The Panaman Minister (Alfaro) to the Secretary of State


Mr. Secretary: When the Republic of Panama seceded from Colombia in 19034 and gained the recognition of its independence by the Government of the United States, soon followed by that of the leading nations of the world, the main question which arose was the negotiation of a treaty for the construction of the interoceanic canal, as the rejection of the Canal treaty by the Colombian Congress was the main cause of the separation of Panama.

The general opinion at that time, and it so appeared in the press of the United States, was that the same treaty that had been concluded [Page 639] with the Republic of Colombia5 would be concluded with the Republic of Panama, which idea wholly accorded with justice, since there was no reason for letting the Republic of Colombia, which had thrown obstacles in the way of the construction of the Canal, get better terms and conditions than the Republic of Panama, which stood ready to facilitate in every way the opening of the great maritime highway.

The treaty of November 18, 1903,6 was negotiated and concluded in the hasty manner known to the whole world and without waiting for the arrival of the Panaman Commissioners who had been sent by the Government of Panama to negotiate and sign the treaty; and contrary to general expectation, there were introduced various modifications which made the treaty with Panama less advantageous to our nation than the treaty with Colombia.

The joint jurisdiction over the Canal Zone provided by the Hay-Herran treaty was replaced by the absolute and exclusive jurisdiction of the United States and the term of ninety-nine years7 was replaced by a concession in perpetuity. With respect to indemnification for damages done or property taken in connection with the construction of the Canal there was introduced a clause (article VI) the terms of which have been used for interpretations by American officials which on more than one occasion took the shape of palpable injustice to Panaman claimants. Without indulging in a detailed comparison point by point, it may be asserted without fear of mistake that the new treaty in a general way contained more concessions to the United States than did the Hay-Herran treaty.

It is certain that the new treaty contained the guarantee of the independence of Panama and it might be observed that this guarantee was a compensation for many of the new concessions which had been agreed to by Minister Bunau-Varilla. But that guarantee was not a concession for the exclusive benefit of the Republic of Panama. It was at the same time a safeguard for the construction of the Canal, as it is evident that the United States would have found it physically and legally impossible to build the Canal and maintain its jurisdictional rights within the Canal Zone if it had been possible for any power to destroy the independence of the Republic of Panama.

Notwithstanding that circumstance, the general sentiment of the Republic of Panama was that the territorial concessions and rights granted by the Republic were a necessary sacrifice to bring about the [Page 640] successful building of the Canal and that the Panamans would find full compensation in the great welfare, progress, and general development that would result from the great work of the Canal and the investment of millions of dollars needed for the work.

The same impression prevailed among the American statesmen, press, and public. It will be remembered that when the Panaman Commissioners who were entrusted with the negotiation of the Canal treaty complained to Secretary Hay that the treaty had been signed about midnight on the 18th of November at Mr. Hay’s private residence, barely two or three hours before the Panaman Commissioners arrived in Washington, as if it had been the earnest desire that the Panaman plenipotentiaries should not negotiate the treaty, Secretary Hay remarked to Commissioners Amador and Boyd that the benefits that the Republic of Panama would draw from the construction of the Canal would be so immense that the modifications introduced in the Hay-Herran treaty when the Hay-Varilla treaty was drawn up were nothing as compared with those benefits.

President Roosevelt was of the same opinion, as may be seen from his letter of October 19, 1904, to Mr. Taft8 in which he said:

“The United States is about to confer upon the people of the Republic of Panama great benefits through the expenditure of millions of dollars on the construction of the Canal. But this fact should not blind us to the point of preventing us from seeing the importance of exercising the right that has been given to us through the treaty with Panama in a manner which prevents even suspicion, no matter how groundless, to arise concerning our future intentions. We do not intend in the least to establish an independent colony in the center of the State of Panama or to exercise governmental functions broader than is necessary to enable us to build, maintain, and operate the Canal, in accordance with the rights given us by the treaty. Nothing is farther from our wish than standing in the way of business and prosperity of the people of Panama.”

