THE PANAMA CANAL CONFLICTBETWEEN GREAT BRITAIN ANDTHE UNITED STATES OFAMERICA

CAMBRIDGE UNIVERSITY PRESSLondon: FETTER LANE, E. C. C. F.CLAY, Manager

Edinburgh: 100, PRINCES STREETLondon: STEVENS AND SONS, Ltd.,119 and 120, CHANCERY LANEBerlin: A. ASHER AND CO. Leipzig:F. A. BROCKHAUS New York: G. P.PUTNAM'S SONS Bombay andCalcutta: MACMILLAN AND CO.,Ltd.

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THE PANAMA CANAL CONFLICT

BETWEEN GREAT BRITAIN AND

THE UNITED STATES OFAMERICA

A STUDY

BY

L. OPPENHEIM, M. A., LL. D.

Whewell Professor of InternationalLaw in the University of CambridgeHonorary Member of the RoyalAcademy of Jurisprudence at MadridMember of the Institute ofInternational Law

SECOND EDITION

Cambridge: at the University Press 1913

Cambridge:

PRINTED BY JOHN CLAY, M. A. ATTHE UNIVERSITY PRESS

PREFACE TO THE SECONDEDITION

To my great surprise, the publishersinform me that the first edition of mymodest study on the Panama Canalconflict between Great Britain and theUnited States is already out of printand that a second edition is at oncerequired. As this study had been writtenbefore the diplomatic correspondencein the matter was available, the idea istempting now to re-write the essaytaking into account the argumentsproffered in Sir Edward Grey'sdespatch to the British Ambassador atWashington of November 14, 1912 see

Parliamentary Paper Cd. 6451 and, inanswer thereto, in Mr Knox's despatchto the American Charge d'Affaires inLondon of January 17, 1913 seeParliamentary Paper Cd. 6585. Butapart from the fact that the immediateneed of a second edition does notpermit me time to re-write the work, itseemed advisable to reprint the study inits original form, correcting only somemisprints and leaving out the footnoteon page 5. It had been written sine ira etstudio and without further informationthan that which could be gathered fromthe Clayton-Bulwer Treaty, the Hay-Pauncefote Treaty, the Hay-VarillaTreaty, the Panama Canal Act, and theMemorandum which President Taft left

when signing that Act. Hence, thereader is presented with a study whichis absolutely independent of thediplomatic correspondence, and he canexercise his own judgment incomparing my arguments with those setforth pro et contra the Britishinterpretation of the Hay-PauncefoteTreaty in the despatches of Sir EdwardGrey and Mr Knox.

L. O.

Cambridge, February 15, 1913.

CONTENTS

I. Article III, No. 1 of the Hay-Pauncefote Treaty of 1901 and Section5 of the American Panama Canal Actof 1912, pp. 5-6 The Memorandum ofPresident Taft, pp. 7-9 Theinterpretation of Article III of theHay-Pauncefote Treaty preferred by theUnited States, pp. 9-11.

II. The claim of the United States thatshe has granted the use of the PanamaCanal under a conditional most-favoured-nation clause, pp. 11-14 TheUnited States has never possessed thepower of refusing to grant the use ofthe Panama Canal to vessels of foreignnations on terms of entire equality, p.

15 Such use is the condition underwhich Great Britain consented to thesubstitution of the Hay-PauncefoteTreaty for the Clayton-Bulwer Treaty, p.16.

III. If the use of the Panama Canal byvessels of foreign nations were derivedfrom most-favoured-nation treatment,the United States would not be boundto submit to the rules of Article III,Nos. 2-6, of the Hay-Pauncefote Treaty,p. 17 The Panama Canal would thenlose its neutral character and would bein danger of eventually being made thetheatre of war, p. 18 But it is theintention of the Hay-Pauncefote Treatypermanently to neutralise the Panama

Canal, p. 18 The three objects of theneutralisation of an Inter OceanicCanal, pp. 19-20 Is the United States,under the Hay-Pauncefote Treaty,subjected to more onerous conditionsthan Turkey and Egypt are under theSuez Canal Treaty , pp. 20-22.

IV. Six reasons for the untenability ofthe American interpretation of ArticleIII, No. 1, of the Hay-PauncefoteTreaty, p. 23 The stipulation of ArticleVIII of the Clayton-Bulwer Treaty, p.23 The motive for, and the conditionof, the substitution of the Hay-Pauncefote Treaty for the Clayton-Bulwer Treaty, p. 24 The rules of theSuez Canal Treaty which serve as the

basis of the neutralisation of thePanama Canal, p. 25 Literal meaning ofthe words "all nations," p. 26Importance of Article IV of the Hay-Pauncefote Treaty, p. 26 The variouscontingencies contemplated by ArticleII of the same treaty, p. 27.

V. The American contention that theexemption of American coasting tradevessels from the payment of canal tollsdoes not discriminate against foreignvessels, p. 29 Every vessel shall bear aproportionate part of the cost of thePanama Canal, p. 30 Meaning of theterm "coasting trade" as upheld by theUnited States, pp. 30-33 Coasting tradevessels of the United States can trade

with Mexican and South Americanports, p. 33 Any special favour to aparticular nation involvesdiscrimination against other nations, p.34.

VI. Is the United States prevented fromrefunding to her vessels the tolls leviedupon them for use in the Panama Canal, pp. 34-35 Difference of suchrefunding from exempting the vesselsconcerned from the payment of tolls, p.35.

VII. Prominent members of the Senateand many American newspaperscondemn the special privileges grantedto American vessels by the Panama

Canal Act, p. 36 The defeated BardAmendment of 1900, p. 37.

VIII. Two schools of thoughtconcerning the relations betweenInternational and Municipal Law, p. 38The maxim that International Lawoverrules Municipal Law, p. 39 Thedoctrine that International andMunicipal Law are two essentiallydifferent bodies of law, p. 39 The twomaxims of the practice of theAmerican Courts, pp. 40-42 PresidentTaft's message to Congress suggesting aresolution which would haveempowered the American Courts todecide the question as to whetherSection 5 of the Panama Canal Act

violates Article III, No. 1, of the Hay-Pauncefote Treaty, pp. 42-44.

