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U.S. Reputation Depends on Panama Canal Transition Success
Prepared remarks by Joe Reeder, undersecretary of the Army and chairman of the board of directors for the Panama Canal C, the American Association of Port Authorities, New Orleans, Tuesday, October 17, 1995

I was asked to describe this afternoon some of the challenges in my two jobs as the undersecretary of the Army and chairman of the board of directors for the Panama Canal Commission.

Let me begin with your Army by making one historical observation. Fifty years ago today, your Army still was celebrating victories over Nazi Germany and imperial Japan. Just five short years later, American soldiers were desperately holding the Pusan Perimeter, after the [North Korean] rout of Task Force Smith in July 1950. The American Army, less than five years after winning the most momentous victory in history, was not ready for war.

Five years ago today, our Army was moving men and equipment to the Persian Gulf. In January 1991, as the air campaign was under way, tanks, trucks and supplies were still arriving into the Saudi ports, but our forces were all in place, on time, when Gen. [H. Norman] Schwarzkopf delivered his knockout punch in February.

The mass of men and material we moved in five months to the Persian Gulf was enormous -- akin to moving the entire city of Richmond, Va. Of that mass, over 95 percent of the equipment was moved by sea. The amount exceeded what we moved across the English Channel in support of D-Day. It was the fastest build-up of combat power across greater distances in less time than at any point in history.

Thanks to many of you in this room, our military transporters accomplished a tremendous feat and one essential to [Iraqi President] Saddam's [Hussein] defeat. The ports all along the East Coast and the Gulf of Mexico helped tremendously in moving our equipment quickly and safely. Without you, we could never have made it happen. For that, and on behalf of a grateful nation, let me say thank you.

We have learned from our mistakes in the Korean War. Today, 5 1/2 years after the fall of the Berlin Wall and the winning of the Cold War and the gulf war, I can say with complete confidence that your Army and your soldiers are the most highly motivated, the best led, best trained and best equipped fighting on Earth. No one who has seen our soldiers in action disputes that, and keeping things that way makes for some challenging times as your undersecretary.

Over the last five years, our Army has gone through a great reduction - much of it overseas. So today, the ability to move by sea is even more vital. The best army in the world does not do much good if it cannot get to the fight in time.

During the gulf war, we were able to move many units from nearby Europe. The next time we will not have that luxury. Obviously, we all hope we will never have to fight another war. A strong and mobile military will certainly help deter the next Saddam Hussein, but there are other considerations to our national security strategy that complement our military strength.

One aspect is the promotion of American economic well-being. Our economic and security interests are increasingly inseparable. The strength of our diplomacy, our ability to maintain an unrivaled military -- all these depend on the strength of our economy.

President Eisenhower believed a strong economy is just as important as a strong military. His vision became reality when the USSR crumbled, paying too much into their military and not enough into their economy. That is why in many respects the port authorities and commercial shippers are every bit as vital to our national security as our Army.

If our country has no way to get goods out to the international markets, we cannot compete and we will crumble. If we cannot move grain from Minnesota to China in a timely and efficient manner down the Mississippi, past New Orleans and through the Panama Canal, the Chinese will buy their grain elsewhere.

That's why the partnership between the Army Corps of Engineers and our nation's ports is vital -- ensuring our ports are the best they can be. For the sake of this country, this partnership must flourish.

In 1820, Congress directed the Corps of Engineers to clear snags along the Mississippi. For 175 years, the Corps has been committed to keeping our waterways open. In 1820, it made sense for the Corps to take on this responsibility. It still makes sense.

Commercial navigation must continue to be the primary focus of the Corps' Civil Works Program. Our proposed budget for fiscal year 96 calls for $1.2 billion in support of navigation.

I do not expect to see any radical changes in the Corps' role. However, like other government agencies, we can expect to see reductions. That is why the Army supports the AAPA proposal to maintain only those ports that generate significant commercial navigation activity and contribute to the harbor maintenance fund. Currently, we are working with OMB [Office of Management and Budget] and Congress on this proposal.

As to the harbor maintenance trust fund, a growing surplus now stands at $500 million and is projected to grow to $1 billion in 1997. This surplus is not good business. We are proposing legislation to reduce this surplus, to roll back the rate of the harbor maintenance fee and to establish more consistent federal cost-sharing with harbors to dispose of dredged material.

Now let me focus on the Panama Canal.

Moving from inland to international waterways, the vibrancy of world trade will always contribute hugely to world peace and stability.

President Clinton said, "Nations with growing economies and strong trade ties are more likely to feel secure and to work toward freedom. The community of democratic nations is growing, enhancing the prospects for political stability, peaceful conflict resolutions and greater hope and dignity for the world."

Invariably, stable and secure nations seek free trade. In the words of another president, Thomas Jefferson, all people who are truly free seek peace, commerce and honest friendship with all nations.

The Panama Canal, in promoting free trade, plays, and will continue throughout the next century to play, a vital role in advancing each of Mr. Jefferson ideals.

One challenge that demands a great deal of my energy as chairman of the board of the Panama Canal Commission is the transition of the Panama Canal. Why is this transition so important? Because aside from NAFTA [North American Free Trade Agreement], the Panama Canal treaties are the most visible agreements in this hemisphere.

