Segment 2 Of 2     Previous Hearing Segment(1)

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U.S. House of Representatives,
Subcommittee on Domestic and International Monetary Policy,
Committee on Banking and Financial Services,
Washington, DC.

    The subcommittee met, pursuant to call, at 10:10 a.m., in room 2128, Rayburn House Office Building, Hon. Spencer Bachus, [chairman of the subcommittee], presiding.

    Present: Chairman Bachus; Representatives Green, and Carson.

    Chairman BACHUS. Good morning. I would like to call the Domestic and International Monetary Policy Subcommittee to order.

    Today we are conducting the second day of hearings looking into the impact of the withdrawal of the United States from the Panama Canal Zone and what impact that will have on the vital interests of the United States, including the financial, commercial, and security repercussions. Our concern is that with the complete U.S. withdrawal, all of these vital interests will be threatened. Yesterday's testimony gives me great concern or greater concern that that may be the case.

    Last week the President said that he was not concerned and dismissed the notion that transferring control of the Canal could hurt America's vital interests. Let me quote the President: ''I think the Chinese will, in fact, be bending over backward to make sure they run it in a competent and able and fair manner.''
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    The President also said, and I quote: ''I would be very surprised if any adverse consequences flowed from the Chinese running the Canal.''

    In effect, this means that the United States is dependent on the good-will of China to ensure the safety of the Canal. Is this the best we can do to protect American interests? Is reliance on the good-will of China warranted?

    I have with me a copy of the book published this year by the People's Liberation Army Literature and Art Publishing House. This book—and I am going to introduce excerpts from it into the record—was written by two senior colonels in the PLA, the People's Liberation Army. It is called ''Unrestricted Warfare.''

    According to the translator's note, the book proposes tactics for developing countries, specifically China, to compensate for their military inferiority to the United States during a high-tech war. A recent Washington Post article said that the authors' tactics included terrorism, drug trafficking, computer virus attacks, and environmental degradation. The authors reflect opinions which are very current in Chinese military thinking. And the recent actions by China to expand its influence in the Pacific and in Panama must be seen in this light.

    In a recent interview, one of the authors stated that, and I quote: ''Unrestricted warfare would give a small country like Panama a chance to exploit the United States. It could have used no-limit warfare,'' and this is still part of the quote, ''it could have used no-limit warfare for a first strike to cause the Americans much trouble, causing chaos to the U.S. financial system.''
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    Let me repeat that again, because these are actually the words of a colonel in the People's Liberation Army in an article published this year in China. In this publication, here is what he said. He talks about the use of unrestricted warfare by the Chinese military, and he says this: ''The unrestricted warfare would give a small country like Panama a chance to exploit the United States. It could have used no-limit warfare for a first strike to cause the Americans much trouble, causing chaos to the U.S. financial system.''

    We heard yesterday about the increased activity of Chinese corporations in Panama and how many of them have connections with organized crime. We were also told that international drug traffickers and money launderers consider the departure of the United States as an opportunity to gain strength in Panama.

    And as an aside for any of you who did not attend yesterday's hearing, the person offering much of this testimony was a DEA agent who spent several years in Panama, who infiltrated some of these organized crime rings and worked undercover, and he has been highly awarded for his work in bringing people to justice in Panama.

    As we learned yesterday, the Panamanian financial system is particularly susceptible to corruption and money laundering, even at the highest levels of business and government.

    Lastly, we heard how in Canada the parliament is now investigating allegations of criminal activity by Chinese corporations over the last decade. This investigation includes Li Ka-Shing, the owner of Hutchison Whampoa. But the Administration says we have nothing to worry about in Panama.
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    On October the 22nd, 1999, General Charles E. Wilhelm, Commander in Chief of SouthCom, United States Southern Command, testified before the Senate Armed Services Committee that ''we are not aware of any current internal or external threat to the Panama Canal.'' However, the Defense Department had earlier contracted with a security analysis firm, ManTech, a subsidiary of ManTech, a very large defense contractor.

    The ManTech study, or at least a presentation of the results, has been obtained by this subcommittee, which, by unanimous consent, I will now place in the record.

    As I said, this report was commissioned and contracted to by the Defense Department and presented to them. I would like to place into the record that report at this time. The report plainly states that there are several threats to the United States, including—and I will quote from the report: ''increased''—and these are potential threats—''increased use of ports' free zone, Panamanian airway connection by international criminal elements to support narco-trafficking, and money laundering are a predictable result, as are the increased flow of cocaine and heroin into the United States.''

    Two, manipulation of the Canal may threaten, ''priority shipments.''

    Three, increased manipulation of the banking sector will facilitate money laundering and will increasingly involve corruption of banking interests and other countries.

    Four, destabilization of Panama will be a clear loss to the prestige of the United States of America and will signal clear limits to its influence to both legitimate and criminal elements elsewhere.
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    And, last, contested control of the Darien and sections of bordering provinces are a setback to U.S. strategy.

    These potential threats outlined in this report commissioned by the Defense Department certainly seem to be threats to vital U.S. interests, and I would like to hear from the panelists about their assessment of these and the financial and commercial risks that might result from the U.S. withdrawal from Panama.

    In yesterday's testimony, we had quite a bit of testimony about the number of ships through the Canal, the fact that two-thirds of the cargo is either destined for the United States or originates in the United States, that approximately 15 or 16 percent of all imports and exports to the United States come through the Canal; that oil and grain are two major commodities that are shipped through the Canal; that we depend on the Canal for our flow of petroleum and energy products; that the Dakotas and Nebraska, other States, are quite dependent on the Canal and the farmers there to ship their products to the Pacific Rim; that Florida is quite dependent on the Canal; that much of their agricultural exports, a large percentage, go through the Canal; and on and on. Very important, strategic Canal.

    Our three witnesses today bring a wealth of knowledge to the subject. We are fortunate to have with us today a veteran ship navigator who piloted ships in Japan, Korea, and Panama. He was in Panama for twelve years. In Panama, he served as Canal port captain and supervisory pilot for the Panama Canal Commission. He also served as Chief of Port Services for the United States port in Pusan, Korea.

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    His experience at three different ports that were all returned by the United States to a foreign power makes him uniquely qualified to testify as to the operation of the Canal and what we might face as far as shipping through the Canal once the United States no longer controls the Canal.

    We are also very fortunate to have Lieutenant General Gordon Sumner with us today. Lieutenant General Sumner has both military knowledge of the Canal, and his service includes a three-year-long effort to develop an airplane company in Panama.

    I am looking at his biography. It states that he served for 36 years in the Army, was decorated as a Korean War hero who was captured by the Chinese troops, but escaped two days later. He served on the staff of General MacArthur, commanded an artillery division in the Vietnam War, and later served in a variety of posts in the Pentagon. In 1975, he was named Chairman of the Inter-American Defense Board.

    President Ronald Reagan appointed him Ambassador at Large for Latin America. He served in that position from 1981 to 1989, during which time he devised the Caribbean Basin Initiative, which has greatly helped development in the region. In this subcommittee in testimony about how we can help or assist other countries in their economic development, we all point to the Caribbean Basin Initiative as a very successful initiative.

    So you can be very proud of that, Lieutenant General Sumner.

    I am going to, at this time, take the testimony from the first two witnesses.
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    Admiral Thomas H. Moorer, who served as Commander in Chief of the Pacific Fleet, Commander in Chief of the Atlantic Fleet, and Chief of Naval Operations, and also Chairman of the Joint Chiefs of Staff of the United States on two occasions is en route to Washington. When he arrives, we will seat him.

    But at this time, without further delay, do you gentlemen want to decide who goes first?

    All right, Captain Puckett. We appreciate your attendance and particularly in light of the fact that in some newspaper articles yesterday, some of the newspapers here in Washington, I don't think they were at attendance at this hearing, but they talked about navigation through the Canal after the United States no longer is in control. They didn't give attribution to some of their statements, but we might want you to comment on some of the things they said, whether or not they are true, or whether you believe they are true.

    Now, we don't know—since they gave no attribution to the statements, we don't know where they came from.


    Capt. PUCKETT. Thank you, Mr. Chairman. Today it is a privilege to provide you with insight into the operation of the Panama Canal and share with you and other Members of this subcommittee my concerns for the future. It is not often that a seaman on watch is called to the pilothouse to offer his opinion on the course of the ship, and I thank you for that.
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    The Panama Canal, sir, is a very old industrial complex. The Panama Canal Commission, to their credit, spent millions of dollars to upgrade various components of the Canal. For example, they have added high-mast lighting to extend the hours of daylight, increased the size and horsepower of tugboats, and they are currently widening the famous Gaillard Cut, to name a few improvements.

    However, the fact remains that the original concrete lock structures and 700-ton steel miter gates are over 85 years old. I believe it is the longevity of these components that will determine the viability of the Panama Canal in the 21st Century.

    A little history for you, Mr. Chairman: The Panama Canal was designed and built to accommodate the World War I battleships, Arizona and Pennsylvania. These vessels were 106 feet in beam and had drafts of 34 feet with displacements of 34,000 tons.

    By comparison, during World War II, larger military vessels, battleships, and aircraft carriers with beams of up to 108 feet, drafts of 38 feet, and displacements of 53,000 tons routinely transited the Canal. These World War II vessels barely fit the 110-foot-wide lock chambers with less than 12 inches between the ship's sides and the concrete lock walls.

    The successful transiting of these vessels set precedence for the passage of the larger commercial vessels of today. Known as Panamax, these vessels have displacements of over 70,000 tons, which is more than double the size of the designed lock capacity. Panamax vessels now account for approximately 27 percent of all vessel traffic on the Canal.

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    What effect has the transiting of these larger vessels had on the locks and gates over the last fifty years? Basic physics remind us that water will not compress. It takes an enormous amount of energy to force the oversized Panamax vessel into a lock chamber. In order for a pilot to get a Panamax into a lock chamber, the vessel's engines must be placed at full speed ahead and the electric locomotives operated at maximum towing capacity. In some cases tugboats are directed to assist with the lockage by pushing on the stern of the vessel.

    Each time a Panamax vessel is forced into a lock chamber, the whole structure begins to vibrate. It is these vibrations that concern me. Cracks can be observed in the concrete lock walls, and the steel miter gates leak. A breach of the lock walls and internal culverts or a miter gate failure could close the Panama Canal for an indefinite period of time.

    Vital to the continuous 24-hour-a-day, 7-day-a-week operation of the Panama Canal is a reliable source of electricity and an abundance of fresh water. Currently, the Panama Canal Commission operates its own electrical generating plant.

    Today Panama is experiencing an unprecedented increase in population growth and commercial expansion. These factors have resulted in an increasing demand for electrical power in Panama. As a result, power outages in Panama are not uncommon. After Panama assumes control of the Canal, will there continue to be a dedicated electrical power source for Canal operations?

    I might add, it is a possibility they could integrate the Panama Canal Commission power plant into their system, which would reduce the availability of power back to the Canal.
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    Fresh water is the other resource that is vital to the operation of the Panama Canal. Each time a vessel passes through the Canal, it uses 52 million gallons of fresh water. That is over 1.5 billion gallons of water to move an average of 32 vessels through the Canal each day. This water comes from the abundant 130 inches of rain that annually falls in Panama's rainforest.

