(3) That for the purpose of assuring a future stable financial structure of the Panama Canal, which should not be increased except for new additions to the project, and then only when authorized by Congress, a justified capitalization as outlined in chapter III of the report was recommended for the consideration of the President, who is charged with the responsibility of operating the Panal Canal and governing the Canal Zone.

(4) That for the purpose of having the Panama Canal measurement rules in full accord with the changes proposed by the tolls committee it is recommended that the rules as revised by the committee be approved in the administration of tonnage admeasurement at the Panama Canal and constitute the sole basis for the measurement of all vessels transiting the Canal.

The purpose of this bill is to do away with the dual system of measurement, to provide and apply a practical, just, and equitable system of measuring vessels that use the Panama Canal, and of levying tolls upon such vessels, to provide a system that will apply with like justice and equity to all vessels, to base the measurement rules upon sound principles, to levy the transit charges upon a definite basic unit, and to determine the number of such units upon which the charges are imposed so as to cause vessels of all types to pay Canal tolls upon a common basis. It is felt that by the application of the rules the tolls levied upon vessels will be fair for each while being equitable as among the several types of vessels.

DUAL MEASUREMENT SYSTEM

The present system of measurement for the purpose of assessing tolls involves both the Panama Canal rules of measurement prescribed by President Wilson on November 21, 1913, and the United States measurement rules, the latter being the rules by which the net tonnage of American vessels is determined when they are registered or enrolled. The Panama Canal Act of August 24, 1912, granted broad powers to the President with regard to the assessment of tolls and rates to be charged. The act provided that—

Tolls may be based upon gross or net registered tonnage, displacement tonnage, or otherwise, and may be based on one form of tonnage for warships and another for ships of commerce. The rate of tolls may be lower upon vessels in ballast than upon vessels carrying passengers or cargo. When based upon net registered tonnage for ships of commerce the tolls shall not exceed $1.25 per net registered ton, nor be less than 75 cents per net registered ton, subject, however, to the provisions of article 19 of the convention between the United States and the Republic of Panama, entered into November 18, 1903. If the tolls shall not be based upon net registered tonnage, they shall not exceed the equivalent of $1.25 per net registered ton as nearly as the same may be determined, nor be less than the equivalent of 75 cents per net registered ton. The toll for each passenger shall not be more than $1.50.

For a short time after the Panama Canal was opened for traffic the tonnage upon which tolls were levied was determined solely by the Panama Canal tonnage rules that had been prescribed by the President, November 21, 1913. The rate of tolls payable upon that net tonnage was $1.20 per ton for vessels with passengers or cargo, and 72 cents per ton for vessels in ballast.

A controversy later raised the question of the applicability of the United States measurement rules by which the net tonnage of American vessels is determined for registration and enrollment purposes.

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The question involved the interpretation of "net registered tonnage" as used in the Panama Canal Act of August 24, 1912.

The protest of certain shipowners was referred by the President to the Attorney General of the United States for his interpretation. In his opinion the Attorney General held that—

In fixing the maximum and minimum rates of tolls it will be presumed that Congress acted with reference to the existing laws of the United States and used the term "net registered tonnage" as defined by statute. Furthermore, Congress evidently intended to fix precise limits to the President's authority, yet no definite maximum and minimum would have been provided if any other than the statutory meaning were given to the term, since there was no universal net registered ton, but, on the contrary, the expression meant to each nation a different amount, all nations having their own particular rules, differing among themselves and from those of the United States.

The Attorney General, accordingly, held that the maximum charge made of the owners of any particular vessel, foreign or American, for the use of the Panama Canal must not exceed the product of $1.25 multiplied by the net tonnage of the vessel as determined by the United States measurement rules, that is, the rules by which the net tonnage of American vessels is determined when they are registered or enrolled. In accordance with this opinion it was held that if a charge of $1.20 per vessel ton upon a vessel's net tonnage determined by the Panama Canal rules exceeded the amount resulting from a toll charge of $1.25 per ton upon the net tonnage ascertained by applying the United States rules for the measurement of vessels for registration the excess could not be collected.