IX. The Panama Canal conflict and theBritish-American Arbitration Treaty, pp.44-45 Does the term "interests" mean"advantages" or "rights" , p. 46 Pactatertiis nec nocent nec prosunt, p. 47 Theexemption of the vessels of theRepublic of Panama from payment oftolls, pp. 48-50.

X. Why it must be expected that thePanama Canal conflict will be settled byarbitration, pp. 51-52 Mr ThomasWilling Balch's letter to the New YorkSun, pp. 53-57.

I.

The Panama Canal conflict is due tothe fact that the Governments of GreatBritain and the United States do notagree upon the interpretation of ArticleIII, No. 1, of the Hay-PauncefoteTreaty of September 18, 1901, whichstipulates as follows:

"The Canal shall be free and open tothe vessels of commerce and of war ofall nations..., on terms of entire equality,so that there shall be no discriminationagainst any such nation, or its citizensor subjects, in respect of the conditions

and charges of traffic, or otherwise.Such conditions and charges of trafficshall be just and equitable."

By Section 5 of the Panama Canal Actof August 24, 1912, the President ofthe United States is authorised toprescribe, and from time to time tochange, the tolls to be levied uponvessels using the Panama Canal, but thesection orders that no tolls whatever shall belevied upon vessels engaged in the coasting tradeof the United States, and also that, if thetolls to be charged should be basedupon net registered tonnage for shipsof commerce, the tolls shall not exceedone dollar and twenty-five cents per netregistered ton nor be less, for other vessels

than those of the United States or her citizens,than the estimated proportionate costof the actual maintenance andoperation of the Canal[1].

[1] As regards the enactment of Section5 of the Panama Canal Act that thevessels of the Republic of Panamashall be entirely exempt from thepayment of tolls, see below IX, p. 48.

Now Great Britain asserts that sincethese enactments set forth in Section 5of the Panama Canal Act are in favourof vessels of the United States, theycomprise a violation of Article III, No.1, of the Hay-Pauncefote Treaty whichstipulates that the vessels of all nations

shall be treated on terms of entireequality.

This assertion made by Great Britain ismet by the Memorandum which, whensigning the Panama Canal Act,President Taft left to accompany theAct. The President contends that, inview of the fact that the Panama Canalhas been constructed by the UnitedStates wholly at her own cost, uponterritory ceded to her by the Republicof Panama, the United States possessesthe power to allow her own vessels touse the Canal upon such terms as she seesfit, and that she may, therefore, permither vessels to pass through the Canaleither without the payment of any tolls,

or on payment of lower tolls thanthose levied upon foreign vessels, andthat she may remit to her own vesselsany tolls which may have been leviedupon them for the use of the Canal.The President denies that Article III,No. 1, of the Hay-Pauncefote Treatycan be invoked against such power ofthe United States, and he contends thatthis Article III was adopted by theUnited States for a specific purpose,namely, as a basis of the neutralisationof the Canal, and for no other purpose.This article, the President says, is adeclaration of policy by the UnitedStates that the Canal shall be neutral;that the attitude of the Government ofthe United States is that all nations will

be treated alike and no discrimination isto be made against any one of themobserving the five conditionsenumerated in Article III, Nos. 2-6.The right to the use of the Canal andto equality of treatment in the usedepends upon the observance of theconditions by the nations to whom theUnited States has extended thatprivilege. The privileges of all nationsto which the use of the Canal has beengranted subject to the observance ofthe conditions for its use, are to beequal to the privileges granted to anyone of them which observes thoseconditions. In other words so thePresident continues the privilege to usethe Canal is a conditional most-

favoured-nation treatment, the measureof which, in the absence of an expressstipulation to that effect, is not whatthe United States gives to her ownsubjects, but the treatment to which shesubmits other nations.

From these arguments of the Presidentit becomes apparent that the UnitedStates interprets Article III, No. 1, ofthe Hay-Pauncefote Treaty asstipulating no discrimination againstforeign nations, but as leaving it open toher to grant any privilege she likes toher own vessels. According to thisinterpretation, the rules for the use ofthe Canal are merely a basis of theneutrality which the United States was

willing should be characteristic of theCanal, and are not intended to limit orhamper the United States in the exerciseof her sovereign power in dealing withher own commerce or in using her ownCanal in whatever manner she sees fit.The President specifically claims theright of the United States eventually toallow her own vessels to use the Canalwithout the payment of any tollswhatever, for the reason that foreignStates could not be prevented fromrefunding to their vessels tolls leviedupon them for the use of the Canal. Ifforeign States, but not the UnitedStates, had a right to do this so thePresident argues the irresistibleconclusion would be that the United

States, although she owns, controls, andhas paid for the construction of theCanal, is restricted by the Hay-Pauncefote Treaty from aiding her owncommerce in a way open to all othernations. Since the rules of the Hay-Pauncefote Treaty did not provide, as acondition for the privilege of the useof the Canal upon equal terms withother nations, that other nationsdesiring to build up a particular trade,involving the use of the Canal, shouldneither directly agree to pay the tollsnor refund to their vessels tolls levied,it is evident that the Hay-PauncefoteTreaty does not affect the right of theUnited States to refund tolls to hervessels, unless it is claimed that rules

ensuring all nations againstdiscrimination would authorise theUnited States to require that no foreignnation should grant to its shippinglarger subsidies or more liberalinducements to use the Canal than weregranted by any other nation.

II.

It cannot be denied that at the firstglance the arguments of the UnitedStates appear to be somewhatconvincing. On further consideration,however, one is struck by the fact thatthe whole argumentation starts from,

and is based upon, an absolutely wrongpresupposition, namely, that the UnitedStates is not in any way restricted by theHay-Pauncefote Treaty with regard tothe Panama Canal, but has granted toforeign nations the use of the Canalunder a conditional most-favoured-nation clause.