    Historically, whenever there has been an increase in commercial development in a tropical environment such as Panama, there has been a corresponding reduction and loss in valuable rainforest watersheds. Nowhere else in the world does a rainforest have such collateral importance as it does in Panama. Without the rainforest, greater water runoff will occur during the rainy season.

    Consequently, there may not be enough fresh water held in the watershed to operate the Canal during the dry season. Will current plans to safeguard this vital Canal resource be honored and enforced? Once a rainforest is depleted, it takes decades to recover.

    As a senior Canal pilot, I am frequently asked if I think Panama can operate the Panama Canal once they assume control on 31 December 1999. I have always answered in the affirmative. There are hundreds of men and women in Panama well qualified to manage and operate the Canal if given that opportunity.

    It came as a complete surprise when I learned that Panama had relinquished control of two major ports and the Trans-Isthmian Railroad. While the strategic military issues are serious enough, what impact will this move have on the economic well-being of the United States and the future of world commerce?
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    A major concern expressed to me by ships' captains regarded vessel scheduling and pilot assignments. Their concerns become more significant in the view of the fact that a private company now operates the Ports of Balboa and Cristobal at the entrances to the Panama Canal. Current U.S. Federal regulations dictate that vessels transiting the Canal be scheduled primarily on a first-come, first-served basis. Transit fees are based on vessel tonnage and paid in advance. Priority scheduling is available for a 10 percent surcharge. Pilots are assigned in accordance with strict guidelines and based on duty rotation and qualifications.

    Under Panama Law Number 5, that is, the new law, the control of shipping, berthing, and pilot assignments in the ports of Panama will be granted to the private contractor.

    Chairman BACHUS. Captain Puckett, would you read that sentence again that you——

    Capt. PUCKETT. Under Panama Law Number 5, the control of shipping, berthing, and pilot assignments in the ports of Panama will be granted to the private contractor. That is the way I read it, Mr. Chairman. This contractor is the Hutchinson Port Company, a Hong Kong-based Chinese conglomerate.

    Consider for a moment this statement taken from an interview with President Dong of the Chinese shipping company, COSCO, as reported in the Journal of Commerce in August of 1998. In Mr. Dong's own words, he said: ''In order to satisfy our customers' needs, remain competitive, and preserve market share, COSCO must offer confidential contracts'' to its shippers.
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    If the Hutchinson Port Company controls vessel scheduling and pilot assignments in the ports of Panama, it stands to reason that they will give preferential service and ensure priority transit scheduling to their customers. Remember, time is money, and there are a limited number of vessels that the Canal can accommodate on a daily basis. Any preferred scheduling practice will foster a bidding war among shipping agents.

    And I might interject here, every day of the week I was a port captain, I had an agent coming to me trying to influence our decision to send his ship through the Canal, because he was paid by the shipper and the owner to get it through as quick as possible.

    Any preferred scheduling practice will foster a bidding war among these shipping agents, shipping companies, vessel owners, and even countries for that matter. Under such circumstances, how long will it be before the maritime industry worldwide loses confidence in the operations at the Panama Canal? What effect will all this have on the strategic requirements of the U.S. military? Will our warships continue to be given priority transit scheduling, or will they be required to wait in line just like any other commercial vessel?

    The Code of Federal Regulations dictates that a Panama Canal pilot be in complete navigation of a vessel in Canal waters. The purpose of the regulation is to enhance safety, eliminate confusion on the bridge, and maintain efficient traffic flow. To ensure enforcement of the regulation under international law, the Panama Canal Commission accepts full responsibility and liability for any damages to a vessel as the result of the actions of pilots or other Canal employees. Vessel owners, insurance companies, captains, and Panama Canal pilots have supported this regulation for seven decades.
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    The channel entrances to the locks at the Panama Canal are unlike any other waters in the world, Mr. Chairman. Different currents flowing in different directions at different depths at different stages of the tide affect the vessel as it approaches the locks. Panama Canal pilots are specifically trained and qualified to pilot a vessel under such unique conditions. Ships' captains look forward to having a Panama Canal pilot aboard their vessel to assume navigation control.

    Effective 31 December 1999, the Panama Canal Commission and its successor, the Panama Canal Authority, have agreed to change the regulation that outlines the damage liabilities on the Panama Canal. The new regulation will state that the Panama Canal pilot will remain in navigation control, but a significant portion of the liability for damages will shift from the Panama Canal to vessel owners. In other words, vessel owners will be required to assume liability for damages caused by Canal pilots and Canal employees.

    This major change in operating procedures creates anxiety in the maritime industry and fosters an atmosphere of distrust between ships' captains and Canal pilots. Designed to protect the interest of his owner, the captain will insist on participating in the navigation control of his vessel while in Canal waters. The ensuing conflict in navigation control will lead to an overall slowdown in vessel traffic and an increase in accidents.

    Imagine for a moment the chaos in the cockpit of a 747 jumbo jet with two pilots fighting for control of an aircraft during a landing. I have experienced this six times in my life on the Canal, and I had full navigational control.

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    There are 32 accidents a year on the Panama Canal. Most of them are fender benders. A couple of them are a lot worse than that. Usually it is mechanical failure or a misunderstanding in language or sundry different items that cause these accidents. We still have 32 accidents a year. Add to that now the captain looking out for his owners and wanting to be involved in the control of his vessel as they approach the locks, and it is inevitable. They will either slow the ship down, or we will have more accidents. And a serious accident could close the Canal or one side of it.

    While I was there for fifteen years, we had a vessel sink, two vessels sink in the Canal. We had collisions. We had numerous vessels hit the locks and cause pollution. We had one Navy destroyer that the whole sonar dome was completely destroyed and had to go back to the shipyard. So there are accidents, and it is part of the operation. But add this next requirement that the shipping owner be held responsible for the actions of a machine he can't control, and it could get a little bit worse.

    I will skip over the part about the weight and the cargo, because you have received it.

    Chairman BACHUS. Go ahead and read that. We have the time.

    Capt. PUCKETT. Each year, over 190 million tons of cargo pass through the Panama Canal. West Virginia coal goes directly to Korea, thus avoiding the extra 5,000 miles around the tip of South America. Grain from America's heartland destined for the Far East accounts for 23 percent of all Canal traffic. From my home State of Florida, over $100 million of fruit and citrus is annually shipped through the Canal directly to Japan.
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    Some 67 percent of Ecuador's maritime traffic, 43 percent of Peru's, 23 percent of Chile's, 70 percent of El Salvador's, and 75 percent of Nicaragua's ocean commerce depend on the Canal. How would the U.S. and these countries get their products to market if the Panama Canal were to shut down tomorrow?

    Are the harbors, ports, railroads, highways, and trucking systems of the United States capable of handling such a massive increase of cargo across our continent? Think about it. What would happen if only a fraction of the 190 million tons of Canal cargo were suddenly infused into the current transportation system? I understand from the Journal of Commerce that last year the rail capacity only increased by 100,000 tons. So we are reaching our maximum here in the United States as far as moving cargo.

    The Panama Canal is an important link in the world's transportation system, and I believe should be viewed as a world utility. Whoever operates the Panama Canal controls this utility and holds the switch that ultimately regulates world commerce. The big question is, after 31 December 1999, who will assume the responsibility to make sure that that switch remains open?

    Bear with me for a minute while I share some history with you, speaking about my previous experiences. In 1970, the United States began the process of returning the islands of Okinawa to Japan. The U.S. Army was in charge of port operations in Okinawa. I was ordered there to supplement the American Civilian Pilot force, assist with the turnover, and begin a confidential dialogue with the Japanese and Okinawa pilots.

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    That transition went smoothly, and I attribute our success in that transition to two important factors. First, the United States had begun renegotiating the Status of Forces Agreement well before the turnover was to take place. Consequently, all parties to the reversion knew exactly what to expect before, during, and after the turnover.

    Second, and more important, we had the rule of law. Treaties are considered the law of the land in both countries.

    Then in 1975, I was Chief of Port Services in Pusan, Korea. The summer of that year, the Korean harbor pilots purchased several new tugboats. Shortly thereafter, they arbitrarily began refusing Army tugboats to assist with U.S. military and U.S. civilian vessels. We reminded the Korean pilots that the Status of Forces Agreement and the supplemental articles specifically stated that any time there was a problem affecting strategic military operations in Korea, the U.S. Army could utilize their own tugs and pilots.

    We were able to maintain normal port operations for several months and finally essentially negotiated a settlement with the pilots. The Koreans refused to use our Army tugboats, and we implemented the agreement. Once again, a Status of Forces Agreement, coupled with the rule of law, protected the national interests of both countries.

    I offer these experiences as examples of how the U.S. has handled treaty situations in the past.

    Mr. Chairman, the Panama Canal treaties are vague in defining specific circumstances justifying any U.S. intervention in Canal operations. What is our recourse if the Canal shuts down for any reason? A Status of Canal Agreement—that is the new term I picked out of the air—a Status of Canal Agreement establishing verifiable, practical, and operational guidelines would fill that void.
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    From Carter to Clinton, six Presidents and their administrations have had over twenty-two years to prepare for the turnover of the Panama Canal. We are now at a crossroads in Panama and left with few options. Meanwhile, the Canal facilities continue to age.

    I believe the United States should once again take the lead by calling for an international convention on alternative modes and means of transporting cargo across Central America. This would send a message to the world that the United States is not abandoning our commitment to free world trade. The practical, political, and economic importance of the flow of commerce across our continent is essential to the security of our Nation and to the generations that follow us.

    That concludes my written statement, sir.

    Chairman BACHUS. Thank you.

    At this time, we will go to Lieutenant General Sumner; and then, Admiral, I will introduce you. If you all want to work out a different order, it is fine with me.

    Lt. Gen. SUMNER. Can you hear me all right?

    Chairman BACHUS. I hear you great.

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    Lt. Gen. SUMNER. First of all, I want to express my pleasure and consider it a privilege to appear before this subcommittee. This is my third appearance since June on this subject. I would preface my remarks by giving an overview of the threat.

    First, I am pleased to see so many young people in this audience, because there is a lack of understanding amongst the general American public about the Panama Canal. And this is a splendid presentation made by Captain Puckett, because this is a subject that is vital to the economy and the future of this country.

    I see what has happened in the past twenty-some-odd years, and Admiral Moorer and I testified here in January and February of 1978. Many people in this room probably weren't even born at that time. But we have been struggling with this problem for many years.

    At the time—1976-1978—I talked to Omar Torrijos about this situation. I later talked to Tony Noriega about it. It has been ongoing. And nothing has happened to correct the problems that we are seeing here today.

    I view this as a part of the disarming of America; and not disarming us militarily, but disarming us economically. This is going to have a serious impact on our country. If you want to see the Dow drop 3,000 points, just have the Canal close. Blow the Gatun Dam and lose all this fresh water; and you are going to find 15 percent of everything this country produces goes through the Canal. It is going to be stacked up. for example, we would to have hundreds of millions of tons of grain on the ground.

