Papers Relating to the Foreign Relations of the United States, With the Annual Message of the President Transmitted to Congress December 6, 1904

Mr. Hay to Mr. de Obaldía.

Department of State,
Washington , October 24, 1904 .

No. 12.]

Mr. Minister: I have the honor to acknowledge the receipt of your communication dated August 11, 1904, advising this Department that you had received instructions from the Republic of Panama “to take 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.”

The action of the zone authorities of which complaint is made was taken pursuant to orders,^a copies of which are herewith transmitted, issued by the direction of the President of the United States, and therefore it is inaccurate to attribute said orders to the governor of the canal zone.

I have read, with the care and consideration its importance requires, the argument set forth in your communication in support of the contention that the United States is acting in excess of its authority (1) in opening the territory of the canal zone to the commerce of friendly nations; (2) in establishing rates of customs duties for importations of merchandise into the zone; (3) in establishing post-offices and a postal service in said zone for the handling of foreign and domestic mailable matter.

The right of the United States to adopt and enforce the provisions of said orders is dependent upon its right to exercise the powers of sovereignty as to the territory and waters of the canal zone, and whether or not the United States is authorized to exercise sovereign powers in that territory is to be determined by the terms of the convention of November 18, 1903, between the Republic of Panama and the United States, referred to in your communication as the Hay-Varilla convention.

The United States can not accede to the proposition advanced by you as follows:

As an indispensable antecedent of the Hay-Varilla convention must be regarded the Hay-Herran treaty, concluded January 22, 1903.

Whatever could or would have been the effect of the stipulations of the proposed treaty with Colombia, known as the Hay-Herran treaty, is rendered unimportant by the fact that said treaty was not concluded but was rejected by Colombia.

I note your reference to the provision of said proposed treaty with Colombia (Article IV):

The Government of the United States * * * disclaims any intention * * * to increase its own territory 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.

The policy thus announced did not originate with the proposed treaty with Colombia. It is the long-established policy of the United States, constantly adhered to; but said policy does not include the denial of the right of transfer of territory and sovereignty from one republic to another of the western hemisphere upon terms amicably arranged and mutually satisfactory, when such transfer promotes the peace of nations and the welfare of the world. That the United States may acquire territory and sovereignty in this way and for this purpose from its sister republics in this hemisphere is so manifest as to preclude discusion.

The Government of the Republic of Panama having seen fit to object to the exercise by the United States within and over the canal zone of the ordinary powers of sovereignty, this Government, while it can not concede the question to be open for discussion or the Republic of Panama to possess the right to challenge such exercise of authority, considers it fitting that the Republic of Panama should be advised as to the views on the subject entertained by the United States and the reasons therefor.

The United States acquired the right to exercise sovereign powers and jurisdiction over the canal zone by the convention of November 18, 1903, between the Republic of Panama and the United States.

The character and extent of the grant of governmental powers to the United States and the resulting right and authority in the territory of the zone, are set forth in a separate article as follows:

Article III. The Republic of Panama grants to the United States all the rights, powers, and authority within the zone mentioned and described in Article II of this agreement and within the limits of all auxiliary lands and waters mentioned and described in said Article II, which the United States would possess and exercise if it were the sovereign of the territory within which said lands and waters are located to the entire exclusion of the exercise of the Republic of Panama of any such foreign rights, power, or authority.

Let us test the existing controversy by the provisions of this article. If the United States * * * “were the sovereign of the territory,” would it possess the right and authority to regulate commerce therewith, establish customs-houses therein, and provide postal facilities therefor? This question must be answered in the affirmative.

If it were conceded that the abstract, nominal, “rights, powers, and authority of sovereignty in and over the zone” are vested in the Republic of Panama, there would still remain the fact that by said Article III the United States is authorized to exercise the rights, power, and authority of sovereignty “to the entire exclusion of the exercise by the Republic of Panama of any such sovereign rights, power, or authority.”

If it could or should be admitted that the titular sovereign of the canal zone is the Republic of Panama, such sovereign is mediatized by its own acts, solemnly declared and publicly proclaimed by treaty stipulations, induced by a desire to make possible the completion of a great work which will confer inestimable benefit upon the people of the Isthmus and the nations of the world. It is difficult to believe that a member of the family of nations seriously contemplates abandoning so high and honorable a position, in order to engage in an endeavor to secure what at best is a “barren scepter.”

Under the stipulations of Article III, if sovereign powers are to be exercised in and over the canal zone, they must be exercised by the United States. Such exercises of power must be therefore in accordance with the judgment and discretion of the constituted authorities of the United States, the governmental entity charged with responsibility for such exercise, and not in accordance with the judgment and discretion of a governmental entity that is not charged with such responsibility and by treaty stipulations acquiesces in “the entire exclusion of the exercise by it of any sovereign rights, power, or authority,” in and over the territory involved.

Article II of the convention provides that “The Republic of Panama grants to the United States in perpetuity the use, occupation, and control of a zone of land and land under water for the construction, maintenance, operation, sanitation, and protection of said canal * * *.”

The Panaman authorities now contend that the words “for the construction, maintenance, operation, sanitation, and protection of said canal” constitute a limitation on the grant, that is to say, that the grant is confined to the purposes so stated. The position of the United States is that the words “for the construction, maintenance, operation, sanitation, and protection of the said canal” were not intended as a limitation on the grant, but are a declaration of the inducement prompting the Republic of Panama to make the grant.

