Mr. de Obaldía to Mr. Hay.

No. 6.]

Excellency: I have received instructions from my Government to take before your excellency’s illustrious Government steps looking toward the obtaining of a satisfactory settlement of the difficulties which have unexpectedly arisen between the authorities of the Republic and the governor of the canal zone, owing to the interpretation given by the latter to some of the clauses of the agreement concerning the Isthmian Canal concluded between the two countries on November 18 last.

There are several points on which a difference of opinion has arisen, and it is necessary, first of all, to make a general estimate of the treaty as a whole, in order to apply, in each case, the interpretation which is most in conformity with the harmony among its various clauses, most in concord with previous declarations made by your excellency’s illustrious Government, and most suited for the maintenance of the cordiality which has existed between the two countries since my country became part of the family of nations.

As an indispensable antecedent of the Hay-Varilla convention must be regarded the Hay-Herran treaty, concluded January 22, 1903, approved by the United States Senate, and rejected by the Republic of Colombia.

Both treaties were concluded with the same principal object—viz, to facilitate for the United States the construction of a ship canal between the Atlantic and Pacific oceans. In neither case was it the intention of the high contracting parties to conclude a treaty for the cession of territory or for the absolute renunciation of sovereignty on the part of either of them. Your excellency’s illustrious Government, in order to make clear before the world, and especially before the nations of Central and South America, the real object of the negotiations which resulted in the conclusion of the Hay-Herran treaty, made in the latter the formal and categorical declaration contained in Article IV, which reads as follows:

The rights and privileges conceded to the United States by the terms of this convention shall not affect the sovereignty of the Republic of Colombia over the territory within whose limits such rights and privileges are to be exercised. The Government of the United States fully recognizes this sovereignity and disclaims any intention to minimize it in any manner or to increase its own territory [Page 599] at the expense of Colombia or of any of the sister republics of Central and South America; it desires, on the contrary, to strengthen the power of the republics on this continent, and to promote, develop, and preserve their prosperity and independence.

This solemn declaration, made in a public document of the most elevated character, as is a treaty among nations, involves, in the opinion of my Government, the perpetual promise of a generous and noble line of conduct on the part of the United States, a promise which has not been destroyed by the fact that the Hay-Herran treaty no longer exists, for the declaration in which it is embodied expresses the purpose of following a frank and honest policy, accepted and confirmed afterwards by the Senate of the United States, which is the highest legislative body in this country. This declaration, as your excellency knows, had for its object the removal of the fear existing in the American republics of a more or less remote absorption by this nation, which is so powerful in every respect; and it had a decisive influence on the Government of my country in causing it to approve unreservedly and without modification the Varilla-Hay convention.

As my Government considers that this solemn and spontaneous declaration has a perpetual and definitive character, it trusts that your excellency’s illustrious Government will interpret the agreement concerning the Isthmian Canal in the manner most harmonious and consistent therewith, and in this conviction I will now lay before your excellency some other more specific observations.


the agreement concerning the isthmian canal does not imply cession of territory and absolute transfer of sovereignty.

The simple reading of Article IV of the Hay-Herran treaty, which is an antecedent of inappreciable value, inasmuch as therein is expressed the intention of the United States in negotiating with Colombia, is sufficient to establish the truth of the proposition which I have just set forth; but there are, besides, powerful reasons to sustain it, deduced from the Varilla-Hay treaty, which is identical in most of its clauses with the Hay-Herran treaty. In effect, as I have had the honor to observe to your excellency before in this same note, both treaties relate to the concession to the United States of the use, occupation, and control of certain lands and waters in order to facilitate the construction, preservation, exploitation, sanitation, and protection of a maritime canal between the Atlantic and the Pacific. This is the principal and dominant idea in both documents; in neither of them was there used any expression implying transfer of the absolute dominion over the territory, much less the transfer of sovereignty.

This concession might have been made by Colombia before November 3, 1903, and by the Republic of Panama after that date to any legal company or association, without its being possible, by reason of the grant, that a right should be claimed to the dominion over the strip of land in which the work was to be executed, or much less the exercise of absolute sovereignty.

[Page 600]

The legal relation in this supposed case, just as in the present case, would be that which exists between a lessor and a lessee. Owing solely to the fact that the lessee is another republic, there may be confusion respecting the character and the essence of the contractual relations created by the agreement.