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    Now, the liberals have said from the very beginning, ''Don't worry about the Canal, it is not critical.'' We have had senior military people testify before the Congress on this saying it is not critical, because the ''dry canal'' will pick up the slack. Well, the ''dry canal'' is full. In June, I presented to the Mica subcommitte of the House a videotape produced by Los Alamos National Laboratory, paid for by the Department of Transportation, showing our national transportation system. This showed graphically that the ''dry canal'' is full; it has no more capacity.

    The Department of Transportation is also pursuing this project. And we are talking about efforts requiring millions of dollars. Further, when you produce a model of our international transportation system, you are looking at an enormous amount of data.

    Chairman Gilman and Chairman Burton have written Secretary Cohen asking him to look into this problem from the national security standpoint. And in their letters, they also bring up the related economic problem.

    Let me talk about threat for just a minute. You look at threat in two dimensions. One is capability. What is the capability of the FARC, the Colombian narco-terrorists, what is their capability? What is the capability of the Chinese Communists, or if you want to put it on a commercial basis, what is the capability of Hutchison Whampoa to close the Canal permanently or temporarily?

    I have talked to my Panamanian friends and said, ''Suppose the Chinese Communists or Hutchinson Whampoa just pull a ship into the canal in front of the locks and anchor it?'' They said, ''Well, we would tow it.'' I said, ''Have you ever tried to tow a ship that had ten anchors over the side? It can't be done.'' ''Well, then, we would board it.'' And I said, ''Yeah, you are going to board it with guns? Are you going to start World War III over this?'' Look down the road at the capabilities.
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    Now the other dimension of the threat is the intention. The intention is more subjective, and that is something that people can argue about. People are entitled to their opinions, but they are not entitled to their facts.

    And Captain Puckett has just been producing facts. We have a full court press by the White House now to try and tell the American people there is nothing to worry about. The President said, ''the Chinese will do a good job in running the Canal.'' According to his Press Secretary Lockhart, that was a misstatement. I am not sure it was at all.

    But we have a problem here. President Carter, Walter Mondale, Stansfield Turner and Bob Pastor, were all the people that got this whole train started. When they looked at the threat, they basically saw no threat. Again, capabilities and intentions.

    At the risk of offending my Navy friends in the audience here, Stansfield Turner and Jimmy Carter decided that this country doesn't need human intelligence. And human intelligence is the first line of defense for the Canal.

    Now, you can say what you want to about Tony Noriega. He had good intelligence. I used to tell the Assistant Secretary of State that ''Tony Noriega wasn't for sale, he was for rent.'' And he furnished us the information; we paid the rent every day, or somebody else paid the rent, the somebody else being Fidel Castro in most cases.

    So we have this problem that has not only a military, but an economic side to it, and I find at this late date it may be too late to do anything. But maybe not. We have a new government down there. The new president has expressed a willingness to talk about this. The treaties mandated that we would negotiate a military presence to protect the Canal after the year 2000.
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    If you go back and read this testimony, Admiral Moorer, Admiral Holloway, the chiefs, all said, ''We will go along with these treaties.'' But there were all sorts of things that are built into the treaty to protect us from the very situation we find ourselves in today.

    To put it in Army terms, ''the truck is in the ditch.'' We know what the ditch is. How are we going to get it out? How are we going to solve some of the problems that Captain Puckett has brought up? How are we going to be able to deal with a regional problem?

    We are focused on the Panama Canal here, but in addition you have got the Colombian narco-terrorists. Colombia is fighting for its very existence as we speak today. The Colombian terrorists came into Albrook on the 1st of November and took two helicopters at gunpoint. It was a wake-up call. They bound and gagged the people and left them off at the hotel. It was a nice psychological warfare ploy on their part.

    Chairman BACHUS. And for the record, that was a former Army base, was it not? Or was that a Navy——

    Lt. Gen. SUMNER. Yes, Albrook was the Army air base there which we turned over to the Panamanians, and they moved their civilian airport, which was over on the other side of the city—they moved it into Albrook. These were civilian helicopters. They were not military helicopters. But the point was made, I think quite vividly, that we are here, we can do whatever is necessary.

    These Carter-Torrijos treaties led, in my opinion, directly to operation ''Just Cause.'' We had twenty-seven Americans killed, hundreds wounded. We had thousands of Panamanians killed. Nobody knows the number; they never come up with a firm number. But they were, in most cases, innocent civilians.
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    If we go on down this road, General Wilhelm has testified on the 26th of June as you pointed out, that he has contingency plans to go back into Panama, because under the Neutrality Treaty, we have that right. The problem is, if the locks are blown and the dam has gone, sending Marines back in there is slamming the door after the horse is gone. That is not going to do us one bit of good.

    Think again. When we executed ''Just Cause'', we had troops on the ground. General Thurman did not have to come in over the beach and be faced with opposition.

    The PDF was there, but the PDF put up only a token resistance. But if we have to go do this again—I am speaking now from a military standpoint—it is a whole different ball game. And if the FARC is there on the ground with advanced weaponry, surface-to-surface missiles, antiaircraft guns, we are looking at an enormous loss of life and significant bloodshed.

    So what is the answer to this?

    I think we have a window of opportunity here to do what Captain Puckett has talked about, what my friend Tomas Cabal has talked about. We need to sit down with the Panamanians and try to work this out. But we cannot do it as long as we have a President of the United States and a State Department that is adamantly opposed to doing anything about this problem. They are telling the America people, ''Everything is fine, don't worry about it, the Chinese are going to do a good job running the Canal.'' If you read history and you study Toynbee and Spingler and Gibbons, when a great country like ours fails to understand what is in its national interests—and I am talking about our economic as well as our political interests—we are going to end up on the ash heap of history.
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    I think one of our problems is that we do not have enough people who are knowledgeable about Latin America in general and knowledgeable about the problems of Panama. The Panamanians, the State Department, and the White House have just sort of brushed off Latin America. The American Ambassador, Hughes, told me in front of Panamanians that the Secretary of State had no particular interest in Panama, and did not know what he was doing. Hughes resigned shortly thereafter.

    We, as a Government, have used Latin America as a professional backwater for the military—and I think Admiral Moorer will support me. We don't put our best people in Latin America. I will say for Admiral Moorer, he sent me Admiral Kenoisen. There have been some attempts to correct this problem. It is not just a backwater for the America military; it is a backwater for the State Department. When the State Department people are assigned to Latin America, that is where they send their second-rate people, and I am sorry if I am offending some people with this, but it is the truth. I think we need, and particularly the Congress of the United States needs, to understand we have a big problem here. It is not going to be solved overnight. These problems has been festering for twenty years. I think it is up to the Congress or the Judicial Branch of the Government to lance this boil. It is a national disgrace, in my opinion.

    I think probably I have said enough, sir. Thank you.

    Chairman BACHUS. Let me say this, General. We sometimes, when we call witnesses before Congress, we encourage them to say what is on their mind, and often they do not; and even after we ask them questions, they really don't express their true beliefs. Then when we talk with them in the hall after the hearings, they say, ''This is what I really wanted to say.'' I think you said it in here instead of out in the hall.
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    I think that is as much as we can ask of our witnesses to give their opinion; and that is your opinion, and it is a strong opinion. If you heard the witnesses yesterday, we had a university professor from Panama who has a nightly news show, which has very high ratings in Panama; an ABC affiliate carries it there. He told us that the polls in Panama are showing that 70 to 80 percent of the Panamanian people do not understand why we are not maintaining a physical presence on the ground. He said many of the same things you have said today.

    The Panamanian people have the same fears that we have. There is a disconnect between the government and the people. He also told us one very disturbing fact, and that is under Panamanian law, political contributions cannot be disclosed. So we have no idea who is contributing money to those in power in Panama to finance their campaigns or their elections, or who is financing them after they get elected.

    The media in the United States certainly understands the necessity of full disclosure here. They understand how money can have a corrupting influence. We very well in this country understand the need for financial disclosure, to find out where the money comes from and who is contributing it. In Panama, there is a complete veil over that. We don't know why decisions are made. We heard testimony from the U.S. consortium that bid on the concession to operate the ports at both ends of the Canal, why that is so important for them. They were the successful bidder. They were invited to Panama to be awarded the contract. At the awarding ceremonies, the head of the port authority was called away by the president. He returned an hour-and-a-half later and said that they would not be receiving the bid, it would be rebid. They never again received specifications for the contract.
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    To my knowledge, that has never been widely reported in the newspapers in this country, the fact that there is strong evidence that the bidding process for the concessions to these ports was not fair, was not transparent, was not honest.

    I share your frustration that I think you have from reading some of the things you and Admiral Moorer have said. Many of us on this subcommittee have those frustrations. Why does no one care? Why do they not care about these concerns? Why does it not raise a cautionary concern. In this country on a daily basis we have a headline news story about a contribution to some campaign and how that may affect someone's vote or decision on a matter. Yet, in Panama, we have had decisions that have tremendous influence on us, and no one is looking under the cover.

    At this time I would like to——

    Lt. Gen. SUMNER. Could I just make one comment? I wasn't here for the hearing yesterday, but I did read the testimony, and I ask that my experience with Panama Air be inserted into the record. I put this fact sheet out after Panama Air was taken away from me—and I have shotgunned this fact sheet out to the investment community all over the world. The result was the foreign investment in Panama the following year dropped 50 percent. It is very difficult, and I pointed out to my Panamanian friends, for us to do business in Panama on anything but the smallest scale. We have the Foreign Corrupt Practices Act, which puts us—and I am speaking of the American investors who want to invest—we are in handcuffs, whereas a country like China or Germany or France, Italy, they are not constrained; and it is very difficult to compete. I guess it is a tribute to our technology that we do get business abroad, despite the Foreign Corrupt Practices Act. We cannot pay agent fees; we cannot bribe. Our system has to be totally transparent. That puts us at an enormous disadvantage in doing business around the world. Thank you, sir.
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    Chairman BACHUS. I very much appreciate that. It puts us at a disadvantage when our competitors do bribe, when our competitors do these things that we do not do and shouldn't do.

    Lt. Gen. SUMNER. That is something the World Trade Organization should have taken up. You know, get a level playing field.

    Chairman BACHUS. Good point.

    Our next speaker, and it is an honor to introduce him as a fellow Alabamian, is Admiral Thomas H. Moorer, who served as Commander in Chief of the Pacific Fleet and Commander in Chief of the Atlantic Fleet, Chief of Naval Operations, and Chairman of the Joint Chiefs of Staff on two occasions. And I guess you are still Honorary Chairman of the Retired Officers Advisory Board of the National Security Center. That is an organization made up of 80 retired officers of our services, 40 of which have flag rank, and Admiral Moorer was elected as their chairman. So it is with great honor that we welcome you to the hearing today, Admiral Moorer. We welcome your comments.


