31 August 31. 1977 THE CANAL ZONE PANAMA AND THE US 1 SUMMARY OF CONTENTS I Brief Historical Background 1 Early Interest 1 Creation of Panama 2 Acquisition of Zone 3 I1 Importance to the United. States and to the Western World 3 Economic Importance 3 Military Importance 4 I11 Benefits to Panama 4 IV Towards a New Treaty 5 Demonstrations 5 Kissinger-Tack Principles 5 Summary of Major Arguments 6 InFavor 6 Opposed 7 V Special Interests 9 U.S.Banks 9 Panama Economy 9 VI Congressional Approval 10 1.7

11. Consequences 1.7 1 I Brief Historical Background Early Interest Almost two centuries ago there was evidence of multi-national interest in the construction of a connecting waterway through central America. Spain had co ntemplated building a canal across the isthmus as early as 1814, but the Spanish imperial power collapsed at about that time and the construc tion was never begun. Both the United States and Britain expressed inter est in a canal either across the isthmus , or through Nicaragua. In 1878 a French company attempted to build a canal across the isthmus, but beset by graft, tropical diseases, and engineering problems the enterprise went twice bankrupt and finally collapsed in 1887.

Nicaragua begun the same year by American entrepreneurs went bankrupt three years later The river canal through The Spooner Act of 1902 authorized the United States to negotiate with Colombia for a canal route, and if the negotiations with Colombia failed to negotiate with Nicaragua o btain perpetual control of the necessary territory.

Colombia led to the Hay-Herran Treaty of 1903 cession of 100 years, renewable at the option of the United States The Spooner Act mandated the President to Negotiations with That treaty included a con Duri ng the time of the negotiations Colombia was being pressed by revolu tionaries. In a state of siege, the government was administratively dis organized and in financial straits as a source of revenue which could aid its recovery. Moreover, there existed th e possibility that if the canal were not built through the isth mus of Panama, the province of Panama might well revolt Colombia's nego tiator with the U.S. wrote to the head of his government Colombia was anxious to have the canal the Panamanians...will n e ver willingly submit to the opening of the canal in any other place than at the isthmus derstand very well that the adoption of the Nicaragua route will be the moral and material ruin of Panama; and this sacrifice wbich will have no ccnupensations, may ve r y well prove superior to the concept of a platonic patriotism They un The Hay-Herran Treaty of 1903 was ratified by the U.S. Congress, but dur ing the seven months between the end of the civil war in Colombia (Novem ber, 1902) and the meeting of its congr e ss (June, 1903) a number of Colom bian objections to the treaty arose and the Colombian congress never ratified it, With the failure of this treaty, the 'Jnited States prepared to negotiate with Nicaragua in accordance with the Spooner Act. 2 Creation of P anama From the beginning Panama was geographically and psychologically separated from the rest of Colombia by the mountainous terrain independence from Spain there had been several eruptions discontent in an effort to establish an independent Panamanian s t ate, Pa namanians were fairly vocal in warning that should Colombia fail to ratify the treaty, rebellion would result on the isthmus. Not quite three months after Colombia's rejection of the treaty, Panama declared its independence in a virtually bloodles s coupO1 Colombia agreed to recognize the Republic of Panama in return for an indemnity of $25 million, special transportation privileges, and a U.S. apology. The apology was never forthcoming Since Colombia's of Panamanian Acquisition of Zone Shortly afte r its declaration of independence, the provisional government of Panama offered to the U.S. what is known today as the Hay-Bunau-Varilla Treaty of 1903 widened the Zone to ten miles and more clearly stipulated American sover eignty over the Zone.