This presupposition in no way agreeswith the historical facts. When theconclusion of the Hay-PauncefoteTreaty was under consideration, in1901, the United States had not madethe Canal, indeed did not own theterritory through which the Canal hasnow been made; nor was the UnitedStates at that time absolutely unfettered

with regard to the projected Canal, forshe was bound by the stipulations ofthe Clayton-Bulwer Treaty of 1850.Under this treaty she was bound bymore onerous conditions with regardto a future Panama Canal than she isnow under the Hay-Pauncefote Treaty.Since she did not own the Canalterritory and had not made the Canal atthe time when she agreed with GreatBritain upon the Hay-PauncefoteTreaty, she ought not to maintain thatshe granted to foreign nations theprivilege of using her Canal under aconditional most-favoured-nationclause, she herself remaining unfetteredwith regard to the conditions underwhich she could allow her own vessels

the use of the Canal. The historicalfacts are five in number:

Firstly, in 1850, Great Britain and theUnited States, by the Clayton-BulwerTreaty, agreed that neither of themwould ever obtain or maintain forherself any exclusive control over afuture Panama Canal, or fortify it, oroccupy or colonise any part of CentralAmerica; that the Canal should beneutralised, should be open to thevessels of all nations under conditionsof equality; and so forth.

Secondly, in 1901, the two parties to theClayton-Bulwer Treaty agreed tosubstitute for it the Hay-Pauncefote

Treaty, Article II of which expresslystipulates inter alia that the Canal maybe constructed under the auspices ofthe Government of the United Statesand that the said Government, subject tothe provisions of Articles III and IV, shallhave the exclusive right of providingfor the regulation and management ofthe Canal.

Thirdly, the parties agreed see thepreamble of the Hay-Pauncefote Treatythat the general principle of theneutralisation of the Canal asestablished by the Clayton-BulwerTreaty should not be impaired, andthat, therefore, the United States seeArticle III of the Hay-Pauncefote

Treaty agrees to adopt as the basis ofthe neutralisation of the Canal certainrules, substantially the same as thoseembodied in the Suez CanalConvention of 1888, and amongstthese a rule concerning the use of theCanal by vessels of all nations on termsof entire equality withoutdiscrimination against any such nation,or their citizens or subjects, in respectof the conditions or charges of traffic,or otherwise, such conditions andcharges to be just and equitable.

Fourthly, the parties agreed see ArticleIV of the Hay-Pauncefote Treaty thatno change of the territorial sovereigntyor of the international relations of the

country or countries traversed by thefuture Canal should affect the generalprinciple of the neutralisation or theobligation of the parties under theHay-Pauncefote Treaty.

Fifthly, when, in 1903, the UnitedStates by the Hay-Varilla Treaty,acquired from the Republic of Panamathe strip of territory necessary for theconstruction, administration, andprotection of the Canal, she acquiredsovereign rights over this territory andthe future Canal subject to the antecedentrestrictions imposed upon her by the Hay-Pauncefote Treaty, for Article IV of thelatter stipulates expressly that no changeof territorial sovereignty over the

territory concerned shall affect theneutralisation or obligation of theparties under the treaty.

These are the unshakable historicalfacts. The United States did not firstbecome the sovereign of the Canalterritory and make the Canal, andafterwards grant to foreign nations theprivilege of using the Canal undercertain conditions. No, she has neverpossessed the power of refusing togrant the use of the Canal to vessels offoreign nations on terms of entireequality, should she ever make theCanal. Free navigation through theCanal for vessels of all nations onterms of entire equality, provided these

nations were ready to recognise theneutrality of the Canal, was stipulatedby the Clayton-Bulwer Treaty, and thisstipulation was essentially upheld bythe Hay-Pauncefote Treaty, and it wasnot until two years after the conclusionof the Hay-Pauncefote Treaty that theUnited States acquired sovereign rightsover the Canal territory and madepreparations for the construction ofthe Canal. For this reason thecontention of the United States thatshe has granted to foreign nations theuse of the Canal under certainconditions and that such grant includesa conditional most-favoured-nationtreatment, is absolutely baseless and outof place. She has not granted anything,

the free use of the Canal by vessels ofall nations having been the conditionunder which Great Britain consented tothe abrogation of the Clayton-BulwerTreaty and to the stipulation of ArticleII of the Hay-Pauncefote Treatyaccording to which in contradistinctionto Article I of the Clayton-BulwerTreaty the United States is allowed tohave a canal constructed under herauspices.

III.

If the assertion of the United Statesthat she herself is entirely unfettered in

the use of the Canal, and that theconditions imposed upon foreignvessels in return for the privilege ofusing the Canal involve a most-favoured-nation treatment, werecorrect, the United States would not bebound to submit to the rules laid downby Article III, Nos. 2-6, of the Hay-Pauncefote Treaty. She could, therefore,if she were a belligerent, commit actsof hostility in the Canal against vesselsof her opponent; could let her ownmen-of-war revictual or take in storeswithin the Canal even if there were nostrict necessity for doing so; couldembark and disembark troops,munitions of war, or warlike materialsin the Canal, although all these were

destined to be made use of during thewar generally, and not only for thedefence of the Canal against a possibleattack. There ought, however, to be nodoubt that the United States is as muchbound to obey the rules of Article IIIof the Hay-Pauncefote Treaty as GreatBritain or any other foreign State. Theserules are intended to invest the Canalwith the character of neutrality. If theUnited States were not bound to obeythem, the Canal would lose its neutralcharacter, and, in case she were abelligerent, her opponent would bejustified in considering the Canal a partof the region of war and could,therefore, make it the theatre of war.The mere fact that Article III of the

Hay-Pauncefote Treaty refers to therules in existence concerning theneutralisation of the Suez Canal, andthat Article IV of the Suez CanalTreaty of 1888 expressly stipulates theneutralisation of the Canal even shouldTurkey be a belligerent, ought to besufficient to prove that theneutralisation of the Panama Canal isstipulated by the Hay-Pauncefote Treatyeven should the United States be abelligerent.

Furthermore, one must come to thesame conclusion if one takes intoconsideration the objects, which arethree in number, of the neutralisationof an inter-oceanic canal.

The first object is that a canal shall beopen in time of war as well as in timeof peace, so that navigation throughthe canal may be unhampered by thefact that war is being waged. If thecanal were not neutralised, theterritorial sovereign would becompelled, if he were neutral in a war,to prevent the passing through thecanal of men-of-war of eitherbelligerent, because such passage wouldbe equivalent to the passage ofbelligerent troops through neutral landterritory.

