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THE PANAMA CANAL CONFLICT
BETWEEN GREAT BRITAIN AND
THE UNITED STATES OF AMERICA


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

Edinburgh: 100, PRINCES STREET
London: STEVENS AND SONS, Ltd.,
119 and 120, CHANCERY LANE
Berlin: A. ASHER AND CO.
Leipzig: F. A. BROCKHAUS
New York: G. P. PUTNAM'S SONS
Bombay and Calcutta: MACMILLAN AND CO., Ltd.

_All rights reserved_




THE PANAMA CANAL CONFLICT

BETWEEN GREAT BRITAIN AND

THE UNITED STATES OF AMERICA



A STUDY

BY

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

Whewell Professor of International Law in the University of Cambridge
Honorary Member of the Royal Academy of Jurisprudence at Madrid Member
of the Institute of International Law


SECOND EDITION


Cambridge:
at the University Press
1913

Cambridge:

PRINTED BY JOHN CLAY, M. A.
AT THE UNIVERSITY PRESS




PREFACE TO THE SECOND EDITION


To my great surprise, the publishers inform me that the first edition
of my modest study on the Panama Canal conflict between Great Britain
and the United States is already out of print and that a second edition
is at once required. As this study had been written before the
diplomatic correspondence in the matter was available, the idea is
tempting now to re-write the essay taking into account the arguments
proffered in Sir Edward Grey's despatch to the British Ambassador at
Washington of November 14, 1912--see Parliamentary Paper Cd. 6451--and,
in answer thereto, in Mr Knox's despatch to the American Chargé
d'Affaires in London of January 17, 1913--see Parliamentary Paper Cd.
6585. But apart from the fact that the immediate need of a second
edition does not permit me time to re-write the work, it seemed
advisable to reprint the study in its original form, correcting only
some misprints and leaving out the footnote on page 5. It had been
written _sine ira et studio_ and without further information than
that which could be gathered from the Clayton-Bulwer Treaty, the
Hay-Pauncefote Treaty, the Hay-Varilla Treaty, the Panama Canal Act,
and the Memorandum which President Taft left when signing that Act.
Hence, the reader is presented with a study which is absolutely
independent of the diplomatic correspondence, and he can exercise his
own judgment in comparing my arguments with those set forth _pro et
contra_ the British interpretation of the Hay-Pauncefote Treaty in
the despatches of Sir Edward Grey and Mr Knox.

L. O.

Cambridge,
_February 15, 1913_.




CONTENTS


   I. Article III, No. 1 of the Hay-Pauncefote Treaty of 1901 and
Section 5 of the American Panama Canal Act of 1912, pp. 5-6--The
Memorandum of President Taft, pp. 7-9--The interpretation of Article
III of the Hay-Pauncefote Treaty preferred by the United States, pp.
9-11.

  II. The claim of the United States that she has granted the use of
the Panama Canal under a conditional most-favoured-nation clause, pp.
11-14--The United States has never possessed the power of refusing to
grant the use of the Panama Canal to vessels of foreign nations on
terms of entire equality, p. 15--Such use is the condition under which
Great Britain consented to the substitution of the Hay-Pauncefote
Treaty for the Clayton-Bulwer Treaty, p. 16.

 III. If the use of the Panama Canal by vessels of foreign nations
were derived from most-favoured-nation treatment, the United States
would not be bound to submit to the rules of Article III, Nos. 2-6, of
the Hay-Pauncefote Treaty, p. 17--The Panama Canal would then lose its
neutral character and would be in danger of eventually being made the
theatre of war, p. 18--But it is the intention of the Hay-Pauncefote
Treaty permanently to neutralise the Panama Canal, p. 18--The three
objects of the neutralisation of an Inter Oceanic Canal, pp. 19-20--Is
the United States, under the Hay-Pauncefote Treaty, subjected to more
onerous conditions than Turkey and Egypt are under the Suez Canal
Treaty?, pp. 20-22.

  IV. Six reasons for the untenability of the American interpretation
of Article III, No. 1, of the Hay-Pauncefote Treaty, p. 23--The
stipulation of Article VIII of the Clayton-Bulwer Treaty, p. 23--The
motive for, and the condition of, the substitution of the Hay-Pauncefote
Treaty for the Clayton-Bulwer Treaty, p. 24--The rules of the Suez
Canal Treaty which serve as the basis of the neutralisation of the
Panama Canal, p. 25--Literal meaning of the words "all nations," p.
26--Importance of Article IV of the Hay-Pauncefote Treaty, p. 26--The
various contingencies contemplated by Article II of the same treaty, p.
27.

   V. The American contention that the exemption of American coasting
trade vessels from the payment of canal tolls does not discriminate
against foreign vessels, p. 29--Every vessel shall bear a proportionate
part of the cost of the Panama Canal, p. 30--Meaning of the term
"coasting trade" as upheld by the United States, pp. 30-33--Coasting
trade vessels of the United States can trade with Mexican and South
American ports, p. 33--Any special favour to a particular nation
involves discrimination against other nations, p. 34.

  VI. Is the United States prevented from refunding to her vessels the
tolls levied upon them for use in the Panama Canal?, pp. 34-35--Difference
of such refunding from exempting the vessels concerned from the payment
of tolls, p. 35.

 VII. Prominent members of the Senate and many American newspapers
condemn the special privileges granted to American vessels by the
Panama Canal Act, p. 36--The defeated Bard Amendment of 1900, p. 37.

VIII. Two schools of thought concerning the relations between
International and Municipal Law, p. 38--The maxim that International
Law overrules Municipal Law, p. 39--The doctrine that International and
Municipal Law are two essentially different bodies of law, p. 39--The
two maxims of the practice of the American Courts, pp. 40-42--President
Taft's message to Congress suggesting a resolution which would have
empowered the American Courts to decide the question as to whether
Section 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 the British-American Arbitration
Treaty, pp. 44-45--Does the term "interests" mean "advantages" or
"rights"?, p. 46--_Pacta tertiis nec nocent nec prosunt_, p. 47--The
exemption of the vessels of the Republic of Panama from payment of
tolls, pp. 48-50.

