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Appendix 11. Memorandum to accompany the Panama Canal Act. In signing the Panama Canal Bill, I wish to leave this memorandum. The Bill is admirably drawn for the purpose of securing the proper maintenance, operation, and control of the canal, and the government of the Canal Zone, and for the furnishing to all the patrons of the canal, through the Government, of the requisite docking facilities and the supply of coal and other shipping necessities. It is absolutely necessary to have the Bill passed at this session in order that the capitals of the world engaged in the preparation of ships to use the canal may know in advance the conditions under which the traffic is to be carried on through this waterway. I wish to consider the objections to the Bill in the order of their importance. 1. The Bill is objected to because it is said to violate the Hay-Pauncefote Treaty in discriminating in favour of the coastwise trade of the United States by providing that no tolls shall be charged to vessels engaged in that trade passing through the canal. This is the subject of a protest by the British Government. The British protest involves the right of the Congress of .the United States to regulate its domestic and foreign commerce in such manner as to the Congress may seem wise, and specifically the protest challenges the right of the Congress to exempt American shipping from the payment of tolls for the use of the Panama Canal or to refund to such American ships the tolls which they may have paid, and this without regard to. the trade in which such ships are employed, whether" coastwise or foreign. The protest states "the proposal to exempt all American shipping from the payment of the tolls would, in the opinion of His Majesty's Government, involve an infraction of the treaty (Hay-Paunoefote), nor is there, in their opinion, any difference in prin- . ciple between charging tolls only to refund them and remitting tolls altogether. The result is the same in either case, and the adoption of the alternative method of refunding tolls in preference of remitting them, while perhaps complying with the letter of the treaty, would still controvert its spirit." The provision of the Hay-Paunoefote Treaty involved is contained in Article 3, which provides : — " The United States adopts, as the basis of the neutralization of such ship-canal, the following rules, substantially as embodied in the convention of Constantinople, signed the 28th October, 1888, for the free navigation of the Suez Canal, that is to say,— "1. The canal shall be free and open to the vessels of commerce and of war of all nations observing these rules, on terms of entire equality, so that there shall be no discrimination against any such nation, or its citizens or subjects, in respect of the conditions or charges of traffic or otherwise. Such conditions and charges of traffic shall be just and equitable." Then follow five other rules to be observed by other , nations to make neutralization effective, the observance of which is the condition for the privilege of using the canal. In view of the fact that the Panama Canal is being constructed by the United States wholly at its own cost, upon territory ceded to it by the Republic of Panama for that purpose, and that, unless it has restricted itself, the United States enjoys absolute rights of ownership and control, including the right to allow its own commerce the use of the canal upon such terms as it sees fit, the sole question is, Has the United States, in tKe language above quoted from the HayPauncefote Treaty, deprived itself of the exercise of the right to pass its own commerce free or to remit tolls collected for the use of the canal? It will be observed that the rules specified in Article 3 of the treaty were adopted by the United States for a specific purpose —namely, as the basis of the neutralization of the canal, and for no other purpose. The article is a declaration of policy by the United States that the canal shall be neutral; that the attitude of this Government towards the commerce of the world is that all nations will be treated alike, and no discrimination made by the United States against any one of them observing the rules adopted by the United States. The right to the use of the canal and to equality of treatment in the use depends upon the observance of the conditions. of the use by the nations to whom we extended that privilege. The privileges of all nations to whom we extended the use upon the observance of these conditions were to be equal to that extended to any of them which observed the conditions. In other words, it was a conditional favoured-nation treatment, the measure of which, in the absence of express stipulation to that effect, is not "what the country gives to its own nationals, but the treatment it extends to other nations. Thus it is seen that the rule's are but a basis of neutralization, intended.to effect the neutrality which the United States was willing should be the character- of the canal, and not intended to limit or hamper the United States in the exercise of its sovereign power to deal with its own commerce, using its own canal in whatsoever manner it saw fit. If there is no " difference in principle between the United States charging tolls to its own shipping only to refund them and remitting tolls altogether, as the British protest declares, then the irresistible conclusion is that the United States, although it owns, controls, and has paid for the canal, is restricted by treaty from aiding its own commerce in the way that all the other nations of the world may freely do. It would scarcely be claimed that the setting-out in a treaty between the United States and Great Britain of certain rules adopted by the United States as the basis of the neutralization of the canal would bind any Government to do or refrain from doing anything other than the things required by the rules to ensure the privilege of use and freedom from discrimination. Since the rules do not provide as a condition for the privilege of use upon equal terms with other nations that-other nations desiring to build up. a particular trade involving the use of the canal shall not either directly agree to pay the tolls or to refund to its ships the tolls collected for the use of the canal, it is evident that the treaty does not affect that inherent sovereign right, unless, which is not likely, it be claimed that the promulgation by the United States of these rules ensuring all nations against its discrimination would autho-