The second object is that the territorialsovereign shall be prevented from

closing a canal or interfering with thefree use of it by vessels of all nations incase he himself is a party to a war. Ifthe canal were not neutralised, thebelligerent territorial sovereign could,during the war, close the canal orinterfere with its free use by neutralvessels.

The third object is that a canal shall notbe damaged, nor navigation thereon beprevented or hampered by theopponent in case the territorialsovereign is himself a belligerent. If thecanal were not neutralised, it could beblockaded, militarily occupied, andhostilities could be committed there.

With these points in mind one may wellask whether it was worth while to agreeat all upon the five rules of Article III,Nos. 2-6, of the Hay-Pauncefote Treatyif the United States were not to beconsidered bound by these rules. Thattwo years after the conclusion of theHay-Pauncefote Treaty the UnitedStates acquired sovereign rights over theCanal territory and that she is at presentthe owner of the Canal has not,essentially at any rate, altered the case,for Article IV of the Hay-PauncefoteTreaty stipulates that a change ofterritorial sovereignty over the Canalterritory should not affect theobligation of the contracting partiesunder that treaty.

If this is correct, it might be maintainedthat the United States is, under the Hay-Pauncefote Treaty, subjected to moreonerous conditions than Turkey andEgypt are under the Suez Canal Treaty,for Article X of the latter stipulates thatEgypt and Turkey shall not by theinjunctions of Articles IV, V, VII, andVIII of the same treaty be consideredto be prevented from taking suchmeasures as might be necessary toensure the defence of Egypt andTurkey by their own armed forces. Butthis opinion would not be justifiedbecause in this respect the case of thePanama Canal is entirely different fromthat of the Suez Canal. Whereas the

Panama Canal is an outlying part of theUnited States, and no attack on themain territory of the United States ispossible from the Panama Canal, anattack on Egypt as well as on Turkey isquite possible from the Suez Canal.There is, therefore, no occasion for theUnited States to take such measures inthe Panama Canal as might be necessaryto ensure the defence of her mainterritory. Indeed there might beoccasion for her to take such measuresin the Canal as are necessary to ensurethe defence of the Canal and thesurrounding territory, if a belligerentthreatened to attack it. Although thiscase is not directly provided for by theHay-Pauncefote Treaty in

contradistinction to Article XXIII ofthe Hay-Varilla Treaty there is no doubtthat, since, according to Article II ofthe Hay-Pauncefote Treaty, the UnitedStates shall have and enjoy all the rightsincident to the construction of theCanal as well as the exclusive right ofproviding for the regulation andmanagement of the Canal there isthereby indirectly recognised the powerof the United States to take all suchmeasures as might become necessaryfor the defence of the Canal against athreatening attack. Apart from this case,the United States, even if she herselfwere a belligerent, has no more rights inthe use of the Canal than her opponentor a neutral Power; on the contrary, she

is as much bound as these Powers tosubmit to the rules of Article III, Nos.2-6, of the Hay-Pauncefote Treaty.

IV.

However this may be, the question as towhether the stipulation of Article III,No. 1, of the Hay-Pauncefote Treatythat vessels of all nations shall betreated on the basis of entire equality ismeant to apply to vessels of all nationswithout exception, or only to thevessels of foreign nations and not tothose of the United States, can only bedecided by an interpretation of Article

III which takes the whole of the Hay-Pauncefote Treaty as well as theClayton-Bulwer Treaty intoconsideration.

(1) There is no doubt that according tothe Clayton-Bulwer Treaty the futureCanal was to be open on like terms tothe citizens of all nations includingthose of the United States, for ArticleVIII expressly stipulates "that the samecanals or railways, being open to thesubjects and citizens of Great Britainand the United States on equal terms,shall also be open on like terms to thesubjects and citizens of every otherState which...."

(2) The Clayton-Bulwer Treaty hasindeed been superseded by the Hay-Pauncefote Treaty, but it is ofimportance to notice the two facts,expressed in the preamble of the latter:(a) that the only motive for thesubstitution of the latter for the formertreaty was to remove any objectionwhich might arise under the Clayton-Bulwer Treaty to the construction ofthe Canal under the auspices of theGovernment of the United States; (b)that it was agreed that the generalprinciple of neutralisation asestablished by Article VIII of theClayton-Bulwer Treaty should not beconsidered to be impaired by the newtreaty. Now the equal treatment of

American, British, and any othernation's vessels which use the Canal ispart and parcel of the general principleof neutralisation as established byArticle VIII of the Clayton-BulwerTreaty, and such equal treatment must,therefore, be considered not to havebeen impaired by Article III of theHay-Pauncefote Treaty.

(3) Article III of the Hay-PauncefoteTreaty stipulates as a consequence ofthe fact, expressed in the preamble ofthe Treaty, that the general principle ofneutralisation of the Canal asestablished by Article VIII of theClayton-Bulwer Treaty shall not beimpaired by the Hay-Pauncefote Treaty

that the United States adopts, as thebasis of the neutralisation of the Canal,six rules substantially as embodied in theSuez Canal Treaty of Constantinople of1888. Now although the Suez CanalTreaty nowhere directly lays down arule which is identical with the rule ofArticle III, No. 1, of the Hay-Pauncefote Treaty, it nevertheless insistsupon equal treatment of the vessels ofall nations by stating in Article XII:"The high contracting parties, inapplication of the principle of equalityconcerning the free use of the canal, a principlewhich forms one of the bases of the presenttreaty, agree that...." That this principleof equality of all nations concerningthe free use of the Suez Canal means

equality of vessels of all nations withthe exception of the vessels of Egyptor even of Turkey, has never beencontended; such a contention would, Iam sure, have been objected to by theparties to the Suez Canal Treaty. Forthis reason the term "all nations" in theHay-Pauncefote Treaty can likewiseonly mean all nations, including theUnited States.

(4) The literal meaning of the words"all nations" leads to the sameconclusion. If something is stipulatedwith regard to "all" nations, everynation is meant without exception. Ifan exception had been contemplated,the words "all nations" could not have

been used, and if all foreign nationsonly were contemplated, the words "allforeign nations" would have been madeuse of.