If the intention of the high contracting parties in either of the two cases to which I have just referred had been the absolute cession of the dominion and sovereignty of the territory, both treaties might have been reduced to two articles, one specifying the thing sold and the other expressing the price of sale; but both parties understanding that this was not the case, and satisfied that the intention was otherwise, found themselves obliged to fix, as far as possible, the relations between the lessor and the lessee, taking into account the peculiar circumstances of that highly important negotiation and the necessities that might arise owing to the very nature of the work which was about to be undertaken.

Thus, for example, inasmuch as the enterprise was to be one of indisputable utility, in which were to be invested considerable sums from the Federal Treasury of the United States, and in connection with which daily controversies might arise with regard to the work, would it have been wise on the part of Colombia, first, and Panama afterwards, to demand absolute jurisdiction over all these questions and to claim the exclusive power to settle and decide them when one of the parties was a foreign nation?

It was natural that some provision should be made in this regard, and hence certainly arose the idea of conferring on the United States the authority of establishing a restricted judicial power in this zone.

In the Varilla-Hay treaty this concession was broader than in the Hay-Herran treaty, but still it was not absolute.

Article III of the Varilla-Hay treaty, the only one treating of the rights of sovereignty, stipulates that the United States should (shall) possess and exercise the rights, power, and authority which the Republic of Panama conceded it over the zone, as if it were sovereign in the territory; but this expression implicitly conveys the idea that it is not sovereign, and although in the final part of the article is added “to the entire exclusion of the exercise by the Republic of Panama of such sovereign rights, power, and authority,” these words, which are in obvious contradiction to those which precede, must be interpreted in accordance with other subsequent articles of the agreement which demonstrate the real intention of the contracting parties.

In Article VI, for instance, the property rights of private persons in the zone are treated of, and it was agreed that all damages caused by reason of the concessions made to the United States or of the construction, preservation, exploitation, sanitation, and protection of the canal and its auxiliary works should be investigated, appraised, and decided upon by a mixed commission appointed by the two countries and whose decisions should be final. If the United States possessed the sovereignty over the zone to the absolute exclusion of the Republic of Panama, this clause would be inexplicable.

By Article X the Republic of Panama obligates itself not to levy or to allow to be levied contributions or taxes of any kind, either [Page 601] national, departmental, or municipal on the canal itself or on the railroad and auxiliary works or on its tugs and vessels, nor on the employees, workmen, and other persons in the service of the canal, of the railroad, and of the auxiliary works; but from this stipulation it is deduced that it does preserve the right to levy these contributions on property and persons not comprised in the exception.

According to Article XII the Republic of Panama is obliged to permit the immigration and free access to the lands and workshops of the canal and of its auxiliary works, of all employees and workmen of whatever nationality who may arrive, either already contracted for or in search of work, and it obligates itself to consider them as exempt from military service.

In conformity with Article XIII the United States may import into the zone and the auxiliary lands of the canal, free of duty on the part of the Republic of Panama, all kinds of ships, dredges, machines, etc., necessary and suitable for the construction, exploitation, sanitation, and protection of the canal, as well as everything necessary for the laborers, employees, and their families. The same observation should be made regarding this article as I made with regard to Article X.

Finally, it was agreed between the parties, according to Article XXIII, that the United States should enjoy the right to employ its own land and naval forces for the protection of the railroad, the canal, and its auxiliary works, and that it might construct fortifications for this purpose.

As is deduced from these stipulations contained in clauses subsequent to Article III, and all in clear, precise, and peremptory terms, the Republic of Panama still preserves part of the judicial power of the canal zone; she has pledged herself to permit the entry into the canal zone of certain immigrants, which implies that if the clause did not exist she could prevent it; she has obligated herself not to levy contributions on the canal or its auxiliary works, etc., which demonstrates that if it were not for the special renunciation contained in the article she would preserve the sovereign right to levy them; she has agreed to admit the introduction into the zone, free of import duties, of all articles necessary for the canal, the auxiliary works, and the employees thereof, an obligation which can only be contracted by one having the authority and right to levy such taxes; finally, she has authorized the United States to use its land and naval forces in case they should be necessary for the protection of the canal, which necessarily implies that if this clause did not exist the United States would not have such authority.

None of the stipulations which I have enumerated would have any raison d’être if the Republic of Panama had renounced the dominion over the zone and her rights of sovereignty absolutely; but her intention never was to renounce these rights, nor was it the purpose of the United States to acquire them, for the latter, quite to the contrary, has declared that it does not wish to increase its territory at the expense of Colombia or of any other republic of Central or South America, and there is nothing to justify the most remote suspicion that this declaration is not sincere.