A document evidencing a grant or transfer usually sets forth a description of the property granted, the inducement leading up to the grant, the compensation and appropriate words of conveyance. The compensation for the grant under consideration is set forth in Article XIV of the treaty, as follows:

As the price or compensation for the rights, powers, and privileges granted in this convention by the Republic of Panama to the United States, the Government of the United States agrees to pay to the Republic of Panama the sum of ten million dollars ($10,000,000) in gold coin of the United States. * * * *

Article I of the treaty provides that “The United States guarantees and will maintain the independence of the Republic of Panama.”

It would undoubtedly be offensive to the Republic of Panama to be placed before the world as having been induced to consent “to the entire exclusion * * * of any sovereign rights,” in the territory of the canal zone, by the payment of money or because of a want of ability to maintain its independence. It would, however, be highly honorable and entirely justifiable to consent to such exclusion of sovereign right when the moving cause or inducement is “the construction, sanitation, maintenance, operation, and protection” of a work of such stupendous magnitude and world-wide importance as the Isthmian Canal.

The grant to the United States, provided for in said treaty, included also property other than the territory of the zone. Article VIII stipulates that:

The Republic of Panama grants to the United States all rights which it now has or hereafter may acquire to the property of the New Panama Canal Company and the Panama Railroad Company, as a result of the transfer of sovereignty from the Republic of Colombia to the Republic of Panama over the Isthmus of Panama. * * *

If the grant is subject to the condition and limitation contended for by the Panaman authorities, and the United States is not entitled to the revenues or benefits of the territory of the zone, or to regulate its commerce with foreign nations, or to control its international relations, it also follows that the United States, while it may use the Panama Railroad “for the construction, maintenance, operation, sanitation, and protection of said canal,” is not at liberty to regulate the use of said railroad by foreign commerce, and such revenue as is received by virtue of the rights conferred by the treaty, excepting for local traffic, belongs to the Republic of Panama. The proposition refutes itself.

The great object sought to be accomplished by the treaty is to enable the United States to construct the canal by the expenditure of public funds of the United States—funds created by the collection of taxes and moneys derived from the revenue measures of the United States. For many years after the adoption of our Constitution the belief prevailed that the funds of the National Government could not be expended in the construction of public improvements, excepting those required for the use of the National Government, such as the Capitol, executive department buildings, arsenals, forts, custom-houses, post-offices, etc. The construction of highways, railroads, etc., the improvement of rivers and harbors, etc., the protection and improvement of water powers, construction of canals, and similar undertakings for the use and convenience of the general public and private enterprises, was considered to be outside the competency of the National Government, although said works were to be constructed in territory subject to the national sovereignty. Finally, it was established that the National Government had the authority to enter upon the construction of public works of the character referred to, and to devote the public funds of the nation thereto; and the reasons inducing such determination are all predicated on the fact that such public works are to be situated in territory subject to the national sovereignty. It is quite probable that this phase of the situation is not considered by the Panaman authorities, and that they do not distinguish the difference between the Government of the United States and the French Canal Company. The French company was a private enterprise and derived its funds from individuals who voluntarily devoted their private means to promoting the endeavor; such funds could be expended anywhere and for any purpose sanctioned by the contributors. Bat the Government of the United States in building the canal does not expend private funds, but public moneys derived by public taxation for public purposes. Moneys so realized may be used for national purposes outside the territory subject to the national sovereignty, such, for instance, as the promotion of a war in foreign territory, for in time of war the war powers of the nations are called into activity, and those powers are coextensive with the nation’s necessities, and the conduct of the war is especially enjoined upon the National Government by our Constitution; so also these funds may be expended for the purchase of ground for the erection of embassies, coaling stations, etc., for those are instrumentalities of the National Government; but the Isthmian Canal is an instrumentality of commerce, a measure for the promotion of the purposes of peace. Commerce is the life of a nation, but it is conducted by individual citizens in a private capacity and not as a governmental institution.

That the plain and obvious meaning of Article III was the one originally intended by the parties to the treaty is further shown by the provisions of Articles IX, X, XII, and XIII.

For the proper understanding of the provisions of said articles it is necessary to bear in mind that the city of Colon, on the Atlantic, and the city of Panama, on the Pacific, each have a harbor in which are constructed wharves and piers suitable for landing cargoes and passengers. Both of these cities are in territory of the Republic of Panama. On the Pacific side the canal pierces the Isthmus at a point nearly 5 miles distant, following the shore line from the ships’ landing in the harbor at Panama, and about 2½ miles distant, straight across the peninsula. On the Atlantic side the canal pierces the Isthmus at a point half a mile across the bay from the piers in the harbor of Colon.

At the Pacific entrance to the canal the French company erected a large pier and dredged out a channel so that vessels of deep draft might come up to this pier. This point is called La Boca. A branch of the Panama Railroad connects said pier with the main line. Vessels, however, continue to enter the harbor at the city of Panama and discharge their cargoes. The waters of this harbor are shallow, and deep-draft vessels anchor offshore and lighter their cargoes as they did for more than a century before the pier was built and the channel dredged at La Boca.