   X. Why it must be expected that the Panama Canal conflict will be
settled by arbitration, pp. 51-52--Mr Thomas Willing Balch's letter
to the _New York Sun_, pp. 53-57.




I.


The Panama Canal conflict is due to the fact that the Governments of
Great Britain and the United States do not agree upon the
interpretation of Article III, No. 1, of the Hay-Pauncefote Treaty of
September 18, 1901, which stipulates as follows:--

    "The Canal shall be free and open to the vessels of commerce and of
    war of all nations..., on terms of entire equality, so that there
    shall be no discrimination against any such nation, or its citizens
    or subjects, in respect of the conditions and charges of traffic,
    or otherwise. Such conditions and charges of traffic shall be just
    and equitable."

By Section 5 of the Panama Canal Act of August 24, 1912, the President
of the United States is authorised to prescribe, and from time to time
to change, the tolls to be levied upon vessels using the Panama Canal,
but the section orders that _no tolls whatever shall be levied upon
vessels engaged in the coasting trade of the United States_, and also
that, if the tolls to be charged should be based upon net registered
tonnage for ships of commerce, the tolls shall not exceed one dollar
and twenty-five cents per net registered ton nor be less, _for other
vessels than those of the United States or her citizens_, than the
estimated proportionate cost of the actual maintenance and operation of
the Canal[1].

      [1] As regards the enactment of Section 5 of the Panama Canal Act
      that the vessels of the Republic of Panama shall be entirely
      exempt from the payment of tolls, see below IX, p. 48.

Now Great Britain asserts that since these enactments set forth in
Section 5 of the Panama Canal Act are in favour of vessels of the
United States, they comprise a violation of Article III, No. 1, of the
Hay-Pauncefote Treaty which stipulates that the vessels of all nations
shall be treated on terms of entire equality.

This assertion made by Great Britain is met by the Memorandum which,
when signing the Panama Canal Act, President Taft left to accompany the
Act. The President contends that, in view of the fact that the Panama
Canal has been constructed by the United States wholly at her own cost,
upon territory ceded to her by the Republic of Panama, the United
States possesses the power to allow her own vessels to use the Canal
upon _such terms as she sees fit_, and that she may, therefore, permit
her vessels to pass through the Canal either without the payment of any
tolls, or on payment of lower tolls than those levied upon foreign
vessels, and that she may remit to her own vessels any tolls which may
have been levied upon them for the use of the Canal. The President
denies that Article III, No. 1, of the Hay-Pauncefote Treaty can be
invoked against such power of the United States, and he contends that
this Article III was adopted by the United States for a specific
purpose, namely, as a basis of the neutralisation of the Canal, and for
no other purpose. This article, the President says, is a declaration of
policy by the United States that the Canal shall be neutral; that the
attitude of the Government of the United States is that all nations
will be treated alike and no discrimination is to be made against any
one of them observing the five conditions enumerated in Article III,
Nos. 2-6. The right to the use of the Canal and to equality of
treatment in the use depends upon the observance of the conditions by
the nations to whom the United States has extended that privilege. The
privileges of all nations to which the use of the Canal has been
granted subject to the observance of the conditions for its use, are to
be equal to the privileges granted to any one of them which observes
those conditions. In other words--so the President continues--the
privilege to use the Canal is a conditional most-favoured-nation
treatment, the measure of which, in the absence of an express
stipulation to that effect, is not what the United States gives to her
own subjects, but the treatment to which she submits other nations.

From these arguments of the President it becomes apparent that the
United States interprets Article III, No. 1, of the Hay-Pauncefote
Treaty as stipulating no discrimination against _foreign_ nations, but
as leaving it open to her to grant any privilege she likes to her own
vessels. According to this interpretation, the rules for the use of the
Canal are merely a basis of the neutrality which the United States was
willing should be characteristic of the Canal, and are not intended to
limit or hamper the United States in the exercise of her sovereign
power in dealing with her own commerce or in using her own Canal in
whatever manner she sees fit. The President specifically claims the
right of the United States eventually to allow her own vessels to use
the Canal without the payment of any tolls whatever, for the reason
that foreign States could not be prevented from refunding to their
vessels tolls levied upon them for the use of the Canal. If foreign
States, but not the United States, had a right to do this--so the
President argues--the irresistible conclusion would be that the United
States, although she owns, controls, and has paid for the construction
of the Canal, is restricted by the Hay-Pauncefote Treaty from aiding
her own commerce in a way open to all other nations. Since the rules of
the Hay-Pauncefote Treaty did not provide, as a condition for the
privilege of the use of the Canal upon equal terms with other nations,
that other nations desiring to build up a particular trade, involving
the use of the Canal, should neither directly agree to pay the tolls
nor refund to their vessels tolls levied, it is evident that the
Hay-Pauncefote Treaty does not affect the right of the United States to
refund tolls to her vessels, unless it is claimed that rules ensuring
all nations against discrimination would authorise the United States to
require that no foreign nation should grant to its shipping larger
subsidies or more liberal inducements to use the Canal than were
granted by any other nation.




II.


It cannot be denied that at the first glance the arguments of the
United States appear to be somewhat convincing. On further
consideration, however, one is struck by the fact that the whole
argumentation starts from, and is based upon, an absolutely wrong
presupposition, namely, that the United States is not in any way
restricted by the Hay-Pauncefote Treaty with regard to the Panama
Canal, but has granted to foreign nations the use of the Canal under a
conditional most-favoured-nation clause.

