The most pure form of socialism ever devised?

THE Panama Canal Treaty of 1977 between the United States and Panama set in motion the handover of the Panama Canal at noon on December 31, 1999. Since 1979, the canal has been run by the Panama Canal Commission (PCC), an agency of the US government.

The PCC was a creation of the United States Congress, to be run as a non-profit corporation to operate the canal during the twenty-year transition from 1979 to 1999. Each year the profits were put back into canal projects which, in part, improved the canal operation as well as the standard of living for its employees.

Since 1979, the PCC has been overseen by a supervisory board, the majority of whom are citizens of the United States. The administrator, a Panamanian, is appointed by the President of the United States and confirmed by the US Senate.

It was sometimes said that the Canal Zone Government was the most pure form of socialism that has been devised. Employees of the PCC were US government employees and worked under a US civil service scheme with liberal vacation, social benefits, and retirement programmes. When an employee ceased working or retired from the PCC, he was expected to leave the Canal Zone within sixty days. Some chose to retire in the Republic of Panama, but most returned to the United States.

Pursuant to US statute, the defence of the Panama Canal from an "armed attack" would be by order of the President of the United States to the military officer charged with the protection and defence of the canal. The US military maintained an imposing presence through the years, and many people were of the opinion that the canal was basically run and controlled by the US military. Before 1979, the Governor of the Canal Zone was traditionally a US Army officer with the Army Corps of Engineers. The last of the US military left Panama in the summer of 1999 and, with the exception of a small residual force, there is no further US military presence in Panama.

From 1904 to 1979, the Panama Canal Company and the Canal Zone Government ran the fifty-mile-long and ten-mile-wide strip called the Canal Zone. The canal infrastructure was all-encompassing and included administration, schools, hospitals and dispensaries, fire and police departments, customs, immigration, post offices, marine operations and maintenance, stevedoring and terminals, railroad, motor transportation, accounting and other operations. For many years three passenger/cargo vessels were operated. In effect, the Canal Zone was an independent entity within the border of the Republic of Panama.

The United States statutes created an employment system based on merit and qualification of each individual employee. Each agency of the commission established written standards for qualifications and fitness of employees and candidates for employment and future selection. Rates of basic pay were to be in relation to the same or similar work performance in the United States. Standards of basic pay were applied without regard to citizenship.

Panama Canal employees were forbidden to strike pursuant to US law. The closest situation to a strike occurred when the Panama Canal pilots held "work slowdowns" when they were unhappy in their negotiation of wages and benefits. These situations were normally resolved very quickly, and the canal basically operated in an orderly and efficient manner.

Pursuant to US statutes, there was a United States district dourt and two magistrates courts. One federal judge heard all the maritime cases that arose within the canal jurisdiction. Once the 1977 treaty came into effect, the US district court closed, as did the magistrates courts.

The 1977 treaty created a joint sea-level canal study, with both United States and Panamanian representatives taking part. The PCC was authorised to buy insurance to protect against catastrophic marine accidents or other unpredictable events. Normally, claims against the PCC were uninsured and paid for from a reserve kept for such purposes.

The PCC had a claims bureau that administratively handled claims that arose. Claimants for damages who were aggrieved by the findings, determination or award of the commission on their claim could bring an action for damages against the commission in the United States District Court for the Eastern District of Louisiana, in a non-jury trial. Any claim had to be brought within one year of final notification by the commission to the claimant.

The Panama Canal Commission had the authority to adjust and pay claims for injury to, or loss of, property or for personal injury or death, arising from the operation of the Panama Canal or related facilities and appurtenances. There was a fifty thousand dollar limit on what the commission could pay.

The commission adjusted and paid claims for damage to vessels, or their cargo, and for injuries to crew or passengers which arose in passage through the Panama Canal locks if the damage or injury was proximately caused by negligence or fault on the part of officers or employees of the US acting within the scope of their employment and in the line of their duties. The negligence of the vessel or individual would diminish the liability in proportion to their fault.