On the Atlantic side of the Isthmus the harbor and piers of the city of Colon are the ones of more convenient access to vessels. The entrance to the canal on the Atlantic side is called Cristobal, at which point there is a small temporary wharf, recently constructed, but a channel has not been dredged out. Consequently practically all vessels sailing the Atlantic from the United States and elsewhere land at the Colon piers. The Panama Railroad Company has a line of steamers between Colon and New York, and there is also a steamship line between Colon and New Orleans. By far the greater portion of the commerce of Colon is with the United States, and it was obvious, at the time the treaty was negotiated, that a large quantity of materials and supplies and a large number of employees for the canal construction and the government of the zone would arrive at Colon from the United States. Two piers in the Colon harbor belonged to the Panama Railroad Company, and are now owned by the Government of the United States, but between said piers and the line of the canal zone there is a strip of land subject to the sovereignty of the Republic of Panama.

The provisions of Articles IX, X, XII, and XIII are intended to provide for the proper exercise of governmental authority under these conditions of fact. Article IX relates to the exercise of authority by both governments. When separated the provisions read as follows:

The United States agrees that the ports at either entrance of the canal and the waters thereof shall be free for all time so that there shall not be imposed or collected custom-house tolls, tonnage, anchorage, light-house, wharf, pilot, or quarantine dues or any other charges or taxes of any kind upon any vessel using or passing through the canal, or upon the cargo, officers, crew, or passengers of any such vessels, except such charges as may be imposed by the United States for the use of the canal or other works.

If it were intended that the United States should not secure the right to regulate foreign commerce entering the zone, why was it required to stipulate that it would not impose or collect custom-house tolls, tonnage, anchorage, light-house, wharf, pilot, or quarantine dues or any other charges or taxes of any kind upon the cargo, officers, crew, or passengers of ships entering the canal? If the Republic of Panama is the sovereignty exercising jurisdiction over foreign commerce within the zone, why was the exception respecting tolls and charges for the use of the canal and other works made in favor of the United States?

The stipulations of said Article IX respecting the exercise of authority by the Republic of Panama are as follows:

The Republic of Panama agrees that the towns of Panama and Colon shall be free for all time so that there shall not be imposed or collected customhouse tolls, tonnage, anchorage, light-house, wharf, pilot, or quarantine dues or any other charges or taxes of any kind upon any vessel issuing or passing through the canal, or belonging to or employed by the United States, directly or indirectly, in connection with the construction, maintenance, operation, sanitation, and protection of the main canal, or auxiliary works, or upon the cargo, officers, crew, or passengers of any such vessels, except tolls and charges imposed by the Republic of Panama upon merchandise destined to be introduced for the consumption of the rest of the Republic of Panama, and upon vessels touching at the ports of Colon and Panama and which do not cross the canal.

The expression “the rest of the Republic of Panama” must be held to refer to that portion of the territory of the Republic as existing at the time the treaty was negotiated, lying outside the boundaries of the proposed Canal Zone, unless it is insisted that it refers to that portion of the Republic which is not included in the towns of Colon and Panama, a contention that would hardly find favor with the authorities of the Republic. Why this exception in favor of the Republic of Panama if that Government possesses the right to regulate foreign commerce with the territory of the zone?

Article IX contains the further provision:

The Government of the Republic of Panama shall have the right to establish in such ports (the ports at either entrance of the canal) and in the towns of Panama and Colon such houses and guards as it may deem necessary to collect duties on importations destined to other portions of Panama, and to prevent contraband trade.

Why this provision, if the right existed? For the proper understanding of Article X it is necessary to bear in mind that the French Canal Company owned and the United States purchased from it a large amount of real estate situated in the towns of Colon and Panama, which towns are subject to the sovereignty of the Republic of Panama. Among other pieces of property, the canal office building, a large structure in the center of the town of Panama, the railroad station and terminals at Colon and Panama, the large piers in the harbor at Colon, the steamships, tugs, and other water craft belonging to the Panama Railroad, and the canal company’s warehouses filled with machinery, materials, and supplies.

Practically all the employees working in and around these structures, and many other employees of the government of the zone, the Panama Railroad, and the canal-construction department reside in Colon and Panama. To meet this situation, the treaty provides as follows:

Article X. The Republic of Panama agrees that there shall not be imposed any taxes, national, municipal, departmental, or of any other class, upon the canal, the railways and auxiliary works, tugs and other vessels employed in the service of the canal, storehouses, workshops, offices, quarters for laborers, factories of all kinds, warehouses, wharves, machinery and other works, property and effects appertaining to the canal or railroad or auxiliary works, or their officers or employees, situated within the cities of Panama and Colon, and that there shall not be imposed contributions or charges of a personal character of any kind upon officers, employees, laborers, and other individuals in the service of the canal and railroad and auxiliary works.

Attention is directed to the fact that by the foregoing article the Republic of Panama foregoes the right to impose “any taxes, national, municipal, or departmental,” on the property of the United States and its employees situated in the cities of Panama and Colon. If it had been contemplated that the Republic of Panama retained sovereign rights in the zone, or was at liberty to exercise those rights in that territory, the United States would certainly have required the same exemptions for the large amount of its property in the zone as it required for its property in the cities of Panama and Colon.

Perhaps no more complete refutation of the claims advanced by the Republic of Panama is necessary than to propound the inquiry, Is the Republic of Panama authorized to impose national, municipal, and departmental taxes on the property of the United States situated in the Canal Zone?

So well understood was it that the exercise of sovereign powers by the Republic of Panama was to be confined to the territory remaining to the Republic that in at least three articles referring to such exercise of power the territory of the Republic is not mentioned; although manifestly no other territory was under consideration.

The articles referred to are X, XII, and XIII.