In public treaties the existence of useless or contradictory clauses can not be admitted. Those which appear useless must be interpreted [Page 602] in such manner as to produce some effect, and those which are contradictory should be interpreted by taking into account the tenor of the last ones, for it is to be supposed, as Woolsey says, that these express the last idea or thought of the parties.

If there should exist any discrepency between the clauses to which I have just called your excellency’s attention and the third one of the Bunau-Varilla-Hay treaty, it is obvious that the last ones should prevail, because they are more specific and more clear, and because they are more in conformity than that one with the remaining clauses of the same treaty and with the external policy of the United States with regard to the South and Central American nations.

My Government considers that the idea of the contracting parties is obscure in everything relating to these delicate questions of dominion and sovereignty; but after a careful study the conclusion may be arrived at that the two countries exercise conjointly the sovereignty over the territory of the canal zone, and that in the cases expressly specified in the Bunau-Varilla-Hay treaty the use of such right belongs to the United States by virtue of delegation from the Republic of Panama, but in all that concerning which the treaty is silent the rights of the Republic of Panama remain unalterable and complete.

Such a situation, which would give rise to constant disputes if it were prolonged, necessitates the conclusion of an explanatory convention to be discussed by the parties in the conciliatory spirit which has hitherto prevailed in the relations of the two countries, and to this the Government of my country is disposed.

Passing on now to the special questions which have been raised, your excellency will please permit me to treat them separately.



In the canal zone, as described in Article II of the Bunau-Varilla-Hay treaty, are not included the cities of Panama and Colon or their adjacent ports. Both have been expressly excluded from said zone, and consequently, even conceding the assumption that the United States possesses the right of sovereignty over the zone, such right could not be extended to what by the same treaty is considered as excluded from its jurisdiction.

There would remain two things to be considered in regard to this subject:

Whether the United States has the authority, according to the Bunau-Varilla-Hay treaty, to make ports of entry of any place comprised within the zone, as if they were its own, and to open them up to the commerce of the world, even to the detriment of the interests of the Republic of Panama.
Whether, under the assumption that this authority exists, the United States can extend it so far as to declare as ports of its own and subject to its jurisdiction any or part of any of those which actually exist and belong to the Republic of Panama, even including those excepted by Article II of the treaty.

It must first of all be observed that the establishement of a port and its opening up to the commerce of the world is a right inherent in the [Page 603] sovereign of the territory; and as I have already demonstrated in the first part of this note that the United States does not enjoy absolute sovereignty over the zone, but only the special rights conceded by the Bunau-Varilla-Hay treaty, it is clear that such authority does not reside in the United States.

Foreseeing, without doubt, the need which the United States might come to have of ports during the period of construction of the canal and after the latter should be opened to the use of commerce, the Republic of Panama agreed to concede to the United States, as is seen in the final part of Article IX, the right to use the ports and cities of Panama and Colon as places of anchorage, repairs of vessels, loading, unloading, depositing, or transshipping cargoes either in transit or destined for the service of the canal.

The ports of Panama and Colon are by the nature of the land the entrances of the canal. It being so, the idea of other ports for the same use or destination could not occur to the negotiators; and as the United States has, under the convention, the right to use them, thereby recognizing them as the property of the Republic of Panama, it is clear that it is not in its power to declare them to be ports of its own, subject to its exclusive jurisdiction. It is obvious that, in like manner, the United States can not, under the convention, declare that it holds sway over a greater or lesser part of those ports merely because the fiction of a different name, such as Port Ancon or Port Cristobal, may be resorted to.

The Port of Panama is one, and includes the whole coast that surrounds the city, the neighboring islands, and all the waters that wash that part of the national territory. Article II of the Varilla-Hay convention, in all its amplitude, bears on that port, and the place known by the name of La Boca is embraced within its limit. As part of the port of Panama, La Boca remains outside the canal zone, but owing to the same circumstance the place may be used by the United States for loading, unloading, depositing, and transshipping cargoes by virtue of the right granted it to that effect.

The same conditions obtain at the port of Colon. The place called Cristobal is nothing but a ward of the city. There is nothing there which can ever, by a straining of the words, be considered as a distinct port, and the whole is in consequence under the exclusive jurisdiction of the Republic of Panama, but the United States has the right to use it as stipulated in the repeatedly mentioned Article IX of the convention.

If the authorities of the zone had confined themselves to exercising that right, their position would have been unobjectionable and my Government would have discharged, with the greatest alacrity, the obligations under which it lies, but things have gone differently. Gen. G. E. Davis has issued an order of an unquestionable legislative character by which he converts into ports of the zone the places known as La Boca in Panama and Christobal in Colon, declares them open to the trade of the world and subject to his exclusive jurisdiction, absolutely setting the Republic of Panama aside, regardless of the clause which excludes from the zone the cities of Panama and Colon, together with their adjacent ports.

