Senator MORGAN. Did the legislature, the Isthmian Canal Commission, extend the Dingley law into that Zone?

Secretary TAFT. Yes, sir; that is, they were directed by the President to do so, and they acted on it, or the governor issued the proclamation; but with the consent of the Commission it was never put in force. I think I am right about that, am I not, General? General DAVIS. Quite right.

Senator MORGAN. That brings up the question, Mr. Secretary, as to whether the act of 1803, repeated in the more recent enactments of Congress, which original act applied to the Louisiana Territory, authorizes the President of the United States to make laws imposing tariffs upon the importation or the exportation of goods from that Zone. Do you hold that that act, properly construed, gives to the President of the United States the power, through the Isthmian Canal legislature, I will call it, to enact a law fixing tariff duties upon imports from foreign_countries?

Secretary TAFT. I do.

Senator MORGAN. I just wanted to know how far the doctrine would extend.

Secretary TAFT. Yes, sir.

Senator MORGAN. And of course if the power existed to enact the law it existed to repeal it?

Secretary TAFT. Yes, sir.

Senator MORGAN. Or, as has been done in this case, to suspend it? Secretary TAFT. Yes, sir.

Senator MORGAN. That is the state of the law there now. It is the Dingley bill, reenacted by the Isthmian Canal Commission, as applicable to all of the countries of the earth in regard to the tariffs that shall be levied upon importations, which has been

Secretary TAFT. Revoked.

Senator MORGAN. Which has been revoked by the Isthmian Canal Commission?

Secretary TAFT. Yes, sir.

Senator MORGAN. And the question of the tariff dues that shall be charged upon importations into the Zone is settled by the modus vivendi ?

Secretary TAFT. Yes, sir; and adopted by the Commission.

Senator MORGAN. And adopted by the Commission. That question is, as to the State of Panama-I do not know whether that is a reciprocal obligation or not-that they shall reduce their rates of tariff upon importations from 20 to 10 per cent, is it?

Secretary TAFT. From 15 to 10.

Senator MORGAN. Does that impose a similar obligation upon the Zone authorities in regard to their importations that the Dingley tariff shall be reduced from 15 to 10 per cent ad valorem?

Secretary TAFT. No, sir. The consideration which moved the Zone authorities was that which forbade the importation of anything into the Zone except what came in for Government purposes or for the purposes of the Government's employees.

Senator MORGAN. That was the interpretation put upon the HayVarilla treaty in that respect. The treaty forbids the free entry of goods into the Zone?

Secretary TAFT. The treaty permits the free entry, you mean?

Senator MORGAN. Well, it forbids, really, the free entry of material into the Zone for any other than the purposes of the canal, except transportation through.

Secretary TAFT. Yes; the treaty provides that the United States may import free of duty everything that it would use for the construction of the canal or that was necessary for its employees.

Senator MORGAN. You confine the operations of that act to the particular matters described in it, and outside of that, of course, the United States had no right?

Secretary TAFT. Ah, no; I do not think that. The truth is, if I understand it, that the Hay-Varilla treaty adopted a number of provisions of the Hay-Herran treaty. It seems to have been rather hastily constructed, and failed to note, or at least failed to act on the theory (or what was the fact, too) that goods could be imported into the Zone directly, without going through the Republic of Panama. So that this provision with respect to the importation of merchandise free from duty applied to a condition where you imported it through the Panama territory. There is nothing in that Hay-Varilla treaty that forbade the importation into the Zone of anything that the United States might wish to take in there, private property or otherwise. It had its application really to goods that went through the Republic of Panama.

Senator MORGAN. Then you changed that in the modus vivendi to what extent?

Secretary TAFT. We did not change it at all. What we did was to merely prohibit the importation into the Zone of any article at all; we required it to come around through Panama, in order that private importations should pay to Panama a revenue.

Senator MORGAN. Although the private importations were made into the Zone?

Secretary TAFT. Were intended to be made ultimately into the Zone; yes, sir.

Senator MORGAN. That is to say, one of our operatives down there who wanted to send off and get goods for his own family or his own enjoyment, for personal use, not connected with his official duties, should pay a duty of 10 per cent to the Panama Government? Secretary TAFT. Yes, sir.

