Papers Relating to the Foreign Relations of the United States, 1923, Volume II

611.1931/57b

The Secretary of State to the Panaman Minister ( Alfaro )

Washington , October 15, 1923 .

Sir: The questions raised in your note of January 3, 1923, have received the most careful consideration. You discuss the negotiation of the Treaty of November 18, 1903, the Taft Agreement, and the situation at present existing in Panama, and list certain controversial matters which you feel should be adjusted.

Before presenting the views of this Government upon the various points treated in your note, I desire to emphasize the fact that this Government is animated only by the friendliest feelings towards Panama and desires to arrive at a satisfactory agreement with your Government on all matters in controversy. However, I must remind you of the vast extent of the enterprise undertaken by this Government in providing for the construction, operation and protection of the Panama Canal. It is manifest that before entering upon such an undertaking this Government had to be sure that it obtained adequate rights in the Zone and that the protection of the Canal in the future was appropriately secured. For this purpose the Canal Treaty of 1903 was made and was later supplemented by the Boundary Convention of 1914.¹³ To meet certain administrative exigencies during the period of the construction of the Canal, the administrative arrangement known as the Taft Agreement was effected. This arangement, however, was of a temporary nature in order to serve more conveniently the situation then existing and it was expressly declared that in no wise did it affect the rights of either party to the Treaty of 1903. That Treaty forms and must continue to form the basis of the relations between the United States and Panama and provides the safeguards for the future which were deemed by this Government to be of controlling importance in making the decision to construct the Canal.

I shall reply to your observations seriatim.

You state that the Treaty of November 18, 1903, was negotiated and concluded in a hasty manner without waiting for the arrival of the Panaman Commissioners who had been sent to negotiate and sign the Treaty, and that contrary to general expectation various modifications were introduced which minimized the advantages to Panama as compared with those which would have accrued to Colombia in the proposed canal treaty between that country and the United States. I beg to call your attention to a telegram of November 6, 1903,¹⁴ addressed to the Department of State by Messrs. J. M. Arango, Tomas Arias, and Federico Boyd, members of the Junta of the Provisional Government of Panama, and countersigned by Señor F. V. de La Espriella, Minister of Foreign Affairs of the Provisional Government, stating that the Provisional Government of the Republic of Panama had appointed Señor Philippe Bunau-Varilla as Envoy Extraordinary and Minister Plenipotentiary near the Government of the United States with full powers to conduct diplomatic and financial negotiations, and requesting that he be received and heard in that capacity, and also to the letter addressed by Messrs. Arango, Boyd and Arias to the President of the United States on November 9th,¹⁵ informing him that the Junta had resolved to accredit Señor Philippe Bunau-Varilla as Minister Plenipotentiary and Envoy Extraordinary to the Government of the United States, sufficiently authorized to celebrate public treaties with this Government. The letter requested the President to be pleased to give entire faith and credit to whatever might be represented to him by Señor Bunau-Varilla in the name of Panama and of the Junta personally. On December 3, 1903, Señor Bunau-Varilla transmitted to the Department of State a letter addressed to the Secretary of State by Señor Espriella on November 9th confirming the appointment of Señor Bunau-Varilla,¹⁵ first as confidential agent of the Provisional Panaman Government and then as Envoy Extraordinary and Minister Plenipotentiary to the United States. The American Consul at Panama telegraphed to the Department of State on November 11, 1903:¹⁶ “I am officially informed that Bunau-Varilla is the authorized party to make treaties”.

I would, furthermore, direct your attention to the note addressed to the Secretary of State by Señor Bunau-Varilla on November 27, 1903,¹⁵ informing him that he had been authorized by a cablegram signed by the three members of the Government and countersigned by the Minister for Foreign Affairs to declare to the Government of the United States that the Treaty of November 18, 1903 would be ratified by the members of his Government and their signatures imposed upon it as soon as the document reached the Isthmus. He stated that “the Government of the Republic of Panama further adds that this decision is taken in view of the approval of the Treaty by the delegates who came to Washington after the signature of said Treaty, and who could, therefore, judge its stipulations in a perfectly independent spirit.” In this connection, reference may also be made to Señor Bunau-Varilla’s note to the Secretary of State of December 3, 1903, detailing his requests to the management of the Panama Railroad Steamship Line to have it delay the sailing of its steamer Yucatan from Colon for thirty-six hours after the arrival there of its steamship City of Washington bearing the Treaty, in order to permit its being ratified and despatched back to Washington.

On December 10, 1903, Señor Bunau-Varilla addressed a note to the Assistant Secretary of State¹⁷ urging the ratification of the Treaty by the United States as soon as possible without waiting for the adoption of a Constitution by Panama, and this affords additional evidence of the desire of Panama to expedite the conclusion and ratification of the Treaty. Moreover, the Treaty was afterwards submitted to the proper authority of Panama for ratification and its ratification formally and conclusively gave approval to the Treaty. Finally, I desire to call your attention to the note addressed to the Secretary of State by Señor Bunau-Varilla on January 6, 1904,¹⁸ informing him that he had received from his Government an extract from the Gaceta Oficial of December 16, 1903, in which the Municipalities of Buenavista, Portobelo, David, Las Palmas, La Mesa, Toboga, Gatun, Rio-Jesus, San Francisco,.and the citizens of La Mesa, Sona, and Rio-Jesus gave “in the warmest terms the expression of their satisfaction of the signature of the Convention of the 18th of November last, referring to the Panama Canal.” He added “this completes the list of the elective bodies of the Republic, which have all expressed their unconditional approval of the Treaty and of its ratification by the Panaman Government. I must say that this expression of opinion is in harmony with the satisfaction of the whole country which was made conspicuous at the recent election, where, for the first time in the history of the State of Panama every citizen has been at liberty to perform his duty according to his conscience.”

The Treaty was thus ratified after it had been unanimously approved not only by the Commissioners but by all the municipalities and elective bodies of the Republic and by the votes of its citizens as well, and the grounds for your objections on this point would not appear to be well founded.

With regard to your statement that Article VI of the Treaty providing for the compensation for property taken by virtue of the provisions of the Treaty for use in the construction, maintenance, operation, sanitation and protection of the Canal has been “used for interpretations by American officials which on more than one occasion took the shape of palpable injustice to Panaman claimants”, and that “according to the law 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 twenty, fifty or one hundred years later”, I beg to point out that the provisions of Article VI of the Treaty are clear and explicit with regard to the right of the United States Government to compensate for land so taken at its value prior to November 18, 1903. The treaty provides: “The appraisal of said private lands and private property and the assessment of damages to them shall be based upon their value before the date of this Convention”. There are no differences between the Governments of the United States and Panama which are not possible of adjustment in a manner satisfactory to both when approached in a friendly spirit, but this Government cannot consider questions broached through such general allegations against its officials as those contained in your statement that they have made notoriously unjust interpretations of the Treaty. This Government is at all times willing to take up any cases suitably presented which seem to require remedial action and also to receive the views of the Panaman Government and to discuss with it any matters which the latter feels may be better arranged, but broad assertions impugning the character and attitude of its responsible officials cannot be entertained.

