"The Committee considers that further economies to the Government can be effected by eliminating the duplication of service to the Canal Zone presently provided by the Military Sea Transportation Service. It was testified that the vessels operated by the Panama Canal Company have ample space for all military cargo and passengers between the United States and the Canal Zone, except for the mass transportation of troops. It would appear that all Government agencies in the Canal Zone should use the existing service of the Panama Line with resulting savings to the taxpayer."

2. The Hoover Commission favored the utilization of the Panama

Line by MSTS.

The Hoover Commission report of March 1955 at p. 78 states:

"Recommendation No. 17

"That the three military services should fully utilize the Panama Line capacity."

CONCLUSION

The Drake Report "was undertaken under contract with the Bureau of the Budget to determine the necessity for the continued government ownership and operation of the Panama Line." The Panama Line is a long-established and efficiently operated steamship line which has always been considered by the Congress and the agency charged with responsibility of maintaining and operating the Panama Canal as a vital adjunct to the Panama Canal. The consequences which might follow an erroneous determination to discontinue the Panama Line could well be costly and, as a practical matter, irreversible. Ordinary prudence would dictate that all facets of the problem be rigorously analyzed, assumptions challenged, and that judgment should tend toward conservatism.

The conclusion of the Drake Report that the Panama Line should be discontinued is expressly written in the light of, or is determined by, the judgment that "government operation of the Panama Line is clearly contrary to stated policy". The Drake Report does not restate nor analyze government policy in terms of the specific factors which determine government policy, or, more basically, the public interest. The status of the Panama Line as an instrument of the national defense and foreign policy and merchant marine policy of the United States was ignored. The usual sources from which government policy flows were not consulted; the analysis of government policy resolved itself into a short-view economic interpretation of the public interest. The Panama Canal Company rejects the major premise that the discontinuance of the Panama Line should ever rest upon a questionable balance sheet; it also rejects the minor premise that a realistic balance sheet would show a net cash loss to the government. In the opinion of reputable business consultants, "the Panama Line Study does not present a sound basis for its conclusions and recommendations". (Company Ex. 20, p.6)

The Drake Report violates principles that should guide the ordinary person in the prudent conduct of his own serious business. The promises of the private carriers to perform, or attempt to perform, the vital functions of the Panama Line were equated with ability to perform; obstacles in the way of performance were ignored or minimized. Sound accounting practices were disregarded. The limiting effects of the operating-differential subsidy contract of the carrier primarily concerned, the steamship conference control over rates, the severity of foreign flag competition, the ultimate purpose of the private carrier to serve the stockholder, all were brushed aside (if they were ever considered), and the intentions, unsupported estimates, and great expectations of the carriers competing with the efficient Panama Line, were accepted as basic data.

The continued operation of the Panama Line is not contrary to government policy. The broadly stated injunction against government competition with private enterprise is circumscribed by the more fundamental consideration of the public interest. The Panama Line supports the merchant marine

policy of the United States by competing effectively with foreign flag vessels for the U.S. foreign trade. The Panama Line contributes to the national defense of the United States by providing for immediate use in emergency two excellently maintained vessels, manned and operated by personnel whose efficiency is revealed in the low cost of operation of the vessels. Panama Line also contributes to the national defense to the extent that it provides a thoroughly dependable and flexible service, at reasonable cost, to the Panama Canal -- a link in the national defense. The Panama Line serves the foreign policy of the United States by supporting the economy of the neighboring Republic of Haiti. The private carriers cannot supplant the Panama Line in terms of efficiency, dependability and flexibility of service, or cost; they cannot close the gap in vital service to national policy that would result from the discontinuance of the Panama Line.

The Panama Line should be continued as a vital adjunct to the operations of the United States Government in the Canal Zone. Further economies to the Government should be effected by eliminating the duplication of service to the Canal Zone presently provided by the Military Sea Transportation Service.