It was also thought in Panama that the United States, which had already showed itself friendly and liberally inclined towards small nationalities, would never assume an attitude that might cause alarm to the Republic of Panama with respect to the Canal treaty and its application.

Nevertheless, when the transfer of jurisdiction over the Canal Zone to the United States took place the people of Panama were seized with great alarm and excitement owing to the occupation of the ports of Ancon and Cristobal, which were the “ports adjacent” to the cities of Panama and Colon spoken of in the treaty, whereby the two cities were deprived of their harbors and made to depend on the terminal ports of the Canal for their foreign commerce. It is true [Page 641] that on January 19, 1904, Minister Bunau-Varilla sent to Secretary Hay a note9 in which he offered a certain explanation or interpretation which served to justify the taking of the two ports by the United States. It is also true that the said note, although it was not previously authorized or duly considered, was subsequently approved by the then Secretary of Foreign Relations, Doctor Espriella. But the fact is that the people of Panama never understood that by virtue of the Canal treaty the Republic was to lose the two ports through which it carried on its import and export trade, and the acute controversy which followed the taking of the two ports was what moved President Roosevelt to send to Panama his Secretary of War, Mr. William Howard Taft, who concluded with the Panaman Government the agreement which since then has been bearing his name.

The history of that agreement may be condensed as follows:

In June 1904 the Governor of the Canal Zone issued an Executive order10 which opened that strip of land to the commerce of the world. He declared the terminal ports of the Canal open for importation and exportation. He put into effect within the Canal Zone the protective tariff in force in the United States and known as the Dingley Tariff and finally obtained independent customs and post offices.

Panama immediately protested in the most energetic way against all those measures which it considered to be in violation of the Canal treaty. Panama maintained that the Canal Zone could not be considered as a political entity able to maintain international relations of any kind with the outside world; that the ten-mile zone had been ceded to be used and occupied for the sole and specific purpose of the construction of the Canal; that the governmental functions of the United States in the Canal Zone were to be confined to the maintenance of public order and the administration of justice. In other words, the American Government’s functions in the zone were to be confined to that which would be strictly necessary to carry out the original purpose of the construction of the Canal and should not include as a result the converting of the zone into a competing entity which by reason of its privileged geographical position and its colossal backing would have destroyed the commercial and economic privilege of the Republic of Panama.

The official correspondence of the time shows how lively was the debate that took place. To the Panamans the interpretation of the Canal treaty as given by the zone authorities, was a question of life or death. The Panamans, therefore, upheld its cause with ardor. The Government of the United States did not turn a deaf ear to the [Page 642] claim of Panama in the diplomatic controversy. President Roosevelt made the solemn declaration that the United States “had not the slightest intention to establish an independent colony in the midst of the State of Panama” and ordered Mr. Taft to visit the Isthmus.

After laborious negotiations the Taft Agreement was effected in December, 1904.11 This agreement determines the juridical status of the Canal Zone. No foreign merchandise of any kind or any origin could be imported into the Canal Zone without paying to the Republic of Panama the proper customs duties unless it was imported by the Government of the United States for the Canal and its employees. Shipments of merchandise for zone harbors were to be cleared by consuls of Panama abroad. The post offices of the Canal Zone are operated as domestic American post offices; but postage is paid by means of stamps of the Republic of Panama surcharged “Canal Zone” and these stamps are bought from the Republic of Panama at a discount from their face value. Finally, at a time when the Canal Zone was inhabited by a civilian population, the natural products of the soil which were exported from the zone paid export duty to the Republic of Panama.

All these stipulations agreed with the theory of the Panaman Government that the jurisdiction of the Canal Zone, from an international point of view—that is to say, insofar as exports and imports are concerned—never ceased to belong to the Republic of Panama. Panama always maintained that its jurisdiction over the foreign commerce never was transferred by the Canal treaty, since the object of the treaty was to give to the United States all that was necessary for the construction, maintenance, operation, sanitation, and protection of the Canal, but nothing more; and it further insists that in order to achieve those ends the United States does not and never did need to convert the Canal Zone into a colony or international entity to deal a deadly blow to the very nation which rent apart its territory so as to facilitate the opening of the great maritime highway which was of such vital importance to the commerce of the world and to the strength and safety of the United States, considered as a great world power.