With regard to your statement that it was the general impression in Panama that there would be compensation for the concessions given to the United States under the Canal Treaty in the great welfare, progress, and general development that would follow the construction of the Canal and the investment of millions of dollars needed in that work, and that Panama has not realized those benefits, I can merely express my surprise as it is a well-known fact that the Canal has brought enormous prosperity to the Republic of Panama.

You quote from a letter from President Roosevelt to Mr. Taft, dated October 19, 1904,¹⁹ in which he stated “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”.

In making this statement President Roosevelt undoubtedly gave expression to the policy of this Government,—a policy to which it has closely adhered—but the statement will not admit of such a broad construction as to imply any intention on President Roosevelt’s part to limit the rights definitely accorded to this Government by the Treaty of 1903. In the approaching negotiations it is hoped that a solution will be found for the problems arising out of the construction, maintenance, operation, sanitation and protection of the Canal, and this Government will be glad to give attentive consideration to any proposals advanced by the Government of Panama for the attainment of these necessary objects.

With respect to your statement that the people of Panama were greatly alarmed at the occupation by the United States of the ports of Ancon and Cristobal, as they had not understood that the Canal Treaty would cause them to lose these two ports, and that the Taft Agreement was caused by this fear on the part of Panama, I desire to call your attention to the fact that the right of the United States to occupy those ports was recognized by Mr. Bunau-Varilla, Panaman Minister to Washington, in a note addressed to the Secretary of State on January 19, 1904,²⁰ and that this was confirmed by the Minister of Foreign Affairs of Panama. I desire also to point out to you that Ancon and Cristobal were within the Canal Zone when it was occupied by the United States and temporary government over it was assumed by Major-General George W. Davis, on behalf of the United States, on May 19, 1904, as is shown by the Conventions signed June 15, 1904,²¹ temporarily delimiting Panama, Colon and the Canal Zone, by General George W. Davis, Governor of the Canal Zone, Señor Tomas Arias and Señor Valdes Lopez, Secretary of State and Attorney General of the Republic of Panama, respectively. Furthermore, I must remind you that the Boundary Convention of 1914 in its provisions relating to these ports definitely settled this question for all times. There is, therefore, no room for discussion on this point.

Referring generally to your statement that while 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, Panama maintains that jurisdiction over foreign commerce of the Canal Zone was not transferred, I may refer to the explicit provisions of Article III of the Treaty of 1903, as follows:

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

The grant to the United States of all the rights, power and authority which it would possess if it were sovereign of the territory described, and to the entire exclusion of the exercise by Panama of any such sovereign authority, is conclusive upon the question you raise. The position of this Government upon this point was clearly and definitely set forth in the note of Mr. Hay to Mr. de Obaldia of October 24, 1904.²²

As regards your statement that the Taft Agreement determines the juridical status of the Canal Zone, I beg to point out to you that, as is clearly shown in the correspondence, the Taft Agreement was a temporary arrangement to meet the situation during the time of the construction of the canal, and that Section 12 of the Executive Orders of December 3, 1904, being the first of the Executive Orders embodying the Taft Agreement, specifically states that its operation and enforcement by officials of the United States on the one hand, or a compliance with and performance of the conditions of its operation by the Republic of Panama and its officials on the other, shall not be taken as a delimitation, definition, restriction, or restrictive construction of the rights of either party under the Treaty between the United States and the Republic of Panama. By the Taft Agreement the United States voluntarily waived for the temporary period of the construction of the canal the exercise of certain of the rights which were given it by Article III of the Treaty. This was a temporary waiver, however, and Section 12 of the Executive Order, just referred to, specifically shows that it in no wise impaired the rights of the United States under the Treaty.

If Panama enjoys special privileges by this temporary arrangement over and above those reserved to her by the Treaty, as your statements clearly imply she does, it should be remembered that these concessions have now continued in force for a considerable period within which my Government has clearly had a right to terminate the Agreement. This is mentioned merely for the purpose of emphasizing the fact that in all of my Government’s dealings with Panama it has not only applied the principles of equity, but has acted in a generous spirit.

With respect to your statement that no foreign merchandise of any kind or of 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, I beg to direct your attention to Article XIII of the Treaty of 1903, which granted the United States the right to import at any time into the Canal Zone “free of custom duties, imposts, 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”. This provision, which referred to importations through Panaman territory, was necessary because at that time the ports of Ancon and Cristobal had not been sufficiently developed and all importations for the Canal Zone had perforce at that time to pass through Panaman territory. With the development of the ports of Ancon and Cristobal this provision was unnecessary, as importations into the Canal Zone no longer had to pass through Panaman territory, but were landed directly in the Zone. Nevertheless, for the period of the construction of the canal, the United States waived, by the Taft Agreement, the right which it had to bring any goods which it desired into the Canal Zone and agreed to limit such importations during the life of that arrangement to those articles described in Article XIII of the Treaty of 1903. Any possible question as to Ancon and Cristobal being in the Canal Zone was, as mentioned above, definitely settled by the 1914 Treaty. Therefore, upon the abrogation of the Taft Agreement this temporary waiver of the right to import goods into the Canal Zone will be at an end, and the United States will again be in the full exercise of its rights under Article III and the other provisions of the Treaty of 1903.

Regarding your statement that by the Taft Agreement shipments of merchandise for Zone harbors were to be cleared by Consuls of Panama abroad, I beg to invite your attention to the provisions of Section 3 of the Executive Order of December 3, 1904, which provides as follows:

“All manifests and invoices and other documents in respect to vessels or cargoes cleared or consigned for or from the ports of Panama and Colon shall, as heretofore, be made by the officials of the Republic of Panama. All manifests, invoices, and other documents in respect to the vessels and cargoes cleared or consigned for or from the ports of Ancon or Cristobal shall be made by officials of the United States.”

This Section of the Taft Agreement is merely declaratory of the rights of the United States under the 1903 Treaty, and the abrogation of the Taft Agreement will, therefore, bring about no change in this matter.

You are correct in your statement that the post offices of the Canal Zone are operated as domestic American post offices, but that, under the Taft Agreement, postage is paid by means of stamps of the Republic of Panama surcharged “Canal Zone”, bought from the Republic of Panama at forty per cent of their face value. This was a concession made to Panama during the life of the Taft Agreement and will, of course, terminate with its abrogation.