This presupposition in no way agrees with the historical facts. When
the conclusion of the Hay-Pauncefote Treaty was under consideration, in
1901, the United States had not made the Canal, indeed did not own the
territory through which the Canal has now been made; nor was the United
States at that time absolutely unfettered with regard to the projected
Canal, for she was bound by the stipulations of the Clayton-Bulwer
Treaty of 1850. Under this treaty she was bound by more onerous
conditions with regard to a future Panama Canal than she is now under
the Hay-Pauncefote Treaty. Since she did not own the Canal territory
and had not made the Canal at the time when she agreed with Great
Britain upon the Hay-Pauncefote Treaty, she ought not to maintain that
she granted to foreign nations the privilege of using _her_ Canal
under a conditional most-favoured-nation clause, she herself remaining
unfettered with regard to the conditions under which she could allow
her own vessels the use of the Canal. The historical facts are five in
number:--

Firstly, in 1850, Great Britain and the United States, by the
Clayton-Bulwer Treaty, agreed that neither of them would ever obtain or
maintain for herself any exclusive control over a future Panama Canal,
or fortify it, or occupy or colonise any part of Central America; that
the Canal should be neutralised, should be open to the vessels of all
nations under conditions of equality; and so forth.

Secondly, in 1901, the two parties to the Clayton-Bulwer Treaty agreed
to substitute for it the Hay-Pauncefote Treaty, Article II of which
expressly stipulates _inter alia_ that the Canal may be constructed
under the auspices of the Government of the United States and that the
said Government, _subject to the provisions of Articles III and IV_,
shall have the exclusive right of providing for the regulation and
management of the Canal.

Thirdly, the parties agreed--see the preamble of the Hay-Pauncefote
Treaty--that the general principle of the neutralisation of the Canal
as established by the Clayton-Bulwer Treaty should not be impaired, and
that, therefore, the United States--see Article III of the
Hay-Pauncefote Treaty--agrees to adopt as the basis of the
neutralisation of the Canal certain rules, substantially the same as
those embodied in the Suez Canal Convention of 1888, and amongst these
a rule concerning the use of the Canal by vessels of all nations on
terms of entire equality without discrimination against any such
nation, or their citizens or subjects, in respect of the conditions or
charges of traffic, or otherwise, such conditions and charges to be
just and equitable.

Fourthly, the parties agreed--see Article IV of the Hay-Pauncefote
Treaty--that no change of the territorial sovereignty or of the
international relations of the country or countries traversed by the
future Canal should affect the general principle of the neutralisation
or the obligation of the parties under the Hay-Pauncefote Treaty.

Fifthly, when, in 1903, the United States by the Hay-Varilla Treaty,
acquired from the Republic of Panama the strip of territory necessary
for the construction, administration, and protection of the Canal, she
acquired sovereign rights over this territory and the future Canal
_subject to the antecedent restrictions imposed upon her by the
Hay-Pauncefote Treaty_, for Article IV of the latter stipulates
expressly that _no_ change of territorial sovereignty over the
territory concerned shall affect the neutralisation or obligation of
the parties _under the treaty_.

These are the unshakable historical facts. The United States did not
_first_ become the sovereign of the Canal territory and make the Canal,
and _afterwards_ grant to foreign nations the privilege of using the
Canal under certain conditions. No, she has never possessed the power
of refusing to grant the use of the Canal to vessels of foreign nations
on terms of entire equality, should she ever make the Canal. Free
navigation through the Canal for vessels of all nations on terms of
entire equality, provided these nations were ready to recognise the
neutrality of the Canal, was stipulated by the Clayton-Bulwer Treaty,
and this stipulation was essentially upheld by the Hay-Pauncefote
Treaty, and it was not until two years after the conclusion of the
Hay-Pauncefote Treaty that the United States acquired sovereign rights
over the Canal territory and made preparations for the construction of
the Canal. For this reason the contention of the United States that she
has granted to foreign nations the use of the Canal under certain
conditions and that such grant includes a conditional most-favoured-nation
treatment, is absolutely baseless and out of place. She has not granted
anything, the free use of the Canal by vessels of all nations having
been the condition under which Great Britain consented to the
abrogation of the Clayton-Bulwer Treaty and to the stipulation of
Article II of the Hay-Pauncefote Treaty according to which--in
contradistinction to Article I of the Clayton-Bulwer Treaty--the United
States is allowed to have a canal constructed under her auspices.




III.


If the assertion of the United States that she herself is entirely
unfettered in the use of the Canal, and that the conditions imposed
upon foreign vessels in return for the privilege of using the Canal
involve a most-favoured-nation treatment, were correct, the United
States would not be bound to submit to the rules laid down by Article
III, Nos. 2-6, of the Hay-Pauncefote Treaty. She could, therefore, if
she were a belligerent, commit acts of hostility in the Canal against
vessels of her opponent; could let her own men-of-war revictual or take
in stores within the Canal even if there were no strict necessity for
doing so; could embark and disembark troops, munitions of war, or
warlike materials in the Canal, although all these were destined to be
made use of during the war generally, and not only for the defence of
the Canal against a possible attack. There ought, however, to be no
doubt that the United States is as much bound to obey the rules of
Article III of the Hay-Pauncefote Treaty as Great Britain or any other
foreign State. These rules are intended to invest the Canal with the
character of neutrality. If the United States were not bound to obey
them, the Canal would lose its neutral character, and, in case she were
a belligerent, her opponent would be justified in considering the Canal
a part of 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 the rules in existence concerning the neutralisation of the
Suez Canal, and that Article IV of the Suez Canal Treaty of 1888
expressly stipulates the neutralisation of the Canal even should Turkey
be a belligerent, ought to be sufficient to prove that the
neutralisation of the Panama Canal is stipulated by the Hay-Pauncefote
Treaty even should the United States be a belligerent.

Furthermore, one must come to the same conclusion if one takes into
consideration the objects, which are three in number, of the
neutralisation of an inter-oceanic canal.

The first object is that a canal shall be open in time of war as well
as in time of peace, so that navigation through the canal may be
unhampered by the fact that war is being waged. If the canal were not
neutralised, the territorial sovereign would be compelled, if he were
neutral in a war, to prevent the passing through the canal of
men-of-war of either belligerent, because such passage would be
equivalent to the passage of belligerent troops through neutral land
territory.

The second object is that the territorial sovereign shall be prevented
from closing a canal or interfering with the free use of it by vessels
of all nations in case he himself is a party to a war. If the canal
were not neutralised, the belligerent territorial sovereign could,
during the war, close the canal or interfere with its free use by
neutral vessels.