For the Republic of Panama the Taft Agreement further constitutes a sort of legalization of the occupation by the United States of the terminal ports of the Canal—namely Ancon or Balboa on the Pacific, and Cristobal on the Atlantic. Those ports, as above stated, were not ceded by Panama under the Canal treaty, because, notwithstanding Señor Bunau-Varilla’s note, the binding force of which was very questionable, those ports were the “ports adjacent” to the [Page 643] cities of Panama and Colon and were specifically excluded from the Canal Zone by article II of the treaty.

Although it is true that the Taft Agreement succeeded in solving fundamental problems, and that insofar as those problems are concerned, it constitutes a happy interpretation of the treaty, it is also a fact that since 1904 there have arisen a number of controversies touching the application of certain clauses of the Canal treaty, and Panama has reached the conclusion that it is necessary once for all to arrive at an agreement that will rid the treaty of its indefinite character in regard to the sum of the concessions which the Republic is bound to make. According to the letter of the treaty Panama appears to be bound indefinitely to give the land and water that may be necessary for the construction of the Canal. According to the letter of the treaty, under the notoriously unjust interpretation put upon it by some of the officials of the Canal Zone, Panama appears to be bound to accept the prices of 1903 for the land or property taken from its inhabitants 20, 50, or 100 years later, but justice points to the fact that the construction of the Canal is now completed and that it has been in satisfactory operation since 1913; that the fortifications of the Canal have also been erected and that therefore these vague, indefinite, and unilateral clauses may not stand permanently and the time has now come to stipulate and join in formal declaration, that the United States has finally taken all the land and property needed for the construction, conservation, operation, sanitation, and protection of the Canal.

The differences that have taken place frequently sprang from the fundamental fact that while the Republic of Panama holds that the use, occupation, and control of the Canal Zone were granted for the specific ends of the construction of the Canal and that the Canal did and does mean to the United States something higher than a mere investment of capital with a speculative object, yet some of the officials who have been in charge of its government seem to labor under the impression that it is a mere business which must yield profits and from which they proposed to draw profits without taking into account, or giving consideration to, the interests of the Republic of Panama, which underwent such heavy sacrifices when it signed the treaty of November 18, 1903.

Although it is true that the Republic has achieved a perceptible amount of progress and welfare from 1903 to the present day, it is clear that this is not entirely due to the building of the Canal, as is shown by the example of other nations, and other places within the Republic itself, which in the same period have also achieved progress and welfare without being close to the Canal works.

[Page 644]

Panama had reason to hope for progress and development much greater than that which took place within its territory, but the exaggerated millions which were to circulate in Panama proved nothing but a delusion. The millions that have been spent in the construction of the Canal remained in the United States and a negligible portion only remained in Panama. The reason for this is that the work of the Canal was carried to completion in a manner which did not give Panaman trade and capital a chance to derive large benefits from the construction of the Canal. The traders found that their business was enormously hurt by the extraordinary development given to the railway or Canal commissaries where the employees and laborers of the Canal may buy anything from necessities to luxuries; also the large smuggling that has been practiced in articles bought from the commissaries and post exchanges with the knowledge and connivance of the American authorities, who in many instances have refused to apply the remedies suggested by the Panaman authorities to do away with smuggling. The houserenting business has not developed to the extent that it might have developed on account of the enormous number of houses built by the Canal authorities to rent not only to the employees ofthe Canal but also to a large proportion of its laborers, and which now, in spite of the protests of Panama, are for rent to the general public. The hotel business is in a deplorable condition on account of the ruinous competition of the Washington Hotel at Colon and the Tivoli Hotel at Panama which prevents private capital from successfully engaging in that business in the presence of so formidable a competitor as the Government of the United States. The laundry business, which it was hoped would furnish abundant work for the women of the country who might try it in a small way and private capital that engaged in it on a larger scale and with machinery within the cities of Panama and Colon, is also breaking down on account of the large laundries established in the Canal Zone. The business of supplying provisions and stores to vessels passing through the Canal has fallen exclusively into the hands of the Canal authorities, in flagrant violation of the Taft Agreement, which only permits the United States to supply ships with coal and oil for fuel. It is only in the last two years, and under great restriction, that private persons of Colon have been allowed to do business with the vessels that pass through the Canal. Even the business of affording amusement to the public has been injured by official competition. The Canal Administration keeps in the zone moving-picture theaters and other kinds of public amusements which it was hoped could have been made the business of persons residing in the cities of Panama and Colon, to whom undertakings of that kind would have meant a large amount of prosperity. [Page 645] The railway company, which is operated as a private undertaking when it is engaged in certain activities, but which insists that it is the Government of the United States itself when it comes to paying taxes, has invaded the most varied fields of business. The railway company runs commissaries, stables, garages, express service within the cities of Panama and Colon, dairies, bakeries, poultry raising, cattle raising, hog raising, slaughtering, cold storage plants, soap manufactories, laundries, coffee-roasting plants, sausage and canned goods factories, blacksmith shops, carpenter and cooper shops, to say nothing of its enormous business of collecting land rents on the lots which it owns in the cities of Panama and Colon.

