senator SIMMONS. And it was not the purpose to fix rates through the Panal Canal which will equalize rates throughout the world? Prof. JOHNSON. I do not so understand, and I do not know

The CHAIRMAN. As long as you are being invited to give your understanding, you never did understand that this Government intended entering into a treaty relation with Great Britain which in its results would involve the absolute destruction and disappearance of our local marine, our domestic coastwise trade, as our foreign trade has already been destroyed?

Prof. JOHNSON. That calls for an answer, does it, Senator?

The CHAIRMAN. Along the same lines as your previous question. You may proceed with the rest of your narrative, Professor.

and rate

OHNSON

BURMAN.

Senator SIMMONS. Just a moment. If the contention insisted upon by Senator Bristow were correct, if the charges of an English vessel loaded with goods from England were lower than the charges by a German vessel loaded with goods from Germany, we would be at liberty to fix such rates for the canal as would equalize those rates, would we not? Would not that follow as a necessary consequence?