The third object is that a canal shall not be damaged, nor navigation
thereon be prevented or hampered by the opponent in case the
territorial sovereign is himself a belligerent. If the canal were not
neutralised, it could be blockaded, militarily occupied, and
hostilities could be committed there.

With these points in mind one may well ask whether it was worth while
to agree at all upon the five rules of Article III, Nos. 2-6, of the
Hay-Pauncefote Treaty if the United States were not to be considered
bound by these rules. That two years after the conclusion of the
Hay-Pauncefote Treaty the United States acquired sovereign rights over
the Canal territory and that she is at present the owner of the Canal
has not, essentially at any rate, altered the case, for Article IV of
the Hay-Pauncefote Treaty stipulates that a change of territorial
sovereignty over the Canal territory should not affect the obligation
of the contracting parties under that treaty.

If this is correct, it might be maintained that the United States is,
under the Hay-Pauncefote Treaty, subjected to more onerous conditions
than Turkey and Egypt are under the Suez Canal Treaty, for Article X of
the latter stipulates that Egypt and Turkey shall not by the
injunctions of Articles IV, V, VII, and VIII of the same treaty be
considered to be prevented from taking such measures as might be
necessary to ensure the defence of Egypt and Turkey by their own armed
forces. But this opinion would not be justified because in this respect
the case of the Panama Canal is entirely different from that of the
Suez Canal. Whereas the Panama Canal is an outlying part of the United
States, and no attack on the main territory of the United States is
possible from the Panama Canal, an attack on Egypt as well as on Turkey
is quite possible from the Suez Canal. There is, therefore, no occasion
for the United States to take such measures in the Panama Canal as
might be necessary to ensure the defence of her main territory. Indeed
there might be occasion for her to take such measures in the Canal as
are necessary to ensure the defence of the Canal and the surrounding
territory, if a belligerent threatened to attack it. Although this case
is not directly provided for by the Hay-Pauncefote Treaty--in
contradistinction to Article XXIII of the Hay-Varilla Treaty--there is
no doubt that, since, according to Article II of the Hay-Pauncefote
Treaty, the United States shall have and enjoy all the rights incident
to the construction of the Canal as well as the exclusive right of
providing for the regulation and management of the Canal there is
thereby indirectly recognised the power of the United States to take
all such measures as might become necessary for the defence of the
Canal against a threatening attack. Apart from this case, the United
States, even if she herself were a belligerent, has no more rights in
the use of the Canal than her opponent or a neutral Power; on the
contrary, she is as much bound as these Powers to submit to the rules
of Article III, Nos. 2-6, of the Hay-Pauncefote Treaty.




IV.


However this may be, the question as to whether the stipulation of
Article III, No. 1, of the Hay-Pauncefote Treaty that vessels of all
nations shall be treated on the basis of entire equality is meant to
apply to vessels of all nations without exception, or only to the
vessels of _foreign_ nations and not to those of the United States, can
only be decided by an interpretation of Article III which takes the
whole of the Hay-Pauncefote Treaty as well as the Clayton-Bulwer Treaty
into consideration.

(1) There is no doubt that according to the Clayton-Bulwer Treaty the
future Canal was to be open on like terms to the citizens of all
nations including those of the United States, for Article VIII
expressly stipulates "that the same canals or railways, being open to
the subjects and citizens of Great Britain and the United States on
equal terms, shall also be open on like terms to the subjects and
citizens of every other State which...."

(2) The Clayton-Bulwer Treaty has indeed been superseded by the
Hay-Pauncefote Treaty, but it is of importance to notice the two facts,
expressed in the preamble of the latter:--(_a_) that the only motive
for the substitution of the latter for the former treaty was to remove
any objection which might arise under the Clayton-Bulwer Treaty to the
construction of the Canal under the auspices of the Government of the
United States; (_b_) that it was agreed that the general principle
of neutralisation as established by Article VIII of the Clayton-Bulwer
Treaty should not be considered to be impaired by the new treaty. Now
the equal treatment of American, British, and any other nation's
vessels which use the Canal is part and parcel of the general principle
of neutralisation as established by Article VIII of the Clayton-Bulwer
Treaty, and such equal treatment must, therefore, be considered not to
have been impaired by Article III of the Hay-Pauncefote Treaty.

(3) Article III of the Hay-Pauncefote Treaty stipulates--as a
consequence of the fact, expressed in the preamble of the Treaty, that
the general principle of neutralisation of the Canal as established by
Article VIII of the Clayton-Bulwer Treaty shall not be impaired by the
Hay-Pauncefote Treaty--that the United States adopts, as the basis of
the neutralisation of the Canal, six rules _substantially as embodied
in the Suez Canal Treaty of Constantinople of 1888_. Now although the
Suez Canal Treaty nowhere directly lays down a rule which is identical
with the rule of Article III, No. 1, of the Hay-Pauncefote Treaty,
it nevertheless insists upon equal treatment of the vessels of all
nations by stating in Article XII:--"The high contracting parties, _in
application of the principle of equality concerning the free use of the
canal, a principle which forms one of the bases of the present treaty_,
agree that...." That this principle of equality of all nations
concerning the free use of the Suez Canal means equality of vessels of
all nations with the exception of the vessels of Egypt or even of
Turkey, has never been contended; such a contention would, I am sure,
have been objected to by the parties to the Suez Canal Treaty. For this
reason the term "all nations" in the Hay-Pauncefote Treaty can likewise
only mean _all_ nations, including the United States.

(4) The literal meaning of the words "all nations" leads to the same
conclusion. If something is stipulated with regard to "all" nations,
every nation is meant without exception. If an exception had been
contemplated, the words "all nations" could not have been used, and if
all foreign nations only were contemplated, the words "all foreign
nations" would have been made use of.