    Adm. MOORER. Thank you, Mr. Chairman. First I want to apologize for being late. It is the first time that has ever happened in over one hundred hearings that I have conducted here in this building.
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    Chairman BACHUS. And let me say this. We knew, because of your travel plans, we knew that you might be late and it was not a problem.

    Adm. MOORER. Thank you, sir.

    I have testified many times during the ill-advised Carter-Torrijos Treaty, and what I propose to do is simply to give a summary of what I said and then discuss some of the very important issues that both Captain Puckett and that the General discussed.

    During the Carter treaty hearings, I stated: ''The defense and use of the Panama Canal is wrapped inextricably with the overall global strategy and prosperity of the United States and the security of the Free World. If the United States opts to turn over full responsibility for the maintenance and operation of such an important waterway to a small, resource-poor, and unstable country as Panama by proxy or directly, the vacuum will be quickly filled by the Soviet Union or some other power center.'' Now, the Chinese have negotiated with the previous Ballederes government, and this is known as Panama Law Number 5.

    This law was enacted on January 16, 1997, by the legislative assembly of Panama; and it gives very extensive rights to Communist-controlled Hutchison Whampoa, Ltd., who are based in Hong Kong. As you recall, Hong Kong was recently turned over to the Communists by the British government. This company has close ties with a Mr. Li, a multibillionaire, with also close ties to the Chinese Communist army. I call attention of the subcommittee to the fact that the rights granted the Chinese grossly violate the United States rights under the Panama Neutrality Treaty. Panama Law 5 unethically shuts out U.S. bids and gives Panama extensive financial benefits.
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    I am sure Mr. Li, with his billion dollars as they express it down there, they are sending in bushels of money, and that was why Ballederes caved in like he did. So you have a situation where the rights and the interests of the United States are grossly violated by the Panama Public Law 5, and this cannot be ignored. There are several articles—I won't take the time of the subcommittee to give the details on, but they are violations of the original treaty; and consequently, what we are doing is permitting the Chinese Communists to acquire a foothold in our own country.

    This I don't understand, because the facts are that we have sent troops to Kosovo, we have sent troops to Haiti, we have sent troops to Timor, but we do not have any troops to send in our own backyard where we really have the greatest threat that exists worldwide to the United States today. That I cannot understand. Not only are we turning over control of the Canal, but we are providing a launching point for missiles against the United States. If you read the paper this morning, you will see that on the headlines the Chinese are now preparing a series of launching points aimed at Taiwan. If we get involved in a Taiwan operation or for that matter, with the North Koreans into South Korea, putting our forces in jeopardy, well, then the Panama Canal will play a very important part.

    So I think that the testimony given by Captain Puckett and Lieutenant General Sumner wrap up the problem very well. I would call the attention of the subcommittee to this Resolution 77 which was submitted by Congresswoman Chenowith-Hage, which gives a very orderly rundown of what the problem really is. I think it is high time that the United States Government, including the Executive and Legislative Branches, step in and take some action to guarantee the prosperity and the defense of the United States, because of the fact that the Canal is gradually being pecked away at, because it does not get the maintenance that the original treaty provided for.
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    And if it is not working right, we have to get down and fix it, and I have said many times, if we ever again get involved in a combat in either the Atlantic or the Pacific Oceans, people should realize that we have to have the Canal. I don't think you can make a case for the fact that some of the ships are too large to go through. The facts are that the aircraft carriers, for instance, have to have supplies no matter where they are, and so do the marine division. You cannot put a division of troops, army or marine, down on the ground all around the world and not have a flow of ships bringing in the supplies that it takes for them to operate—the ammunition, the weapons, the uniforms, the medicine, and so on.

    So those that suggest that the Canal can't handle the big ships, that is true. What we really should do is get down there and fix it so that it can handle the big ships. But in any event, we are in a very serious situation now, and I am surprised that something is not being done about it.

    Now, the Clinton Administration, in the first place, their public affairs officer made a statement and said that anybody that thinks the Canal can't work perfectly is silly. He used the word ''silly.'' and then in Senator Warner's hearing, there were five witnesses, including the Assistant Secretary of State, that came up and testified that everything is going to be rosy; and only last week, the President himself said he would be surprised if the Chinese couldn't handle the Canal smoothly. I think he had a slip of the tongue, because the treaty is with Panama, the treaty is not with the Chinese. But we are more or less turning now to negotiate with the Chinese on what we are going to do about Panama.

    Then there is the fact that we are giving Panama—or rather the Chinese again—a launching area for attacking the United States with those missiles just like they are setting up to attack Taiwan.
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    So I can only say that I have spent my career of 45 years or so constructing war plans and studying threats and what have you, and I don't think there is any major operation that one can conceive of which involves the United States of America that doesn't require the Panama Canal. So I can't understand why supposedly intelligent people make statements and give testimony that we do not need the Canal, it is worn out, and if we don't use it, we will go by what they call ''dry transport.''

    I would simply say so far as that is concerned that you are talking about tons in a ship and ounces in an airplane, when you start comparing the movement of large forces and large tonnage, whether you are talking about the economy, whether you are talking about the Defense Department.

    So, Mr. Chairman, I would hope that this subcommittee would grab the bull by the horns and get the State Department and the Senate all working together with the Panamanians to come up with a new plan that corrects most of these problems and that serves to get the Chinese out of Panama. Thank you, sir.

    Chairman BACHUS. I thank you, Admiral Moorer.

    At this time I would like to introduce into the record a copy of a letter that is signed by twenty-four Members of Congress to the President on November the 10th, 1999, urging him that under the Panama Canal treaties, we do have the right to maintain a presence in Panama. We have urged—I will just introduce this letter, I think it speaks for itself.

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    Chairman BACHUS. We have had no response to this letter. We have also had no response to our invitations to the State Department, to the Justice Department, to the Treasury Department to participate in these hearings and to talk about the commercial importance of the Canal and to talk about the money laundering and the corruption in the government in Panama, or corruption in the practices, the irregularities in the bid-letting, which I am going to go into with you, Lieutenant General Sumner, because you also have a unique perspective on that, having personally participated in bid-opening in Panama for a concession.

    Their response is not to respond to the facts. Their response to all inquiries by the media has been a pattern response that I have seen come from two different departments. It is the same response, and I don't know whether this is the White House media machine or whatever. Their response, Admiral Moorer, is that you have given this testimony several times, including to the John Birch Society, and that this is a concern stirred up by the John Birch Society. So they don't address the problem; they simply try to say that you gave the speech to the John Birch Society and therefore this is——

    Adm. MOORER. I would like to say that I am not a member of the John Birch Society.

    Chairman BACHUS. And I am glad you said that, simply because they continue to say their response to the concerns of the Congress, their response to when the media questions the Administration about the merits of the concerns that you and others are raising, and yesterday which were raised by Panamanians, raised by a DEA agent that spent eight years in Panama, their response is that the John Birch Society is stirring this up.

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    I want to say for the record that I have never had any communication with the John Birch Society to my knowledge since I have been a Member of Congress. I have never spoken to the John Birch Society. They have never officially talked to me. I don't know of any official correspondence or of any phone calls from the John Birch Society. I am sure that they are people that I represent, the people I know that may be members of that organization, but my concerns were not brought to me by the John Birch Society.

    But that is just an attempt—you see that spin machine at work in Washington. The media is very used to it. They talk about it. But apparently in this case, it is working, because they are saying that and it gets into the articles. Of some seventeen articles that were published over the last week about the Canal, reference to the John Birch Society was made in one-half of those articles.

    Adm. MOORER. Well, of course, they are grasping at straws. They are trying to find some way of getting the public at large to ignore the problem of the Panama Canal.

    Chairman BACHUS. When the facts aren't on your side, talk about something else, and that is what they are doing. They could have been here today, they were invited to be here to talk about the things that were talked about yesterday, to address them, to rebut them. They are not here. They are not going to be in Panama, neither the President nor the Vice President will be in Panama for the transfer of the Canal. I can certainly understand why they are not going to be there. But the State Department, as of yesterday, continues to say that they are making no efforts whatsoever to negotiate for a continued U.S. presence. They are telling us that they are not making any efforts to address these concerns.
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    Now, two things are possible. One is that they are lying to this subcommittee, to this Congress, and to the American people when they say they are not holding any talks or making any efforts, and that they are; and if they are indeed holding such discussions, but they are saying to the American people there are no such discussions, then I think that is a matter of ethics for all of us, and veracity for all of us to judge. But if we take them at their word, if we assume that they are telling the truth and they are doing absolutely nothing as the December 31st date approaches; and as the President said last year, he is relying on the good intentions of the Chinese.

    Adm. MOORER. Well, I think that is absolutely true. The Chinese are the same people that stole our technology and that are in Panama, and they don't hesitate to announce that the United States is their number one enemy, and I think you better look around. In viewing the security of the United States, you have to come down hard on capabilities and not waste your time trying to develop intentions and read their mind, because the capabilities are there for everyone to see that knows anything about the problem.

    Chairman BACHUS. Yesterday—well, let me go back and say when the secrets were stolen from Los Alamos, there was some reference made that they would use them for commercial development, not for military development. We saw yesterday that they are developing missiles to be launched from submarines which they have now started constructing, using stolen technology from Los Alamos. So any reliance on their good intentions with what they would do with the military secrets, those good intentions disappeared as of yesterday morning.

    Let me address the panel—and you have already answered this, Admiral Moorer—so Captain Puckett, I want to address this question to you.
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    You have seen firsthand the transition of the United States from Korea, Japan, and now we are leaving Panama. Were you concerned about the departures from all three, or is the departure from Panama different?

    Capt. PUCKETT. I was not concerned either in Okinawa or in Korea. Those were natural processes that were taking place; and in Okinawa, for example, it was decided to give the islands and the operation over to the Okinawan and Japanese authorities. It went very smoothly. The Japanese were perfectly capable of coming in and taking over. The transition took less than six months. One day we were in control, the next day I turn around the bend and here comes a Japanese ship loaded with yen, and we brought it into the port and we packed up and left.

    In Korea it was the same way. The Korean ports are being more and more commercialized. We still have military cargo going into Korea, of course, because we have to support our military over there. The Korean pilots and the tugs are bigger and better. We went from a total military—the last U.S. Army active military port was Pusan, Korea. When we closed that, we still have a presence there, we have contracting officers who oversee the military cargo that comes in and of course we have very good relations with South Korea, and we monitor traffic in and out. So that is a total contract operation.

    The Canal is something all together different. That is a total commercial operation in the sense that the Panama Canal Commission treats everybody equal. If you have ever been aboard a ship, most ships' captains have a little slop chest in which they have different types of commodities which they use as gratuities to make sure that their paperwork gets done on time. The Panama Canal Commission, on the other hand, we had a pretty straight operation. Very few people took anything or did anything that was out of order. It was a very honest operation in that I can't remember having any real big problems with anything down there, and I wasn't concerned with the operation at all.
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    The Panamanian people that we trained, the young Panamanian pilots, they are superb. They are excellent. A lot of them are educated in the United States and places all over the world. That wasn't the operation. It was the concern that they had and we had with the government coming in and appointing political appointees to jobs and positions in which they had no technical ability whatsoever. That is where the problem lies right now, the concern of operating the Canal with political appointees rather than technical people who can really handle the job and maintaining the integrity of the traffic flow and the fairness and the assignment of ships on schedule and on time.