Article X provides “that there shall not be imposed contributions or charges of a personal character of any kind upon officers, employees, laborers, and other individuals in the service of the canal and railroad and auxiliary works.”

Article XII provides:

The Government of the Republic of Panama shall permit the immigration and free access to the lands and workshops of the canal and its auxiliary works of all employees and workmen of whatever nationality under contract to work upon or seeking employment upon or in anywise connected with the said canal and its auxiliary works, with their respective families, and all such persons shall be free and exempt from the military service of the Republic of Panama.

It is perfectly plain that these stipulations relate to the exercise of governmental authority in the territory outside of the Canal Zone.

Let it be supposed that this treaty did not contain the provision “all such persons shall be free and exempt from the military service of the Republic of Panama.” Would anyone contend after reading Article III of the treaty that a citizen of the United States employed on the canal and residing in the zone owed such temporary allegiance to the Republic of Panama as to be liable to military service for that Government?

Article XIII must also be considered as relating to the territory of the Republic of Panama. That article provides that “the United States may import (pass through the territory of the Republic) into the zone and auxiliary lands, free of customs duties, imports, taxes, or other charges, and without any restrictions,” certain designated articles, respecting which further provision is made as follows:

If any such articles are disposed of for use outside of the zone and auxiliary lands granted to the United States and within the territory of the Republic, they shall be subject to the same import or other duties as like articles imported under the laws of the Republic of Panama.

Manifestly it is not until the goods are “outside the zone” and “within the territory of the Republic” that they are subject to “import or other duties under the laws of the Republic of Panama.”

The Panamanian authorities insist that it is by virtue of Article XIII that the property of the United States acquires the right of free entry into the zone. Such contention is not warranted. Said article is intended to give the right of free transit across the territory of the Republic of Panama for goods belonging to the United States. The right of the United States to take its property into the zone results from the provisions of Article III. The construction contended for by Panama makes Article XIII contradict, if not nullify, Article III, for by the terms of Article III the Republic of Panama grants to the United States “all the rights, power, and authority” of a sovereign “to the entire exclusion of the exercise by the Republic of Panama of any such sovereign rights, power, or authority” in the Canal Zone.

When due consideration is given Article III it is apparent that Article XIII relates to the exercise of sovereign powers by the Republic of Panama in territory wherein such exercise is contemplated by the treaty, to wit, the territory of the Republic.

Under the construction of Article XIII contended for by Panama, the right of that Republic to tax the goods in question depends upon the ownership of the property without regard to the place of final destination. If the goods are the property of the United States they enter free and remain exempt from tariff imports, so long as they continue to be the property of the United States; if, however, the United States parts with the ownership the sovereignty of Panama may impose on said goods the customs duties prescribed by the laws of that Republic.

If the Republic of Panama is authorized to exercise sovereign powers in the Canal Zone, and the sovereign right to impose customs duties is restrained only by the fact of ownership by the United States, it would follow that if the United States transferred the ownership of property deposited in the Canal Zone such property would be subject to said right, whether it remained in the zone or not. But said Article XIII expressly declares that the right to impose customs duties on such property is to be exercised in the event only that “such articles are disposed of for the use-outside the zone and auxiliary lands granted the United States and within the territory of the Republic.”

Clearly the exercise by the Republic of Panama of the sovereign right to impose customs duties on goods of the character under consideration is dependent upon two facts: First, that the goods are owned by some one other than the Government of the United States; second, that the goods are to be used outside the zone and within the territory of the Republic of Panama by some one other than the United States.

A careful examination of the provisions of Article XIII discloses that they combine definite description of specific articles and indefinite classification of property in general.

The article under consideration (XIII) reads as follows:

The United States may import, at any time, into the zone and auxiliary lands, free of customs duties, imports, taxes, or other charges, and without any restrictions, any and all vessels, dredges, engines, cars, machinery, tools, explosives, materials, supplies and 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.

Read by the light of contemporaneous history, it is difficult to see how this article can be considered as relating to the exercise of authority anywhere except in the territory of the Republic of Panama.

That the grant accomplished by the treaty was a grant of land and sovereign right thereover, and not a mere concession or privilege, is shown by the granting clauses and also by the references to the grant in subsequent clauses of the treaty—for instance, Article XIII, employes the expression “outside the zone and auxiliary lands granted to the United States and within the territory of the Republic.”

In support of the contention advanced by the Government of the Republic of Panama, you quote Article IV of the proposed treaty with Colombia. The first stipulation of that article is as follows:

The rights and privileges granted by the terms of this convention shall not affect the sovereignty of the Republic of Colombia over the territory within whose boundaries such rights and privileges are to be exercised.

No such provision as the foregoing appears in the convention between the United States and the Republic of Panama; on the contrary, Article III of the convention with Panama provides that:

The Republic of Panama grants to the United States all the rights, powers, and authority within the zone * * * which the United States would possess and exercise if it were the sovereign * * * to the entire exclusion of the exercise by the Republic of Panama of any such sovereign rights, power, or authority.

This stipulation is plain and its purpose manifest. If the powers of sovereignty are to be exercised in that territory the right to exercise them belongs to the United States.

Permit me to call your attention to certain official acts of the Government of the Republic of Panama which evidence that the legislative, executive, and judicial branches of that Government have heretofore accepted and acted upon the theory that the convention of November 18, 1903, conveyed the territority of the canal zone and sovereign jurisdiction thereover to the United States.