Yet, however discouraging these conditions may be, the people of Panama show themselves profoundly alarmed by the greater extent the Canal authorities appear to intend to give to the activities of the Canal and the railway company through their plan to have the Taft Agreement superseded by some other agreement which would enable them to make of the Canal an undertaking even more flourishing than it is at present, to the detriment of the Republic of Panama. Although the Taft Agreement does not constitute all that could be desired by Panama it does recognize to a certain point the fiscal jurisdiction of Panama over the Canal Zone, and it prevents the said zone from being opened to the commerce of the world and a situation which President Roosevelt said was beyond the intention and purpose of the United States from being created in this way. If, therefore, the Canal authorities contemplate establishing an independent colony in the midst of the Republic of Panama in spite of the solemn assurances given to the people of Panama by President Roosevelt that the United States did not intend to establish such a colony or do anything that might injure or endanger its legitimate interests and rights, the Government of Panama cannot agree to any amendment of the Taft Agreement likely to bring about such results.

Panama claims as a right derived from the Canal treaty, and confirmed by the Taft Agreement, jurisdiction over the foreign trade of the Canal Zone.

It is proper to remark that the zone has not been sold, transferred, or alienated by the Republic of Panama to the United States in full ownership. The wording of the treaty is very clear. That which was ceded is the use, occupation, and control of the zone for the specific needs of the construction, conservation, operation, sanitation, and protection of the Canal. If the Canal were abandoned by the United States the United States would have no legal ground for occupying the zone, title to which it has not acquired either by purchase, transfer, or conquest. Further, the Canal Zone has not been even leased to the United States because the annual payment of two hundred and fifty [Page 646] thousand dollars which it undertook to make under the Canal treaty was not stipulated as a fee for the use of the zone. That payment constitutes merely a compensation for the concession by the Republic of Panama of its rights to collect that amount from the railway company and other rights which it had on the same concern under the contract entered into with that company and the Colombian Government, whose place was taken by the Panaman Government when secession was achieved. The company, under the contract, paid that annuity to the Government, and if there had been no Canal treaty either Colombia or Panama would have continued to collect it.

The Government of Panama is not informed of the amendments which Your Excellency’s Government, by means of the suggestions of the Canal authorities, intends to propose in the new agreement which is to take the place of the Taft Agreement. Therefore the Legation is not in a position to express any opinion whatsoever on the subject until those intentions are known. It is, however, proper to inform the Department of State that the Government of Panama indulges the hope of settling by means of a protocol or in some other manner the various questions concerning which I spoke in the note I had the honor to address to Your Excellency on the second of April, 1921.12 The questions dealt with in that note were the following: Concessions of more land for the work of the Canal; necessity of determining the extent of land needed for the Canal; concession of land for fortifications; method of appraising the land condemned for the Canal; legal status of the railway company concerning (a) land in the city of Colon, (b) water and sewer tax on the land of the railway company, (c) payment of general tax by the company, and (d) the differential tariff set up by the railway to the injury of the Panaman trade; the very important question of the commissaries, with especial reference to (a) the introduction of luxury articles, (b) smuggling, and (c) sales to vessels passing through the Canal; the question of facilities for maritime transportation; the question of foreign companies established in the Canal Zone; the question of manifest fees; and finally the question of the cemetery for the city of Colon.