    So no, I didn't have any problems with it the way it was set up, but it obviously is going to change now, because we have two separate entities; we have a private company in the ports influencing the ships that are coming in. There is going to be some confusions, and there is going to be some feathers ruffled, and there is going to be problems.

    Chairman BACHUS. You mentioned that Hutchison Whampoa—and I think this is undisputed by even the Administration—that they will control the shipping, berthing, and pilot assignments in the ports of Panama.

    Capt. PUCKETT. Yes, sir.

    Chairman BACHUS. It is my understanding that Evergreen, a Taiwanese company, that they rely very heavily on these ports?

    Capt. PUCKETT. They have an out-port over on the Atlantic side which is strictly a container operation. And they have their own pilots over there. Some of the Panamanian pilots that work for the commission actually moonlight over there and work over there. And Evergreen, Evergreen has a shuttle service which they primarily service their Caribbean partners, and occasionally one of their larger ships will pull in and then turn around and schedule itself for transit.
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    Chairman BACHUS. I think in your testimony you pointed out that several Latin and South American countries, a large percentage of their imports and exports travel through the Canal. If that commerce was slowed, not stopped, but simply slowed or delayed, would it have a significant economic effect on those countries or on the United States, if commerce through the Canal was simply slowed?

    Capt. PUCKETT. We have Chile and Peru that provide us a lot of produce, grapes and peaches and apples, and a lot of fruits that come out of Chile and Peru that use the Canal to go to the East Coast of the United States and over to Europe. Those ships would then have to be diverted to the West Coast ports of the United States to ship their cargo in containers and that would delay the movement of that containerized, refrigerated fruit and vegetables that come out of those countries.

    Nicaragua, I am not too sure what they are exporting right now, but I know a lot of bananas from Equador and El Salvador and some of those other countries come through the Canal also. Tremendous banana traffic comes through the Canal to the United States and also to Western Europe. So those countries would be affected, and it would affect the cost of goods. You start unloading and loading and reloading and packing and shipping and putting on trail cars and trucks across the United States, the cost of produce from these countries will skyrocket, I think. That is just my opinion.

    Chairman BACHUS. You mentioned—and I think several of the panelists mentioned—that our rail systems are at or near capacity. One of the trans-continental railroads, the Sunset Route, is over capacity.
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    Lt. Gen. SUMNER. That's right. There is a backlog; there is a two-week backlog.

    Capt. PUCKETT. Mr. Chairman, I ordered an automobile from Detroit to get to Florida, and it was six weeks before it got there; and the primary reason is there was not enough railcars. We have a shortage of railcars throughout the United States right now. They just don't have them. They are not making them.

    Lt. Gen. SUMNER. That is right.

    Chairman BACHUS. And one reason, even when they are delivered, there is a delay in delivering them, because even if they delivered them, they could not pick them up and then ship them.

    A congressional delegation recently visited the port facilities at Portland and Seattle and Tacoma, and we found that there was sometimes a two- and three-day delay and that that delay was causing tremendous losses. So our rail systems are very definitely at capacity. So it is obviously true.

    How would control of the ports, or control of shipping, of berthing or pilot assignments at the ports, how could it affect shipping in the Canal? Now, I will say this. I am aware just from history that the Canal is narrow, the entrances are narrow. So I could envision it, as Lieutenant General Sumner, you mentioned, the pilots for Hutchison Whampoa could back one of these large ships out at a certain time, just backing it out to leave and cause a several-hour delay, I suppose. Is that a legitimate concern? Could they block the Canal for short periods of time?
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    Capt. PUCKETT. Congressman, right now, the assignment of pilots in the ports and in the Canal are controlled by one agency and that is the Panama Canal Commission. Movements in the harbor are controlled by the Panama Canal Commission. If a cargo ship wants to leave the port, they notify the Canal authority and they schedule a pilot, which is usually a Panama Canal pilot, on harbor duty to move that vessel. If you get two agencies moving at the same time and one of them decides—and there is not enough communications or communications is lacking, it doesn't have to take a deliberate effort, all it has to take is an individual who decides that he has to get that ship off the dock without the—and he has to turn around in the Canal in many cases.

    The other problem is changing pilots. A harbor pilot takes it off the dock, and he has to stop and wait for a Canal pilot to get aboard and take the ship through the Canal. That will cause delays. New York Harbor frequently has minor delays when the ship comes up through the harbor there; they have to take a docking pilot.

    By adding more and more pilots to the matrix, it is obviously going to slow down the operation. It cannot help from doing that. The pilot that takes it off the dock may not be the transit pilot—he may be just a harbor pilot—and it gets more complicated. Without adequate coordination—it does not have to be a deliberate effort; it could be just an out-and-out mistake that will cause things to happen.

    Chairman BACHUS. What if the Panamanian government sold the concession to operate the Canal itself as opposed to the ports? You know, many of us never thought that they would award control of shipping, berthing, and pilot assignments in their ports to a Chinese company. Is there anything that would prevent them from awarding a concession to operate, say, the railroad in the Canal or the actual operation of the Canal to a foreign corporation which competes with an American corporation, as this one does?
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    Lt. Gen. SUMNER. We have talked about the privatization of the Canal over the years, privatizing the Canal, have a consortium, say, Bechtel, Mitsubishi, come in and run the Canal. That I think has been pretty much discarded by the Panamanians. They do not want to see the Canal privatized.

    From a technical standpoint, to answer some of the questions that Captain Puckett has brought up, you need technical expertise at a very high level, at a very high level indeed, to be able to deal with this problem. I have had some of the scientists at Los Alamos National Laboratory look at this, and it is a major problem. If Panama, the Government of Panama decides to go ahead and run the Canal as a cash cow, as a political goodie, I don't know how long it will stay in operation, because the technical side of it is really a world class technical operation.

    Capt. PUCKETT. May I interject——

    Chairman BACHUS. And in this regard, you might comment on what is the actual physical condition of the locks, the miter gates, the valves, the electrical system. You mentioned we have to count on power supply.

    Capt. PUCKETT. When I left in 1996, it cost approximately $850,000 to $900,000 a day. Now, I am sure that figure will be distorted, but that is the figure I received in my office. It was about $850,000 to $900,000 a day to operate the Canal. Revenues were about $1.1 million. The margin for error was narrow. In other words, all we needed was to buy one tugboat or two tugboats or a new locomotive and there went your profit for the year.
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    The idea that the Panama Canal has been self-supporting is a misnomer; it is not. It has never been. The sundry items, the buildings, the schools, all of the support facilities were provided by taxpayers' dollars; and if the Canal ever gets in a financial strap for maintenance or they start taking money away from money that is set aside for maintenance, it will not be able to continue to operate. That is the crucial part. It is at a break-even point right now, and all we need is somebody to distract a little money or send it in another direction and maintenance is going to suffer.

    I have noticed over the years, maintenance is always the thing that suffers first when you start diverting money. That is as it gets older, it requires more maintenance. Those valves have got to be pulled periodically and completely cleaned and replaced. The locks have got to be drained and the bottoms have got to be all checked out. The miter gates, the smaller gates must be pulled and floated out, another set come in, and the larger 700-ton gates have to be repaired in place. They are so big they cannot be replaced. All of these items start adding up on the budget.

    It is amazing to me that I think we became a nonappropriated fund in the early 1980's, and thanks to General McCauliff and his people were able to maintain a fairly good maintenance schedule. But if that is not maintained, it is going to go downhill. A ship without a crew deteriorates faster than a ship with a crew. I know that from experience.

    Chairman BACHUS. OK. Thank you.

    The Hutchison Whampoa group, a Hong Kong-based company with reported ties to the Chinese military, is taking over the operation of the port of Cristobal and Balboa at the entrance to the Panama Canal. Does Hutchison Whampoa's management of ports at both ends of the Canal pose a threat to the United States?
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    Adm. MOORER. Well, I don't think there is any question about that, Mr. Chairman. I would point out to you that the Panama Law 5, which, in effect, gave all of these rights, if you want to call it that, or at least the grants to Hutchison Whampoa, authorizes Hutchison to occupy defense sites and it grants priority operations to Hutchison at the Canal entry points of Balboa and Cristobal, which conflict with Article 6 of the Carter Treaty, which gives head-of-the-line and expeditious passage for U.S. ships. The Chinese Communists are in a position to block this passage.

    I would go on to say that the Panama Canal treaty, the so-called Carter-Torrijos Treaty, is illegal. To begin with, when the Senate was coming up to the vote, when the Senate was getting ready to vote, they saw that they weren't going to get the votes, and so we had what was called the DeConcini Amendment, and this amendment gave the United States the right—this amendment, the DeConcini Amendment, Senator DeConcini amendment, gave the United States the right to reenter Panama in the event that the Canal operation was interrupted. Well, Torrijos, after all, was not a president; he was actually a dictator working with President Carter, and so he put an amendment on his paper which said, in effect, that the DeConcini Amendment is null and void unless Panama cooperates with the United States when they go back.

    So you have, in effect, a treaty with two different pieces of paper, and the convention that they have had on treaties over the years indicates that those two pieces of paper have to be identical or the treaty is null and void.

    The other point is that the Panama constitution states that the president of Panama must sign all treaties. I have talked to Mr. Lakas himself, who was president at that time, and he has told me twice he never signed anything.
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    So, for all practical purposes, the Carter Treaty is illegal to start off with. So I have listed in my statement several instances where they are—it is, in fact, illegal. So we ought to start with that and come up with a plan of coordination with Panama and work with the president of Panama, the new president, to work out this conflict; and I will repeat again, get those Chinese out of Panama.

    Lt. Gen. SUMNER. Could I add a little bit to that? There are several lawyers, Larry Elgin and Larry Klayman of Judicial Watch are, as we speak, taking this into the district courts. They have examined these treaties in excruciating detail and come up with a whole laundry list of problems that make the treaties illegal.

    The Congress, in 1978, headed up by Congressman Edwards of Oklahoma—there were I think 100 Congressmen that joined this lawsuit, which was filed in Oklahoma—and to my surprise, I find out that the lawsuit is still active and it is going through the appeal process. When you look at the enabling legislation passed by the Congress, the enabling legislation addresses the bases; it doesn't address the Canal. So there is a whole laundry list of legal problems here.

    Chairman BACHUS. Let me say this, and for the purposes of this subcommittee, you know, the Judicial Committee—and I think the Congress as a whole can address the constitutionality or the legality of the treaties—this subcommittee at this point is progressing under the assumption that the treaty is valid and that it is going to be enforced, and the purpose of this hearing is to anticipate or to discuss problems that may arise when control of the Canal is transferred back to the Panamanians.
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    Lt. Gen. SUMNER. I understand.