(5) There is also an argument from Article IV of the Hay-Pauncefote
Treaty which states that no change of territorial sovereignty or of the
international relations of the country or countries traversed by the
Canal should affect the general principle of neutralisation or the
obligation of the high contracting parties under the treaty. The
general principle of neutralisation is, as laid down in the preamble of
the Hay-Pauncefote Treaty, the general principle of neutralisation as
established by Article VIII of the Clayton-Bulwer Treaty, and it has
already been shown--see above IV, No. 2, p. 24--that equal treatment of
British, American, and any other nation's vessels using the Canal is
part and parcel of that general principle of neutralisation.

(6) Lastly, Article IV of the Hay-Pauncefote Treaty must be read in
conjunction with Article II. The latter does not exclusively
contemplate the construction of the Canal by the United States, it
contemplates rather the construction _under the auspices of the United
States, either_ directly at her cost, _or_ by gift or loan of money to
individuals or corporations, _or_ through subscription to or purchase
of stocks and shares. The question may well be asked whether, in case
the United States had not acquired the Canal territory and had not
herself made the Canal, but had enabled a company to construct it by
the grant of a loan, or by taking shares, and the like, she would then
also have interpreted the words "all nations" to mean "all foreign
nations," and would, therefore, have claimed the right to insist upon
her own vessels enjoying such privileges in the use of the Canal as
need not be granted to vessels of other nations. Can there be any doubt
that she would _not_ have done it? And if we can reasonably presume
that she would not have done it under those conditions, she cannot do
it now after having acquired the Canal territory and having herself
made the Canal, for Article IV declares that a change in the
territorial sovereignty of the Canal territory shall neither affect the
general principle of neutralisation nor the obligation of the parties
under the treaty.




V.


I have hitherto only argued against the contention of President Taft
that the words "all nations" mean all foreign nations, and that,
therefore, the United States could grant to her vessels privileges
which need not be granted to vessels of other States using the Panama
Canal. For the present the United States does not intend to do this,
although Section 5 of the Panama Canal Act--see above I, p. 6--empowers
the President to do it within certain limits. For the present the
Panama Canal Act exempts only vessels engaged in the American coasting
trade from the payment of tolls, and the memorandum of President Taft
maintains that this exemption does not discriminate against foreign
vessels since these, according to American Municipal Law, are entirely
excluded from the American coasting trade and, therefore, cannot be in
any way put to a disadvantage through the exemption from the payment of
the Canal tolls of American vessels engaged in the American coasting
trade.

At the first glance this assertion is plausible, but on further
consideration it is seen not to be correct, for the following reasons:

(1) According to Article III, No. 1, of the Hay-Pauncefote Treaty the
charges for the use of the Canal shall be just and equitable. This can
only mean that they shall not be higher than the cost of construction,
maintenance, and administration of the Canal requires, and that every
vessel which uses the Canal shall bear a proportionate part of such
cost. Now if all the American vessels engaged in the American coasting
trade were exempt from the payment of tolls, the proportionate part of
the cost to be borne by other vessels will be higher, and, therefore,
the exemption of American coasting trade vessels is a discrimination
against other vessels.

(2) The United States gives the term "coasting trade" a meaning of
unheard-of extent which entirely does away with the distinction between
the meaning of coasting trade and colonial trade hitherto kept up by
all other nations. I have shown in former publications--see the _Law
Quarterly Review_, Vol. XXIV (1908), p. 328, and my treatise on
International Law, 2nd edition (1912), Vol. I, §579--that this attitude
of the United States is not admissible. But no one denies that any
State can exclude foreign vessels not only from its coasting trade, but
also from its colonial trade, as, for instance, France, by a law of
April 2, 1889, excluded foreign vessels from the trade between French
and Algerian ports. I will not, therefore, argue the subject again
here, but will only take into consideration the possibility that Great
Britain, and some other States, might follow the lead of America and
declare all the trade between the mother countries and ports of their
colonies to be coasting trade, and exclude foreign vessels therefrom.
Would the United States be ready then to exempt coasting trade vessels
of foreign States from the payment of Panama tolls in the same way that
she has exempted her own coasting trade vessels? If she would not--and
who doubts that she would not?--she would certainly discriminate in
favour of her own vessels against foreign vessels. Could not the
foreign States concerned make the same assertion that is now made by
the United States, viz. that, foreign vessels being excluded from their
coasting trade, the exemption of their own coasting trade vessels from
tolls did not comprise a discrimination against the vessels of other
nations? The coasting trade of Russia offers a practical example. By a
Ukase of 1897 Russia enacted that trade between any of her ports is to
be considered coasting trade, and the trade between St Petersburg and
Vladivostock is, therefore, coasting trade from which foreign vessels
are excluded. Will the United States, since the Panama Canal Act
exempts all American coasting trade vessels from the Panama Canal tolls
be ready to exempt Russian coasting trade vessels likewise? Surely the
refusal of such exemption would be a discrimination against Russian in
favour of American coasting trade vessels!

(3) The unheard-of extension by the United States of the meaning of the
term coasting trade would allow an American vessel sailing from New
York to the Hawaiian Islands, but touching at the ports of Mexico or of
a South American State, after having passed the Panama Canal, to be
considered as engaged in the coasting trade of the United States. Being
exempt from paying the Canal tolls she could carry goods from New York
to the Mexican and South American ports concerned at cheaper rates than
foreign vessels plying between New York and these Mexican and South
American ports. There is, therefore, no doubt that in such cases the
exemption of American coasting trade vessels from the tolls would
involve a discrimination against foreign vessels in favour of vessels
of the United States.

(4) It has been asserted that the wording of Article III, No. 1, of the
Hay-Pauncefote Treaty only prohibits discrimination _against_ some
particular nation, and does not prohibit a _special favour_ to a
particular nation, and that, therefore, special favours to the coasting
trade vessels of the United States are not prohibited. But this
assertion is unfounded, although the bad drafting of Article III, No.
1, lends some slight assistance to it. The fact that in this article
the words "so that there shall be no discrimination against any such
nation" are preceded by the words "the canal shall be free and open to
the vessels of commerce and of war of all nations observing these
rules, _on terms of entire equality_," proves absolutely that any
favour to any particular nation is prohibited because it must be
considered to involve a discrimination against other nations.