(5) There is also an argument fromArticle IV of the Hay-PauncefoteTreaty which states that no change ofterritorial sovereignty or of theinternational relations of the countryor countries traversed by the Canalshould affect the general principle ofneutralisation or the obligation of thehigh contracting parties under thetreaty. The general principle ofneutralisation is, as laid down in thepreamble of the Hay-Pauncefote Treaty,the general principle of neutralisation

as established by Article VIII of theClayton-Bulwer Treaty, and it hasalready been shown see above IV, No.2, p. 24 that equal treatment of British,American, and any other nation'svessels using the Canal is part andparcel of that general principle ofneutralisation.

(6) Lastly, Article IV of the Hay-Pauncefote Treaty must be read inconjunction with Article II. The latterdoes not exclusively contemplate theconstruction of the Canal by theUnited States, it contemplates rather theconstruction under the auspices of theUnited States, either directly at her cost, orby gift or loan of money to individuals

or corporations, or throughsubscription to or purchase of stocksand shares. The question may well beasked whether, in case the United Stateshad not acquired the Canal territoryand had not herself made the Canal,but had enabled a company toconstruct it by the grant of a loan, orby taking shares, and the like, shewould then also have interpreted thewords "all nations" to mean "all foreignnations," and would, therefore, haveclaimed the right to insist upon herown vessels enjoying such privileges inthe use of the Canal as need not begranted to vessels of other nations. Canthere be any doubt that she would nothave done it And if we can reasonably

presume that she would not have doneit under those conditions, she cannotdo it now after having acquired theCanal territory and having herselfmade the Canal, for Article IV declaresthat a change in the territorialsovereignty of the Canal territory shallneither affect the general principle ofneutralisation nor the obligation of theparties under the treaty.

V.

I have hitherto only argued against thecontention of President Taft that thewords "all nations" mean all foreign

nations, and that, therefore, the UnitedStates could grant to her vesselsprivileges which need not be granted tovessels of other States using thePanama Canal. For the present theUnited States does not intend to dothis, although Section 5 of the PanamaCanal Act see above I, p. 6 empowersthe President to do it within certainlimits. For the present the PanamaCanal Act exempts only vessels engagedin the American coasting trade from thepayment of tolls, and thememorandum of President Taftmaintains that this exemption does notdiscriminate against foreign vesselssince these, according to AmericanMunicipal Law, are entirely excluded

from the American coasting trade and,therefore, cannot be in any way put to adisadvantage through the exemptionfrom the payment of the Canal tolls ofAmerican vessels engaged in theAmerican coasting trade.

At the first glance this assertion isplausible, but on further considerationit is seen not to be correct, for thefollowing reasons:

(1) According to Article III, No. 1, ofthe Hay-Pauncefote Treaty the chargesfor the use of the Canal shall be justand equitable. This can only mean thatthey shall not be higher than the costof construction, maintenance, and

administration of the Canal requires,and that every vessel which uses theCanal shall bear a proportionate partof such cost. Now if all the Americanvessels engaged in the Americancoasting trade were exempt from thepayment of tolls, the proportionatepart of the cost to be borne by othervessels will be higher, and, therefore,the exemption of American coastingtrade vessels is a discrimination againstother vessels.

(2) The United States gives the term"coasting trade" a meaning of unheard-of extent which entirely does away withthe distinction between the meaning ofcoasting trade and colonial trade

hitherto kept up by all other nations. Ihave shown in former publications seethe Law Quarterly Review, Vol. XXIV(1908), p. 328, and my treatise onInternational Law, 2nd edition (1912),Vol. I, Sec.579 that this attitude of theUnited States is not admissible. But noone denies that any State can excludeforeign vessels not only from itscoasting trade, but also from itscolonial trade, as, for instance, France,by a law of April 2, 1889, excludedforeign vessels from the trade betweenFrench and Algerian ports. I will not,therefore, argue the subject again here,but will only take into considerationthe possibility that Great Britain, andsome other States, might follow the

lead of America and declare all thetrade between the mother countries andports of their colonies to be coastingtrade, and exclude foreign vesselstherefrom. Would the United States beready then to exempt coasting tradevessels of foreign States from thepayment of Panama tolls in the sameway that she has exempted her owncoasting trade vessels If she would notand who doubts that she would not shewould certainly discriminate in favourof her own vessels against foreignvessels. Could not the foreign Statesconcerned make the same assertion thatis now made by the United States, viz.that, foreign vessels being excludedfrom their coasting trade, the

exemption of their own coasting tradevessels from tolls did not comprise adiscrimination against the vessels ofother nations The coasting trade ofRussia offers a practical example. By aUkase of 1897 Russia enacted thattrade between any of her ports is to beconsidered coasting trade, and the tradebetween St Petersburg andVladivostock is, therefore, coastingtrade from which foreign vessels areexcluded. Will the United States, sincethe Panama Canal Act exempts allAmerican coasting trade vessels fromthe Panama Canal tolls be ready toexempt Russian coasting trade vesselslikewise Surely the refusal of suchexemption would be a discrimination

against Russian in favour of Americancoasting trade vessels!

(3) The unheard-of extension by theUnited States of the meaning of theterm coasting trade would allow anAmerican vessel sailing from New Yorkto the Hawaiian Islands, but touchingat the ports of Mexico or of a SouthAmerican State, after having passed thePanama Canal, to be considered asengaged in the coasting trade of theUnited States. Being exempt frompaying the Canal tolls she could carrygoods from New York to the Mexicanand South American ports concernedat cheaper rates than foreign vesselsplying between New York and these

Mexican and South American ports.There is, therefore, no doubt that insuch cases the exemption of Americancoasting trade vessels from the tollswould involve a discrimination againstforeign vessels in favour of vessels ofthe United States.

(4) It has been asserted that thewording of Article III, No. 1, of theHay-Pauncefote Treaty only prohibitsdiscrimination against some particularnation, and does not prohibit a specialfavour to a particular nation, and that,therefore, special favours to thecoasting trade vessels of the UnitedStates are not prohibited. But thisassertion is unfounded, although the

bad drafting of Article III, No. 1, lendssome slight assistance to it. The factthat in this article the words "so thatthere shall be no discrimination againstany such nation" are preceded by thewords "the canal shall be free and opento the vessels of commerce and of warof all nations observing these rules, onterms of entire equality," proves absolutelythat any favour to any particular nationis prohibited because it must beconsidered to involve a discriminationagainst other nations.

