in the coast line. On the Pacific side, all shipping from the north and south connects with the Panama Railroad at La Boca; the great bulk of merchandise for Panama coming by way of the Pacific was and is landed on the pier at this locality.

One of the most important functions of government is the power to impose taxes, and this was one of the subjects on which the Commission was authorized to legislate, but its authority could not extend beyond the limits of the Canal Zone. Where legislation would have wider scope, as in the case of customs duties, action by the President was necessary. Consequently, and on recommendation of the Commission, the President of the United States issued an order that the territory of the Canal Zone would be open to the commerce of all friendly nations, and that all articles, goods and wares, not included in the prohibited lists, entering at the es

tablished ports, would be admitted upon the payment of such customs duties and other charges as were in force at the time and place of their importation. Duties on importations of foreign merchandise into the Canal Zone were to be levied in conformity with the duties Congress had imposed upon such merchandise if imported into ports of the United States, and goods and merchandise entering the Canal Zone from ports of the United States were to be admitted on the same terms as at ports of the States of the Union. The order also directed the Governor of the Zone to make an agreement with the President of Panama by which cooperation would be secured between the customs services of the Canal Zone and the Republic of Panama, so as to prevent frauds and smuggling and to protect the revenue of both Governments. To carry out the provisions of the order, a Di

vision of Customs and Revenues was established.

With the coming of the Americans the merchants of Colon and Panama feared that their business would be taken from them, for if free trade were established between the Canal Zone and the United States, not only would everything that was needed for the canal be admitted free of duty, but also such merchandise as might be required by the inhabitants of the Zone who had been purchasing their supplies from the dealers in the terminal cities. Competition would be impossible, as the merchants of Colon and Panama were obliged to pay the tariff imposed by the laws of their Government. The executive order confirmed their fears, and they protested vehemently against it. The order would affect also the revenues of the Republic of Panama, consequently its President would not consent to make any agree

ment with the Governor of the Canal Zone looking to the mutual protection of the customs, but instead took up the matter with the Department of State at Washington.

It was held by the Panamanian authorities that the Republic of Panama had not transferred to the United States the absolute sovereignty of the territory; that it had reserved unto itself the cities of Panama and Colon and their adjacent harbors, and though granting to the United States the free use of these harbors, it had not authorized the Canal Zone Government to set aside a portion of them-which was what had been done when the terminal ports of the Canal Zone were established -and to exercise jurisdiction over such portions. Lacking absolute sovereignty, there could be no right or authority for the Canal Zone to maintain its own fiscal system by the establishment of customs houses, even in ports removed