before the canal could be built, and the potential hazards present in 1904 are the same today. The outbreak of yellow fever within a few miles of the canal in 1950 was a clear demonstration that health standards cannot be relaxed.

At the direction of this committee last year, an independent survey of the compensation of our employees was made by a management firm, whose report with the recommendations of the Board of Directors of the Company has been separately submitted to the committee. In general, that report recommended retention of the 25-percent differential and fringe benefits then available to employees, including free hospitalization and medical care. The survey also concluded that additional fringe benefits were necessary to attract and hold qualified employees in today's market.

I have already referred to the program of reducing the number of employees in the Canal Zone to the minimum essential for efficient operation, but I cannot emphasize too strongly that the success of that program depends on the adequate compensation and fair treatment of the employees who are retained on the job.

REIMBURSEMENT FOR SCHOOLS AND HOSPITAL SERVICES

The application of section 105 of the 1954 appropriation act has involved some problems which deserve further consideration by the committee. Those problems concern the extent of the obligation of other agencies to reimburse the Canal Zone Government for school and hospital services, and the impact on certain groups of Canal Zone residents of new policies of recovering the cost of hospital services.

Prior to the adoption of section 105 the Canal Zone Government, as a part of the local government of the Canal Zone, furnished free primary and secondary education for children of all residents of the Canal Zone and of employees of the United States Government in the adjacent territory of the Republic of Panama. Hospital service was furnished without charge to employees of the canal agencies, and at reduced rates, depending on the ability of the head of the family to pay, to families of canal employees and to employees of other Government agencies and their families. Other Government agencies which were authorized by law to reimburse the local government for the cost of these services furnished to their personnel did so to the extent of that authorization. Section 105 of the 1954 appropriations act provides that amounts expended by the Canal Zone Government in providing school and hospital services for Government agencies other than the Panama Canal Company and Canal Zone Government hereafter shall, notwithstanding any other provision of law, be fully reimbursable to the Canal Zone Government by such other agencies.

Section 106 of the 1954 appropriations act contains the provision, discussed above, prohibiting use of Company or Government funds to furnish free hospital and medical care to the employees of those agencies.

RULING OF COMPTROLLER GENERAL

Construing these sections together, the Comptroller General of the United States has held that under section 105 other Government agencies may not reimburse the Canal Zone Government for hospital serv ices or for educational services furnished to their employees or mem

bers of their families except as otherwise specifically authorized by statute. This decision appears to render section 105 without effect. If payment of these charges is authorized by other provisions of law, the section is unnecessary; if such payment is not authorized by other provisions of law, the decision holds that section 105 is ineffective to authorize such payment.

In any further consideration of this problem, it is most urgently recommended that no provision be adopted which would have the effect of requiring local residents to assume the burden of paying full cost of hospital services and school tuition. Such a provision would put medical care and education out of the reach of the majority of the personnel in the area and would be contrary to traditional American concepts of the function of local government. The United States is not only in this area as an employer; it also provides the local government in the area, including police and fire protection, schools, medical care, and similar services. Furthermore, in view of the responsibilities of the United States Government in the Canal Zone, it is evident that where residents of the area require hospital care they will have to be admitted to the hospitals-as charity patients if they are unable to pay.

The Company-Government has continued to maintain its responsibilities as the United States in overseas areas. It has endeavored to foster and improve relations with the Republic of Panama by adjustment of its activities and policies to assist the Republic in improvement of its economy and social growth. The Company-Government has increased its purchases from the Republic and now procures all supplies when they are available at quality level and at competitive prices. The zone management has adopted the policy of reduction of service facilities for the indigenous worker and is endeavoring to accelerate the removal of these employees from Canal Zone housing to the Republic. This program is being hindered by an acute shortage of housing within the Republic. It is hoped that the Panamanian authorities will soon develop housing projects which can accommodate the excess of Panamanian citizens now resident in the zone, in which case most of the supporting services on the zone for these people can be reduced or discontinued entirely.

Senator ELLENDER. General, of the entire number of employees in the Canal Zone that are Panamanians, what percentage of them live on Canal Zone property?

General SEYBOLD. Around 35 percent at the present time.

Senator ELLENDER. To what extent has that been decreasing in recent years?

General SEYBOLD. I would say markedly in the last year and a half. Senator ELLENDER. And as to those who live in Panama City, outside of the zone, are they given more salary than those who live within the zone?

General SEYBOLD. No, sir; the pay rate is the same.

Senator ELLENDER. Do those who live outside of the zone get the same medical facilities and schools as do those who live and work in the zone?

General SEYBOLD. They have access and the same privileges as to medical facilities. As to the schools, they of course go to the Pana-manian schools. They do not go to our schools.

Senator ELLENDER. What about the Panamanians who live within the Canal Zone?

General SEYBOLD. They go to schools furnished by the Canal Zone. Senator ELLENDER. That is an added advantage that the Panamanians who live in the zone obtain, is it not?

COMPARABLE SCHOOL SYSTEMS

General SEYBOLD. I would hardly say, Senator, that it is an added advantage. It is a different variety of school, and if I may digress for a moment, we have had more than requests, it has been a criticism of the Government that we are teaching Panamanians to be Americans and we are now establishing in our schools a comparable school system for the Panamanian group as the schooling in Panama. It was just recently when I had one of my monthly meetings with the alien group that the criticism was again leveled that the problem in moving to the Republic was the fact that the children were unable to take their place in the Panamanian schools due to the fact that the systems were different. They felt that it was entirely wrong, this group I again refer to, that we should place their children in an American system.

We are trying to correct that as quickly as we can because I am heartily in favor of getting these children of the alien group into the Panamanian social area rather than the American.

Senator ELLENDER. Are you working to the end of having all local employees live in Panama rather than the zone?