    Chairman BACHUS. One particular problem that was highlighted yesterday and referred to you all today is corruption in Panama and the fact that our commercial interests will now be dealing if not with the ports, it may be a Chinese corporation, but quite apart from that, they will be dealing with the Panamanian government. And commerce through the Canal—and I don't think anyone disputes this—the shipping and the berthing, the priorities, all of that, if it doesn't depend on the Chinese, or if they don't influence, or whether they do or not, it will depend on the Panamanians and who influences the Panamanians.

    In that regard, I would like to ask you, Lieutenant General Sumner, and I had a question here to——

    Lt. Gen. SUMNER. Well, while you are looking for that, I would like to make a statement. I am not a member of the John Birch Society either, and I never made any presentations to the John birch organization. But, on that point, as the White House and the State Department have brought up the issue, I think the record should show very clearly that it has been the extreme left wing of the Democratic Party in this country, in cooperation with the extreme left wing of the PRD in Panama, those two extreme elements have ensured that all of these problems that we are discussing have aborted the negotiations.

    Chairman BACHUS. Right.

    Lt. Gen. SUMNER. I think that is important for the record. Most of the Panamanians want us to stay. If you ask most Americans, they may not understand Kosovo, they may not understand Timor, they may not understand Croatia, they may not understand even Haiti; but by gosh most Americans understand the Panama Canal. Panama is a gut issue with most Americans. And the extreme elements of the Democratic Party in this country and the PRD in Panama have been able to emasculate the effort.
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    Chairman BACHUS. Well, as you say, the White House has reported certain things about this treaty. What they have not emphasized in their media operation that you spoke to the John Birch Society, in other words, and that these hearings are influenced by the John Birch Society, which is not true. And I have received no contribution from the John Birch Society, nor have I sought any. So I am not influenced by them.

    Lt. Gen. SUMNER. Sure, sure.

    Chairman BACHUS. I will say this. What the White House has not said—what we have written and what they have not disputed, is the Panamanian people, and what has not been reported, is that the Panamanian people, the large percentage of them—there was testimony yesterday from two of our panelists—that the majority of the Panamanian people are concerned, they are concerned over the concession granted at the ports, they are concerned about the United States leaving Panama, and some of them feel that the United States in fact has abandoned Panama, and they are very concerned about that. This is the academic community as well as the general public bears that concern. And there were two reporters from major Panamanian newspapers here, one the main paper in Panama, and after the hearing she confirmed to me that the Panamanian people very much want the United States to remain, feel that the United States should maintain a presence, and that they question why the Clinton Administration is not making legitimate what they think should be a good-faith effort to negotiate for a presence.

    Let me move on and ask you this.

    Adm. MOORER. Mr. Chairman, could I just make one quick comment. The Ballederes treaty states that the Panama Canal Zone, which was bought more or less fee-simple, 10 miles on each side of the Canal, is the property of the United States in perpetuity, and the Supreme Court reviewed that and agreed in 1970.
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    So that treaty was not nullified when the other treaty, the Carter-Torrijos treaty was signed; they left that hanging. So that is another reason why this treaty is vulnerable, in my view.

    Chairman BACHUS. All right. At the hearing yesterday, Cooper/T. Smith Stevedoreing Company, which was a part of a consortium bidding for the concession of these ports, testified that they did experience a lack of transparency and lack of fairness in the bidding process. In fact, they were awarded the bid, and then it was withdrawn.

    Lieutenant General Sumner, you referred in your testimony that you submitted and that you didn't speak, and it states that your company won the bid, but the government of Panama rebid the proposal four times. Did you consider that process fair and transparent? And the reason I ask you is that American companies that use the Canal are going to have to start relying on the Panamanians. They are going to have to start negotiating. They are going to have to start contracting with the Panamanians. And in this regard I think your experience would be relevant.

    Lt. Gen. SUMNER. Yes. When I read the testimony yesterday, it was ''deja vu all over again.'' I went through the bidding process for Air Panama. Air Panama was Noriega's airline and consisted of two 727s and 300 employees, which is what you need, I guess if you are going to run a major drug operation.

    I put together a group of Panamanians, prominent Panamanians, one of them, Kaiser Bazan; another, J.J. Vallarino. I had what I considered to be the creme de le creme of Panamanian economic interests there as my partners. And with American investors, we put up $5 million.
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    Every time we bid, the Panamanian government would shop my bid around. I had Rollin King from Southwest Airlines helping me on this, and we were going to put in a Southwest Airline 737-type of operation. We had a half-a-million dollar business plan.

    To make a long story short, we won it. We started to go in operation. And the Director of Civil Aviation of Panama went out to Tocumen Airport for one of our first flights and, at gunpoint, took the passengers off our plane, tore up their tickets, and put them on COPA.

    Chairman BACHUS. Put them on what?

    Lt. Gen. SUMNER. On an airline owned by the Motta Brothers there, COPA, C-O-P-A, which was an airline which was not authorized to land in the United States. Unsafe airline. They have had multiple fatal accidents. I would not fly on it, and I would advise anyone in this room not to fly on it either. You can go over to the Department of Transportation and check their safety record.

    I have submitted all this in a fact sheet, which I would like to have inserted into the record.

    Chairman BACHUS. Without objection.

    Lt. Gen. SUMNER. I have sent this fact sheet all around the world to the investors, and they said the investment dropped 50 percent the next year. But there is a problem with corruption at the highest levels of government in Panama. President Endara would probably be in jail today, but as the ex-president of Panama, he becomes an automatic member of the Central American Parliament and has diplomatic immunity. Tomas, is that right? I am checking with my Panamanian friend here who knows this.
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    Now, Perez-Balladares, who has fallen into the same category, said he will not use that dodge to escape prosecution in the United States. We have this Chinese visa problem. I don't know whether they got into that yesterday or not. But it is going to surface—the Miami Herald has had that story published.

    Chairman BACHUS. Could you just mention that to us briefly?

    Lt. Gen. SUMNER. This is a problem of corruption in the government. We are hoping that Mireya Moscoso will be different.

    Her second Vice President, Kaiser Bazan, is a graduate in the United States Military Academy. He was one of my partners in Panama Air. I think he is straight. I hope Kaiser can do something about this. But that is a Panamanian government problem.

    Now, in the civil society, you have corruption. You know—and I am going to offend some Panamanians with this——

    Chairman BACHUS. I am not sure we want to do that in these hearings.

    Lt. Gen. SUMNER. No. But this is a common joke. ''Panama is the crossroads of the world. It is also the double-crossroads of the world.''

    When you do business down there, you have major problems in the civil society in trying to deal with the people there that are in the investment world. This morning, I was talking to the new Deputy Chief of Mission of the Panamanian Embassy about this. They realize they have a problem.
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    I think there is an opportunity here to get more transparency. I think the point that you made, sir, about let's see where the money is coming from, the money trail, and I think that there are a number of things that can be done.

    Now, one of the problems, and I point out in my testimony, is that the new president has a very narrow political base. The PRD is still pretty much in control of the legislative and judicial branches. Am I correct? I am getting confirmation from my Panamanian friend here, Tomas Cabal. As you know, generalities are dangerous.

    But there is a problem here that I think we have to be aware of when we look at the economic and the banking situation. I talked to the DCM this morning about the banking problem. I was in Panama when we literally held a gun to their head and made them sign the MLAT Treaty. It was a ham-handed, clumsy way of doing business. The Ambassador, Deane Hinton, and I discussed this at length. We should have built a consensus in Panama before we did this.

    I don't see that the problem of corruption as being dealt with as it should be. And I think the newspapers in Panama understand that. You can get on the Internet and read the Panamanian newspapers. And the newspapers talk about corruption. The Panamanians say, ''Look at the United States. Here you are living in a glass house throwing stones. Look at the corruption in your government. Look at the number of your Cabinet officers that have been investigated and indicted, and look at the Ron Brown scandal,'' and the list goes on and on.

    So finger-pointing isn't going to get it. I think we all need to understand that there is a problem, and we need to move forward for the new millennium.
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    Chairman BACHUS. OK. Thank you.

    Let me ask you this question, Captain Puckett. And I think I have asked this of the other gentlemen. But does Hutchison Whampoa's management of the ports at both ends of the Canal pose a threat to the United States? What safeguards could be put in place to ensure that this company does not influence the scheduling of ships and pilots passing through the Canal? And once the handover is complete, what procedure will be used to determine how the pilots who steer the vessels through the Canal will be assigned to the ships as a traverse from one end of the Canal to the other?

    Capt. PUCKETT. I think, Mr. Chairman, the industry will let you know if it is running properly. Kind of like I said before, time is money. And the maritime industry knows very well the cost of the operation of every ship on the ocean, either commercial and even in military. Everyone knows. It is not a secret industry. The minute a vessel is assigned out of schedule or appears that he is getting preferential treatment, you are going to see it in the Journal of Commerce, and you are going to see it worldwide. People are going to hear about it.

    Chairman BACHUS. What do we do at that point?

    Capt. PUCKETT. There is nothing in place for the United States to do anything that I can see in the treaty. For example, the U.S. naval vessel, once the treaty goes into effect, has to get an agent like any other commercial vessel. Right now, the U.S. Navy has its own people in many cases. But if they go into a small port in the world, they hire a ship's agent who is a civilian to take care of the necessary paperwork and the forms to get us through into a specific port. It is not uncommon for a military to hire an agent in one of these ports.
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    There is nothing to say that a military vessel, Navy ship, comes to Panama, and he gets to Cristobal, and he wants an agent, and he hires an agent, either through a telex or communication satellite or whatever; and that agent then has to take his hat in his hand and go up and say ''I am representing the U.S. Navy, and I have got a ship to go through the Canal.'' And whoever is in charge, whether it be the Port Authority or Hutchison Whampoa, can say, ''Well, we don't have a slot for you today, and you will have to wait till tomorrow.'' The agent is going to say, ''This is a U.S. Navy ship.'' And they are going to look at you and say, ''So what? You are an agent. You are a civilian. We don't see the Navy here. We see you.'' He is going to have to bid on that transit right along with everybody else.

    I can say in the treaty that the Navy is going to be given priority transits, but when you have got to go through a civilian who has to take his hat in his hand to organize that transit, it is going to be a problem. Hutchison Whampoa, just by the mere fact they are not showing up with line handlers, the ship will stay at the dock.

    You can manipulate ships all over the world, and no one really knows you are doing it unless you are the ship's captain looking down at the dock. I have known ships' captains to be fired when they were delayed getting off the dock, and it wasn't even their fault. They had no control over it.

    I know of a pilot on the Canal who gave a Russian captain such a hard time, the captain gave it back to him. That Russian company fired that captain when it got to Cristobal. So you have to have your hat in your hand when you are dealing with agents and authorities in these different ports of the world.
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    Once this becomes totally civilianized, it is going to look like another port in the world, and the bidding process is going to start to begin, and the cost is going to go up. And the United States, again, if we want a warship that wants to go through, God help us if it has to be right away, because there is no guarantee. The treaty doesn't provide for it. It says it will, but the process is not in place to ensure it.

    We need a Navy group down there or naval officer that can go in and put his foot down and say, ''Hey, that is our ship.'' Maybe we want to send one down there every month just to test to see if it is working so we can get it through in a timely manner.