The President, upon this opinion of the Attorney General, issued instructions to the Secretary of War, that, until Congress should deal more satisfactorily with the question, no tolls should be demanded or collected upon any vessel of commerce which should aggregate more than $1.25 multiplied by the net registered tonnage as measured under the statutes of the United States. The result created thereby was that, whereas toll charges at the Panama Canal were based on one tonnage the Panama Canal net tonnage-the limiting factor was that provided by a different and lower tonnage the United States net tonnage. Thus it was required that all vessels be measured under both the Panama Canal and the United States rules of measurement and resulted in the establishment of a dual system of measurement at the Panama Canal.

It is clear that no such result was intended by Congress.

It may be added that prior to the opening of the Panama Canal the United States, like other commercial nations, had its own law for the registration of ships, including their tonnage. Such tonnage regulations are made in all nations as public records and for regulating port, dock, and other charges. It was generally recognized that none of the existing national measurement rules were appropriate for canaltolls purposes. The Suez Canal was the only other interoceanic canal comparable to the Panama Canal. The United States registry rules were not designed for canal-tolls purposes. The Suez Canal disregards the registry rules of all nations and measures and charges tolls by its own system. The same policy was intended by the Panama Canal Act, but was defeated by the opinion referred to. That policy is established by the proposed bill.

EFFECT OF DUAL SYSTEM

The results that have followed the interpretation by the Attorney General have been unfortunate. Not only has the average transit charge per vessel, foreign and American, been much lowered, but the transit payments made for vessels of like earning capacity have become unduly different; and this has taken place without any change in the rate of tolls fixed by the President to be paid by all types of commercial vessels, and without any modification of the rules prescribed by the President for determining the tonnage upon which the established rate of tolls should be paid.

In 1914, when the Panama Canal was opened for traffic, the net tonnage of vessels, when determined by rules based upon the United States statutes as then interpreted, did not differ greatly from the net tonnage when ascertained by applying the Panama Canal measurement rules. For the 41⁄2 months that the Canal was in operation during 1914 the net tonnage of the Panama Canal traffic, when determined by the United States rules, equaled 94.5 percent of the net tonnage under the Panama Canal rules.

The ratio of aggregate net tonnage as determined by the United States rules to that resulting from applying the Panama Canal measurement rules was much reduced in 1915 when the Commissioner of Navigation so changed his interpretation of the requirements of the United States statutes concerning vessel measurement as to exempt from measurement large spaces that are available for, and are regularly used for, the accommodation of passengers or cargo. Later rulings have effected further reductions. The policy followed in measuring vessels for registration under the United States flag has been to prevent American vessels from having a higher registered tonnage than have like vessels of foreign registration. In this regard, the United States has followed the practice of other countries, which has been to keep as low as possible the tonnage upon which their nationals have to pay port charges and other dues in foreign ports.

The following table indicates the extent to which this reduction in tonnage has been accomplished since 1917, and this is directly reflected in a corresponding reduction in tolls charges. For the first 5 months of the Canal's operation in 1914 the percentage was 94.5. Accurate figures for other years prior to 1917 are not available This table. shows the percentage that the aggregate United States net tonnage has formed of the aggregate Panama Canal net tonnage as applied to all vessels which have transited the Canal since 1917.

It is seen from the foregoing table that the United States net registered tonnage, as compared with the Panama Canal net tonnage,

has decreased from 81.08 percent in 1917 to 69.52 percent in 1936. Tolls have decreased proportionately.

Many vessels have not yet taken full advantage of the modifications of the United States measurement rules permitting exemption of cargo spaces of freight vessels. Particularly is this true of vessels of certain foreign nations. During 1934, for instance, the 84 vessels of one nationality, which made 258 transits of the Panama Canal, showed a Panama Canal net tonnage of 1,413,305 the United States net tonnage forming 80.2 percent of the Panama Canal tonnage. During 1935 the Panama Canal tonnage of the vessels of this same nationality was 1,483,609 tons, the United States tonnage dropping to 75.8 percent of the Panama Canal net tonnage, or a reduction from the 1934 figures of 5.5 percent in tons and tolls charges. In 1935 the Panama Canal tonnage of all vessels of this nationality showed an increase, although the amount paid for tolls actually decreased.