VI.

There is one more contention in thememorandum of President Taft infavour of the assertion that the UnitedStates is empowered to exempt all hervessels from the Panama Canal tolls. Itis thefollowing: Since the rules of theHay-Pauncefote Treaty do not provide,as a condition for the privilege of usingthe Canal upon equal terms with othernations, that other nations desiring tobuild up a particular trade whichinvolves the use of the Canal shall noteither directly pay the tolls for theirvessels or refund to them the tollslevied upon them, the United Statescould not be prevented from doing thesame.

I have no doubt that this contention iscorrect, but paying the tolls direct forvessels using the Canal or refunding tothem the tolls levied is not the same asexempting them from the payment oftolls. Since, as I have shown above in V(1), p. 30, every vessel using the Canalshall, according to Article III, No. 1, ofthe Hay-Pauncefote Treaty, bear aproportionate part of the cost ofconstruction, maintenance, andadministration of the Canal, theproportionate part of such cost to beborne by foreign vessels would behigher in case the vessels of the UnitedStates were exempt from the paymentof tolls. For this reason the exemptionof American vessels would involve

such a discrimination against foreignvessels as is not admissible according toArticle III, No. 1.

VII.

With regard to the whole question ofthe interpretation of Article III of theHay-Pauncefote Treaty, the fact is ofinterest that prominent members of theAmerican Senate as well as a great partof the more influential American Press,at the time the Panama Canal Act wasunder the consideration of the Senate,emphatically asserted that any specialprivileges to be granted to American

vessels would violate this Article.President Taft, his advisers, and themajority of the Senate were of adifferent opinion, and for this reasonthe Panama Canal Act has becomeAmerican Municipal Law.

It is likewise of interest to state the factthat the majority of the Senate asconstituted thirteen years ago took adifferent view from the majority of thepresent Senate, a fact which becomesapparent from an incident in the Senatein December 1900, during thedeliberations on the Hay-PauncefoteTreaty of February 5, 1900, theunratified precursor of the Hay-Pauncefote Treaty of November 18,

1901. Senator Bard moved anamendment, namely, that the UnitedStates reserves the right in theregulation and management of theCanal to discriminate in respect of thecharges of the traffic in favour ofvessels of her own citizens engaged inthe American coasting trade, but thisamendment was rejected by 43 to 27votes. As Article II, No. 1, of theunratified Hay-Pauncefote Treaty of1900 comprises a stipulation almostidentical with that of Article III, No. 1,of the present Hay-Pauncefote Treaty,there can be no doubt that the Bardamendment endeavoured to securesuch a privilege to American coastingtrade vessels as the United States now

by the Panama Canal Act grants tothese vessels. But the Bard amendmentwas defeated because the majority ofthe Senate was, in 1900, convinced thatit involved a violation of the principleof equality for vessels of all nationspronounced by Article II, No. 1, of theunratified Hay-Pauncefote Treaty of1900.

VIII.

The conflict concerning theinterpretation of the Hay-PauncefoteTreaty throws a flood of light on thepractice of the United States respecting

the relations between International Lawand her Municipal Law.

Two schools may be said to beopposing one another in the science ofInternational Law with regard to therelations between International andMunicipal Law.

There are, firstly, a number ofpublicists who assert that InternationalLaw is above Municipal Law and that,therefore, the rules of the former arestronger than the rules of the latter.Accordingly, a Municipal Court wouldhave to apply the rules of InternationalLaw whether they are expressly orimplicitly recognised by the Municipal

Law of the State concerned or not, andeven in a case where there is a decidedconflict between a rule of MunicipalLaw and a rule of International Law."International Law overrules MunicipalLaw" must be said to be the maxim ofthis school of thought.

There are, secondly, other publicistswho maintain that International Law andMunicipal Law are two essentially differentbodies of law which have nothing incommon but that they are bothbranches but separate branches! of thetree of Law. The rules of InternationalLaw are never, therefore, per se part andparcel of the Municipal Law of a State,and a Municipal Court cannot apply

the rules of International Law unlessthey have been adopted, either expresslyor implicitly, by the Municipal Law ofthe State concerned. Should there be aconflict between a rule of InternationalLaw and a rule of Municipal Law, aMunicipal Court can only apply therule of Municipal Law, leaving it to thelegislature of its State to do away withthe conflict by altering the MunicipalLaw.

I believe that the teaching of the latterschool of thought is correct[2] sinceInternational and Municipal Law differas regards their sources, the relationsthey regulate, and the substance oftheir law. Rules of International Law

can, therefore, only be applied byMunicipal Courts in theiradministration of the law in case and inso far as such rules have been adoptedinto Municipal Law either by a specialAct of the legislature, or by custom, orimplicitly.

[2] See my treatise on InternationalLaw, 2nd edition (1912), Vol. I,Sec.Sec.20-25.

Now the practice of the Courts[3] ofthe United States neither agrees withthe doctrine of the former nor with thedoctrine of the latter school ofpublicists, but takes a middle linebetween them. Indeed it considers

International Law to be part and parcelof the Municipal Law of the UnitedStates. It is, however, far from acceptingthe maxim that International Lawoverrules Municipal Law, it acceptsrather two maxims, namely, first, thatInternational Law overrules previousMunicipal Law, and, secondly, thatMunicipal Law overrules previousInternational Law. In the administrationof the law American Courts holdthemselves bound to apply the Acts oftheir legislature even in the case inwhich the rules of these enactments arenot in conformity with rules ofprevious International Law. It is truethat, according to Article VI of theAmerican Constitution, all international

treaties of the United States shall be thesupreme law of the land, but in case anAct of Congress contains rules not inagreement with stipulations of aprevious international treaty, theAmerican Courts consider themselvesbound by the Act of Congress, and notby the stipulations of the previoustreaty. It is obvious that, according tothe practice of the Courts of theUnited States, International Law andMunicipal Law are of equal force, sothat on the one hand new rules ofInternational Law supersede rules ofprevious Municipal Law, and, on theother hand, new rules of MunicipalLaw supersede rules of previousInternational Law. For this reason, the

American Courts cannot be resorted toin order to have the question decidedwhether or no the enactments ofSection 5 of the Panama Canal Act arein conformity with Article III, No. 1,of the Hay-Pauncefote Treaty.