My Government can not accept this situation, which it considers contrary to the spirit and letter of the Varilla-Hay convention, and is [Page 604] convinced that the course followed by the authorities of the zone has not been in obedience to instructions bearing especially on the point that has been raised by this distressing controversy, but is the outcome of local suggestions.



General Davis, in his capacity as supreme authority in the canal zone, has also ordered the establishment of custom-houses at the places he has erected into ports of entry and put into operation the tariff of import duties now in force in this Republic.

There is no clause in the Varilla-Hay convention that empowers the United States to establish custom-houses at the ports of Panama and Colon, or to collect import duties in any port of the canal zone. This power, like that relative to the ports, is vested in the sovereign of the territory, and the United States does not possess that absolute sovereignty which would carry the right of establishing its own fiscal system.

The portion of its sovereign rights that the Republic, on considerations of a high order, has granted to the United States has reference to all that may be necessary or expedient to afford effective protection to the canal, in peace and in war, to maintain it free and open to the commerce of the world, and to prevent its being improperly used by any foreign power. The Republic of Panama has also granted the exercise of its rights for the establishment of a public administration that would maintain order within the canal zone, so that the works should not be interrupted or the service impaired after the completion of the canal, but it has never entered the mind of either party that the United States should turn the canal zone into a source of revenue by enforcing high customs tariffs, even against the Republic of Panama, which is the lord of the territory and still holds over it rights that it has not relinquished.

Quite to the contrary, several articles of the Varilla-Hay convention contain a record of the will of the parties in the sense that the canal zone should be a territory entirely open and free to commerce, and with this view obligations were assumed by the Republic of Panama which could not otherwise be explained.

Article IX of the convention sanctions the principle that the entrances of the canal and the cities of Panama and Colon (cities and entrances which are identical, as I have hereinabove observed), and in effect that there shall not be imposed at either place custom-house tolls, tonnage, anchorage, light-house, wharf, or other dues upon vessels passing through the canal, except such charges as may be imposed by the United States for the use of the canal and other works, or as may be established by the Republic of Panama upon merchandise destined to be consumed in the rest of the Republic.

If to this stipulation there be added that contained in Article XIII, by virtue of which the Republic of Panama allows the United States to import into the zone free of customs and all other duties all that may be required for the construction, service, operation, sanitation, and protection of the canal and its auxiliary works, it is clear that [Page 605] the United States, before securing the acceptance of this clause, did not consider itself as holding the right of importing into the zone its own machinery, material, provisions, etc., without paying the regular duties to the Republic of Panama; and such being the case it is even clearer that it can not put its own tariff into operation, which, after all, results in injury to the Republic of Panama, and especially its principal cities.

By interpreting these clauses so as to bring them all into harmony, it is possible to reach the conclusion that if any customs tariff can be established at the ports of Panama and Colon; that is to say, the entrance of the canal, on the importation of articles of trade destined for use or consumption in the zone, it is for the Republic of Panama and not the United States to do so, for the Republic alone has bound itself by Article XIII of the convention to allow the United States to “import at any time into the said zone and auxiliary works free of customs duties, imports, taxes, or other charges, without any restrictions any and all vessels, dredges, engines, cars, machinery, tools, explosives, material, supplies, and the other articles necessary and convenient in the construction, maintenance, operation, sanitation, and protection of the canal and auxiliary works, and all provisions, medicines, clothing, supplies, and other things necessary and convenient for the officers, employees, workmen, and laborers in the service and employ of the United States and for their families,” so that any importation into the zone of merchandise or articles not included in the exception clearly and categorically expressed in the article; that is to say, any importation made, not by the United States, but by persons that are not in the employ of the canal, may be taxed by the Republic of Panama.

This is the interpretation that accords best with the general character of the Isthmian canal convention, for it must be borne in mind that its object is not the cession by one party or acquisition by the other of areas of territory or of fiscal and other public revenues. The contemplated end is the construction of the canal, and the aim of every stipulation in the agreement is to facilitate, not to hamper, the said construction.


postal service.

Post-offices have been established in the canal zone and make use for foreign mails of stamps differing in value from those now in use by the Republic of Panama. As the value of those stamps is less in the zone and as their sale is subject to no restriction whatever, the public buys its stamps and mails its correspondence at those offices, thus causing a serious loss for the Republic in that national source of revenue.