As regards your statement that at the time when the Canal Zone was inhabited by a civilian population the natural products of the Zone which were exported from the Zone paid export duty to the Republic of Panama, I beg to state that the Canal authorities have always cooperated with Panama regarding the export of, and the collection of export taxes on, products which have their origin and growth in the Republic of Panama and are exported through Canal ports. The Canal authorities, however, I am informed, have never recognized the right of Panama to impose export taxes or any other taxes on the natural products of the soil of the Canal Zone, nor has collection of any such taxes ever been permitted or payment required at the time of exportation. It is, of course, not impossible that some exporters voluntarily paid export taxes on bananas or other products of the soil of the Canal Zone when exported with similar products grown in the Republic of Panama, although such taxes were not required by the Canal authorities nor was the right of Panama to collect such taxes recognized by them. As a matter of fact, I am informed that there is no record in the Canal Zone administration of any correspondence between the Canal and the Panaman Government in which the latter has claimed the right to impose such taxes on the products of the soil of the Canal Zone. Article III of the Treaty of 1903 is most explicit on this matter and does not leave any grounds for discussion on this point. Also, as supporting the position of the United States in this matter, I would call your attention to laws Nos. 65 and 88, enacted by the Panaman Assembly on June 6, and July 5, 1904, respectively, and to two rulings of the Supreme Court of Panama in the case of J. N. Gris vs. The New Panama Canal Company and the case of Carlos Carbone vs. Juan Escoval, rendered on January 20, 1905, and January 25, 1905, respectively.

Articles 1 and 2 of the law No. 65, of June 6, provide as follows:

• “Article 1. The executive power is authorized to abate, in a convenient manner, those duties which, if still levied in accordance with the existing laws, will be prejudicial to commerce and to the people, because said laws are very different from those which the Government of the United States will establish in the Canal Zone.
• “Article 2. The executive power is likewise authorized to celebrate with the Government of the United States a convention relative to the duties which will be levied in the Canal Zone and in the cities of Panama and Colon, in order that they may be identical in one and the other places. The convention will remain in force until such time as, being submitted to the National Assembly, that body should disapprove it.”

Article 23 of Law 88 of July 5, is in the following terms:

“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 be introduced in the Zone ceded to the United States, in his opinion, requires it.”

The Supreme Court in its decision in the case of J. N. Gris vs. The New Panama Canal Company makes the following statements:

“Therefore, if in conformity with this provision, the Republic of Panama agreed to grant to the United States, within the Zone described in Article II and within the limits of all auxiliary lands and waters mentioned, all the rights, power and authority that it, while sovereign thereover, had; and if, moreover, the Republic of Panama agreed that the United States should possess and exercise, to the entire exclusion of the Republic, those rights, powers and authority, that is to say, the rights, power and authority that a sovereign alone can have, it seems clear that the United States has the right to administer justice in the Canal Zone absolutely regardless of the Republic of Panama in so doing. If the provisions made in Article III should fail to be sufficient, though this be not the case, to establish the right of the Government of the United States to organize the Judiciary of the Canal Zone to the exclusion of the Republic of Panama, the text of Article 16 of said contract will dispel all doubt with respect thereto. Said Article is as follows: ‘The two governments shall make adequate provisions by future agreement for the pursuit, capture, imprisonment, detention and delivery within the said Zone and auxiliary lands to the authorities of the Republic of Panama of persons charged with the commitment of crimes, felonies or misdemeanors without said Zone and for the pursuit, capture, imprisonment, detention and delivery without said Zone to the authorities of the United States of persons charged with the commitment of crimes, felonies and misdemeanors within said zone and auxiliary lands.’ This provision simply provides that the two governments make an agreement of extradition, limiting the same in so far as the United States is concerned with respect to the Canal Zone and auxiliary lands, which agreement would have no end or meaning if the authorities of Panama should exercise jurisdiction in said zone and auxiliary lands.

“Moreover, in spite of the facts given above, that is to say, that rights of the United States to organize, to the exclusion of the Republic of Panama, the Judiciary of the Canal Zone and auxiliary lands mentioned in Section II; it is true that neither the contract of November 18, 1903, the provisions of which have given rise to the appeal under consideration, nor the Colombian laws now in force in Panama, nor the decrees issued by the Junta de Gobierno also in force, nor the laws promulgated by the National Assembly, confer upon the Judiciary of the Republic the right to decide which of the cases that were triable before them prior to the American Government taking possession of the Canal Zone, it has ceased to have jurisdiction over, nor to say which of such cases should be transferred to the authorities of the Zone for trial; and, as on the other hand, Article 159 of Law 58 of last year, prohibits ‘officers of the Judiciary to exercise rights which have not been expressly and clearly conferred upon them by the Constitution and the Laws’ the Court declines to consider the sentence appealed, which it does in the administration of justice and in the name of the Republic and under authority of the Law.”

Again the Supreme Court in rendering the decision in the case of Carlos Carbone vs. Juan Escoval made these statements:

“The Judge considers that he has no jurisdiction in the aforesaid case as it involves a parcel of land situated in the Canal Zone, which, by virtue of the Treaty of November 18, 1903, the Government of the United States came in possession of; though the Attorney General of the Nation holds that in spite of the provisions of said Treaty the Republic maintains its right of eminent domain in said Zone, and that therefore the Judges of Panama have not lost their jurisdiction in cases triable by them prior to the American Government coming in possession of the Canal Zone, though such cases may cover real-estate situated therein.”

In view of the Treaty provisions before referred to, the provisions of Article 3 of the Panaman Constitution, the laws passed by the Panaman Assembly, the decisions rendered by the Supreme Court of Panama, and certain acts of the executive branch of the Republic of Panama in the matter, the question of the exercise of jurisdiction by the Panaman Government over the Canal Zone, as stated in Mr. Hay’s note of October 24, 1904, to Mr. Obaldia, can no longer be considered as open to discussion between the two Governments.

Regarding your further statement that for the Republic of Panama the Taft Agreement constitutes a legalization of the occupation by the United States of Ancon and Cristobal, as those ports were not ceded by Panama under the Canal Treaty, I can only repeat what I have said above concerning these ports having been recognized by Señor Bunau-Varilla in his note of January 19, 1904, as being within the Canal Zone. Nevertheless, should any question on this point still have subsisted after the sending of that note, it would appear to have been definitely and forever settled by the Treaty of September 2, 1914.

Regarding your observations concerning the activities of the Canal commissaries, I beg to call your attention to Article XIII of the Treaty which permits the United States to import free of duty through Panaman territory into the Canal Zone 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, and to the provisions of Section 1 of the Executive Order of December 3, 1904, by which the United States, while temporarily waiving its right under the Treaty to bring into the Canal Zone directly any goods which it might desire, nevertheless, maintained the right to import for its employees, workmen and laborers and their families the supplies mentioned above. If this has perhaps prevented certain merchants of Panama from making profits which they would otherwise have made it is, nevertheless, fully in accordance with the treaty rights of the United States, and it is, therefore, not subject to discussion. You mention the question of luxuries. I may say that there is nothing either in the Treaty or in the Taft Agreement to prohibit the importation of articles that may be called articles of luxury, or to restrict the United States in the importation of whatever supplies and other things necessary and convenient for its officers, employees and laborers.