U.S. "all rights, power and authority within the Zone...which the U.S would possess and exercise as if it were the sovereign of the territory within which said land and waters are located to the entire exclusion of the exercise of the Republic of Panama of any suc h sovereign rights, power or authority The treaty was amended in 1936 and in 1955, but the sover eignty and perpetuity clauses have not been disturbed This treaty incorporated the Hay-Herran treaty but also It contained a sovereignty clause which granted t h e Further, in addition to acquiring the Zone by treaty, the United States paid Panama $10 million as "price or compensation plus $250,000 annuity raised first to $430,000 and currently at $2,328,000 2 Private claims were bought at fair market value (set b y a U.S.-Panama Joint Commission 1~ transisthmanian railroad had beenconstructed by private American inter ests during 1850-18

55. Uprisings in this area occurred from time to time and on at least seven different occasions the United States had sent in troops to protect free transit on the rail route, with Colombian consent.

When Panama declared its independence, the railroad,adh ering to a neutral position, refused to transport Colombian troops attempting to surpress the rebellion. U.S. Naval forces were on hand to prevent more Colombian troops from landing. Only one death resulted 2Not rent, as sometimes alleged, but rather paym e nt to cover a ..loss of the annual franchise payment to the Panamanian Railroad as a result of American acquisition of sovereignty. 3 Property transfers in a dition to private t tles and.claims include property in Panama City and Colon (1943 11,759,956; w a ter system in those two cities 669,226; and 1955 Treaty transfers 22,260,500.1 I1 Importance to the United States and to the Western World Economic Importance The Canal is important to the United States and to the entire free world; to close it would caus e considerable dislocation in the economies of the Western world. For example, an average of about 70% of all cargo sent through the Canal either originates in or is bound for the United States. Japan sends about one-third of its oceanic trade through the C anal, and when viewed in terms of specific trade patterns2 curtailment of its use of the Canal could bring economic disruption not only to Japan but also to the United States and the rest of the Western world. Great Britain is consistently second or third largest user of the Canal, with over 60% British-registered shipping crossing the oceans via the Panama Canal.

For Latin American countries, the trade through the canal is quite signifi cant.

West Coast and the Gulf and East Coast states of the United St ates relies heavily upon the use of the Panama Canal. For example, Nicaragua, El Sava dor, and Ecuador send respectively 55.1%, 68.1%, and 72.4% of their oceanic trade through the Canal. Countries such as Australia and New Zealand rely on the Canal to rea c h vital European markets. All have a keen interest in the smooth and indiscriminatory operation of the canal The trade in particular between the countries of South America's It is not only the volume of trade passing through the Canal, but its di versity which is also an important factor in the significance of the Canal.

The diversity of the trade passing through the Panama Canal can be contrasted with that going through the Suez Canal--chiefly oil--and for that reason too, disruptions in economies would b e more severe if the Panama Canal were kompare 1803 Louisiana Purchase 15.0 Million 1821 Florida Purchase 6.7 Million 1848 Mexican Cession, including California 15.0 Million 1853 Gadsden Purchase 10.0 Million 1867 Alaska Purchase 7.2 Million 2Coal and cok e shipped from Hampton Roads through the Canal to Japan, and back again through the Canal as steel, automobiles and ships; also ship ments to Brazil where Japan has a sizable market, and to Western ?&rope. 4 to be inoperative than were the Suez to be close d the amount of fuel saved by each ship in avoiding the additional 8,000 mile journey around the Horn Not to be overlooked is In sum, continued access for all countries, and at reasonable rates, is important to the economies of the entire Western world the issue of a new treaty is to be viewed as broader than a U.S.-Panama or U.S.-Latin American concern For these reasons Military Importance The military importance of the canal can be easily recognized when it is realized that the distance around the Horn re presents several weeks of ad ditional sailing time when compared to the route across the isthmus. Our modern Navy stresses smaller, speedier ships, nuclear power, and independent missile capability ance of speed and mobility.

The Panama Canal is an importa nt aspect of our assur Except for the large aircraft carriers, our Naval fleet can travel through the Canal, thus allowing our Naval planners a great deal of flexibility and versatility. Without the use of the Canal, the United States would need a larger ( "two-ocean navy, larger storage and harbor facilities on both the East and West Coasts and provide additional merchant ships and escorts and fuel. Interocean mobility would be threatened, both for the United States and for our allies 111 Benefits to Panam a Income generated by the Canal makes a large contribution to the Panamanian economy. During 1976 it included over $29 million generated in direct pur chases in Panama by U.S. government agencies; over $108 million in wages to non-US. citizens employed in the Zone; expenditures in Panama of U.S employees of over $39 million; and an annuity of over $2 million. The United States has contributed substantially in various ways to Panama's well-being.