Besides these, there are other questions concerning which Panama also desires to arrive at some understanding or settlement tending to secure its rights and aspirations. Among these are the question of the renting of houses in the Canal to private persons; the establishment of storage warehouses in the Isthmus; the concession of facilities to the merchants of Colon and Panama in supplying stores and other material to ships passing through the Canal; the establishment of Panaman customs stations in the terminal ports of the Canal [Page 647] for the clearing and examination of merchandise, baggage, and passengers for the cities of Colon and Panama; the regulation and effectiveness of the passport formalities in cases of persons going to the territory of the Republic through the ports of the Canal Zone; the operation of the Volstead law in the Canal Zone so as not to hamper the free traffic through the zone and Canal ports between Panama and foreign countries and between various points of the Republic; the control of wireless communications within the territory of the Republic; the proper delimitation of the functions exercised by the health service in the cities of Panama and Colon in order to avert conflicts between them and our laws and public officials; the settlement of the difficulties pending with regard to the collection of the tax by which the costs of the water pipes and sewers laid in the cities of Panama and Colon for the account of the Republic are to be paid; and the question of land communication between those cities and the rest of the Republic.

Panama wishes to give the most emphatic expression of its wish to cooperate with the Government of the United States in all that may be necessary to secure the efficacious operation of the Canal as well as its full protection; but the people and Government of Panama expect the United States when proposing the new agreement to be animated by the same spirit of cordial friendship which inspired President Roosevelt and Secretary Taft at the time the Taft Agreement was effected.

Concessions which in practice mean nothing to the United States are to the Republic of Panama, on account of its size and the state of its development, questions of life or death. I may be permitted to recall, and I do so without any malice, that the United States paid twenty-five million dollars to Denmark for three small islands, barren for the most part, and whose area does not exceed 138 square miles, while the Canal Zone and the auxiliary waters cover a surface of 462 square miles. I will be allowed to recall the payment of twenty-five million dollars by the United States to Colombia, the nation which stood in firm opposition to the construction of the Canal, while Panama received ten million dollars under the treaty which assured its construction, the treaty which involves concessions amounting for Panama to actual sacrifices. In referring to the generous attitude of the United States towards other nations, I am not actuated by any sentiment of envy or greed, but simply by the wish of expressing our hope that Your Excellency’s Government may be inspired in the course of its negotiations with the same spirit of magnanimity through which the glorious American nation has taken the lead of the great powers of the earth.

In entering upon these negotiations, Panama does not wish or intend to assume the attitude of a nation whose interests are antagonistic [Page 648] to those of the United States. We wish to deal with Your Excellency’s Government openly and frankly as true allies and staunch friends of the United States, and with hope to be treated likewise by a nation that can afford to be not only just but also generous.

I take [etc.]

R. J. Alfaro
  1. File translation revised.
  2. See Foreign Relations, 1903, pp. 224 ff. and 689 ff.
  3. See ibid., pp. 132 ff. For text of the Hay-Herran treaty, see Diplomatic History of the Panama Canal (S. Doc. 474, 63d Cong., 2d sess.), p. 277.
  4. Foreign Relations, 1904, p. 543.
  5. Arts. ii and in of the Hay-Herran treaty provided for a term of one hundred years, not ninety-nine years as here stated.
  6. Not printed.
  7. Foreign Relations, 1904, p. 608.
  8. See ibid., p. 586.
  9. Foreign Relations, 1904, p. 640.
  10. Foreign Relations, 1922, vol. ii, p. 751.