Senator MORGAN. That, then, was the levying of a duty of 10 per cent upon all importations made from the United States or from any other country through Panama into the Zone?

Secretary TAFT. Yes, sir.

Senator MORGAN. Then the question arises, in my mind at least, as to whether or not the act of 1803 was intended to apply to any such situation, or could apply to it. That is a question that I think you probably have answered by saying you think it could.

Secretary TAFT. Yes, sir. I am looking, Senator, for a remark made, I think, by me in the dispatch to Secretary Hay on the adoption of this modus vivendi. I think I included that among the exhibits.

Senator MORGAN. I concede that your proceeding was regular, because you were there representing the President, and all of your actions were referred to the Secretary of State, and he approved them as his official act.

Secretary TAFT. May I read from that?

Senator MORGAN. Yes.

Secretary TAFT. I read from page 67 of Exhibit 6, my dispatch to Secretary Hay:

"This order will secure all the duties for the Republic, and will give it also some income from post. The duties might be secured to the Republic not by restriction of character of importations at terminal canal ports, as above, but by imposing a higher duty in canal ports than in Panama ports on all but excepted articles say, a 50 per cent increase-but whichever be the method, the prohibition of certain importations in the one case or the imposition of higher duty in the other must, in order to effect purpose, apply to importations from United States of America into Zone, and the question is, Which is preferable? I prefer the former."

I was saying this to Secretary Hay.

Senator MORGAN. I do not question the regularity of your action at all.

Secretary TAFT. I might also follow that, Senator, by reading something here that I referred to this morning.

Senator MORGAN. Yes.

Secretary TAFT (reading): "Presume objection will be made that American manufacturing interests are not protected by this order from competition with world on material and machinery for canal. If Congress wishes to secure that business solely to American merchants and manufacturers, it should do it by direct limitation on purchases and contracts of the Canal Commission, and not by indirect method of duties, which can not but work inconvenience and hardship to Republic-to Panama and its merchants, as well as to Zone and its inhabitants."

Senator MORGAN. That seems to indicate the opinion of Mr. Hay that we ought to legislate on the subject.

Secretary TAFT. Yes, sir-well, this is my statement to Mr. Hay. Senator MORGAN. This is your statement?

Secretary TAFT. Yes, sir.

Senator MORGAN. Mr. Hay approved everything you did there, did he not?

Secretary TAFT. Yes, sir; he sent back word

Senator MORGAN. I know he did; so I regard the question as being one really between Mr. Hay and Congress.

Secretary TAFT. Yes, sir.

Senator MORGAN. You made a provision there in regard to certain articles of importation that seem to affect certain classes of people, particularly those that are born in tropical latitudes. I wish you would explain that, if you please, and the necessity for it. Secretary TAFT. I thought I did explain that.

Senator MORGAN. Did you do so sufficiently?

Secretary TAFT. However, I will be glad to go over it again.

I talked with Mr. Wallace and with General Davis and with Admiral Walker on the general question whether we wanted to go into the matter of furnishing these tropical supplies, rice, and that class of food supplies that tropical laborers eat-whether we wished to do that and import for them and we concluded that it would not be wise for us to undertake to do that unless there was an evident effort to charge them exorbitant prices. So I concluded that in construing, or, rather,

ordering the enforcement of article 13 of the treaty, and in making provision as to how that section should be carried out with reference to certificates and defining what was meant by the treaty in the merchandise to be imported, it might be well to put in a specific declaration that for the present we would not insist on introducing by the Government, for the benefit of these native employees, their food supplies. We would just let them buy where they chose. Probably they could buy as well and more cheaply, because the merchants on the Isthmus had always been used to furnishing that kind of supplies to that kind of labor.

With respect to the American labor, however, as we found in the Philippines, it is absolutely necessary to import what they are used to eating, because you can never get it from the ordinary merchant in such a country. Therefore I made the provision in the order, in reference to construing and carrying out article 13 of the treaty, that all articles for the Government or for the employees, classifying them, should be admitted on the certificate of a certain officer; but that commissaries for the native employees would not be opened and established, and such articles would not be imported under that section or article unless it became apparent that the merchants of the Zone were not furnishing the articles at a reasonable price, in which case the power which undoubtedly existed would be exercised, and the Government would import food for its employees of that class.