The constitution of the Republic of Panama was formulated during the time the treaty between the United States and Panama was pending before the Senate of the United States. The constitution was adopted on February 13, and proclaimed February 15, 1904. The Senate recommended the ratification of the treaty on February 23, and the President carried out the recommendation on February 25, 1904.

The constitution of Panama described the boundaries of that Republic as follows:

Article 3. The territory of the Republic is composed of all the territory from which the State of Panama was formed by the amendment to the Granada constitution of 1853 * * * together with its islands and of the continental and insular territory. * * * The territory of the Republic remains subject to the jurisdictional limitations stipulated or which may be stipulated in public treaties concluded with the United States of North America for the construction, maintenance, or sanitation of any means of interoceanic transit.

What is meant by “jurisdictional limitations” if it were intended that the pending treaty should convey nothing but rights of property? Why was this limitation placed upon the extent of the national domain if the United States was to be a mere concessionaire, subject to the jurisdiction of the Republic of Panama?

The legislative branch of the Government of the Republic of Panama has recognized the right of the United States to exercise the sovereign authority to regulate foreign commerce with the territory of the zone, and has enacted two statutes with reference to such exercise of authority by the United States.

Law No. 65, enacted by the National Assembly of Panama on June 6, 1904, “conferring certain authority upon the Executive,” is as follows:

• Article 1. Authority is given to the Executive to reduce, as may be convenient, those duties, the collection of which, at the rates established by the present laws, ordinances, or decrees, would be prejudicial to commerce and to the public because of great differences there might be between them and those established by the United States Government for the canal zone.
• Article 2. Authortiy is also given to the Executive to enter into an agreement with the Government of the United States respecting the rates of duties to be collected in the canal zone and the cities of Panama and Colon; provided, however, that the said duties shall be uniform throughout the territory named, which agreement shall remain in force until annulled by the national assembly.

Your attention is directed to the fact that the foregoing act of the National Assembly of Panama was enacted eighteen days prior to the date of the order of the President of the United States opening the territory of the canal zone to commerce and establishing customs houses therein.

Law No. 88, enacted by the National Assembly of Panama, on July 16, 1904, provides as follows:

Article 23. The Executive is authorized to reduce the slaughterhouse duty on cattle killed in the districts of Panama, Colon, and Bocas del Toro, when the fiscal system to he introduced into the zone ceded to the United States, in his opinion, requires it.

It can not escape observation that the legislative branch of the Government of the Republic of Panama by legislative enactment declared the zone to be “ceded to the United States” and dealt with it accordingly.

The executive branch of the Government of the Republic of Panama, also, has recognized the right of the United States to exercise the powers of sovereignty in the canal zone. On July 17, 1904, his excellency, the President of that Republic, officially advised the governor of the canal zone, as follows:

Republic of Panama, Presidencia,
Panama, July 17, 1904.

Maj. Gen. Geo. W. Davis,
Governor of the Canal Zone, Present.

Dear Sir: I have the pleasure to inform you that I am fully authorized by law, recently enacted by the National Assembly, to reduce or increase our duties and taxes accordingly with the rates which your Government shall establish at the canal zone.

Yours truly,

(Signed) M. Amador Guererro.

To carry out the suggestion contained in the foregoing letter, and to enable the executive branch of the Government of the Republic of Panama to pursue the course obviously intended and provided for by the National Assembly of Panama, it was necessary for the United States to make known what duties and taxes would be levied and collected in the canal zone; whereupon the President of the United States directed the issuance of the order of June 24, 1904, of which complaint is now made.

Conclusive as to the right of the United States to exercise sovereign jurisdiction in the zone, is the fact that upon the arrival of Maj. Gen. George W. Davis, whom the President had appointed governor of the canal zone, and delegated to administer the government of said territory, all the officials of the Republic of Panama ceased to exercise any authority respecting the administration of government in that territory; the soldiers and police of that Republic stationed in the territory were withdrawn; the officers of all branches of government stationed in the territory surrendered their offices and were superseded by appointees of the United States.

The withdrawal from the zone of the officials of the Republic of Panama was pursuant to an order issued by the secretary of state and foreign affairs of that Republic, upon the signing of the agreement respecting the boundary line between the zone and the cities of Colon and Panama. The order was dated June 17, 1904, and reads as follows:

Governor, Colon:

Districts of railway line are comprised within canal zone, and from to-day authorities and public employees in said zone cease in their functions as members of the Government of the Panama Republic, according to convention signed yesterday. Advise you for your information.

Attentive servant,

Tomas Arias.

Upon the assumption of governmental authority over the zone by the United States it became important that the line of separation between the zone and the Republic of Panama, especially that separating the zone from the towns of Panama and Colon, should be ascertained and declared. Major General Davis, governor of the zone, on behalf of the United States, and his excellency, Tomas Arias, secretary of government arid foreign affairs, and Ramon Valdez, attorney-general of the Republic of Panama, on behalf of that Government, entered into and signed a provisional agreement as to such demarcation of boundaries on June 15, 1904.

This agreement was duly published in the Gaceta Oficial of the Republic of Panama. The following extracts are quoted from that publication:

Whereas * * * it is necessary that the extent and boundaries of the territory ceded to the Government of the United States by the Republic of Panama under the terms and provisions of said convention shall be provisionally agreed upon.

Section 1. The limits of the canal zone, including lands under water and islands, ceded * * * delivery of which lands, waters, and islands has been made by Panama and possession of which has been taken by the United States are indicated and shown on the attached map * * * and said indicated boundary, or line of division, between the territory ceded by the Republic of Panama to the United States for canal purposes.

