recreational organizations which support the U.S. and non-U.S. citizens residing in Canal area communities.
Because these organizations were located in the Canal Zone prior to treaty implementation, they benefited from lower costs for utilities and other community services, as well as access to U.S. health, educational and commissary facilities. Freedom from Panamanian taxation, customs duties, and labor laws, further substantially reduced the cost of operation for these organizations and their personnel. With the entry into force of the treaty on October 1, 1979, however, eligibility for these benefits and immunities was lost in whole or in part.
These changes appear to have had less of an adverse financial impact on commercial than on non-profit activities. Commercial activities have, as a rule, passed on higher costs of operation to their customers. Non-profit activities, which rely on membership support, have had difficulty finding additional sources of income to cope with the higher costs of operations in Panama. Both U.S. and Panama officials are aware of the financial plight of non-profit activities in the Canal area and have agreed on arrangements to attenuate the impact of the treaty during the 30-month transition period. One such arrangement provides for a gradual increase of utility rates for non-profit activities from the September 30, 1979, Canal Zone employee rate to the higher charged in Panama. This will be accomplished in incremental steps over the 30-month period.
LAND USE LICENSES
Senator LEvIN. A related problem mentioned by GAO in its report concerns land use licenses for businesses and other entities. What is being done to solve this problem? Are any of these businesses and entities that are being threatened with double rents going out of business entirely?
Mr. McAULIFFE. One of the factors affecting Land Use Licensing was the dissolution of the Panama Canal Authority (PCA) in January 1980 and the transfer of its responsibilities to various Ministries of the Government of Panama. Meetings are again underway with the PCA's successor, a much smaller office, entitiled DEPAT, which is located within the Panamanian Ministry of the President. Topics under discussion include those listed in the GAO report. We are also working with Panama on establishing bilateral processes for the issuance of Land Use Licenses in accordance with Article IV of the Implementing Agreement of Article III.
Some of the key factors contributing to the delay in resolution of Land Use License issues include (a) differences in interpretation of the treaty terms, and
(b) a lack of existing comparable mechanisms in the Panama legal or civil structure for issuing permits to private individuals or commercial activities to use land owned by a government entity. In many cases, differences in interpretation of treaty terms are so great that quick resolution of problems is not expected.
We are aware that Panama's Director of Revenue (Bacienda y Tesoro) is presently billing some 470 commercial and non-profit activities located in the former Canal Zone. We are not aware, however, of any circumstance where double billing is being claimed as the primary reason for dissolution of a commercial or nonprofit activity in the Canal area. We are aware of the case of Foster Construction de Costa Rica, Texaco, and IBM in which these companies have reported double billing by Panama for use of Commission facilities. The billings may be placing some of these organizations in the position of making a decision to discontinue activities.
PUBLIC SERVICES
Senator LEVIN. Mr. McAuliffe, could you please discuss for the Committee the progress we are making in developing a sound system for verifying and evaluating the costs of public services now provided to the Commission and DOD by the Government of Panama? This was a matter of concern during the treaty debate, and I understand we still do not have a full understanding of the way in which the Panamanians price these services. Is that so?
Mr. McAULIFFE. It is correct that we still do not have a cost reporting system for the public services being provided by the Government of Panama.
As early as April 1979, the Panama Canal Company submitted to the Government of Panama for its consideration a draft procedure providing for the systematic reporting and verification -of costs incurred by the various Panamanian agencies in performing the public services for the Commission. In September 1979,