    Chairman BACHUS. The Washington Post made the statement that the American warships—this was yesterday—retain the right to jump in front of other ships if they need to use the Canal.

    Capt. PUCKETT. They don't retain that right as we speak. They are given priority transits, and they are fit into a slot or schedule. Usually, they are smaller vessels so the Canal can fit them in. I know of an incident in 1986 where the Navy had not transferred funds to the Panama Canal Commission, and the Panama Canal Commission denied the U.S. Navy transit. And the Navy captain——

    Chairman BACHUS. So if the Panama Canal Commission becomes corrupted or influenced by outside interests, they can actually set priority rates. They can delay transit through the Canal. They can actually damage a ship and no longer be liable for the cost of that damage.
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    Capt. PUCKETT. They are limiting what they call minimal liability up to a million dollars, is what they are saying. Any fender-benders, there is no longer any claims. But, again, if I am a captain of a ship, I don't even want a dollar's damage. Because before I take my ship, there is a survey, and it says this is what is wrong with the ship. Bring it back in a year, and we will take another look. The insurance company is going to step in and say, ''OK, there is $300,000 worth of damage, and we will pay for it. Where did those damages occur, and who was responsible?'' But if it happens in Panama and it is our fault, we usually pay the bill, because we were self-insured.

    Chairman BACHUS. Is there anything in the treaty that—now, if they can set and charge a surcharge basically for giving priority to a certain ship, is there anything in the treaty that prevents them from charging a 50 percent surcharge or a doubling the cost of transit?

    Capt. PUCKETT. Panama can do anything they want, the Panama Canal Authority. The problem is what the market will bear.

    Chairman BACHUS. So the Panamanian government could double the cost of transit through the Canal next year?

    Capt. PUCKETT. Yes, sir.

    Chairman BACHUS. And the treaty gives us no recourse.

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    Capt. PUCKETT. Up to this point, the board of directors was having meetings every year, and they would determine if we need a cost of increase of tariffs and tolls. Those were sent out to the industry. The industry will give us feedback and say ''We can't afford this. We don't think this is right.'' And there would be negotiations to make sure that the industry could bear the tolls. The tolls have gone up over 10 to 15 percent in the last five to six years that I know of. It is going to reach a point where the shippers will not be able to handle it. They are going to pass it on to the consumer.

    Chairman BACHUS. But do they have an alternative? Or what is the transit time from, say, New Orleans to Los Angeles through the Canal, and what is the alternative?

    Capt. PUCKETT. It is usually three to five days from New Orleans down to the Canal. You have a 24- to 48-hour period to get through the Canal and about a five to seven day period to the West Coast depending on the speed, the size, and what the——

    Chairman BACHUS. Two weeks.

    Capt. PUCKETT. Two weeks or less. It can be ten days in some cases.

    Chairman BACHUS. What if they went around the——

    Capt. PUCKETT. It is a long time, 35 to 40 days, sometimes two months, depending on the weather in South America, depending on the Cape—the Straits of Magellan is no place to be any time of the year. It is a nasty place to be.
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    Chairman BACHUS. So we are talking about two weeks or two months is the choice.

    Capt. PUCKETT. Yes, sir.

    Chairman BACHUS. And in certain parts of the year, two months would be a risky endeavor.

    Capt. PUCKETT. Yes, sir.

    Lt. Gen. SUMNER. If you have ever been around the Tierra del Fuego, you are never out of sight of a shipwreck. And I am not talking about sailing ships. I am talking about modern ships that didn't make it.

    And you talk to my sailor friends here, nobody wants to go around Tierra del Fuego if they can avoid it.

    Admiral MORRER. Well, I think it is about 8,000 miles further going around South America.

    Lt. Gen. SUMNER. Nine thousand nautical miles.

    Admiral MORRER. Nine thousand.

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    Chairman BACHUS. And nothing in this treaty that assures us—is there anything in the treaty that assures us the same rate as other countries, or could they give preferential rates?

    Lt. Gen. SUMNER. Well, the enabling legislation that set up the operation of the Panama Canal instituted a number of policies. First of all, the operation would be fair and equitable, and that it would be a non-profit operation. Actually, the Canal has been working on appropriated funds up until, as Captain Puckett said, it became a non-appropriated fund.

    And when you talk to the Panama Canal Commission, the working people, this has been a real problem.

    Chairman BACHUS. But my question is this, is there any safeguard in the treaty once the Canal is handed over on the rates that we can be charged?

    Lt. Gen. SUMNER. No. None that I am know of.

    Capt. PUCKETT. No.

    Chairman BACHUS. We have heard testimony that the Chinese are heavily influencing the government, that they are buying up businesses, that they are establishing operations. Obviously, they are going to operate the two large ports, which is going to give them tremendous influence, if nothing else.

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    Lt. Gen. SUMNER. Well, they have jacked the rates up at the ports way up. I think they increased the rates in the port by well over 100 percent. And that ran a lot of Panamanians out of business. Is that right, Tomas? After all, it is sovereign territory. They can do anything they want to.

    And when we were looking at these treaties in 1978, I was going around Latin America in my official capacity as the Chairman of the Inter-American Defense Board, and my bosses were the chiefs of state, and let me tell you they were all worried sick about exactly this problem. They were afraid that Omar Torrijos would hold them up and put them in the queue, put them in the line depending upon what they were going to pay him.

    Now, I have no knowledge about whether any of that happened. I don't think it did.

    Chairman BACHUS. Let me go through some very quick questions here, and I have been told that we are somewhat challenged on time. And I think maybe, Captain Puckett, you might be particularly interested in, you know, commerce through the Canal after the transfer.

    Capt. PUCKETT. Yes, sir.

    Chairman BACHUS. Will priority be given to certain types of ships or ships from specific countries that will be allowed——

    Capt. PUCKETT. I know where you are going with that.
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    Chairman BACHUS. Let's see. Will priority be given to certain types of ships or ships from certain countries that will be allowed—let me briefly—I wrote this question down wrong. Priority can be given to certain ships; is that correct?

    Capt. PUCKETT. Yes, sir. Yes, sir.

    Chairman BACHUS. And, theoretically, you can give priority to ships from specific countries. Now, let's just say that that could in practice happen unless there was something to prevent it. Is there anything in the treaty which would prevent the Panama Port Company or the Panamanian government from giving priority to ships from a specific country?

    Capt. PUCKETT. I don't see anything in there. If I were going to build a multinational, international shipping company, and I could get into Panama or the Panama Canal, I could then go to South America—and this is hypothetical, of course—go to South America and say, ''Look, I have got priority transit. Put your containers on my ship, and I will get them in the Canal.''

    Chairman BACHUS. You will get them there two days early.

    Capt. PUCKETT. That ship is out of business. Then another shipping company. The next thing we know we have container ships going through the Canal carrying cargos from Central and South America just like Evergreen Lines is over on the East Coast and the Atlantic side. So it is a possibility. And it is subtle.

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    Chairman BACHUS. So who makes that determination? Would it be the Panamanian Governor, the Panamanian port company?

    Capt. PUCKETT. The Panama Canal Authority would determine who goes through the Canal.

    Chairman BACHUS. And when and in what order?

    Capt. PUCKETT. And what order. And, again, there are some arbitrary rules that we have that says that because of the size of this ship, it has to go through during daylight. Or there are enough rules in there that can be manipulated that it, on the surface, it can appear totally fair, and still the captain calls his agent's company and says, ''I have been sitting out here for six days, what the hell is going on?'' Excuse my language.

    Chairman BACHUS. So if a company, or if a country, or if a consortium of individuals who are contributing large sums of money to the government or have an influence on the commission, they could basically control when and how fast ships transited the Canal?

    Capt. PUCKETT. Absolutely.

    Chairman BACHUS. And to certain countries, which over 50 percent of their commerce travels through the Canal, such as you said Peru and you named several where it is a significant amount, those countries could actually be beholden to whoever influenced control or had influence over that operation; is that right?
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    Capt. PUCKETT. Yes, sir.

    Chairman BACHUS. Theoretically, the port authority could actually dictate quite a bit of economic blackmail or influence over not only private shippers, but these countries that rely so heavily on the Canal; is that correct?

    Capt. PUCKETT. Yes, sir. Another issue that hasn't been brought up is fuel. If I withhold fuel for your ship when you need to be refueled, the large Panamax vessels come through the Canal from the Atlantic to the Pacific, from the East Coast ports of the United States in Mobile or New Orleans, they come through at maximum loaded capacity, and many of them fuel in the Pacific side so they get that much more cargo on board.

    Chairman BACHUS. In fact, as they go into the gates, it is my understanding they have to have their engines running at full tilt.

    Capt. PUCKETT. Yes, sir.

    Chairman BACHUS. And they burn a tremendous amount of fuel.

    Capt. PUCKETT. Yes, sir. Usually they are on light fuel oil rather than heavy oil which is more expensive. Then on the other side, they refuel. If I wanted to manipulate shipping, I don't want to give anybody ideas here, I just wouldn't give them any fuel when they got to the other side. The barges wouldn't be available. There is a lot of money made in Panama on both sides fueling ships after they get through the Canal. That is a big business. That is another area of control.
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    Chairman BACHUS. Now, previously we had some rights of regulations there; or did we?

    Capt. PUCKETT. Yes, sir. We provided the fairest system possible that we could get for the shipping companies and also to meet the needs of the Canal to get maximum capacity through.

    Chairman BACHUS. OK.

    Capt. PUCKETT. And I think we did a very good job at it, too.

    Chairman BACHUS. Let me ask you one final question. You have mentioned water which is essential for the operation of the Canal, a certain supply of fresh water and electricity.

    Capt. PUCKETT. Yes, sir.

    Chairman BACHUS. We heard testimony yesterday that Chinese companies are buying large tracts of land, they are developing them, they are, you know, operating the ports which obviously can burn certain amounts of electricity.

    With all that in mind, there is a ten-mile buffer zone on each side of the Panama Canal. And as I understand it, it was established for two reasons, first to provide a security zone to the actual Canal works, and second to protect the rainforest adjacent to the Panama Canal.
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    Capt. PUCKETT. Part of the rainforest is in that buffer zone, yes, sir.

    Chairman BACHUS. Now, the rainforest is what you depend on for the water, is it not?

    Capt. PUCKETT. Yes, sir, it holds the watershed.

    Chairman BACHUS. Now, this rainforest holds the fresh water to operate the Panama Canal Zone; is that correct?

    Capt. PUCKETT. Yes, sir.

    Chairman BACHUS. Your testimony was that 52 million gallons of fresh water is used each time a ship passes through the Panama Canal.

    Capt. PUCKETT. Yes, sir.

    Chairman BACHUS. There was testimony yesterday that Panama is selling off portions of this Zone for industrial and private development, much of this to Chinese interest, but let's just say to any interest. But the testimony was that the Chinese are developing a lot of this area.

