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.