[3] See the account of the practice ofthe American Court in Scott's learnedarticle in the American Journal ofInternational Law, Vol. I (1908), pp. 856-861.

It is a proof of the bona fides ofPresident Taft that he desired that theAmerican Courts might be enabled todecide this question. In a message toCongress, dated August 19, 1912, in

which the President stated hisconviction that the Panama Canal Actunder consideration did not violate theHay-Pauncefote Treaty, he inter aliasuggested that Congress should passthe following resolution:

"That nothing contained in the Act,entitled 'An Act to provide for theopening, maintenance, protection, andoperation of the Panama Canal, andthe sanitation and government of theCanal zone,' shall be deemed to repealany provision of the Hay-PauncefoteTreaty or to affect the judicialconstruction thereof, and in any wise toimpair any rights or privileges whichhave been or may be acquired by any

foreign nation under the treaties of theUnited States relative to tolls or othercharges for the passage of vesselsthrough the Panama Canal, and thatwhen any alien ... considers that thecharging of tolls ... pursuant to theprovisions of this Act violates in anyway such treaty rights or privileges suchalien shall have the right to bring anaction against the United States forredress of the injury which heconsiders himself to have suffered; andthe District Courts of the United Statesare hereby given jurisdiction to hearand determine such cases, to decreetheir appropriate relief, and fromdecision of such District Courts thereshall be an appeal by either party to the

action of the Supreme Court of theUnited States."

Congress, however, has not given effectto the suggestion of the President, andthe American Courts have not,therefore, the opportunity of giving ajudicial interpretation to the Hay-Pauncefote Treaty and of deciding thequestion whether or no through thePanama Canal Act has arisen a conflictbetween American Municipal Law andInternational Law as emanating fromthe Hay-Pauncefote Treaty.

IX.

It has been asserted that the UnitedStates is bound by her generalarbitration treaty of April 4, 1908, withGreat Britain to have the disputeconcerning the interpretation of theHay-Pauncefote Treaty decided by anaward of the Permanent Court ofArbitration at the Hague. It is, however,not at all certain that this dispute fallsunder the British-American ArbitrationTreaty. Article I of this treaty stipulates:

"Differences which may arise of a legalnature or relating to the interpretationof treaties existing between the twocontracting parties and which it maynot have been possible to settle by

diplomacy, shall be referred to thePermanent Court of Arbitrationestablished at the Hague by theConvention of the 29th of July 1899,provided, nevertheless, that they do notaffect the vital interests, theindependence, or the honour of thetwo contracting States, and do not concernthe interests of third parties."

Since this stipulation exempts fromobligatory arbitration such differencesbetween the contracting parties asconcern the interests of third parties,the question requires an answerwhether in the controversialinterpretation of the Hay-PauncefoteTreaty other States than Great Britain

and the United States are interested.The term interest is, however, a verywide one and so vague that it is verydifficult to decide this question. Does"interest" mean "rights" Or does itmean "advantages" If it means"advantages," there is no doubt that inthe Panama Canal conflict the interestsof third parties are concerned, for thefree use of the Canal by their vessels onterms of entire equality is secured tothem by the Hay-Pauncefote Treaty. Onthe other hand, if "interests" means"rights," it can hardly be said that theinterests of third parties are concernedin the dispute, for the Hay-PauncefoteTreaty is one to which only GreatBritain and the United States are

contracting parties, and according tothe principle pacta tertiis nec nocent necprosunt no rights can accrue to thirdparties from a treaty. Great Britain hasthe right to demand from the UnitedStates, which owns and controls theCanal, that she shall keep the Canalopen for the use of the vessels of allnations on terms of entire equality, butother States have no right to make thesame claim. The case will be differentwhen the Canal has been opened, andhas been in use for such length of timeas to call into existence under theinfluence and working of the Hay-Pauncefote Treaty a customary rule ofInternational Law according to whichthe Canal is permanently neutralised

and open to vessels of all nations, orwhen all maritime States, throughformal accession to the Hay-PauncefoteTreaty, have entered into it with allrights and duties of the two contractingparties. So long as neither of theseevents has taken place Great Britain andthe United States can at any moment,without the consent of third States,abrogate the Hay-Pauncefote Treatyand do away with the stipulation thatthe Canal shall be open to vessels of allnations on terms of entire equality.

In this connection it is of interest todraw attention to the fact that, incompliance with Article XIX of theHay-Varilla Treaty of November 18,

1903, Section 5 of the Panama CanalAct entirely exempts vessels of theRepublic of Panama from payment ofthe Panama Canal tolls. It would seemthat this exemption in favour of thevessels of the Republic of Panamaviolates Article III, No. 1, of the Hay-Pauncefote Treaty, although it is inconformity with Article XIX of theHay-Varilla Treaty which stipulates that:

"The Government of the Republic ofPanama shall have the right to transportover the Canal its vessels and its troopsand munitions of war in such vessels atall times without paying charges of anykind."

A treaty between two States can neverinvalidate a stipulation of a previoustreaty between one of the contractingparties and a third State. Bearing thispoint in mind, it must be maintainedthat the United States, being bound byArticle III, No. 1, of the Hay-Pauncefote Treaty, had not the powerto enter into the stipulation of ArticleXIX of the Hay-Varilla Treaty by whichshe granted exemption from paymentof tolls to vessels of the Republic ofPanama, and that Great Britain isjustified in protesting against theenactment of Section 5 of the PanamaCanal Act in so far as it exempts vesselsof Panama from the payment of tolls.The fact that the right of Panama to

demand exemption from payment oftolls for her vessels is one of theconditions under which the Republicof Panama ceded to the United Statesthe strip of territory necessary for theconstruction, administration, andprotection of the Canal, cannotinvalidate the previously acquired rightof Great Britain to demand equaltreatment of the vessels of all nationswithout any exception whatever. Itmust be left to the United States andthe Republic of Panama to come to anagreement concerning Article XIX ofthe Hay-Varilla Treaty. Although theUnited States promised an exemptionfrom tolls which she had no power togrant, the Republic of Panama need

not drop her claim to this exemption.Since, however, the grant of theexemption would violate previoustreaty rights of Great Britain, theRepublic of Panama is at any rateentitled to a claim to an equivalent ofthe exemption, namely, the refunding,on the part of the United States, oftolls paid by vessels of the Republic ofPanama for the use of the Canal.Whether these vessels are exempt fromthe payment of tolls or can demand tohave them refunded, makes very littledifference to the Republic of Panama,although Article XIX of the Hay-Varilla Treaty stipulates exemptionfrom, and not the refunding of, tolls.