VI.


There is one more contention in the memorandum of President Taft in
favour of the assertion that the United States is empowered to exempt
all her vessels from the Panama Canal tolls. It is thefollowing:--Since
the rules of the Hay-Pauncefote Treaty do not provide, as a condition
for the privilege of using the Canal upon equal terms with other
nations, that other nations desiring to build up a particular trade
which involves the use of the Canal shall not either directly pay the
tolls for their vessels or refund to them the tolls levied upon them,
the United States could not be prevented from doing the same.

I have no doubt that this contention is correct, but paying the tolls
direct for vessels using the Canal or refunding to them the tolls
levied is not the same as exempting them from the payment of tolls.
Since, as I have shown above in V (1), p. 30, every vessel using the
Canal shall, according to Article III, No. 1, of the Hay-Pauncefote
Treaty, bear a proportionate part of the cost of construction,
maintenance, and administration of the Canal, the proportionate part of
such cost to be borne by foreign vessels would be higher in case the
vessels of the United States were exempt from the payment of tolls. For
this reason the exemption of American vessels would involve such a
discrimination against foreign vessels as is not admissible according
to Article III, No. 1.




VII.


With regard to the whole question of the interpretation of Article III
of the Hay-Pauncefote Treaty, the fact is of interest that prominent
members of the American Senate as well as a great part of the more
influential American Press, at the time the Panama Canal Act was under
the consideration of the Senate, emphatically asserted that any special
privileges to be granted to American vessels would violate this
Article. President Taft, his advisers, and the majority of the Senate
were of a different opinion, and for this reason the Panama Canal Act
has become American Municipal Law.

It is likewise of interest to state the fact that the majority of the
Senate as constituted thirteen years ago took a different view from the
majority of the present Senate, a fact which becomes apparent from an
incident in the Senate in December 1900, during the deliberations on
the Hay-Pauncefote Treaty of February 5, 1900, the unratified precursor
of the Hay-Pauncefote Treaty of November 18, 1901. Senator Bard moved
an amendment, namely, that the United States reserves the right in the
regulation and management of the Canal to discriminate in respect of
the charges of the traffic in favour of vessels of her own citizens
engaged in the American coasting trade, but this amendment was rejected
by 43 to 27 votes. As Article II, No. 1, of the unratified
Hay-Pauncefote Treaty of 1900 comprises a stipulation almost identical
with that of Article III, No. 1, of the present Hay-Pauncefote Treaty,
there can be no doubt that the Bard amendment endeavoured to secure
such a privilege to American coasting trade vessels as the United
States now by the Panama Canal Act grants to these vessels. But the
Bard amendment was defeated because the majority of the Senate was, in
1900, convinced that it involved a violation of the principle of
equality for vessels of all nations pronounced by Article II, No. 1, of
the unratified Hay-Pauncefote Treaty of 1900.




VIII.


The conflict concerning the interpretation of the Hay-Pauncefote Treaty
throws a flood of light on the practice of the United States respecting
the relations between International Law and her Municipal Law.

Two schools may be said to be opposing one another in the science of
International Law with regard to the relations between International
and Municipal Law.

There are, firstly, a number of publicists who assert that International
Law is above Municipal Law and that, therefore, the rules of the former
are stronger than the rules of the latter. Accordingly, a Municipal
Court would have to apply the rules of International Law whether they
are expressly or implicitly recognised by the Municipal Law of the
State concerned or not, and even in a case where there is a decided
conflict between a rule of Municipal Law and a rule of International
Law. "_International Law overrules Municipal Law_" must be said to be
the maxim of this school of thought.

There are, secondly, other publicists who maintain that _International
Law and Municipal Law are two essentially different bodies of law_
which have nothing in common but that they are both branches--but
separate branches!--of the tree of Law. The rules of International Law
are never, therefore, _per se_ part and parcel of the Municipal Law of
a State, and a Municipal Court cannot apply the rules of International
Law unless they have been adopted, either expressly or implicitly, by
the Municipal Law of the State concerned. Should there be a conflict
between a rule of International Law and a rule of Municipal Law, a
Municipal Court can only apply the rule of Municipal Law, leaving it to
the legislature of its State to do away with the conflict by altering
the Municipal Law.

I believe that the teaching of the latter school of thought is
correct[2] since International and Municipal Law differ as regards
their sources, the relations they regulate, and the substance of their
law. Rules of International Law can, therefore, only be applied by
Municipal Courts in their administration of the law in case and in so
far as such rules have been adopted into Municipal Law either by a
special Act of the legislature, or by custom, or implicitly.

      [2] See my treatise on International Law, 2nd edition (1912),
      Vol. I, §§20-25.

Now the practice of the Courts[3] of the United States neither agrees
with the doctrine of the former nor with the doctrine of the latter
school of publicists, but takes a middle line between them. Indeed it
considers International Law to be part and parcel of the Municipal Law
of the United States. It is, however, far from accepting the maxim that
International Law overrules Municipal Law, it accepts rather two
maxims, namely, first, that _International Law overrules previous
Municipal Law_, and, secondly, that _Municipal Law overrules previous
International Law_. In the administration of the law American Courts
hold themselves bound to apply the Acts of their legislature even in
the case in which the rules of these enactments are not in conformity
with rules of previous International Law. It is true that, according to
Article VI of the American Constitution, all international treaties of
the United States shall be the supreme law of the land, but in case an
Act of Congress contains rules not in agreement with stipulations of a
previous international treaty, the American Courts consider themselves
bound by the Act of Congress, and not by the stipulations of the
previous treaty. It is obvious that, according to the practice of the
Courts of the United States, International Law and Municipal Law are of
_equal_ force, so that on the one hand new rules of International
Law supersede rules of previous Municipal Law, and, on the other hand,
new rules of Municipal Law supersede rules of previous International
Law. For this reason, the American Courts cannot be resorted to in
order to have the question decided whether or no the enactments of
Section 5 of the Panama Canal Act are in conformity with Article III,
No. 1, of the Hay-Pauncefote Treaty.