Construction of the Canal encouraged a large infusion of capit al and employ ment; U.S. health officers' battle against yellow fever transformed the Zone as well as Panama City and Colon from a tropical graveyard.into a relatively healthful location; U.S. constructed and maintains the Transisthmanian High way; and is constructing the Balboa Bridge contributed to various technical and special assistance programs, and U.S private investments amount to about 50% of private capital invested in Panama The United States has also Numerous special assistance programs have bee n instituted for the benefit of Panamanians, such as cooperative education programs, apprenticeship programs office service intern programs, leadership programs, and Latin American stu dent assistant employment programs. 5 In 1975, U.S. economic aid to Pan a ma amounted to $21.8 million 1976, total payments and income flow to Panama generated by the Zone amounted to $243.2 million can easily be seen why per capita income is the highest in Central America During With a population of only two million, it IV Tow a rd a New Treaty Demonstrations In 1960 President Eisenhower allowed some Panamanian students attending school in the Zone area to fly the Panamanian flag beside the American flag and in this manner encouraged the Panamanians to believe that they did have s ome sovereignty within the :Zone the 1903 treaty 382-12 vote a resolution opposing display of the Panamanian flag on U.S. Canal Zone territory. This unwarranted and arbitrary indication that the United States did not have complete sovereignty Over the Zon e en couraged further demands by the Panamanians for some control over the Zone This act clearly violated Moreover, the House reflected this view bypassing by a In January 1964, extensive rioting took place in conjunction with a further dispute surrounding the flying of Panamanian flags in the Canal Zone. The Panamanians did little to restore order and before the riot ing ended, four Americans and eighteen Panamanians were killed and 200 million in property damage took place. Limited American force was used to help restore order and Panama broke off diplomatic relations and charged aggression against the United States before the Organization of American States. At the time President Johnson stated that violence is never justified and is never a basis for tal k s he announced the United States would engage in negotiations with the Pan amanian government But in September Kissinger-Tack Principles The basic concepts of the Joint Statement between the U.S. and Panama were established by President Johnson after the Communist-inspired riots of 19

64. Offered as a panicked response to a manipulated crisis, the concepts are now offered as a permanent solution. These principles have served as the basis for discussions regarding the new treaty. In brief they are as follow s 1. The treaty of 1903 and its amendments will be abrogated by the conclusion of an entirely new interoceanic canal treaty 2. The concept of perpetuity will be eliminated. The new treaty concerning the lock canal shall have a fixed ter mination date. 3 4 5 6 7 0 6 Termination of United States jurisdiction over Panamanian territory shall take place promptly in accordance with terms specified in the treaty.

The Republic of Panama shall be the sovereign over the Panama Canal Zone. During the life of the trea ty, Panama shall grant to the United States the right to use the lands, water and airspace necessary for operation, main tenance and defense of the Canal and the transit of ships.

Panama will have a "just and equitable share of the bene fits derived from the operation of the Canal in its ter ritory c Panama shall participate in the administration of the Canal and will have total responsibility for the opera tion of the Canal upon the termination of the treaty.

Panama shall grant to the United States the rights neces sary to regulate, operate, maintain and protect the Canal and to take specific steps related to those ends as agreed upon in the treaty.

Panama shall participate with the United States.in defense of the Canal..