You will remember, in the evidence of Governor Magoon and in the evidence of Mr. Shonts, what appeared to them in July and August-namely, that there had been there a corner, or certainly a scarcity, in provisions for that class of labor, and that they opened the commissaries and did import food for that class of labor. Now, they have gone on and kept open the commissaries, as I am informed, and kept open the soup houses, or whatever they are, in which they expect to feed these employees, and the result is that they do not have any custom. The native laborer prefers to feed himself, and to buy from the native shops. Now, that is the situation.

Senator MORGAN. Either in Panama or in Colon, or in the Zone? Secretary TAFT. Or in the Zone itself.

Senator MORGAN. As the case may be?

Secretary TAFT. Yes, sir.

Senator MORGAN. Let us take rice; that is a staple food for all tropical people?

Secretary TAFT. Yes, sir.

Senator MORGAN. That is not produced at all in Panama in any quantities, is it?

Secretary TAFT. I do not think it is. I do not think it is produced there in any quantities. It may be raised there to some extent, but I am quite sure they get it from-well, let me see; I do not know where they do get it from.

Senator MORGAN. It is imported?

Secretary TAFT. But it is imported.

Senator MORGAN. And coming into the Zone, it would be liable to duty or not, just as this modus vivendi regulates?

Secretary TAFT. Yes, sir.

Senator MORGAN. It would be liable to a duty of 10 per cent ad valorem coming into the Zone?

Secretary TAFT. Yes, sir.

Senator MORGAN. Now, that is an article that is commonly in use. amongst all people who are raised in the Tropics. Does the other provision of the arrangement, as to the excessive prices to be charged by the Panama merchants, apply to rice?

Secretary TAFT. Yes, sir.

Senator MORGAN. It applies to rice?

Secretary TAFT. It applies to everything. I am not sure whether they do not bring in rice for other people, but I do not know about that. It does not affect the principle or the character of the question. Senator MORGAN. The importation of rice by the Government of the United States for the purpose of selling it or feeding it through their commissaries to laborers is controlled by the article in the modus vivendi that says that it shall bear a duty of 10 per cent?

Secretary TAFT. Well, no, sir; it is not. The order with reference to article 13 was made after the modus vivendi, so called, was signed. It was made after I came home, in the construction of article 13; but I was controlled more or less by a desire not to raise a serious question with reference to the feeding of those employees, and I do not think that, properly speaking, it is a part of the order of December 3. It is true that it added 10 per cent; but we did not want to go into the business of buying rice and buying all those things if we could avoid it, and I think the price of rice was quite reasonable on the Isthmus, and the price of all those things. Indeed, it seems so now, because we are buying rice, and they do not buy of us, though we import it free.

Senator MORGAN. They do not buy any of you at all?
Secretary TAFT. Oh, very little.

Senator MORGAN. How do you account for that?

Secretary TAFT. I suppose the merchants undersell us. know. I expect they get their material cheaper.

I do not

Senator MORGAN. That must be the fault of our purchasing agents, then; because if our rice comes in free, they certainly can not undersell us under ordinary circumstances.

Secretary TAFT. Of course we have to add a percentage, and perhaps their percentage is less than ours.

Senator MORGAN. A percentage for what?

Secretary TAFT. For the handling of it and the purchase of it.

Senator MORGAN. Oh, yes. That is quite a puzzle to me. I can not understand why they should go and buy rice from the merchants of Panama when they can get it at the same rate from the merchants within the Zone. You have American merchants in the Zone?

Secretary TAFT. General Davis knows about that. I do not think we have many.

General DAVIS. No; there are almost none.

Secretary TAFT. The merchants there are mainly Chinese, are they not, General?

General DAVIS. Yes.

Secretary TAFT. Where you get a Chinaman, Senator, he can undersell anybody.

General DAVIS. I can add a little light to this subject, perhaps, by saying that the natives of Panama, Jamaica, Barbadoes, and Martinique who are at work on the Zone do not use rice to any such extent as the Oriental does.

Secretary TAFT. I did not know that.