      [3] See the account of the practice of the American Court in
      Scott's learned article in the _American Journal of International
      Law_, Vol. I (1908), pp. 856-861.

It is a proof of the _bona fides_ of President Taft that he desired
that the American Courts might be enabled to decide this question. In a
message to Congress, dated August 19, 1912, in which the President
stated his conviction that the Panama Canal Act under consideration did
not violate the Hay-Pauncefote Treaty, he _inter alia_ suggested that
Congress should pass the following resolution:--

    "That nothing contained in the Act, entitled 'An Act to provide for
    the opening, maintenance, protection, and operation of the Panama
    Canal, and the sanitation and government of the Canal zone,' shall
    be deemed to repeal any provision of the Hay-Pauncefote Treaty or
    to affect the judicial construction thereof, and in any wise to
    impair any rights or privileges which have been or may be acquired
    by any foreign nation under the treaties of the United States
    relative to tolls or other charges for the passage of vessels
    through the Panama Canal, and that when any alien ... considers
    that the charging of tolls ... pursuant to the provisions of this
    Act violates in any way such treaty rights or privileges such alien
    shall have the right to bring an action against the United States
    for redress of the injury which he considers himself to have
    suffered; and the District Courts of the United States are hereby
    given jurisdiction to hear and determine such cases, to decree
    their appropriate relief, and from decision of such District Courts
    there shall be an appeal by either party to the action of the
    Supreme Court of the United States."

Congress, however, has not given effect to the suggestion of the
President, and the American Courts have not, therefore, the opportunity
of giving a judicial interpretation to the Hay-Pauncefote Treaty and of
deciding the question whether or no through the Panama Canal Act has
arisen a conflict between American Municipal Law and International Law
as emanating from the Hay-Pauncefote Treaty.




IX.


It has been asserted that the United States is bound by her general
arbitration treaty of April 4, 1908, with Great Britain to have the
dispute concerning the interpretation of the Hay-Pauncefote Treaty
decided by an award of the Permanent Court of Arbitration at the Hague.
It is, however, not at all certain that this dispute falls under the
British-American Arbitration Treaty. Article I of this treaty
stipulates:--

    "Differences which may arise of a legal nature or relating to the
    interpretation of treaties existing between the two contracting
    parties and which it may not have been possible to settle by
    diplomacy, shall be referred to the Permanent Court of Arbitration
    established at the Hague by the Convention of the 29th of July
    1899, provided, nevertheless, that they do not affect the vital
    interests, the independence, or the honour of the two contracting
    States, _and do not concern the interests of third parties_."

Since this stipulation exempts from obligatory arbitration such
differences between the contracting parties as concern the interests of
third parties, the question requires an answer whether in the
controversial interpretation of the Hay-Pauncefote Treaty other States
than Great Britain and the United States are interested. The term
_interest_ is, however, a very wide one and so vague that it is very
difficult to decide this question. Does "interest" mean "rights"? Or
does it mean "advantages"? If it means "advantages," there is no doubt
that in the Panama Canal conflict the interests of third parties are
concerned, for the free use of the Canal by their vessels on terms of
entire equality is secured to them by the Hay-Pauncefote Treaty. On the
other hand, if "interests" means "rights," it can hardly be said that
the interests of third parties are concerned in the dispute, for the
Hay-Pauncefote Treaty is one to which only Great Britain and the United
States are contracting parties, and according to the principle _pacta
tertiis nec nocent nec prosunt_ no rights can accrue to third
parties from a treaty. Great Britain has the right to demand from the
United States, which owns and controls the Canal, that she shall keep
the Canal open for the use of the vessels of all nations on terms of
entire equality, but other States have no right to make the same claim.
The case will be different when the Canal has been opened, and has been
in use for such length of time as to call into existence--under the
influence and working of the Hay-Pauncefote Treaty--a customary rule of
International Law according to which the Canal is permanently
neutralised and open to vessels of all nations, or when all maritime
States, through formal accession to the Hay-Pauncefote Treaty, have
entered into it with all rights and duties of the two contracting
parties. So long as neither of these events has taken place Great
Britain and the United States can at any moment, without the consent of
third States, abrogate the Hay-Pauncefote Treaty and do away with the
stipulation that the Canal shall be open to vessels of all nations on
terms of entire equality.

In this connection it is of interest to draw attention to the fact
that, in compliance with Article XIX of the Hay-Varilla Treaty of
November 18, 1903, Section 5 of the Panama Canal Act entirely exempts
vessels of the Republic of Panama from payment of the Panama Canal
tolls. It would seem that this exemption in favour of the vessels of
the Republic of Panama violates Article III, No. 1, of the
Hay-Pauncefote Treaty, although it is in conformity with Article XIX of
the Hay-Varilla Treaty which stipulates that:--

    "The Government of the Republic of Panama shall have the right to
    transport over the Canal its vessels and its troops and munitions
    of war in such vessels at all times without paying charges of any
    kind."

A treaty between two States can never invalidate a stipulation of a
previous treaty between one of the contracting parties and a third
State. Bearing this point in mind, it must be maintained that the
United States, being bound by Article III, No. 1, of the Hay-Pauncefote
Treaty, had not the power to enter into the stipulation of Article XIX
of the Hay-Varilla Treaty by which she granted exemption from payment
of tolls to vessels of the Republic of Panama, and that Great Britain
is justified in protesting against the enactment of Section 5 of the
Panama Canal Act in so far as it exempts vessels of Panama from the
payment of tolls. The fact that the right of Panama to demand exemption
from payment of tolls for her vessels is one of the conditions under
which the Republic of Panama ceded to the United States the strip of
territory necessary for the construction, administration, and
protection of the Canal, cannot invalidate the previously acquired
right of Great Britain to demand equal treatment of the vessels of all
nations without any exception whatever. It must be left to the United
States and the Republic of Panama to come to an agreement concerning
Article XIX of the Hay-Varilla Treaty. Although the United States
promised an exemption from tolls which she had no power to grant, the
Republic of Panama need not drop her claim to this exemption. Since,
however, the grant of the exemption would violate previous treaty
rights of Great Britain, the Republic of Panama is at any rate entitled
to a claim to an equivalent of the exemption, namely, the refunding, on
the part of the United States, of tolls paid by vessels of the Republic
of Panama for the use of the Canal. Whether these vessels are exempt
from the payment of tolls or can demand to have them refunded, makes
very little difference to the Republic of Panama, although Article XIX
of the Hay-Varilla Treaty stipulates exemption from, and not the
refunding of, tolls.