There shall be bilateral provis ions for new projects to enlarge and improve the Canal. These shall be incorporated in the treaty Summary of Major Arguments I In Favor 1. The United States is entering upon a new era in its dealings with Latin America, and, indeed, with the entire underd e veloped world. Secre tary Kissinger spoke of a "new dialogue" with Latin America. The trip to Central and South America by the First Lady indicates President Carter's strong interest. Many of the regimes are nationalistic, militaristic and socialistic to a n unprecedented degree. They are more confident of them selves and can no longer be counted on to support the United States as they did in the past favor a revision in the status quo and will judge the United States by how we respond Even our closest alli e s in Latin America publicly They support Panamanian aspirations 2. The situation, as it now stands, is potentially violent. There have been riots and demonstrations in the past. The Panamanian govern ment has served notice that it will become a "thorn" to the United States if a submitted treaty is rejected. Panamanian Ambassador Gabriel Lewis for example, warned that if the negotiations fail, there will be such a storm of Lxotest that the U.S. "will have no other alternative than to let it (the Canal) go V i olence could disrupt transit and make it po litically embarrassing for the U.S. to continue to cling to the Canal. 7 Even if sufficient forces were brought in to give full protection to the Zone, a single saboteur could still succeed in closing the Canal.

A new treaty, by fostering a friendly relationship with Panama, is most conducive to protecting U.S. interests in a free and open Canal 3. During the life of the treaty the United States would retain primary responsibility for the operation and defense of the Canal.

Gradually during this period Panama will assume more operational re sponsibility until it has the necessary expertise to assume full con trol. This time period will be at least twenty years; certainly long enough for Panamanians to learn how t o operate the Canal. The trans ition phase, likewise, means that it would not be until the year 2000 that the U.S. retires as the principle party in the defense and oper ation of the Canal. This provides a considerable length of time to prepare all the pa rties concerned, both in Latin America and elsewhere on the implications of the new relationship h

4. During the life of the treaty the United States will retain its base rights (although they will probably be reduced in number) and will retain its rights to intervene militarily. Furthermore, there is a proposed second treaty to be signed by other nations, guaranteeing the Canal's open and nondiscriminatory usage after Panama takes control.

This document would also give the United States the right to inte rvene if the Canal became threatened or if access should be denied 5. Panama has an economic self-interest in keeping the Canal oper ative; it derives more income from the Canal than from any other source Opposed 1. The united States has a legal right to r emain in the Canal Zone in perpetuity" and as "if it were sovereign" according to the 1903 trea ty with Panama by direct purchase, it has operated it evenhandedly for all nations since it was first opened in 1914 1907 Wilson v. Shaw case held that the Uni t ed States has legal sovereign ty and ownership for the purposes enumerated in the 1903 treaty ruling was reaffirmed in 1972 The United States acquired the Zone by treaty and also The decision of the Supreme Court in the This 2. To relinquish the statutory right to remain in the Zone amounts to a classic giveaway, opposed by a majority of the American pub1ic.l The building of'the canal is an American achievement which amounted to the technological "moonshot" of its time, and which has remained a testi mony t o American creativity and ingenuity lW.ilson v. Shaw 204 U.S. 24, 1907 treaty granted to the U.S. rights, territorial and otherwise...It is hypercritical to contend that the title of the United States is imper fect, and that the territory described does n o t belong to this nation because of the omission of some of the technical terms used in ordinary conveyances of real estate 20pinion Research Corporation poll conducted May, 1975; 76% answered no" when asked "Should the U.S. give up its sovexeignty over th e Panama Canal This new republic (Panama) has by 8 3. The Canal has great importance for U.S. military and economic A significant amount of total U.S. trade passes through its policies locks.

Canal, all other naval vehicles can as Korea and Vietnam the Can al has.great importance for both supply and military vessels lute control over the operations and defense of the Canal is even more evident during emergency or crisis situations where quick response and unquestioned access are necessary Although our aircr a ft carriers are too large to transit the In limited war situations such The necessity for the United States to maintain abso 4. Although all Latin American nations have publicly called for a new treaty, there is ample reason to believe that this .is more o f a pro forma diplomatic stance taken out of necessity rather than convic tion. If the United States relinquishes the Canal, our power and stand ing both in Latin America and throughout the world would diminish. This is particularly the case in the light o f recent U.S. retreats from other areas of the world interpreted as another example of the continued erosion of American willpower and influence A Canal treaty seen in this perspective would be 5. Panama is a weak and unstable country controlled by a nati on alist dictator known for pro-Communist sympathies on excellent terms with Fidel Castro and he has on several occasions deliberately embarrassed the United States in front of "third world audiences.