* * * * * * *

That the entrance channel of the Panama Canal through said harbor of Colon * * * is hereby declared to be a part of the canal zone, under the exclusive jurisdiction of the United States.

It is manifest that at the time this agreemnet was signed, both the secretary of state and the attorney-general of the Republic of Panama considered that the rights of the United States in the canal zone were something more than those of a private concessionaire or lessee.

The judicial branch of the Government of the Republic of Panama has determined the question as to which Government possesses sovereignty over the canal zone in favor of the United States. The question was presented by numerous cases of criminal offenses committed in the territory of the zone since the transfer. The courts of Panama held that they are without jurisdiction and transmitted the papers to the foreign office of their Government for transmission of the case and the person of the accused to the zone authorities. From the correspondence in a large number of instances the following are selected:

Etienne Lamour was arrested, charged with the offense of assault and battery, committed at Emperador on June 5, 1904. The papers were transmitted to the second circuit court, one of the courts of the Republic of Panama, and submitted to the fiscal for report. The fiscal recommended that, as Emperador is situated in the canal zone, the court lacked jurisdiction, and therefore the papers should be transmitted to the secretary of justice for submission to the proper American authorities. The papers were so transmitted to the secretary of justice, who returned them to the court, with a statement that the question be decided by the court “as the transfer of sovereignty in the districts of the railroad line has been officially communicated.”

The letter of the secretary of justice is as follows:

Republic of Panama, National Executive Power,
Department of Public Instrutcion and Justice,
Division of Justice, No. 423,
Panama, June 30, 1904.

To the second circuit judge in criminal matters, city:

I return to you the proceedings and papers you sent to this office with note No. 275 of the 28th instant, tending to show that Etienne Lamour is guilty of the offense of assault and battery.

This office abstains from deciding what should be done with the said proceedings as it considers that you are the one that should do so, as the transfer of sovereignty in the districts of the railroad line has been officially communicated.

God preserve you.

Julio I. Fabrega.

Third Circuit Court,
Panama, July 12, 1904.

As by reason of the delivery of the canal zone, the jurisdiction which the judges of this circuit exercised over the districts of Emperador and Gorgona has ceased, the undersigned can not continue to take cognizance of this matter. Therefore, let these proceedings be sent to the secretary of government, through the secretary of public instruction and justice, in order that he may transmit them to the North American authority competent to take cognizance of the case in question.

Let it be notified and recorded.

Alfonso Fabrega, Judge.

Rafael Benitez, Secretary.

Another case proceeded as follows:

Victor Guillot, a French citizen, was accused by his employer of stealing at Culebra, on May 5, $65 gold, $4 in American bank notes, and about 10 pesos in silver; preliminary investigation was conducted by the police inspector of Culebra, and showed that the money was stolen from the pockets of the complainant by cutting through them while he was asleep. The papers were transmitted by the police inspector to the first circuit court for criminal matters of the Republic of Panama, and thence to the second circuit court for criminal matters; they were referred to the fiscal of the latter court, who reported that the hamlet of Culebra was situated within the provisional demarcation of the canal zone and that the circuit judge lacked jurisdiction, and that the papers should be transmitted to the secretary of public instruction and justice for submission to the proper American authorities. The papers were transmitted by circuit judge to superior judge for decision. The fiscal of the superior court recommended the transmission of the papers to the department of foreign affairs and that the accused be held subject to said secretary’s orders, which recommendation was approved by the superior judge.

The secretary of government and foreign affairs for the Republic of Panama transmitted the papers to the governor of the canal zone in a communication reading as follows:

Department of Government and Foreign Affairs,
Panama, July 9, 1904.

Mr. Governor: I have the honor to transmit to you herewith the record of the preliminary proceedings instituted against Victor Guillot for robbery committed within the jurisdiction of the canal zone, with the request that you issue the proper orders to have these preliminary proceedings duly continued.

I have to inform you, for such action as you may deem proper, that the accused Guillot is confined in the jail of this city.

With expressions of the highest consideration, I have the honor to be, your obedient servant,

Tomas Arias.

Gen. George W. Davis,
Governor of the Canal Zone, City.

Raimundo Lizano was brought before the superior court at Panama, charged with the crime of theft, perpetrated in the territory of the canal zone. The case was sent to the first circuit court for criminal matters. The decision of that court was as follows:

Third Circuit Court,
Panama, July 22, 1904.

Whereas the crime involved in these proceedings was committed on territory of the canal zone, where the undersigned has no jurisdiction, with the concurrence of the fiscal it is decided that these proceedings be sent to the secretary of state for transmission to the proper person. Let it be communicated and recorded.

Alfonso Fabrega, Judge

Rafael Benitez, Secretary.

The United States, at all times since the treaty was concluded, has acted upon the theory that it had secured in and to the canal zone the exclusive jurisdiction to exercise soverign rights, power, and authority.

On April 28, 1904, Congress enacted an act entitled “An act to provide for the temporary government of the canal zone at Panama, the protection of the canal works, and for other purposes.”

Said act provides as follows:

Sec 2. * * * all the military, civil, and judicial powers, as well as the power to make all rules and regulation necessary for the government of the canal zone and all the rights, powers, and authority granted by the terms of such treaty to the United States, shall be vested in such person or persons and shall be exercised in such manner as the President shall direct for the government of said zone. * * *

Pursuant to the provision of said act, the President directed that all the governmental power in and over said canal zone should be vested in the Isthmian Canal Commission, to be exercised under the supervision and direction of the Secretary of War.

