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Senator MORGAN. That only illustrates the separation and independence of action of those two bodies.

General Davis. Yes. I think the corporation is, in a legal sense, or is intended to be, entirely separate from the Commission.

Senator MORGAN. I believe that this is the day, is it not, for the election of a new board of directors?

General Davis. I only know that it is early in April. I am not quite certain about that.

Senator MORGAN. I think it takes place to-day in New York.
General Davis. I know it is early in April.

Senator Morgan. I think Mr. Taft has gone there now for the purpose of electing a new board of directors of the Panama Railroad Company. Of course you have no idea who will be chosen or who are the candidates?

General Davis. No; I have no idea at all. I presume the old board will be reelected, although I have no knowledge about that.

Senator Morgan. I have very grave apprehensions that they will not be, if I may state it in that way.

You mentioned, General, the opinion that it would be preferable for certain reasons (and very important reasons, too, I acknowledge), if we entered upon the contract system of building this canal, to put the entire canal under the charge of one company or establishment or contractor.

General Davis. I thought so, sir. I am certain that if this canal was to be built by private capital that is the course they would pursue.

Senator MORGAN. Yes; and that a subdivision of the contracts might lead to conflict?

General Davis. I think it would: I think it would.
Senator Morgan. And particularly in the use of the railroad?

General Davis. Yes, sir; I think that is a thing that is vital to itlike the Siamese twins, you can not cut them apart.

Senator MORGAN. It would seem to be a very difficult proposition to leave the railroad in the hands of one company or contractor amongst many.

General Davis. Oh, yes; it would be very difficult. I do not think that the idea of turning it over to a contractor would result in any friction or difficulty.

Senator MORGAN. To one contractor?
General Davis. To one contractor.

Senator Morgan. But it would be very likely to do it in case several contractors were interested in the transportation to be furnished by the road? General Davis. Yes. Senator MORGAN. That would be very likely to lead to conflict?

General Davis. Yes; I think it would, unless the control of it lay in the hands of the chief of the whole contract business, the one that had the responsibility of the building of the whole canal. Of course that would be a corporation. It would not be any one man; it would be a syndicate of capitalists.

Senator MORGAN. The question is an important one in connection with the matter of laying out the contract if we conclude to farm out the work, and I was interested in trying to understand about it as well as I could. It would be possible for the Government to retain

the separate and exclusive control of all transportation by the railroad and all of its branches and spurs, and to keep an account with the different contractors of the use that they might make of the road in the transportation of material, for instance, and supplies, or whatever else they had to transport over it. That would be possible?

General Davis. Oh, of course it is possible, yes; but the fewer employees the Government has on its pay roll on the Isthmus the better, I think.

Senator MORGAN. In the case of doing the work by contract, the employees there would comprise chiefly, I suppose, a board of engineers for direction?

General Davis. That is all; and inspectors.
Senator MORGAN. And a corps of engineers for inspection?
General Davis. Yes, sir.
Senator MORGAN. And reports, and all that?
General DAVIS. Yes.
Senator MORGAN. And, then, of course, an office of audit?

General Davis. The auditor of the Government here in Washington ought to be sufficient.

Senator MORGAN. And a paymaster's office ?

General Davis. Well, yes; there would be a local disbursing officer down there, but he would not have very much money to disburse there.

Senator MORGAN. He would only have to pay the employees of the Government ?

General Davis. That is all. The contract payments would all be made here by the Treasury Department in Washington.

Senator MORGAN. And in a case of that kind we could get rid of all questions of supplying finances?

General Davis. Oh, yes; we would not have anything to do with finance at all.

Senator MORGAN. But it would be very important, I should think, in the event that we let out the contract to one contractor or to many, that the United States should, by positive enactment, establish a fiscal system down there.

General Davis. I think there ought to be something definite about what the circulating medium shall be.

Senator MORGAN. It ought to be under the control of the Governinent of the United States?

General Davis. Well, yes; I should think so.