To indicate the extent to which advantages are gained under the modification in the United States rules in the case of newly constructed vessels, 18 vessels of the same foreign nationality which had been newly constructed and which had taken full advantage of the various modifications which have been made in recent years to effect tonnage reductions, made 89 transits of the Canal during the year. For these 89 transits the United States net tonnage amounted to 370,382, while the corresponding Panama Canal net tonnage was 559,280. The tonnage under United States rules amounted to only 66.2 percent of the Panama Canal net tonnage. Especially noteworthy is the fact that in the case of one of the newest of such vessels to arrive at the Canal, the United States net tonnage of the vessel was 3,515 while the Panama Canal net tonnage was 6,323. The United States net tonnage thus amounts to only 55.6 percent of the Panama Canal tonnage, and the vessel pays tolls amounting to $4,393.75, a rate of 70.6 cents per ton under Panama Canal rules whether loaded or in ballast. In the case of this vessel, which uses the Canal regularly, the effect of the dual system is to reduce by the sum of $3,193.85 the amount of tolls received from the vessel each time it transits the Canal.

The dual system, having no equity among the several types of vessels transiting the Canal, must be considered as a form of subsidy to certain types of vessels at the expense of other types. To grant such a subsidy to certain types of American vessels is unsound in principle; granting it to foreign vessels is entirely indefensible. Yet foreign vessels have been the principal beneficiaries of the system in the past and will benefit in an even greater degree as fuller advantage is taken of the modifications in the rules as new vessels are constructed. It is important to note that all concessions and reductions secured by American vessels under modifications of the United States rules are necessarily extended in the same degree to foreign vessels by reason of treaty provisions which prescribe that there shall be no discrimination in respect to charges to vessels using the Canal.

In connection with the matter of the extent to which foreign-flag vessels have benefited through the dual measurement system, it may be pointed out that in 1932 the United States Bureau of Efficiency made a complete survey of the tolls collections of the Canal. The report of the survey showed that in 1931, the last year for which figures were then available, the effect of the dual measurement system had been to decrease toll charges approximately $7,000,000 below

those which would have been collected under the Panama Canal rules. Of this sum $4,000,000 represented the benefit to foreign-flag vessels and $3,000,000 to American-flag vessels.

In the 17-year period (1914-31) covered by the report of the Bureau of Efficiency, it was shown that the amount paid by vessels using the Canal was $59,000,000 less under the dual-measurement system than if Panama Canal measurement rules had been applied. Of this amount, foreign-flag vessels benefited by over $32,000,000 while American vessels benefited to the extent of something less than $27,000,000. During the whole 22 years of Canal operation (1914–36) vessels have paid $92,000,000 less under the dual-measurement system than would have been paid under Panama Canal measurement rules if the toll rates fixed in 1912 had continued to be collected. Of this amount, foreign-flag vessels benefited to the extent of approximately $51,000,000, and American vessels in the sum of about $41,000,000. Thus, for every dollar of benefit granted to American vessels, a benefit of more than $1 has accrued to foreign-flag vessels. During this period the tonnage of American vessels represented 44 percent of the total traffic and foreign vessels 56 percent. The report of the Bureau of Efficiency pointed out that if the dual system was to be continued on the theory that American shipping must be thus protected against any increase in tolls, it constituted one of the most costly forms of ship subsidy that could be devised.

The tolls paid by the various nationalities using the Canal during the fiscal year 1936 are shown in the following table. In this table the payments for tolls are separately entered so as to show (1) general cargo vessels and cargo-passenger vessels, and (2) the total amount of tolls for all commercial traffic through the Canal, the latter figures including, in addition to the general cargo and cargopassenger vessels, oil tankers and miscellaneous non-cargo-carrying vessels such as yachts, foreign naval vessels, etc There is also shown in the table the average amount per Panama Canal net ton of the tolls which were actually collected on laden and ballast traffic for the various nationalities.

STRUCTURAL CHANGES REDUCE TOLLS

By structural changes in ships the net registered tonnage under the United States rules of measurement were reduced, and in effect the tolls were reduced, even though the changes made no reduction in their earning capacity. This is illustrated in the cases cited below. In order to levy Panama Canal tolls upon the actual earning capacity of commercial vessels it is necessary to determine net tonnage by rules different from those employed by the United States in measuring vessels for national registration. The national measurement rules of the United States, and those of other countries omit from measurement much space-the amount of space omitted varying with different types of ships-that is used for the accommodation of passengers and the stowage of cargo. The gross tonnage, when determined by the United States rules is, for most commercial vessels, less than the tonnage of their closed-in capacity; and for that reason and because of the regulations followed in making deductions from gross tonnage, the net tonnage is a still more inadequate and incorrect expression of actual capacity. It is the general practice of all maritime countries, in registering vessels under the national flag, to keep the net registered