Canal might fall under Communist influence, or that the United States might be denied access. Almost certainly tolls would rise dramatically.

In short, once the United States relinquishes control, it will be sub ject to the intentions and capabilities of Panama's dictator, none of which can be fully anticipat ed General Torrijos is There is the possibility that in the hands of Torrijos the 6. Torrijos' regime has been a consistent violator of human rights inside Panama. In light of President Carter's emphasis on human rights especially since that issue has tak e n on important symbolic and concrete meaning throughout Latin America, the United States would be guilty of bold hypocrisy in relinquishing the Canal 7. Over the last decade the Soviets have made monumental strategic gains at the expense of the West of po w er vacuums during this time and is expected to attempt to gain con trol over the Canal, either remotely or directly, should the United States relinquish its treaty rights. The Canal is seen as a vital "choke point in part of a global power struggle direct l y related to the security of the United States and the West The Kremlin has moved into a number In fact, the Soviets, who do not even have diplomatic relations with Panama, have recently concluded tentative economic and commerical agree ments with Panama s upply engineers to operate the canal lock system as a preliminary move toward further influence over operation and control of the canal as the Americans withdraw It is fully expected that the Soviets will move to 9 v Special Interests U.S. Banks Maintaini n g the joyed in Panama is one major reason cited by those who allege that the rush toward a new treaty is propelled by special interests reorganized the country's banking laws to allow international banking trans actions free of taxation, together with oth e r advantages, which resulted in the unprecedented expansion of the banking"industry in Panama. Today, it is alleged .that those institutions, having provided loans to Panama's sag ging economy, favor a new treaty with increased annual payments in order to insure that Panama will be able to repay its debts to these institutions favorable climate for international banking currently en In 1970, Torrijos I It has been noted that the chief co-negotiator of the new treaty, sits on the board of directors of a ban k that has made a number of risky loans to Panama's troubled economy. This situation has raised questions of possi ble conflict of interest among the Congress and the public.

It is noteworthy in view of these facts that Mr. Linowitz's appointment was a spe cial short-term appointment of only six months, thus precluding the opportunity for the Senate to question him regarding possible conflicts of interest through the formal procedure of advice and consent. The rush to ward agreement to the broad treaty conc epts came just hours before the Linowitz appointment expired Panama Economy Economic conditions in Panama have grown steadily worse over the years.

Panama's indebtedness has grown from $167 million when Torrijos took power to approximately 1.5 billion curr ently alone will consume 39% of that country's budget this year (compared with 7% in the United States and Panama's Department of Planning indicates that to refinance loans coming due, together with the deficit of $139 mil lion, will require a total of $3 2 3.6 million. A document from the Depart ment of Planning for Panama states (in translation) that it will be extremely difficult to syndicate loans with the commercial banks in the amounts previously mentioned Also the relation between servic ing the debt, and current revenues...suggest a deteriorating capacity to service this debt I It is estimated that debt service A confidential'memorandum sent last October by the U.S. Embassy in Pa nama to the U.S. State Department implies that the increase in commercia l loans has made the situation worse, and "permit Panama to defer grappling with the core problem I inflow of the past three years has aggravated Panama's economic malaise by exacerbating its debt service burden without enhancing overal1,productivity It st a tes further that "much of the capital 10 The financial situation has been aggravated by government measures which result in pricing Panama's exports out of the world market, through imposi tion of minimum wage, price supports, and rent contro1.l In light o f the above, the timely and generous financial arrangements arrived upon this week will be crucial to Torrijos in shoring up his sagging regime together with an annuity of $300 million until the year 2000; he was persuaded to accept the current figure of a bout 50 million per year, plus a generous military and economic aid package of approximately $350 million I I He had originally requested a payment from the United States of $5 billion VI -J Congressional Approval The Administration is aware that it will have a difficult time in persuading the Senate to ratify the new treaty, and the American public to accept it According to Congressional leaders, current count in the Senate is around fifty favorable votes, with a total of sixty-seven needed for approval.