Senator MORGAN. And not a partnership with Panama in any respect?

Ĝeneral Davis. No; I do not see any need of it. I do not see any need of having but one direction.

Senator Morgan. Do you think that it is safe, in the construction and control of that canal work, at least up to the time of its completion, that there should be any joint interest between the Government of Panama and the United States in that Canal Zone?

General Davis. I do not think there should be any joint responsibility. I do not think there should be any intervention or any power of intervention. As the United States possesses all the powers that a sovereign could exercise, to the entire exclusion of those powers by the Republic of Panama, I see no basis for any partnership; but I think it is highly important that they should be good neighbors.

Senator MORGAN. And there should be a good understanding between them?

General Davis. That there should be harmony and pleasant relations.

Senator MORGAN. Mutual assistance?

General Davis. Yes, sir; this business of chasing criminals-extradition is beset with difficulties. When I was governor of the Zone all that I did, and all that the head of the Government of the Republic did in regard to extradition, was simply to turn over the criminals, one to the other, and say nothing about it. We did not have any protocols or agreements or treaties or anything. They said: “ Here is a fellow that has escaped over into the Zone, and we want him; can't we get him? He is charged with having committed robbery, or something;” and if the chief of police could pick him up we turned him over to them; and they did just the same for us.

It was entirely a matter of perfectly voluntary work. Each assisted the other. There was a good deal of cattle stealing from outside of the Zone, and they would try to run the cattle into the Zone, have them slaughtered, and have the meat sold there. I always assisted the Panama authorities in catching those thieves if we could; and did everything I could to simplify it, and they responded. It is quite important that we should be on good terms with the Panama authorities, and it is easy to be so. There is no difficulty about securing such an entente cordiale.

Senator TALIAFERRO. Are there many cattle on the Isthmus ?

General Davis. No; very few; you might say almost none; but there are a good many in the Republic outside.

Senator ŘITTREDGE. I think Senator Taliaferro is speaking of the Isthmus.

General Davis. Oh, in the Isthmus—in the Republic-I have not the basis of getting accurate information about it, but I have heard people say that in the Republic of Panama out towards Chiriqui and in that direction there are 200,000 or 300,000 head of cattle. I have heard the number stated at 200,000 or 300,000. They are brought into the Zone and slaughtered there continually.

I think Senator Kittredge has seen them. They are nice, sleek, smooth, well-conditioned animals, small in size, of light color and thin hair. I have eaten their meat, and it is very good. It is not abundant, but it is wholesome. Mules and horses are few and scarce and expensive. The market for horses is South America, principally Chile. Some of the mules that we are using there now in hauling, drayage, and cartage are mules that were raised in Chile, and they are very nice animals.

Senator Morgan. I will not ask the General any further questions, although the field opened before me is a very inviting one; but I think we have perhaps gone far enough.

General Davis was thereupon excused, with the thanks of the committee; and after an executive session the committee adjourned until to-morrow, Tuesday, April 3, 1906, at 10.30 o'clock a. m.

By order of the committee, the following papers are printed as an appendix to the testimony of General Davis:

REPORT BY GEN. GEORGE W. DAVIS, GOVERNOR OF THE CANAL

ZONE.

CUSTOMS, PORTS, AND REVENUES.

The Republic of Panama, by the canal convention signed on November 18, 1904, granted to the United States in perpetuity all the rights, powers, and authority within the Canal Zone which that country would possess and exercise if it were the sovereign of the territory, and the Republic, in effect, reiterated or emphasized the grant by renouncing the exercise of sovereign rights, power, or authority, in other words, she deprived herself of the power to exercise any sovereign function or attribute in the Canal Zone.

The United States thus came into possession of all the power that a sovereign could exercise, and on the 17th of June, 1904, the Government of the Republic of Panama ordered her officials to desist from exercising any governmental function. The Congress of the United States had previously authorized the President “ to take possession of and occupy" the territory granted to the United States for canal purposes on the Isthmus, and to vest the government of said Zone and the manner of its exercise in such person or persons as he might direct.