The power of legislation respecting the government of the zone was conferred upon the commission.

Maj. Gen. George W. Davis, U. S. Army, was appointed governor of the canal zone by the President and ordered to proceed at once to the Isthmus of Panama, and in the name of the President and for and on behalf of the United States, as the chief executive in the canal zone, to see that the laws are faithfully executed, and maintain possession of said territory; he was also vested with pardoning power.

The President further designated what laws should be continued in force in the territory of the zone, by what officials said laws should be administered, and provided for the temporary exercise of the judicial power.

The Isthmian Canal Commission, by the exercise of the legislative power vested in them, enacted laws for the organization and establishment of the executive and judicial branches of the government of the canal zone, the establishment and government of municipal subdivisions, and for the collection of revenues, a postal service, the sanitation of the Isthmus, quarantine of the ports, policing the zone, a penal code, and a code of criminal procedure, besides other enactments required for the proper administration of the government in the zone.

In full confidence that it had secured the right to exercise all powers of sovereignty in the Zone, the United States paid to the Republic of Panama $10,000,000 in gold, and to the French Canal Company $40,000,000. The Congress appropriated $150,000,000 to complete the canal. The President appointed the Isthmian Canal Commission, and the work of construction was immediately entered upon. Agencies of the Government have been established in the Zone, and the necessities of the social organism provided at the expense of the United States.

I note your reference to the exercise of sovereign powers by the United States over the harbors constituting the Atlantic and Pacific entrances to the canal.

As understood by me, your contention is that whatever may be the authority of the United States in other parts of the Canal Zone this Government is without authority at these two points (Cristobal and La Boca) for the reason that these points are within the harbors adjacent to the cities of Colon and Panama, and therefore excluded from the grant made by Article II of the convention.

For convenient reference, I quote a part of said article:

The Republic of Panama grants to the United States in perpetuity the use, occupation, and control of a zone of land and land under water for the construction, maintenance, operation, sanitation, and protection of said canal of the width of 10 miles extending to the distance of 5 miles on each side of the center line of the route of the canal to be constructed; the said zone beginning in the Caribbean Sea 3 marine miles from mean low-water mark and extending to and across the Isthmus of Panama into the Pacific Ocean to a distance of 3 miles from mean low-water mark, with the proviso that the cities of Panama and Colon, and harbors adjacent to said cities, which are included within the boundaries of the zone above described, shall not be included within this grant.

A strip of land 5 miles wide on either side of the entrances to the canal would include all of the city of Colon and substantially all of the city of Panama. The Republic of Panama desires to retain sovereign jurisdiction over the inhabited portions of the territory of these municipalities, hence the exemption in the grant. In this connection attention is called to the fact that if the Republic of Panama intended to retain the right to exercise sovereign jurisdiction over the entire Zone, this exemption would have been unnecesary.

You will recall that when this convention was being considered by the United States Senate the opposition to its confirmation suggested the possibility that the Republic of Panama might advance, thereafter, the contention now presented. Thereupon, the matter was brought to the attention of Mr. Bunau-Varilla, the duly accredited representative of the Republic of Panama, by whom said convention was negotiated.

In response, the representative of the Republic of Panama, by a letter dated January 19, 1904, advised the United States as follows:

I do not hesitate, sir, to give you in my name, and in the name of my Government, the following explanations on the meaning of the clauses which have been deemed not sufficiently outlined by the committee of the Senate:

First. Harbors adjacent to the cities of Panama and Colon: The harbors adjacent to the cities of Panama and Colon (adjacent comes from ad jacens—lying at the side of) are, in my understanding, the harbors in contact of said cities and putting them into communication with the sea.

These harbors are completely separated from and independent of the harbors of the canal, or the harbors situated at its two entrances and which ships going through the canal have to use.

The harbor at the Colon end of the canal is an interior harbor, made by dredging in the bay of Fox River, adjacent to the city of Cristopher Columbus, and protected by a breakwater.

The harbor adjacent to the city of Colon is constituted by a series of wharves built in the open sea without any artificial shelter.

A ship lying in the Colon Harbor and leaving it to go into the canal harbor will have first to go into the open sea and then pass the breakwater which protects the entrance of the canal harbor.

At Panama the canal harbor is also an interior harbor situated at La Boca, several miles from the wharf which forms the Panama Harbor, a wharf built in open sea like those of Colon.

The very same thing may be said of the Panama as of the Colon harbors. Both are local harbors, strictly limited to the service of the respective townships and out of the way of the canal and its approaches to its entrance.

There is not a shadow of probability that the harbor adjacent either to Panama or Colon will ever be used for anything but for the local trade of the town, and, therefore, the United States will never necessitate to do anything in relation to the canal with any part of them.

The administration of the Government of Panama, being advised by Bunau-Varilla, of this letter, wrote to him as follows:

Your Excellency: Most opportune indeed was your excellency’s communication of January 19 to the Secretary of State, dissipating, as it did, the new obstacles raised to prevent the prompt approval of the treaty by the American Senate.

All the matters which your excellency mentions were at the same time discussed with the honorable Mr. Buchanan.

Etc.,

(Signed) F. V. de la Espriella.

The foregoing correspondence being brought to the attention of the secretary of government and foreign affairs for the Government of Panama, he replied as follows:

Office of the Secretary of the Government and Foreign Relations,
Department of Foreign Relations,
Panama, August 23, 1904.