You make the allegation that smuggling of articles bought from the commissaries into the Republic of Panama has been practiced upon a large scale, and you charge that this has been done with the knowledge and connivance of the American authorities, and you state that they refuse to apply the remedies suggested by the Panaman authorities to do away with this practice. I am constrained to express to you my surprise that you should make a statement alleging the connivance of the American authorities in such practices without adducing any supporting evidence and I am the more surprised because, as I am informed, Panaman officials have been large introducers of commissary articles into the Republic of Panama. The Canal Government has always permitted Panaman officials to buy from the commissaries when this privilege has been requested by the President of Panama. This is not a matter that can be controlled by the Zone officials, but is one which the Panaman Government must deal with itself.

It is, of course, difficult to prevent absolutely the smuggling of goods purchased in the commissaries into the Republic of Panama, but the Canal authorities have always been willing to cooperate in any reasonable manner with the Panaman authorities and have gone so far as to permit the presence in the commissaries of Panaman inspectors to enable them to prevent this traffic.

You allege that the interests of Panaman landlords have been damaged by the construction of houses in the Canal Zone which you state have been rented not only to employees of the Canal and to its laborers but also to the general public. My information indicates that this statement is entirely erroneous. It appears that sometime ago many Canal employees lived in the cities of Panama and Colon because there were not sufficient houses for them in the Zone, and the Panaman landlords profited accordingly. In recent months, however, the operating personnel of the Zone has been greatly diminished so that while there was formerly a large waiting list for houses at both terminals of the Canal Zone there are now vacant houses at both ends of the Canal. As these houses gradually became vacant it was but natural that Canal employees living outside of the Zone should move to the quarters properly provided by the Canal authorities for its officers, employees and laborers in the Canal Zone. However, I am advised that no houses in the Canal Zone have ever been rented to any one not an official, employee or laborer in the service of the United States. I will point out, however, that when the Taft Agreement is abrogated the only obstacle to so renting houses in the Canal Zone will be removed.

You complain of the deplorable condition of the hotel business in the Republic of Panama on account of the Washington and Tivoli Hotels which have prevented private capital from successfully engaging in that business in view of the competition afforded by those hotels. Those hotels were built because private enterprise did not provide suitable accommodations. I am informed that the Hotel Washington, as a matter of fact, was built by verbal order of President Taft when on a visit to Colon because he considered it disgraceful that no better accommodations were available. It was only after private capital had failed to take advantage of the opportunity that the hotels in question were built.

As regards your complaint that the large laundry establishments in the Canal Zone have rendered the laundry business in Panama a precarious financial venture, I would call your attention to the fact that the Canal authorities now maintain one laundry only, namely, the one at Ancon, which is surely not an excessive provision in view of the numerous employees whom it serves. I am informed that the privately operated Colon steam laundry does nearly all of the business afforded by the ships using the Canal, in addition to caring for the needs of a large part of the Canal employees living at that end of the Canal. The success of this privately operated laundry would appear to refute your complaint on this score.

You complain that the business of supplying provisions and stores to vessels crossing the Canal has fallen exclusively into the hands of the Canal authorities, and this you describe as a flagrant violation of the Taft Agreement which, you state, permits the United States to supply ships only with coal and oil for fuel. In answer, I may direct attention to Article XIII of the Treaty of 1903, to which the Taft Agreement refers, which allows the importation without any restriction of all materials, supplies and other articles necessary and convenient for the operation of the Canal. Ships cannot go through the Canal without proper supplies. They are absolutely necessary. The local merchants will not, I am told, supply the needs of the ships using the Canal, as there are a great many supplies on which there is small profit and there is a possibility of considerable loss through spoiling, et cetera. There are, however, a number of local merchants who handle such business as they care to handle, and when a local merchant gets the contract for furnishing supplies to a ship he frequently purchases a considerable portion (that portion on which he cannot make what he considers an adequate profit if he handles it himself) from the commissaries. If the commissaries did not permit their stocks to be available for ships there would be many articles that ships would not be able to purchase from the local merchants. The Canal officials, I am informed, do not solicit business from ships passing through, but they always keep necessary supplies for the convenience of any ship whose officers or agents wish to purchase them.

As a matter of fact, the local merchants enjoy extraordinary privileges in this business, as they are permitted to use without charge the Railway Company’s docks for delivering goods in competition with the Railway Company itself. I understand also that the business done with ships by these local merchants is much larger as compared with the Canal’s similar business than would be understood from your statement.

You complain of the action of the Canal authorities in providing cinema theaters and other kinds of amusements for its employees to the detriment of persons conducting similar enterprises in the cities of Panama and Colon. The provision of these amusements was made for two reasons, first, to bring them nearer to the residences of the Canal employees, and, second, to offer their families places of recreation free from some of the conditions existing in Panama and Colon.

As regards your further statement that the Railway Company is operated as a private undertaking when engaged in certain activities, but insists that it is the Government of the United States when it comes to paying taxes, I would remind you that the Railway Company is exempted from paying taxes to Panama by virtue of Article VIII of the Treaty of 1903, by which the United States was granted all rights which Panama acquired in the Panama Railway Company as the result of the transfer of sovereignty from the Republic of Colombia to the Republic of Panama over the Isthmus of Panama, and by virtue of the provisions of Article X of the Treaty of 1903, which stipulates that “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” employed in the service of the Canal. Under its concession the Railway Company paid the Republic of Colombia $250,000 per year in lieu of taxes, and after the 1903 Treaty went into effect these payments were, in accordance with Article VIII of the Treaty, made to the United States Treasury until an Act of Congress (H. R. 25552, approved June 25, 1910) relieved the Railway from so doing. This point is admitted by you later on in your note when you state that the $250,000 paid annually by the United States to Panama is “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.” You go on to say that 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. This would appear conclusively to dispose of your contention on this point.

The other enumerated activities of the Railway Company of which you complain are carried on by the Railway Company as being necessary and convenient for the officers, employees, workmen and laborers in the service and employ of the United States and for their families.

With regard to your statement that although the Taft Agreement does not constitute all that could be desired for Panama it does recognize to a certain point fiscal jurisdiction of Panama over the Canal Zone preventing it from being open to the commerce of the world, and to your further assertion on the part of Panama of a right derived from the Canal Treaty, confirmed by the Taft Agreement, of jurisdiction over the foreign trade of the Canal Zone, I would again point out that Article XIII of the Treaty allowed the United States to import into the Canal Zone through Panaman territory, free of all Panaman imposts, taxes, or other charges, all machinery, material, tools, supplies, et cetera, necessary for the construction, maintenance, operation, sanitation and protection of the Canal. By Section 1 of the Taft Agreement the United States stipulated that it would not import any goods into the Canal Zone at Ancon or Cristobal, except those mentioned in Article XIII of the Treaty. So long as the Taft Agreement remains in effect, the right of the United States to import directly into the Canal Zone at Ancon and Cristobal all such goods as it may desire, regardless of any restriction, is temporarily in abeyance. The Taft Agreement, however, was clearly understood to be for the construction period of the Canal and that being accomplished it may be abrogated and the United States may then exercise the right of unrestricted importation and other rights which it enjoys under the Treaty of 1903.