Polls indicate that the majority of the American public opposes any treaty which relinquishes sovereignty over the Zone and control of the canale2 Although ratification will be difficult, the next few months are viewed as more favorable for proponents tha n the months approaching, or during, 1978 which is an election year for one-third of the members of the Senate. In addition, the fact that the agreement was reached at a time when Congress is not in session is seen as advantageous in diminishing the possib ility for protescs from Members of Congress. Further, most of the comprehensive package of payments to Panama is presented in a way which would not require Congressional action, reducing the possibility 'for friction and disagree ment with that body.

Ratif ication of a new treaty is effected by agreement of two-thirds of the Senate. However, the House of Representatives is also expected to partici pate in the debate on the broad package of proposals designed to relinquish the Canal, as disposition of U.S. t e rritory and other property of the United States is involvedj Article IV, Section 3, Clause 2 of the United States Constitution provides that only the Congress.has the authority to dispose of "the Territory or other Property belonging to the United States o ne Member of Congress warned upon hearing of the conceptual agreement As The House will not abide by an agreement which unilaterally re linquishes U.S. territory, nor will the House abide by back-door loans and grants to Panama made without its consent lS e e Congressional Record, February 22, 1977, page S2820 2See "The Canal Treaty New York Times, Monday, August 8, 1977, pa C23 words of Caution by Charles Maechling, Jr The 11 VII Consequences Two interrelated considerations should be examined as the terms o f the actual treaty are studied. The first is the necessity for the Canal to remain open at all times to international shipping assure American sovereignty until the turn of the century when the pro perty and territory would be ultimately relinquished.

Currently, two treaties govern the status of the Canal. The Hay-Bunna Varilla treaty of 1903 discusses the rights of the United States and is described earlier.

United States and Britain wherein the United States pledges to keep any canal across the isthmus free and open to 'all natior without discrim ination. Panama has no such obligation, and would not be hindered from either denying transit or imposing discriminatory tolls The second is to L The Hay-Pauncefote treaty of 1900 is between the Secondly, the p r oposed new treaty would require the gradual ceding to Panama of control over the operation of the Canal. However, any compre hensive transfer of jurisdictional rights before the turn of the century could be interpreted as a ceding of soverei6ty. With sove r eignty pre maturely divested, (either by implication o'J otherwise) it would not be difficult to harass the United States on every matter not specifically dealt with in the treaty period of time, it should occur at the conclusion of the agreement.1 If sov e reignty is to be transferred over a Should sovereignty be prematurely relinquished under the new treaty the power of the new sovereign to evict would invite international pressures to that end, and agitation would be encouraged and intensified. The pat te r n of revolutionary turmoil and frequent changeovers in governments indicate that Panama would not be resistant to such pressure A lesson can be drawn from the Suez Canal, where an ostensibly private company, with British government participation, operated under the sover eignty of another country their property, and the declaration oi the Convention of Constantinople guaranteeing right of passage to vessels of all nations were of no avail when Egypt expropriated and later closed the Canal. Similarly, a new treaty with Panama as sovereign would not insure unimpeded passage through the Canal nor would it particularly deter expropriation of the Canal Rights retained by the British to protect It is believed that Panama intends to raise the tolls substantially o n ce it controls operation of the Canal. Panama's representatives have made statements to the effect that they would like the tolls to be raised sharply, and that they do not intend to "subsidize" world shipping See "The Canal Treaty Words of Caution, I' by Charles Maechling Jr The New York Times, Monday, August 8, 1977, p. C23 12 With respect to security of the Canal, the control of the Zone is as important as is control over the Canal for any disturbances which may occur. This defensive buffer will be lost should the Zone merge into Panama, and the Canal would then be truly indefensible The Zone acts as a buffer area It is unreasonable to believe that the transfer of sovereignty would remove an irritant and bring about improved relations with Panama and Lat in America. In attempting to appease and accommodate hostile ideo logical elements, the United States ignores a valid lesson of history.