e _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