The Panama Canal

by Frederic J. Haskin

Those who advocated the exemption of ships trading exclusively between United States ports from the payment of tolls, did so on the ground that it would build up a wealthy American merchant marine which would be invaluable to the United States in time of war, and also that it would tend to reduce freight rates between Atlantic and Pacific points. They argued that every cent added to the cost of transportation through the canal would be reflected in freight rates between the East and the West.

Those who opposed the exemption of American coastwise shipping from the payment of tolls, asserted that the coastwise shipowners already had a monopoly on the handling of cargo between American ports, and that no further encouragement was needed. They argued that it would make little or no difference in rates whether tolls were charged or not, and that the only people who would benefit would be the shipowners. They contended that the United States ought to charge everybody alike and use the tolls collected for the purpose of repaying the money it spent in building the canal. Some of them also contended that the Hay-Pauncefote treaty bound the United States to treat all shippers alike, and that the United States could not discriminate in favor of the American coastwise traffic without contravening the treaty with Great Britain. This view, however, did not prevail, and the law, as enacted, exempted coastwise shipping.

England immediately protested against this exemption on the ground that it was in contravention of the treaty between the two countries. The story of how the United States came to be bound by a treaty with Great Britain in the building of an Isthmian canal goes back for more than half a century. The year 1850 found the North American continent, north of the Rio Grande, in the possession of the United States, England, and Russia. The United States had only recently finished its continental expansion, and each of the two countries needed a canal to connect their east and west coasts. England had long possessed a west coast in Canada, but the United States had only recently come into possession of a Pacific seaboard. When it came to consider the question of connecting its two coasts the United States found that Great Britain was holding the position of advantage in the Isthmian region. It held the Bahamas, Bermuda, Jamaica, the Barbados, Trinidad, the Windward and Leeward Islands, British Guiana and British Honduras; and held a protectorate over the "Mosquito Coast," now the east coast of Nicaragua. That protectorate covered the eastern terminus of the only ship canal then deemed possible.

Under these conditions the United States concluded that it was necessary for the support of the Monroe doctrine that some sort of an understanding should be reached between the two countries. England assented to such an understanding only after Nicaragua and Costa Rica had given to the United States its consent to the building of a canal across its territory. These treaties with Nicaragua and Costa Rica were negotiated but never ratified, and were used as a club to force Great Britain to make a treaty. The result was the Clayton-Bulwer treaty, which provided that neither Government should ever obtain or maintain for itself any exclusive control over an Isthmian canal, and that neither Government should ever secure for itself any rights or advantages not enjoyed by the other in such a canal. The proposed canal was to be entirely neutral, and the treaty set forth that the two countries agreed jointly to protect the entire Isthmian region from Tehauntepec to South America, and that the canal always should be open to both countries on equal terms. The canal under this treaty was intended to be entirely neutral with reference to defense, with reference to tolls, and with reference to such other nations as might join in maintaining neutrality.

When the United States decided to build the Panama Canal, it found the Clayton-Bulwer treaty wholly unsuited to its aims and desires. It therefore asked England to enter into a new convention; the Hay-Pauncefote treaty was the result. This document declared that its purpose was to remove any objections that might arise under the Clayton-Bulwer treaty to the construction of an Isthmian canal under the auspices of the Government of the United States without impairing the general principle of neutralization.

Under this treaty the Government of Great Britain made a protest against the decision of the United States to exempt its coastwise traffic from the payment of tolls, claiming such exemption to be a violation of the neutrality agreement. This protest came in the form of two notes to the American Government. The first was written as a warning to Congress that the British Government would regard the exemption of American coastwise traffic from the payment of tolls as a discrimination against British shipping, and a violation of the neutrality agreement between the two countries. It admitted that if the United States were to refund or to remit the tolls charged, it would not be a violation of the letter of the treaty, and acknowledged that if the exemption of coastwise American shipping from toll charges were so regulated as to make it certain that only bona fide coastwise traffic, which is reserved for American vessels, would be benefited by this agreement, then Great Britain could have no objection. But it declared that England did not believe that such regulation was possible.

After Congress, with this note in mind, had passed the canal toll law with an exemption to ships carrying goods between the two coasts of the United States, President Taft, in approving the measure, declared that the canal was built wholly at the cost of the United States on territory ceded to it by a nation that had the indisputable right to make the cession, and that, therefore, it was nobody else's business how we managed it. He contended that for many years American law had given to American ships the exclusive right to handle cargo between American ports, and that, therefore, England was not hurt at all when that shipping was exempted from toll charges.

England responded, in a second note, that the clear obligation of the United States under the treaty was to keep the canal open to the citizens and subjects of the United States and Great Britain on equal terms, and to allow the ships of all nations to use it on terms of entire equality. It also contended that the United States is embraced in this term of "all nations"; that the British Government would scarcely have entered into the Hay-Pauncefote treaty if it had understood that England was to be denied the equal use of the Panama Canal with America. The three direct objections urged by the British against the American canal law were: That it gives the President the right to discriminate against foreign shipping; that it exempts coastwise traffic from paying tolls; and that it gives the Government-owned vessels of the Republic of Panama the right to use the canal free. The answer of the United States to the first of these objections was that the right of the President to fix tolls in a way that would be discriminatory against British shipping was a question that could be considered only when the President should exercise such action.

The British Government expressed the fear that the United States, in remitting tolls on coastwise business, would assess the entire charges of maintenance of the canal upon the vessels of foreign trade and thus cause them to bear an unequal burden. This, the second objection was answered with the statement that, whereas the treaty gives the United States the right to levy charges sufficient to meet the interest of the capital expended and the cost of maintaining and operating the canal, the early years of its operation will be at a loss and, therefore, at a lower rate than Great Britain could ask under the treaty. The third objection was considered insignificant.

The British Government, after laying down its objections to the American canal toll law, requested that the matter be submitted to The Hague tribunal for adjudication. The American Government declared that this course would not be just to the United States, since the majority of the court would be composed of men, the interests of whose countries would be identical with those of England in such a controversy. Before leaving office President Taft proposed that the matter should be submitted to the Supreme Court of the United States. The whole question was left in that situation when the change from the Taft to the Wilson administration took place.