Successful implementation of these treaties and the transition of the canal are critical to American credibility. We fully intend to fulfill our obligations to the letter -- the first time around.

From time to time, our international friends have portrayed us as not getting things quite right at first. For instance, at the height of WWII, there was friction between the American and British military staffs in allocating resources between Montgomery's and Bradley's armies. Exasperated because he thought Eisenhower was way too slow in reaching a decision, a senior British general voiced his frustrations to [Winston] Churchill.

Comforting this hard-charging general, Churchill advised, "Don't worry. You can always count on the Americans to do the right thing after exhausting all other alternatives."

Well, when it comes to Panama, there are no alternatives. There will be no extensions and no second chances. Dec. 31, 1999 -- mission complete.

Our reputation in Latin America rests in large measure on the future success of the Panama Canal. The canal is essential to the economic well-being of many countries in this hemisphere, particularly Panama and those on the western seaboard of Latin America. Statistics tell the story: 67 percent of Ecuador's maritime traffic uses the canal, 43 percent of Peru's and 28 percent of Chile's.

There is a steel chain linkage between honoring our commitments, forging a strong future for the Panama Canal, nurturing economic growth and promoting democracy in this hemisphere.

I have flown down to Panama seven times in the last 18 months. Every time I see the canal in action I am in awe. It is one of the most extraordinary operations and engineer achievements on Earth.

The responsibilities of the canal's board of directors fall into three broad areas that simultaneously impact the canal: first, the "here and now" -- the maintaining and operating the canal; second, the canal's transition from U.S. to Panamanian control; third, staying ahead of changing technology and its impact on international shipping and canal operations -- the size and speed of ships, information technology, changing business practices, changing markets.

Our first challenge is current operations. The canal continues to operate smoothly. In fact, it is already breaking all-time traffic records. Just to give you an idea of the scope of canal operations, this past fiscal year:


  • 13,631 oceangoing vessels transited the canal;
  • Their cargo exceeded 190.3 million long tons of commercial cargo; and
  • Total canal revenues exceeded $600 million, an all-time high.
Canal operations also:
  • Directly employ nearly 7,500 permanent, full-time workers plus as many as 1,500 more temporary workers; and
  • Operate without any burden to American taxpayers -- the canal is a self-sustaining business enterprise.

Our second challenge is the transition of the canal to 100 percent Panamanian ownership. President Clinton and Panamanian President [Ernesto Perez] Balladares met in Washington last month. Both underscored the unique, historic relationship between our two countries and their total commitment to the implementation of the Panama Canal Treaty.

The transition is perhaps most people's biggest concern, but it should not be. Most of the transition already has occurred and has been and will remain transparent to our customers.

The canal's most valuable asset is its experienced, well- trained and talented work force. That will not change after 1999. Panamanians have assumed most of the responsibilities for the management and operation of the canal. Right now, Panamanians make up 90 percent of the work force. Equally important, Panamanian participation continues to increase in the management and high skill positions. Already 50 percent of our professionals and managers are Panamanians.

In effect, Panamanians have been running the canal for years. The canal will already have its second Panamanian administrator in place years before the transition is even completed.

Recently, the canal's first Panamanian administrator, Gilberto Guardia, announced that he is stepping down after five years. He will remain until his successor is in place. His replacement will be another Panamanian selected by President Balladares, nominated by President Clinton and confirmed by the U.S. Senate.

The Panamanian political leadership completely supports the transition and has kept local politics out of the transition. Earlier this year, the Panamanian legislature passed a constitutional amendment that will replace the commission with an autonomous agency, corporately organized, that will take many of the canal's current administrative and operating systems as its own.

I know there is a tremendous amount of national pride and commitment among the work force in keeping the canal a world-class operation.

From a customers' perspective, your concern should not be on the transition, nor should it be on the third challenge, the canal's commitment to remain a cutting-edge operation well into the 21st century. Long-term conservative forecasts project a pattern of sustained growth at 2 percent per year. At the same [time] we expect that Panamax[-class] vessels will go from one-fourth to one-third of all transits. Our modernization program will meet this growth.

We've invested over $1.4 billion in modernization projects, to include a state-of-the art ship-handling simulator, a highmast lighting at all locks, an improved marine control system and a larger and more powerful tugboat fleet, just to name a few.

And our big project, the widening of the Gaillard Cut at a cost of $200 million, will be completed by the year 2013. This will permit 24 hours' two-way traffic of large-size vessels through the narrowest eight-mile section of the canal. This project will ensure we have the reserve capacity to meet the 21st century needs of international shipping.

How are we doing? We are right on track for a seamless transfer to total Panamanian control at high noon on Dec. 31, 1999.

For 81 years, the Panama Canal has provided world-class service -- safe, reliable, efficient and cost-effective. I am confident that the government of Panama, the people of Panama and the management and work force of the canal are fully capable of and deeply committed to extending this tradition of excellence throughout the 21st century.

I thank you for allowing me to participate in your convention today and thank you for making President Jefferson's ideals of peace, commerce and friendship a cornerstone of your association.

Published for internal information use by the American Forces Information Service, a field activity of the Office of the Assistant to the Secretary of Defense (Public Affairs), Washington, D.C. Parenthetical entries are speaker/author notes; bracketed entries are editorial notes. This material is in the public domain and may be reprinted without permission. Defense Issues is available on the Internet via the World Wide Web at