There is in the act of Congress conferring this authority a specification or definition of the powers of government authorized to be so vested. They were “all the military, civil, and judicial powers, as well as the power to make all rules and regulations necessary for the government of the Canal Zone."

One of the most important powers of the Government within any territory subject to it is the power to impose taxes; without the power of raising a revenue by some form of taxation no government could exist. The power of taxation is a necessary attribute of government, and the Isthmian Canal Commission and the chief executive of the Zone would be helpless in their efforts to carry on a government unless they possessed the powers of requiring the people to contribute to the support of the same, or unless the local government should be supported from outside revenues.

Within the territory over which the United States possessses the power of a sovereign was situated the harbor wherein all the very considerable trade of the Isthmus coming and going via the Pacific Ocean found ingress and egress. At a cost of considerably more than $2,000,000 the Panama Railroad constructed terminal facilities for convenient and quick handling of that trade, the vessels bearing it finding access to these terminals via an artificial channel, which is a part of the Panama Canal, over 2} miles long, which was made at a cost of probably $2,000,000 more. The United States is the owner of 98.4 per cent of the railroad capital stock or shares and the sole owner of the dredged channel leading to the terminal, a channel which is being maintained at a continuing heavy expense. The Government of the Republic in effect said to the United States, “ This place, La Boca, and that entrance thereto is a part of the Canal Zone which I have ceded to you."

That the government of the Zone should take steps to establish for the territory to be governed a fiscal system was self-evident, and on several occasions the minister of foreign affairs of the Republic had mentioned that when the time came to determine measures for raising a Zone revenue he hoped the fiscal dispositions of the two countries could be so harmonized that the income of the Republic from the tax on goods imported from abroad might not be depleted, and this, he said, he thought might be accomplished by making the Zone tax on certain articles of luxury equal to those imposed in the Republic and so equalize selling values in both countries, with the result that there would be no motive for smuggling. On at least two occasions the President of the Republic spoke to members of the Canal Commission on the same general lines.

The special articles that yielded the largest revenues to the RepubCic were beverages and preparations containing alcohol, manufactured tobacco, and opium, the last two being farmed monopolies. It was stated by officials of the Republic that if the United States would concede the point as respected the three commodities above named the Republic would greatly reduce its present tax of 15 per cent ad valorem on all other articles then taxed, and the Junta stated, in a memorandum handed to the first American minister to Panama, that there were many in the country who would be willing to go so far as to abolish altogether the ad valorem tax on all goods save the three named.

On the 6th of July, 1904, the National Assembly enacted a law (No. 65) that conferred upon the President the power to “abate in a convenient manner those duties which, if still levied in accordance with the existing laws, will be prejudicial to commerce and to the people because said laws are very different from those which the Government of the United States will establish in the Canal Zone."

On the 5th of July was enacted law No. 88, of which section 23 provides: “ The executive is authorized to reduce the slaughterhouse duty on cattle killed in the districts of Panama, Colon, and Bocas del Toro when the fiscal system, to be introduced in the Zone ceded to the United States, in his opinion requires it.”

These official expressions of the executive and legislative branches of the Government of the Republic indicated that there would be no difficulty in harmonizing the fiscal systems of the Zone and the Republic of Panama, provided the United States were willing to admit that alcohol beverages, perfumery, cigars, cigarettes, and opium were not “necessary and convenient” in the construction of the canal, and not "necessary and convenient for the officers, employees, workmen, and laborers in the service and employ of the United States, and for their families.

On the 13th of June the governor sent the following telegram to the chairman of the Commission:

“ Officials of Republic anxious specially liquors, tobacco coming into Zone pay same tariff as Republic levies, thus preventing smuggling, protect revenues. I hope Zone tariff may be so arranged."

The answer, on June 14th, was:
“ Panama tariff continues until otherwise ordered.”

The minister of foreign affairs was immediately informed of the purport of the question and answer.

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