But the case of the vessels of Panama is quite unique, for their
exemption from tolls was one of the conditions under which the Republic
of Panama ceded to the United States the Canal territory. Great Britain
and the United States being the only contracting parties to the
Hay-Pauncefote Treaty, and third States not having as yet either by
formal accession become parties to this treaty or acquired, by custom,
a claim to equal treatment of their vessels, there would seem to be
nothing to prevent Great Britain from consenting to the exemption of
the vessels of Panama, should she be disposed to do so.




X.


However this may be, the question as to whether the United States is by
the British-American Arbitration Treaty compelled to consent to have
the dispute concerning the interpretation of the Hay-Pauncefote Treaty
brought before the Permanent Court of Arbitration is of minor
importance. For, even if she be not compelled to do so, it must
nevertheless be expected that she will do so. If any dispute is, by its
very character, fit and destined to be settled by arbitration, it is
this dispute, which is clearly of a legal nature and at the same time
one which concerns the interpretation of treaties. Neither the
independence, nor the honour, nor any vital interest of the parties can
be said to be involved in the dispute.

Indeed it may be maintained that much more important than the dispute
itself is the question whether it will or will not be settled by
arbitration. Great Britain has already declared that if the dispute
cannot be settled by means of diplomacy, she will request arbitration.
The eyes of the whole world are directed upon the United States in
order to find out her resolution. Throughout her history, the United
States has been a champion of arbitration, and no other State has so
frequently offered to go, or consented to submit, to arbitration. It
was the United States who at the First, as well as the Second, Hague
Peace Conference led the party which desired that arbitration should be
made obligatory for a number of differences, and she will, I am sure,
renew her efforts at the approaching Third Peace Conference. Should she
refuse to go to arbitration in her present dispute with Great Britain,
the whole movement for arbitration would, for a generation at least, be
discredited and come to a standstill. For if the leader of the movement
is false to all his declarations and aspirations in the past, the
movement itself must be damaged and its opponents must be victorious.
Prominent Americans are alive to this indubitable fact, and it would
seem to be appropriate to conclude this study with the text of the
letter of Mr Thomas Willing Balch of Philadelphia--the worthy son of
his father who was the first to demand the settlement of the Alabama
dispute by arbitration--which the _New York Sun_, an influential
American paper, published on September 4, 1912, on its editorial page.

    "To the Editor of the _Sun_. Sir:--

    A half century ago, Americans believed firmly that we had a good
    cause of grievance against Great Britain for having allowed, during
    our great Civil War, the use of her ports for the fitting out of a
    fleet of Confederate cruisers, which caused our maritime flag to
    disappear almost entirely from the high seas. We pressed Great
    Britain long and persistently to agree that our claims, known under
    the generic name of the Alabama claims, should be submitted for
    settlement to an impartial arbitration. Finally, with reluctance,
    Great Britain acceded to our demands. And as a result the two
    Nations appeared as litigants before the Bar of the International
    Court of Justice, popularly known as the Geneva Tribunal. The
    result was a triumph for the United States, but also it was a
    greater triumph for the cause of civilization.

    To-day our Government and that of Great Britain have once more come
    to an _impasse_, this time over the interpretation of the
    Hay-Pauncefote Panama Treaty. Our Government has definitely granted
    free passage through the Panama Canal to our vessels engaged in the
    coastwise trade. And as a consequence Great Britain has entered a
    protest and given notice that she will request that the
    Hay-Pauncefote International contract shall be submitted for
    interpretation to a judicial decision by The Hague Tribunal. Though
    so short a time has elapsed since the Panama Canal Bill became a
    law, mutterings have been heard of the possibility that the United
    States would refuse this request of Great Britain to refer the
    point in dispute to The Hague Court. But such a policy would be
    most unwise for the United States to pursue. No better means to
    injure our foreign trade and relations could be devised. Apart,
    however, from the material aspect of the question, our national
    honor and credit would suffer if we refused to refer the matter for
    judicial settlement at the Bar of The Hague International Court,
    especially as we have a treaty agreement with Great Britain to
    refer many forms of possible international dispute to that very
    tribunal in case ordinary means fail to settle them. In acceding to
    such a solution of the point of difference between the two Powers,
    the honor of the United States and Great Britain surely will be as
    safe in the hands of their respective counsel as the honor of a
    private individual is in those of his lawyer in a suit before a
    Municipal Tribunal.

    The Alabama Arbitration which involved a large and important part
    of the rights and duties of neutrals and belligerents towards one
    another, was a notable advance in strengthening the power and
    majesty of International Law among the Nations of the world. The
    present dispute will turn on the correct interpretation of a treaty
    concerning whose meaning various parties and persons have offered
    different views. It seems to be clearly a case for a judicial
    decision.

    At the proper time, let the question be argued before The Hague
    Court, and whatever the decision may be, which both parties will be
    pledged in advance to accept, another triumph will have been won
    for the Law of the Nations. Another step forward--and International
    Law and Justice can only advance a step at a time--towards the
    distant goal of universal peace through the expansion of the Law of
    Nations will be accomplished to the substantial gain and credit of
    civilization and humanity. And new honor and glory will accrue to
    the United States, which ever since the signing of Jay's Treaty in
    1794 have done so much, probably more than any other Power, to
    promote the cause of justice among the Nations."


Cambridge:
PRINTED BY JOHN CLAY, M. A.
AT THE UNIVERSITY PRESS