    And I will ask any of the panelists—we have asked the State Department, we have received no response—have any studies been done, or do you have any knowledge or are there any plans to regulate this development? Or would that be a necessary thing to do?
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    Capt. PUCKETT. Yes, sir, it would. And there have been studies. There are people, again, Panamanians who are trained and well capable of managing and bringing forth plans on how to increase and protect that watershed. Those plans are in place. The question is whether they will be enforced or whether they are going to conflict with this development. That is up in the air. I couldn't answer that, sir.

    Chairman BACHUS. If they are selling off part of these zones for private development, that obviously is problematic.

    Capt. PUCKETT. Yes, sir.

    Chairman BACHUS. Is it true that without—or isn't it true, I will say—isn't it true, without this watershed, the Panama Canal will not be able to operate at full capacity and eventually could have to close for lack of water?

    Capt. PUCKETT. During the dry season last year, we had a very short rainy season in Panama, and thus there was not enough water for the dry season. And drafts had to be restricted for vessels. It has only happened three times in the fifteen years I was in Panama, and that was just because of lack of rain.

    If the water runoff is great and they have to release the water through the dam into the lake and then eventually into the ocean, it can't be used for Canal purposes other than maybe short-term generating of electricity, which is only a short-term thing in the Gatun locks.
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    That facility over there, the power generating plant over there, is only used as a last resort when they have too much water. It is virtually shut down most of the year. They say it is a generating plant, but it doesn't generate electricity, because they need that water for Gatune locks.

    Lt. Gen. SUMNER. There is another problem here, sir, that impacts on this: the slash and burn of the Indians.

    Chairman BACHUS. That was my next question.

    We received—an environmental group gave us this information I want to see if this is true, that the Canal faces serious environmental problems due to drastic deforestation of the rainforest by landless peasants pursuing slash-and-burn agriculture that is greatly increasing the problem of silting in the Canal. Dredging the Canal cuts into time that ships can use the Canal for transport.

    And they are actually saying that eventually, if this continues, the Canal will become so clogged that it will become useless, in other words, if the deforestation continues.

    Does the Panamanian government—or do we have to rely on the Panamanian Government now that we have ceded control? And also the Panamanian government has now obviously deeded off a large segment of this land to private interest who may have—who knows what their interest is—but, does the Panamanian government view this as a serious problem? And what is being done? And would we have to rely on them?
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    Lt. Gen. SUMNER. Yes, absolutely. The Panamanian Government at least, at the public relations level, has recognized this problem. And you have not only the Panamanian Government with an environmental plan to try to look at this problem of silting up the Gatune Lake and not having the water available. There is also a number of non-governmental organizations, some of which I have been associated with, to try and do something about this.

    You are coming back with this question to the corruption problem. Is it in the interest of some of the people that have been appointed to the Panama Canal Commission and to ARI. They are going to milk this cow for short-term profit as opposed to the long-term interest of the country?

    I would hope that the new president would really take this problem seriously, because it is a ticking time bomb. If we don't do something about that—I say we, I am speaking of the Panamanian government now, because we lose any say in this at the end of this month—then a lot of these questions will become moot, because the Canal will silt up, and it will be closed, and that is the end of it.

    So, it is a very serious problem. And I have discussed this with my Panamanian friends at length. There are a lot of very good people in Panama who understand that this is a problem. And it is whether or not they, operating as a democracy, can do anything about this.

    Capt. PUCKETT. Mr. Chairman, I might add to that is that it is a domino effect. As the lake silts up, you are going to require more dredging. More dredging increases your maintenance cost.
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    In 1980, I was on the Columbia River when Mount Saint Helen's blew over the Corps of Engineers. And within three days from the time Mount Saint Helen's blew up and the silt got into the river, the river was virtually closed north of Longview, Washington.

    So that silting effect is, it starts to develop, and it has a domino effect. And then the maintenance costs will go up, and there may not be enough money to keep continually dredging.

    Silt is very difficult to dredge as compared to rock or sand or other heavy material. It takes twice as long to dredge silt, because you have got to pump it in and let it settle. So silting is a much harder composite to pick up with the dredge than it is digging in rocks and sand along a beach somewhere. So maintenance costs will double.

    Chairman BACHUS. All right. And, Admiral Moorer, you and I have totally—when I ask this question, I am adopting something you said, so I think you will enjoy this question. But the Administration, or the Executive Branch, has known for over twenty years—and that covered more than this Administration—but they have known for over twenty years that the United States was turning over the Panama Canal.

    They have also known that after the turnover, that control of the Canal would be more unpredictable. You said that. I think that is the consensus of everyone.

    Knowing that—and, yes, we can't predict what these people will do. We have read what at least these two Chinese senior colonels have said in the Beijing paper, that Panama could be used as a launching ground for economic or military strikes against the United States. We do know that. They have told us that. We can't plead ignorance on that.
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    But knowing that all these problems exist, are there any contingency plans in place should Panama fail to operate the Canal in accordance with the Panama Canal Treaties of 1977?

    Admiral MORRER. No, sir. To my knowledge, there are none. And that is the reason I have felt all along that we should meet with the Panamanians. The facts are that the majority of the Panamanians would prefer to have the United States back, in my opinion, because——

    Chairman BACHUS. Well, that is also the opinion of—the polls in Panama consistently say—and these are polls published by the leading papers and journals in Panama.

    Adm. MOORER. So I think that we have got to fall out and fall in again and come up with an agreement that is mutually beneficial and which tackles all these problems that the gentlemen here on my right and left have been talking about. And you are not going to get that, though, unless the Administration sees fit to straighten this problem out, which they haven't done so far. The big buzzword today is ''don't irritate the Chinese.'' And no one ever brings up the fact that we are really talking about a Panamanian treaty and not a Public Law 5 with the Chinese from Hong Kong.

    Chairman BACHUS. All right. One alternative in this is not—but, if we discuss alternatives and we are talking about that there is some reason to believe that transit through the Canal could be slowed, or you know could become more unreliable—knowing that, I don't know of any plans to accelerate our highway or rail expansion program. In fact, I believe that the people of the United States certainly would not support more heavy trucks on our interstate highways transiting the country.
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    We talk about our rail systems being at or near capacity. I think we can all agree that our interstates have enough heavy trucks on them today. So I don't think that is an alternative. Rail is not an alternative. The Transportation Committee says that it will have very little increase in our rail capacity. So that leaves building another canal. How long would that take?

    Lt. Gen. SUMNER. Can I address that one? Over the years, there have been studies made on the alternative canals—the sea-level canal to get away from the water problem, and alternatively, building another canal in Panama, building a canal through Nicaragua. And I had long discussions with President Somoza about that, both in Nicaragua and in this country. As a matter of fact, he went to Los Alamos to discuss it.

    Because one of the options was to use what we call ''plowshare,'' small nuclear devices to help build the Canal. Well, you can imagine the environmental problems that would arise.

    The idea of trying to build another canal is impossible. We talk about what this Canal is worth. I have heard the Administration say it is worth $3 billion or $4 billion. It is worth ten times that. We are talking about $50, $60 billion in sunk costs. And if you tried to build another one, the costs would be astronomical, if you could do it from an engineering standpoint.

    Chairman BACHUS. Or political standpoint.

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    Lt. Gen. SUMNER. Or a political standpoint. You are not going to get by the envoronmentalists. When we discussed a sea-level canal, the environmentalists—the tree-huggers—came out of the woodwork and said, ''Look, you are going to take and——

    Chairman BACHUS. That is the environmentalists?

    Lt. Gen. SUMNER. The environmentalists came out of the woodwork, and they said ''You have all this flora and fauna in the Pacific that would go to the Atlantic, and it would screw up the whole world,'' and, you know, like Chicken Little, ''the sky would come falling in.'' The studies would fill this table. There are tons of studies that have been done on it. And none of it is feasible.

    Chairman BACHUS. So, in other words, the studies—it is really not feasible to build another canal?

    Lt. Gen. SUMNER. It is really not feasible from political, economical, environmental concerns—the list goes on and on.

    Chairman BACHUS. Would you agree with that, Captain Puckett, it is just not reasonable that we can do that?

    Capt. PUCKETT. The cost alone, they can build a larger set of locks at Miraflores and also over at Gatune, but the other problem would lie in the sundry areas and the development on either side. You can increase the capacity to maybe 50 ships. But, again, it is going to cost $50 to $60 billion to do that.
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    Chairman BACHUS. That would be to replace the present Canal?

    Capt. PUCKETT. You can put another set of locks beside it and still utilize the other bridge. But, again, the other set of locks are starting to deteriorate also, but it would take ten years to complete that project.

    Chairman BACHUS. I am talking about a different canal.

    Lt. Gen. SUMNER. A separate canal?

    Chairman BACHUS. And we are actually talking about a project that could take twenty years and a lot of money; is that right?

    Lt. Gen. SUMNER. You really ought to get the Corps of Engineers in here.

    Chairman BACHUS. I guess I am posing that question because we have no alternative.

    Lt. Gen. SUMNER. No, we have no alternatives. The Mexicans have been talking about building another rail line across Mexico to help out. So far it has only been talk. But the most recent information I have is that the Chinese have come in, the Chi-Coms, the PRC, and said, ''Look, we will help build the rail line, and we will finance it.'' Well, the Mexicans said, ''Wait a minute, time out. We are not sure that we want that sort of help.''
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    Chairman BACHUS. Let me say this and we don't want to get—that might be for another hearing. I am going to wrap up. I have been told we need to wrap up. This room is committed to another function.

    I do want to just comment on this. You know, we have talked about—there has been discussion today by Captain Puckett and all of us about the Canal; can it be manipulated? Can priority shipments be manipulated? Can scheduling be manipulated? And to those of you who yesterday and today said, ''Yes, I will say that there is confirmation of what you said,'' and what we have been concerned about when we got this memo that the Defense Department commissioned, which I have introduced into the evidence, in that it talks about threats to the United States from ceding the control of the Canal. And one of the threats is manipulation of the Canal may threaten priority shipments.

    So this is not something that you all have come up with on your own that has no basis or no substance. You have been saying that. And, Captain Puckett, you said that before.

    The Defense Department commissioned this study, paid taxpayer dollars to have it delivered. And the report to them says that it is a threat. It is listed here as a threat.

    The last thing I will say is we have discussed 15 to 16 percent of the commerce coming to the United States travels through the Canal. There was an earthquake in Taiwan a few months ago. And in that earthquake one-ninth of one-tenth, that is the way I am going to say it, one-ninth of one-tenth of our technology imports were interrupted. And it showed up in our economic statistics. It showed up in our productivity. The stock market dropped 500 points over concern over it.
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    And, again, I am going to say this. It was not 15 percent, it wasn't 1.5 percent or a tenth of that. It was a percentage of a tenth of a percent. It was a ninth of a tenth percent, I believe.

    So that tells you how sensitive we are to not only one percentage point drops in commerce, but one-tenth of 1 percent, or a tenth of a tenth of a percent.

    Chairman BACHUS. With that, we will conclude the hearing. Thank you very much for your attendance.

    [Whereupon, at 12:35 p.m., the hearing was adjourned.]