You reiterate that the Zone has not been sold, transferred or alienated by the Republic of Panama to the United States in full ownership. For a reply I beg again to refer you to Article III of the 1903 Treaty. You state that the annual payment of two hundred and fifty thousand dollars was not stipulated as a fee for the use of the Zone, and that it constitutes merely a compensation for the concession by the Republic of Panama of its right to collect that amount from the Railway Company and other rights which it had over this concern under the contract entered into with that Company and the Colombian Government. Article XIV of the Treaty stipulates that as the price or compensation for the rights, powers and privileges granted in that 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 in gold coin of the United States on the exchange of the ratification of that Convention and also an annual payment during the life of that Convention of two hundred and fifty thousand dollars in like gold coin, beginning nine years after the date aforesaid. The right to collect taxes from the Railway Company and all other rights over that Company are certainly part of the rights, powers and privileges granted under the 1903 Convention, but they are only a part and a very small part of the rights, powers and privileges for which the initial payment of ten million dollars was made and for which the annual payments of two hundred and fifty thousand dollars were and are being paid.

You mention the following questions which your Government desires you to settle by means of a Protocol or in some other manner:

1. Concession of more land for the work of the Canal.

2. Necessity of determining the extent of land needed for the Canal.

3. Concession of land for fortifications.

4. Method of appraising the land condemned for the Canal.

5. 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.

d. Differences in rates to the detriment of the commerce of Panama.

6. Commissaries, with special reference to

a. Introduction of luxury articles.

b. Smuggling.

c. Sales to vessels that cross the Canal.

7. Facilities for maritime transportation.

8. Foreign companies established in the Canal Zone.

9. The question of manifest fees.

10. Cemetery for the City of Colon.

11. Renting houses in the Canal to private persons.

12. The establishment of storage warehouses in the Isthmus.

13. The concession of facilities to the merchants of Colon and Panama in supplying the stores and other material to ships that cross the Canal.

14. The establishment of Panaman customs stations in the terminal ports of the Canal for the clearing and examination of merchandise, baggage and passengers for the cities of Colon and Panama.

15. 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.

16. 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.

17. The control of wireless communications within the territory of the Republic.

18. 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 the public officials in Panama.

19. The settlement of the difficulties pending with regard to the collection of the tax through which payments should be made for the water pipes and sewers laid in the cities of Panama and Colon for the account of the Republic.

20. The question of land communication between Panama and Colon and the remainder of the Republic.

I shall discuss seriatim these various questions, some of which were brought forward by you on a previous occasion:²³

1. Under the heading of the concession of more land for the work of the Canal you state that the Canal Zone authorities maintain that they can occupy any territory of the Republic and place it under the jurisdiction of the United States without any more formality than a notice to the Panaman Government that they have taken that area for the construction, maintenance, operation, sanitation or protection of the Canal, and you refer to land taken in Las Minas Bay as an example. I must point out that by Article II of the Treaty of 1903, the Republic of Panama granted to the United States the Canal Zone, and, furthermore, granted “in perpetuity the use, occupation and control of any other lands and waters outside of the zone above described which may be necessary and convenient for the construction, maintenance, operation, sanitation and protection of the said Canal or of any auxiliary canals or other works necessary and convenient for the construction, maintenance, operation, sanitation and protection of the said enterprise.” There can, therefore, be no question as to the right of the United States to take such lands for the above purposes as may be necessary and convenient for the purposes described. However, the Canal authorities have signified their readiness to comply with any reasonable requests of the Panaman Government with regard to the formality of occupying such areas. On March 7, 1921, the Executive Secretary of The Panama Canal requested suggestions from the Government of Panama with respect to the modus operandi to be observed in such cases. No reply has as yet been received to that letter. If no satisfactory arrangement has as yet been arrived at, the fault cannot be attributed to the American authorities.

2. Under the heading of the necessity of determining what land is needed for the Canal you list seven different pieces of land outside of the Canal Zone which have been taken by the Zone authorities, and you state that the Canal work having been completed and the land sought for that purpose having been delivered, the concession of such land is now terminated and complied with in fact, and that no further land should be taken, as it places upon all lands and properties of the Republic the burden of sudden condemnation without previous indemnity, and you add that the latent threat of condemnation checks and paralyzes the development of industry and agriculture.

Of the seven tracts of land listed by you only the first two were required for the construction of the Canal, the others being required for its protection and of the latter the proposed acquisition of one has been abandoned. This Government would not decline to discuss with the Panaman Government, at the time of the negotiation of a new agreement after the abrogation of the Taft Agreement, the question of what additional land will in all probability be necessary and convenient for the construction, operation, maintenance and sanitation of the Canal. Such discussion, of course, could only relate to what will in all probability be necessary and convenient for those purposes and would not in any way affect the treaty rights of the United States. As regards the protection of the Canal, however, no such assurance can be given. It is obviously impossible to know what the developments in modern warfare may be within the next generation even, and it is, consequently, impossible to know what additional land may be needed to meet the changed conditions as regards the protection of the Canal.

3. Under the title “land grants for fortifications” you state that the Treaty does not authorize the taking of land by the United States for such purposes and you announce the readiness of the Panaman Government to conclude a special convention relative to granting such land as may be needed for that purpose in return for equitable compensation, and you inquire whether Article XXV of the Treaty does not perhaps cover this point.

In reply, I must call your attention to Article II of the 1903 Treaty which clearly gives the United States the right to take land for the building of fortifications. It specifically states 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” and “any other lands and waters outside of the zone above described which may be necessary and convenient for the … protection of said Canal.” Article XXV of the Treaty mentioned by you covers naval and coaling stations on the Pacific coast and on the western Caribbean coast of the Republic, the land for which would be sold or leased to the United States “for the better performance of the engagements of this convention and to the end of the efficient protection of the Canal and the preservation of its neutrality.” This is intended to aid in carrying out the intent of the other engagements of the Treaty but not in any sense to restrict them.

4. “Condemnation of land for the Panama Canal.” Under this heading you maintain that in the case of further acquisition of land for the Canal compensation should not be made at the value in 1903, but that the 1903 value should be taken as a basis or starting point for the appraisement and not as the value itself. Article VI of the Treaty is clear and specific on this point, as already stated above. Should Panama desire to negotiate for a change in this stipulation of the Treaty the United States Government would give careful consideration to any proposals it may care to make.

5. You classify the difficulties arising with the Panama Railway Company under four heads:

a. Regarding lands in the city of Colon you state that the Panama Railway Company has, under a judgment of the Supreme Court of Colombia, only a usufructuary right for a short term of years to these lands, and that they were to have been returned to Panama as soon as the Canal Treaty was approved, and you base this contention on Article VIII of the Canal Treaty.