General SEYBOLD. As many as possible; yes, sir.

Senator ELLENDER. I realize that it would be rather difficult to have them all live on the outside.

General SEYBOLD. Yes, sir.

Senator ELLENDER. But as to those who live on the outside, why would it not be feasible to let them get medical attention and other fringe benefits from some other source; that is, probably by paying them a little better salary so that they can spend their money with the Panamanians? As I recall, one of the criticisms that were lodged by some of the business people in Panama were to the effect that these people who worked at the Panama Canal bought their groceries and things like that in the Panama Canal Company stores, and so forth.

Well, it strikes me that we ought to explore the posisbility of employing Panamanians, with the understanding that they receive a little better salary. If that were done, they could obtain from other Panamanians medical facilities, their groceries, and things of that kind. I believe it might result in better relationships and at the same time I have a hunch that it might cost the Government less

CONTROL OF EPIDEMICS

Senator KNOWLAND. If the chairman might interject at this point, I will concede the point raised by the Senator from Louisiana. It does seem to me, however, that you are faced with this problem that if perchance the employees for economic or other reasons did not either take out what we might call health insurance or have the facilities, and if they caught some disease and brought it over into

the Canal Zone we would probably in the long run have a very real problem, because these people come back and forth across the line.

So I think there is some interest on the part of the responsible authorities of the Canal Zone government to either, if not furnish the medical attention themselves, to be sure that comparable attention is furnished to these people, because disease knows no boundary, and once a person comes into the zone with a contagious disease you might have a serious epidemic start.

General SEYBOLD. I think our views on that are a combination of both, with possibly the hospital and medical care being set aside against the economic life of the employee, which follows in our thinking along with the Senator from Louisiana. Also, there is a fact in the hospitals that the load could not be taken right away. things require a timetable, I think.

These Senator ELLENDER. That is why I asked whether you were working toward that end.

General SEYBOLD. Yes, sir.

Senator ELLENDER. I am sure that it would be possible to get the cooperation of the Panamanian authorities there to keep the cities where these people reside in a clean condition.

Senator KNOWLAND. But certain things, such as innoculations that we might require, unless they require the same thing we might run into difficulty.

MORE BUSINESS FOR PANAMANIANS

Senator ELLENDER. You could make them get certificates, the same as they make us do when we visit certain areas, I think that is a problem easily solved. But the idea is to have these people who work in the zone do as much of their business as possible with the Panamanians. That is one of the more difficult problems.

General SEYBOLD. I heartily concur. I think that we should import that labor into the zone. Whatever adjustments are required to meet their needs, why that can be worked out like any labor-relations problem generally is.

Senator ELLENDER. It would do two things in my humble judgment: It would reduce our costs, and at the same time be more satisfactory to the Panamanian Government, since it would mean more money flowing through their economic stream. These people would deal with the local merchants and purchase from them; they would use their doctors and dentists rather than those services being furnished free. Senator KNOWLAND. Of course, that is not unlike the problem that American communities have where there are large installations around of helping patronize the local merchants and so on rather than purely through Government agencies.

General SEYBOLD. Yes.

Senator KNOWLAND. On the school situation, of course, I guess you are faced with a practical problem. It is like people living in two different school districts, normally education facilities would be furnished, and people, whether they were Panamanian or Americans living in the Canal Zone or living in the Republic of Panama, they would want their children to go to school, and you have to have facilities provided.

General SEYBOLD. It is the basis of the systems that we feel has been one of the problems. The alien finally is of course a citizen of Panama,

and he sooner or later takes his position in the Republic as a citizen. But the school system that has been erected for these people heretofore has been aimed at the American, so he is not able to really meet competition when he goes back into Panama because he cannot talk the language well enough, and he has not their social ideas.

Senator ELLENDER. There are a lot of objections on the part of the Panamanians to that.

General SEYBOLD. Yes, sir.

Senator ELLENDER. That is why I say your greatest employment I assume is not far from Panama City-that is not far from Panama proper. Then the same is true when you get on the Atlantic side. Your facilities are not far from the Panamanian Republic so that it would be an easy matter, in those two localities at least, to hire most of your people from Panama, the Republic of Panama, and pay them a little better wage than those working and living in the zone. The higher rate of pay should result in their obtaining medical and schooling and other facilities from the Panamanian Government. I think it would be more satisfactory.

General SEYBOLD. I entirely concur with your theory in general, sir. The only thing is that there would be extreme difficulty in having a two-wage-rate system. I think that the better thing to do is to just move the entire bulk of it rather than to have wage differentials which of course are always extremely bad.

Senator KNOWLAND. You may proceed.

PROPOSED EDUCATIONAL PROGRAM

General SEYBOLD. It is also proposed to change the aspect of the educational program for the noncitizen resident on the zone and accentuate his educational orientation to his native country of Panama instead of the United States. Heretofore the educational system has been practically a counterpart of that in the United States and has resulted in poorly fitting these people to their own country. The reduction of the number of aliens in the zone will also minimize many zone problems, will assist the Republic in its economic growth, and ultimately relieve the company of a large volume of effort in supporting activities.

This concludes my formal statement. For details of the 1955 budget I refer to the justifications now in the hands of the committee, and I will be glad to answer any further questions the committee may have.

Senator ELLENDER. Mr. Chairman, may I ask a question or two? Senator KNOWLAND. Yes.

DUPLICATION OF FACILITIES

Senator ELLENDER. When our committee was in the Canal Zone a few weeks ago as I recall there were nine of the recommendations of the many submitted that were put into effect. It was my understanding that the consolidation of the hospitals was being given attention. Has anything further been done in that respect?

General SEYBOLD. At the moment the matter of consolidation of the hospitals is in the hands of the Secretary of Defense. There has been at the moment no consolidation of the hospitals. The matter has been