My Government holds that the United States may conduct a domestic-mail service within the zone, but can not forward mails to foreign countries, as this right belongs to the Republic of Panama.

In addition to the foregoing remarks, in which I have endeavored to present the juridical side of the question by keeping within the clauses of the Varilla-Hay convention, I deem it expedient to lay [Page 606] before the enlightened Government of your excellency other phases of the subject that are entitled to equal consideration.

Even assuming that the Varilla-Hay agreement could be interpreted in the sense of conceding to the United States the right to establish ports, custom-houses, and post-offices in the canal zone, even accepting as clearly and finally recognized in favor of the United States the absolute right of control and sovereignty over the territory, if the exercise of such rights should redound to the grave and irreparable injury of the Republic of Panama and result in a condition of commercial and financial ruin that the parties never intended to bring about, for no one wittingly enters into a contract to bring upon himself incalculable and irremediable injury. Your excellency’s Government and this country, where a deep-seated spirit of justice and a lofty sense of equity prevail, should find occasion for earnest mediation in this matter of enforcing measures such as those as I am now dealing with, which would be attended with such results and deal the blow of death to my country without yielding any advantage to the United States.

I am well aware that sentiment has no part in negotiations of this character, but even looking at the matter in the light of the most selfish expediency, what interest can the United States have in the financial ruin of the Republic of Panama, in the disappearance of its fiscal resources which would make its pecuniary position untenable, and in seeing it finally incapacitated for the proper discharge toward the world of the inherent obligations of a free and sovereign nation? Is it not rather to the interest of the United States to foster the development of the Republic of Panama and to contribute to its prosperity and aggrandizement?

If the measures ordered in regard to ports, custom-houses, and mails should continue in force, the principal cities of the Republic would lose the importance they have always had as places of transit, and all the trade would be diverted from them and concentrated at such places as the United States may select for it in the shape of ports. The revenues derived therefrom by the Republic and those that are indirectly yielded by the traffic would completely vanish. Even now the steamship companies of the Pacific will not clear their ships except for the so-called Port Ancon, and decline to accept cargoes for the port of Panama, so that, if this condition of things should endure, those cities would soon become deserted places, cut off from all direct commercial contact with the world; that is to say, they would be placed in a worse condition than that which they occupied before the conclusion of the treaty, in which they founded their hopes of improvement and progress.

If the tariff set up against the importation of merchandise that does not come from the United States should be continued in force, the business of commerce that has flourished heretofore would entirely disappear or perhaps be reduced to the importation of the necessities of the impoverished population of the interior of the Republic. In effect, American manufactures would come into our markets and there pay the duty to which they are subject; they could not in consequence compete with those that are admitted free of duty into the zone. Manufactures imported by Panama from Europe could not cross into the zone and there be offered for sale without paying a high duty and, [Page 607] in consequence, would be subjected to a double tax which would place them in a disadvantageous situation. The home industries would likewise find in the tariff of the zone an insuperable obstacle, and therefore the Republic of Panama would suffer worse injury from this cause than any other country. Neither the main necessaries of life nor the staples of most constant use and consumption produced in the country could cross the dividing line without submitting to considerable surtaxes which in the end would be prohibitory.

So heavy a blow to the native commerce and industry would make away with the revenues of the Republic, and inasmuch as the canal treaty has placed it under certain obligations which restrict its financial resources of every description and under certain responsibilities that involve a considerable outlay, the prospect held before my country is one of weakness, poverty, and retrogression instead of the bright future which the United States intended to achieve for it when it extended to it its generous hand and its loyal and effective support in its hour of trial.

My Government does not believe that your excellency’s Government has entertained the purpose of inflicting such huge and irreparable injuries upon the Republic of Panama; quite to the contrary, it is confident that a mere statement of such injuries will suffice to put an end to the situation that has been created, and to establish the bases of a common form of life in which regard shall be had to the interests of both countries, not an impossible but, on the contrary, a very feasible matter.

But before reaching that final agreement which must embrace many details and can be discussed with your excellency by me on some other; occasion, I confine myself for the present to asking that your excellency in the exercise of the administrative powers conferred upon you, and with the object of putting an end to the delicate situation in which the Republic of Panama is placed, will issue appropriate orders to the end that the measures ordered by the authorities of the canal zone in regard to ports, custom-houses, and post-offices be suspended until such time when an agreement respectful of our common interests shall have been reached.

I give your excellency full assurance that the Government of my country cherishes the most earnest and sincere desire to effect such an arrangement on generous terms that will be satisfactory to the United States.

With sentiments, etc.,

J. D. de Obaldía.