Article VIII of the Treaty specifies that public lands situated outside of the Canal Zone at that time included in the concession of the Railroad and not required in the construction or operation of the Canal were to revert to the Republic of Panama “except any property now owned by or in the possession of said companies within Panama or Colon or the ports or terminals thereof.” This provision of the Treaty, you will note, specifically exempts all the lands to which you refer from the provision of Article VIII, requiring the return to Panama of lands outside of the Canal Zone not needed for the construction or maintenance of the Canal. Furthermore, a judgment rendered by the Supreme Court of Colombia on March 12, 1891, recognized the right of the Railroad Company in the whole of Manzanillo Island (with the exception of four hectares which now belong to the Republic of Panama), and this land was held to be an absolute property right (not a usufructuary right) for ninety-nine years from 1867. Any reversionary right in that property after 1966, to which the Republic of Panama might have otherwise been entitled, was surrendered by her to the United States under Articles VIII and XXII of the Treaty of 1903.

You further state that the Republic of Panama has been unable to obtain from the Railway Company payment to the Republic of Panama of the taxes which are levied in your country on city lots. I must refer you to Article X of the Treaty of 1903, which stipulates that “the Republic of Panama agrees that there shall not be imposed any taxes, national, municipal, departmental, or of any ether class, upon the Canal, the railways and auxiliary works, tugs and other vessels employed in the service of the Canal, store houses, work shops, offices, quarters for laborers, factories of all kinds, warehouses, wharves, machinery and other works, property, and effects appertaining to the canal or railroad and auxiliary works, or their officers or employees, situated within the cities of Panama and Colon.” Under its concession the Railroad Company paid the Republic of Colombia $250,000 per year in lieu of taxes, and after the 1903 Treaty went into effect these payments were, in accordance with Article VIII of the Treaty, made to the United States Treasury until an Act of Congress (H.R. 25552, approved June 25, 1910), already mentioned, relieved the Railroad from so doing, and, as already stated, your own statement effectually disposes of this contention.

b. Under the head of water rates with regard to the Railroad lots you state that the cost of the work done by the United States in installing the water works, paving and sewerage has been greatly augmented by the building of streets, sewers, and aqueducts in a large part of the city of Colon which the Railroad Company claims to own, and that these were charged to the Republic of Panama and increased the cost of those public services to the injury of the Republic and for the exclusive benefit of the Railway Company, which is collecting large amounts for rent of lots in Colon. Article VII of the Treaty authorizes the United States to collect water and sewer rates in payment of interest and amortization of the principal cost of sanitation in the cities of Panama and Colon. After the amortization of these debts these works will revert to those cities. The streets and sidewalks are a sanitary necessity and those improvements which were actually necessary in carrying out the sanitary measures in the cities of Panama and Colon have been charged to the Panaman Government. I am advised that all other improvements in Colon, including many of the street and alley pavements and sidewalks, were paid for by the Railway Company and the Panama Canal and were in no wise charged to Panama. All of these works have been dedicated to the use of the public, and the fact that they have enhanced the value of privately owned property does not appear to be an argument against the fairness of the dealing of the United States with the Republic of Panama, in accordance with Article VII of the Treaty.

c. Under the caption “duties and taxes” you state that Article XVIII of the contract entered into in 1867 by the Railway Company and the Republic of Colombia, exempts the Company from the payment of duties and taxes on its property of every nature whatsoever belonging to it and needed for the service of the Railroad and its dependencies, and that, therefore, the Railway Company is bound to pay taxes and duties on any other pursuits or property not connected with the Company’s service as a common carrier, as, for instance, rented lots, stables, city express, et cetera.

As already stated above, the Railway Company paid the Republic of Colombia $250,000 a year in lieu of taxes and under Article VIII of the Treaty there was granted to the United States all rights which Panama acquired in the Panama Railway Company as the result of the transfer of sovereignty over the Isthmus of Panama from the Republic of Colombia to the Republic of Panama. The United States subsequently acquired, by purchase, the rights which the Panama Railroad held under its charter from the State of New York. If the Railway Company has to pay any taxes they would be paid to the United States Government and not to Panama.

d. “Differences in rates to the detriment of the commerce of Panama.” You state that one of the reasons why the Canal commissaries can sell goods cheaper than the trades people of Panama is the fact that they receive the lowest possible rates on all goods transported by the Railway Company, and you ask that similar rates be given to Panaman tradesmen.

The commissaries bring in large shipments and normally ship in car load lots. I am informed that the Railway Company will give similar rates to any Panaman merchant who brings in merchandise in large enough quantities, but it is obviously impossible for the Railroad to give the same rate for one or two crates that can be given for full car load lots. This is a practice of railroads the world over, based on economic necessities, and I therefore fail to see that Panaman merchants have any cause of complaint.

6. Commissaries:

a. Introduction of de luxe articles. Under this heading you state that luxury articles, especially tobacco, are imported and sold by the commissaries contrary to the provisions of Article XIII of the Canal Treaty, which confines imports to those articles which are necessary and convenient for the employees of the Canal and of the United States. Reference has already been made to this matter, and, as stated, Article XIII of the Treaty granted to the United States free entry through Panaman territory of 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. By Section 1 of the Taft Agreement it was provided that while that arrangement continued there should be no importation at Ancon and Cristobal of any goods other than those described in Article XIII of the Treaty. Nor is there any restriction as to the importation of whatever supplies are necessary and convenient for its officers and employees. The views of the Canal authorities on this matter have been fully communicated to the Panaman Government in Governor Harding’s letter of March 27, 1917, to the Panaman Minister of Foreign Affairs and in the Executive Secretary’s letter of May 11, 1917, to the same official.²⁴ Any possible divergence of opinion on this matter will, of course, be removed by the abrogation of the Taft Agreement by which the United States will again come into the full enjoyment of its treaty right to import directly into the Canal Zone whatsoever it may desire.

b. Smuggling. You allege that sales for cash to employees of the Canal and the Railroad of coupons with which to make purchases in the commissaries has enabled them to make unlimited purchases to amounts much greater than their salaries, and that the goods so purchased are smuggled into Panama and sold surreptitiously without paying duty, and you suggest that these coupons be sold to the employees by deduction from their salaries only so that each one would be limited to the purchase of only those goods needed by him. You state that tobacco is smuggled into Panama to such an extent that its regular importation has decreased to an amazing degree, and you charge that American soldiers are the worst offenders.