But the case of the vessels of Panamais quite unique, for their exemptionfrom tolls was one of the conditionsunder which the Republic of Panamaceded to the United States the Canalterritory. Great Britain and the UnitedStates being the only contracting partiesto the Hay-Pauncefote Treaty, and thirdStates not having as yet either by formalaccession become parties to this treatyor acquired, by custom, a claim to equaltreatment of their vessels, there wouldseem to be nothing to prevent GreatBritain from consenting to theexemption of the vessels of Panama,should she be disposed to do so.

X.

However this may be, the question as towhether the United States is by theBritish-American Arbitration Treatycompelled to consent to have thedispute concerning the interpretationof the Hay-Pauncefote Treaty broughtbefore the Permanent Court ofArbitration is of minor importance.For, even if she be not compelled to doso, it must nevertheless be expected thatshe will do so. If any dispute is, by itsvery character, fit and destined to besettled by arbitration, it is this dispute,which is clearly of a legal nature and atthe same time one which concerns the

interpretation of treaties. Neither theindependence, nor the honour, nor anyvital interest of the parties can be saidto be involved in the dispute.

Indeed it may be maintained that muchmore important than the dispute itselfis the question whether it will or willnot be settled by arbitration. GreatBritain has already declared that if thedispute cannot be settled by means ofdiplomacy, she will request arbitration.The eyes of the whole world aredirected upon the United States inorder to find out her resolution.Throughout her history, the UnitedStates has been a champion ofarbitration, and no other State has so

frequently offered to go, or consentedto submit, to arbitration. It was theUnited States who at the First, as wellas the Second, Hague Peace Conferenceled the party which desired thatarbitration should be made obligatoryfor a number of differences, and shewill, I am sure, renew her efforts at theapproaching Third Peace Conference.Should she refuse to go to arbitrationin her present dispute with GreatBritain, the whole movement forarbitration would, for a generation atleast, be discredited and come to astandstill. For if the leader of themovement is false to all his declarationsand aspirations in the past, themovement itself must be damaged and

its opponents must be victorious.Prominent Americans are alive to thisindubitable fact, and it would seem tobe appropriate to conclude this studywith the text of the letter of MrThomas Willing Balch of Philadelphiathe worthy son of his father who wasthe first to demand the settlement ofthe Alabama dispute by arbitrationwhich the New York Sun, an influentialAmerican paper, published onSeptember 4, 1912, on its editorial page.

"To the Editor of the Sun. Sir:

A half century ago, Americans believedfirmly that we had a good cause ofgrievance against Great Britain for

having allowed, during our great CivilWar, the use of her ports for the fittingout of a fleet of Confederate cruisers,which caused our maritime flag todisappear almost entirely from the highseas. We pressed Great Britain long andpersistently to agree that our claims,known under the generic name of theAlabama claims, should be submittedfor settlement to an impartialarbitration. Finally, with reluctance,Great Britain acceded to our demands.And as a result the two Nationsappeared as litigants before the Bar ofthe International Court of Justice,popularly known as the GenevaTribunal. The result was a triumph forthe United States, but also it was a

greater triumph for the cause ofcivilization.

To-day our Government and that ofGreat Britain have once more come toan impasse, this time over theinterpretation of the Hay-PauncefotePanama Treaty. Our Government hasdefinitely granted free passage throughthe Panama Canal to our vesselsengaged in the coastwise trade. And asa consequence Great Britain hasentered a protest and given notice thatshe will request that the Hay-Pauncefote International contract shallbe submitted for interpretation to ajudicial decision by The HagueTribunal. Though so short a time has

elapsed since the Panama Canal Billbecame a law, mutterings have beenheard of the possibility that the UnitedStates would refuse this request ofGreat Britain to refer the point indispute to The Hague Court. But sucha policy would be most unwise for theUnited States to pursue. No bettermeans to injure our foreign trade andrelations could be devised. Apart,however, from the material aspect ofthe question, our national honor andcredit would suffer if we refused torefer the matter for judicial settlementat the Bar of The Hague InternationalCourt, especially as we have a treatyagreement with Great Britain to refermany forms of possible international

dispute to that very tribunal in caseordinary means fail to settle them. Inacceding to such a solution of thepoint of difference between the twoPowers, the honor of the United Statesand Great Britain surely will be as safein the hands of their respective counselas the honor of a private individual isin those of his lawyer in a suit before aMunicipal Tribunal.

The Alabama Arbitration whichinvolved a large and important part ofthe rights and duties of neutrals andbelligerents towards one another, was anotable advance in strengthening thepower and majesty of InternationalLaw among the Nations of the world.

The present dispute will turn on thecorrect interpretation of a treatyconcerning whose meaning variousparties and persons have offereddifferent views. It seems to be clearly acase for a judicial decision.

At the proper time, let the question beargued before The Hague Court, andwhatever the decision may be, whichboth parties will be pledged in advanceto accept, another triumph will havebeen won for the Law of the Nations.Another step forward and InternationalLaw and Justice can only advance a stepat a time towards the distant goal ofuniversal peace through the expansionof the Law of Nations will be

accomplished to the substantial gainand credit of civilization and humanity.And new honor and glory will accrueto the United States, which ever sincethe signing of Jay's Treaty in 1794 havedone so much, probably more than anyother Power, to promote the cause ofjustice among the Nations."

Cambridge: PRINTED BY JOHNCLAY, M. A. AT THE UNIVERSITYPRESS

THE END