Señor Minister: I have before me your excellency’s attentive communication, No. 23, of the 16th instant, wherein you refer to the letter which Mr. Bunau-Varilla addressed to Mr. Hay, Secretary of State of the United States, on the 19th of January of the present year, with regard to the interpretation of certain clauses in the treaty of November 18, 1903, a copy of which your excellency was good enough to send me, and the existence of which I had forgotten. As was natural, I ordered that a search be made of the archives in this office for the missing document, and it was found, the original of which your excellency informs me will be presented to the minister plenipotentiary and envoy extraordinary of Panama in Washington.

The authorities of the Canal Zone report that for a limited period following the promulgation of the President’s order establishing ports of entry at the harbors at the entrances of the canal, said orders were acquiesced in by the Republic of Panama without protest. Several vessels were cleared from the port of Panama for the port of Ancon (La Boca) in the Canal Zone, in which port the vessels were received by the American authorities.

In this connection attention is called to the following correspondence between the owners of the steamship Loa and the chief of the national customs service of Panama:

Panama, July 2, 1904.

The Captain of the Port, Chief of the National Customs Service, Panama:

Please certify below whether the steamship Loa, which entered this port on the 26th of June last, was authorized to proceed to the La Boca wharf.

Yours, etc.,

H. Ehrman Co.

Headquarters of the National Customs Service,
Panama, July 2, 1904.

The writer, chief of the national customs service of Panama, certifies:

That the Chilean steamship Loa was duly received at 9 a.m., on the 26th ultimo, and was authorized to discharge and receive cargo where most convenient to do so. With regard to the observance of formalities in order to proceed to La Boca this is a matter which pertains exclusively to the governor of the Zone, because that is American property.

As the boat was received by the Panamanian authorities, it was natural that in order to enter and tie alongside of the wharves of the said port of La Boca it was subject to comply with the formalities required by the authorities of that place (La Boca).

[seal.]

Leonides Pretel.

The United States learns with regret that the officials of the Republic of Panama are apprehensive that the course adopted by the United States will substantially reduce the revenues of that Republic. Permit me to express the belief that future developments will show such fear to be without foundation. The construction of the canal will cause a large increase in the population of the Zone and of the Republic. Vast expenditures of money will be made by the Commission in canal construction, which will be expended largely in the commercial centers of the country, to-wit, Panama and Colon. This will occasion increased importations, with resulting increase of revenue to the Government exercising sovereign jurisdiction over those cities.

The United States has sought at all times to secure and preserve for the Republic of Panama sufficient means for adequate revenues. In this connection permit me to call your attention to the fact that the proposed treaty with Colombia contained the following provision (Article VIII):

The ports leading to the canal, including Panama and Colon, also shall be free to the commerce of the world, and no duties or taxes shall be imposed, except upon merchandise to be introduced for the consumption of the rest of the Republic of Colombia, of the Department of Panama, and upon vessels touching at the ports of Colon and Panama, and which do not cross the canal.

Under such provision merchandise imported into the ports of Colon and Panama for consumption within those municipalities would have entered free of duty.

The convention between the Republic of Panama and the United States permits the Republic of Panama to impose customs duties on merchandise imported into those cities for consumption therein, as well as elsewhere in the Republic.

Your attention is directed to the fact that, under the rule of law established by the United States Supreme Court, goods from the United States were entitled to free entry into the zone as soon as the sovereignty of the United States permanently attached to the territory. (Vide Dooley v. United States, 183 U. S., 151; Cross v. Harrison, 16 Howard, 164.)

It was recognized that free entry into the zone of goods from the United States might work a hardship on the tradespeople of the near-by cities of Panama and Colon, as the latter were obliged to pay customs duties to the Republic of Panama. To meet this contingency the order of June 24, 1904, regulating commerce with the zone, provides as follows:

The governor of the canal zone is authorized to enter into and carry out an agreement with the President of the Republic of Panama for cooperation between the customs service of the canal zone and that of the Republic of Panama to protect the customs revenues of both governments and to prevent frauds and smuggling.

The governor of the canal zone is hereby authorized to enter upon negotiations and make a tentative agreement with the President of the Republic of Panama respecting reciprocal trade relations between the territory and inhabitants of the canal zone and appurtenant territory and the Republic of Panama; also a readjustment of the customs duties and tariff regulations, so as to secure uniformity of rates and privileges and avoid the disadvantages resulting from different schedules, duties, and administrative measures in limited territory subject to the same conditions and not separated by natural obstacles. The governor shall report as to such negotiations and proposed agreement to the chairman of the Isthmian Canal Commission, for submission and consideration by the Commission, and such action by competent authority as may be necessary to render said agreement effective in the canal zone.

Admiral J. G. Walker, chairman Isthmian Canal Commission, advises this Department that although several attempts have been made by the authorities of the canal zone to initiate negotiations contemplated by the foregoing provisions of said order and by the provisons of laws Nos. 65 an 88 of the National Assembly of Panama, the authorities of the Republic of Panama decline to enter upon such negotiations. Permit me to express the hope that the Government of Panama will recognize the desirability of taking up this matter with the governor of the canal zone and ascertaining if a satisfactory solution of the existing discrepancies in customs duties and administration is attainable. The Government of the United States sincerely desires to effect such an arrangement on terms both just and generous to the Republic of Panama.

Accept, etc.,

John Hay.

1. Printed ante.