I understand that the restriction of the sale of commissary coupons for cash has been put in force by the Canal so far as its silver roll employees are concerned, with the exception of certain classes of laborers, such as dock men, who are irregularly employed and are paid on a weekly basis. It has not been found practicable to deny the latter the privilege of purchasing a limited number of such coupon books for cash. I am advised, however, that these employees purchase books with an authorization card, and that the system does not enable them to purchase without restriction, as you allege. Employees on the gold roll are permitted to purchase coupon books for cash, but I am told it is not believed that there is any abuse of this privilege as they all know that proper disciplinary action would be taken should they be found to be engaged in smuggling, and in any case purchasers of coupon books have to sign the stub therefor so that their coupons can be checked up and it can easily be ascertained if any one is buying in excessively large quantities.

When the allegation was made in Panama that soldiers were smuggling tobacco into the Republic the military authorities issued orders prohibiting this practice and prescribed severe disciplinary measures for anyone found engaged therein, and a further order restricted single purchases of tobacco by soldiers to fifty cents.

As stated above, it is, of course, most difficult to prevent absolutely the smuggling of goods purchased in the commissaries into the Republic of Panama, but I am assured that the Canal authorities have always been willing to cooperate in any reasonable manner with the Panaman authorities and to this end they have been permitted the presence of Panaman inspectors in the commissaries to enable them to prevent this traffic. I have already mentioned the introduction into Panaman territory of commissary goods by Panaman officials, a practice which can be controlled only by the Panaman Government itself, and it is unnecessary again to discuss this matter.

With reference to your statement that the commissaries yearly import more merchandise for a population of 25,000 than the Republic of Panama for a population of 450,000 and that the imports of the commissaries have been increasing year by year although the population of the Zone has been decreasing since the work on the Canal has been completed, I may quote the following figures of total sales by commissaries in the Zone for the fiscal years from 1918 to 1922, inclusive:

1918	$10,239,706.37
1919	11.237,646.33
1920	12,407,421.06
1921	11,112,334.29
1922	6,966,376.63

The peak of the Canal labor force, at least since 1914, was, I understand, during the calendar year 1920, and partly in each of the two fiscal years 1920 and 1921, due principally to army post construction. Aside from the fact that the average standard of living in the Canal Zone is very much higher than that in Panama, I would mention that all imports made by the commissaries are not sold to Canal and railroad employees. The records show that of the total sales from May 1, 1920 to April 30, 1921, fifty-five per cent was to employees, thirty-seven per cent was on account of Government operations including the Army and Navy, and eight per cent consisted of sales to commercial vessels.

c. Sales to vessels crossing the Canal. This question has been fully discussed above, and I will not here repeat what has already been said with respect to the right to make such sales.

7. Facilities for maritime transportation. You complain that ships with cargoes from South Pacific ports for Panama do not discharge their cargoes at Balboa, but carry them on to Cristobal from where they have to be returned to Panama by rail, thus making the freight rate on merchandise from South Pacific ports to Panama higher than to Colon. You allege that the reason for this is a deficiency of facilities at Balboa for discharging such cargoes, and you state that the United States Government should offer facilities to the steamship companies for loading and landing merchandise there.

In reply, I beg to inform you that complete facilities have existed at Balboa since 1914, for the handling of all cargoes that ships may wish to discharge there. If ships do not discharge at Balboa it is because they do not wish to do so, and this, probably, for the reason that they do not care to incur the expense incident to picking up or discharging small amounts of cargo at Balboa for the city of Panama, when they are picking up or discharging large cargoes at Cristobal. It apparently does not pay them to load or unload unless they have large cargoes, and there is generally very little cargo for Panama City as the bulk of the trade for the Isthmus is handled at Colon, that being the port for transshipment cargo which forms the great mass of cargo landed. The Canal authorities are not in a position to force steamships to discharge cargo at Balboa against their will and this, I understand, has been explained to your Government by the Canal authorities both orally and in writing.

8. Foreign companies established in the Canal Zone. You state that the Canal authorities have granted permission to various companies established in the city of Panama to move into the Canal Zone and have granted them and their employees the privilege of the commissaries as though they were employees of the American Government. You allege that these companies have imported building material into the Zone, or have purchased it from the Canal without paying duties, and that these acts are contrary to the stipulations of Article XIII of the Canal Treaty and of the Taft Agreement. You assume that other concerns established in Panaman cities will try to secure the same benefits for themselves and that the matter will have a very serious aspect with respect to the revenues and commerce of the Republic.

In reply, I beg to advise you that my information is that no foreign companies have been permitted to establish themselves in the Zone except a few whose interests and operations are so closely allied to the operation of the Canal that they are in reality Canal auxiliaries. The Canal’s policy in this connection was stated to your Government by Governor Harding as follows:

“Wherever the relations between an individual or company and the Canal or Railroad are such as to warrant the former being given permission to erect a building or maintain an office in the Canal Zone (as in the case of steamship companies, the Cable Company, etc.), there is a sufficient community of interest to warrant the Canal or Railroad doing construction and repair work for such individual or company; though it is to be noted that such work is not solicited by the Canal or Railroad, but is done only upon the request of the individual or company concerned. Instances of such work are the construction in the Canal Zone of a cottage for the West India Oil Company, of ten cottages for the Central and South American Cable Company, and an office building and bodega for the last mentioned company. In short, this and similar work is considered to be analogous to the doing of work on steamships, the furnishing of supplies to shipping interests, etc.”

Among those who have been permitted to establish in the Zone are the Cable Company, the West India Oil Company, and one or two similar concerns. A recent case is that of the West India Oil Company which is building a gasoline tank in the Zone on account of its access to tank steamers. All gasoline sold in the Republic of Panama will, of course, pay duty when it leaves the Zone, and as a considerable portion of the gasoline to be contained therein will be sold in Panama the Canal authorities, I am informed, denied the Company free entry for the steel to construct this tank. The West India Oil Company and other companies have constructed other tanks purely for oil to be used in the Canal Zone in connection with the work thereof, or for sale to steamers transiting the Canal, and they have been allowed free entry of the construction material, as these were matters concerning only the administration of the Canal Zone. From this you will see that the actions of the Zone authorities have always been scrupulously considerate. This Government must, however, in this, as in other matters, reserve its full rights under the Treaty of 1903. Any question regarding such matters will, of course, be removed upon the abrogation of the Taft Agreement.

9. Manifest dues. You state that for some time past manifest dues on merchandise intended for the Republic of Panama coming from abroad have been collected by Consuls of the United States, and that this practice is contrary to the spirit and intent of the Taft Agreement and should be stopped. In reply, I beg to inform you that there is doubtless some misunderstanding on this point as the certification of manifests of cargo destined either for the Canal Zone or the Republic of Panama by American Consuls is not required. American Consuls collect consular fees only when they act for the Republic of Panama, and if the Panaman Government can show that manifest fees have been collected by American Consuls this Government will be glad to receive the information in order to take such action as may be necessary.