Hopefully, the system will be improved upon after the handover, and the efficiency of the canal will improve with the passage of time under the auspices of the Panama Canal Authority.

Jurisdiction was from the time the first towing line was made fast on board before entrance into the locks and until the towing lines were cast off, or immediately prior to departure from the lock chamber. Claims had to be made within two years of the date of injury, or within one year after December 23, 1985.

If a vessel or its cargo was damaged while the vessel was not under the control of a Panama Canal pilot, the commission would not pay more than $50,000 on the claim, unless the injuries were caused by another vessel under the control of a Panama Canal pilot.

Regarding injuries outside the locks to vessels, cargo, crew or passengers, where the injury was proximately caused by the negligence of PCC employees, within the scope of their employment and in the line of duty regarding the operation of the canal, the PCC was mandated to adjust and pay damages promptly. Again, the award would be diminished in proportion to the fault or negligence of the claimant. In order for a claim to be made, a vessel accident would have to have occurred in the navigation or movement of the vessel under the control of a Panama Canal pilot on duty.

The general measure of damages for injuries to a vessel that the PCC would entertain were:

1. the actual or estimated cost of repairs;
2. charter hire actually lost by owners, or hire actually paid, depending on the terms of the charter, for the time the vessel was undergoing repairs;
3. maintenance of the vessel and wages of the crew, if they were found to be actual additional expenses or losses incurred outside of the charter hire; and
4. other expenses which were definitely and accurately shown to have been incurred necessarily and by reason of the accident or injuries.

Agency fees, commissions, or other incidental expenses of similar character, or any items which were indefinite or speculative, would not be allowed. The commission had to be supplied with such vouchers, receipts, or other evidence as necessary, in support of any item of a claim. A vessel not under charter had to submit evidence of the cost of a like vessel of size and class in the charter market. If charter value could not be determined, the value of the vessel to its owners in the business in which it was engaged at the time of the injuries would be used as a basis for estimating the damages for the vessel's detention.

The books of the owners showing earnings about the time of the accident would also be considered as evidence of probable earnings during the time of detention. If the books were unavailable, such other evidence could be supplied as would be necessary to support a claim.

There were certain delays for which the commission was not responsible and for which claims would not be considered. They included:

1. landslides or other natural causes;
2. necessary construction or maintenance on canal locks, terminals, or equipment;
3. obstruction arising from accidents;
4. time necessary for admeasurement;
5. congestion of traffic;
6. investigation of a marine accident that was conducted within 24 hours of the accident occurring; except that any liability of the commission beyond the 24-hour period should be limited to the extent to which the accident was caused, or contributed to, by the negligence of an employee of the commission; or
7. except as otherwise set forth by the US statutes.

Considering Claims

The commission would not consider a claim prior to departure from the Panama Canal of the vessel involved, unless:

(1) an investigation by the competent authorities of the accident or injury giving rise to the claim had been completed; and
(2) the basis for the claim had been laid before the commission.

A Board of Local Inspectors (BLI) performed the investigation of marine casualties as well as other duties, as necessary, regarding marine matters. The BLI could summon witnesses, administer oaths, and require the production of books and papers necessary for such investigation.

These procedures were very burdensome and onerous on a shipowner and, in many instances, difficult to comply with. Passengerships, for example, which operated on a tight schedule, found it particularly difficult to remain in canal waters pending a BLI hearing. The claims handling process had also been criticised as being slow and cumbersome.

In many instances, a filed claim would not be responded to by the PCC until shortly before the time deadlines imposed, and then would be denied.

Hopefully, the system will be improved upon after the handover, and the efficiency of the canal will improve with the passage of time under the auspices of the Panama Canal Authority (PCA), which will take over the administration of the canal on December 31 this year.

In the next edition of the Maritime Advocate, Juan David Morgan Jr of Morgan & Morgan, Panama, will give an overview of how the canal will operate in the 21st Century.