For your information in this connection I beg to quote the pertinent part of the latest instructions to American consular officers on this subject, dated July 13, 1917:

“… the Department is informed that the Government of Panama has effected a change in the collection of consular fees whereby all fees arising from the certification of invoices, manifests and other documents relating to shipping shall be paid hereafter at the port of destination instead of at the port whence the merchandise may be shipped. Drafts for the share of such receipts accruing to the American consular officers will hereafter, it is understood, be mailed to the Consul. It is understood furthermore that no change is contemplated with respect to those fees arising from the performance of notarial acts, such as the authentication of signatures and similar services. …”

10. Cemetery for the city of Colon. You state that Colon is in a peculiar situation in having no site of its own for the burial of its dead, and that the only available cemetery is in the Canal Zone where a heavy rate is charged for the privilege of burial. You ask that the present cemetery in the Zone be turned over to the Colon municipal authorities so that they may administer it and use it freely without rates of any kind, or else that land be assigned and delivered to the city for the construction of a new cemetery. While it is true that the city of Colon has no cemetery of its own and uses the Mount Hope cemetery in the Zone, I would point out to you that no restrictions are placed on the interment of Panamans therein, and that the commercial rate of $25.00 for permanent burial does not appear to be heavy, and is, as a matter of fact, I believe, less than one-half the rate charged for permanent burial in the Panaman cemetery at Panama. In the case of pauper burials a charge of $10.00 for a permanent grave is made against the municipality of Colon, or the latter can have the body cremated for its account for $6.00, and temporary burial can be had for a period of two months for $2.50. These rates certainly do not appear to be excessive, and I understand that the cemetery has been used satisfactorily by Colon since 1850.

11. The renting of houses in the Canal Zone to private persons. This charge is unfounded and has been fully explained previously in this note.

12. The establishment of storage warehouses on the Isthmus. It is regretted that you do not give any details with regard to this matter. There are at the present time no storage warehouses in the Canal Zone excepting warehouses for Canal stores which are available for sale to employees and to ships transiting the Canal. My Government must, however, insist, in the interest not only of its own commerce, but of that of the entire world, in which both it and the Government of Panama are vitally interested, upon the right granted by your Government in the Treaty of 1903, that goods which pass through the Canal, either in a single ship or by transshipment at a Canal Zone port, shall pass without duty or tax of any kind excepting the commercial taxes of handling and storage.

13. The concession of facilities to the merchants of Colon and Panama in supplying stores and other material to ships that cross the Canal. This would appear to be a repetition of point 6–c, mentioned above, and has been fully treated in the earlier part of this communication. I would again point out, however, that the local merchants now enjoy privileges in this business which are far in excess of those enjoyed by similar merchants in any other port of the world, as they use the Railway Company’s docks without charge for delivering their goods in competition with the Railway Company itself.

14. The establishment of Panaman customs stations in the terminal ports of the Canal for the clearing and examination of merchandise, baggage and passengers for the cities of Colon and Panama. It appears that imports destined for the Republic of Panama are transferred to warehouses in Colon or Panama City, where they are inspected by the customs officials of Panama. In certain cases of perishable goods, which it is desired to send to their destination without delay, it appears that the inspection is made on the Railway Company’s piers on Canal Zone territory by Panaman inspectors, and that these inspectors have been permitted free access to those docks in the Canal Zone to make such inspections. They, of course, have nothing to do with the shipments that come into the Zone itself for use therein.

15. 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. You do not specify any difficulties that have arisen in this matter, but this Government will not fail to consider any suggestions made by the Panaman Government at the time of the negotiation of the proposed treaty.

16. With regard to the operation of the Volstead law in the Canal Zone you do not state how it hampers freedom of trade through that Zone and Canal ports, and I would call your attention to the provisions of Section 20, Title III, of that Act providing that “this section (prohibiting the introduction, manufacture, sale, etc., of intoxicating liquors in the Canal Zone) shall not apply to liquor in transit through the Panama Canal or on the Panama Railroad.” It has not been brought to my attention that this law or any interpretation thereof has as yet operated to the detriment of Panaman commerce.

17. The control of wireless communications within the territory of the Republic. This matter was fully discussed in my note of January 11, 1923,²⁵ by which I informed you that the United States Government, while insisting upon its rights under the 1903 Treaty and the maintenance of the decree (No. 130) of August 29, 1914, is ready to discuss with the Government of Panama the practicable measures which might be taken to adapt the regulations laid down for the control of wireless communication in Panama to the new conditions which have arisen as a consequence of the developments in the science of wireless communication.

18. 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 the Panaman officials. You do not state specifically what the conflicts are which it is intended to avert, and it is not quite clear to what you refer. However, it may be said in general that the proper operation and maintenance of the Canal requires the United States to exercise as complete sanitary control as possible over the Canal and the ports and other necessary places in Panama, and the right of the United States to do so is based on Article VII and other provisions of the 1903 Treaty. In this connection you are referred to Señor Bunau-Varilla’s letter to the Secretary of State, dated January 19, 1904.

19. The settlement of the difficulties pending with regard to the collection of the contribution by which are paid the costs of the water mains and sewers laid in the cities of Panama and Colon for the account of the Republic. I am advised that the payment of these charges was made by your Government on May 19th last, thus disposing of this question.

20. The question of land communication between the cities of Panama and Colon and the remainder of the Republic. You do not go into detail on this matter, but I would point out that there is now a ferry over the Canal at Pedro Miguel which gives adequate access to west side areas and there are certain roads from Balboa to Gamboa (leading through Pedro Miguel) and from Colon to Fort Randolph, about half way to Cativa. There does not as yet appear to be an economic necessity for further roads than those that already exist, but when that necessity arises and when the Panaman Government has constructed contributary roads outside of the Zone, the American authorities will be hospitable to any proposals from the Panaman authorities for linking these highways up with the Canal ports.

I have noted with gratification your statement that in entering upon negotiations for a new agreement after the abrogation of the Taft Agreement, Panama does not intend to assume the attitude of a nation whose interests are antagonistic to those of the United States, but desires to deal with the United States openly and frankly as a staunch friend, and I am confident that with the removal from the discussion of points which, as I have said, could not be regarded as tenable or as presenting questions for consideration, the way will be prepared for the appropriate statement by each Government of its point of view on the matters which will properly enter into the negotiations. If Panama will come to the negotiations in the spirit which you describe, and which also animates my Government, I am confident that a satisfactory arrangement will soon be reached.

Accept [etc.]

Charles E. Hughes

13. Foreign Relations, 1915, p. 1123.
14. ibid., 1903, p. 239.
15. Not printed.
15. Not printed.
16. Foreign Relations, 1903, p. 235.
15. Not printed.
17. Not printed.
18. Foreign Relations, 1903, p. 343.
19. Not printed.
20. Foreign Relations, 1904, p. 608.
21. Malloy, Treaties, 1910–1923, vol. iii, p. 2752.
22. Foreign Relations, 1904, p. 613.
23. For items 1 to 10, see the Panaman note of Apr. 2, 1921, Foreign Relations, 1922, vol. ii, p. 751.
24. Neither printed.
25. Post, p. 698.