711.19/175
The Secretary of State to President Roosevelt
My Dear Mr. President: I beg to report as hereinafter on the result of discussions with President Arias of Panama and the War and Navy Departments regarding points raised by President Arias.
I attach hereto as Enclosure 1 a copy of an informal and personal memorandum submitted on October 11 by President Arias containing his requests for “remedial measures of an administrative character”.
This memorandum was at once taken up with the War and Navy Departments. With the exception of Item 10 relating to radio activities in Panama all of the other eighteen items come under the jurisdiction of the War Department. I attach hereto, as Enclosure 2, a letter dated October 12,3 received from the Secretary of War commenting on the requests made by President Arias.
I wish to set out as hereinafter my own views on the “remedial measures” proposed by President Arias.
1. Restriction of the list of articles to be sold by the Commissaries, especially in luxuries and tourist goods.
[Page 857]I agree with the Secretary of War that there is no reason why so-called luxury articles should not be sold by the commissaries to employees of the American Government, provided every possible precaution is taken to prevent contraband trade.
As regards tourist goods the Secretary of War is willing to take such action as is necessary to prohibit sales of such goods for resale on ships. I am in full agreement with this but feel that there are other categories of articles the sales of which should also be prohibited for resale on ships. This will be mentioned later in connection with Item 12.
2. Measures tending to avoid the sale of articles at prices which are “below normal” such as in the case of cigarettes, which do not pay excise tax, sugar and other articles.
It appears that cigarettes sold in the commissaries do not pay the United States excise tax. The theory apparently is that the Canal Zone is foreign soil and therefore cigarettes exported to the Canal Zone are not subject to our excise tax. The Panamanian objection is that these cigarettes are sold by the commissaries at such a low price that they thus encourage smuggling into Panama, to the consequent detriment of Panamanian trade in these articles. I am unable to see any reason why United States Government employees living in the Canal Zone should be able to buy cigarettes at a lower price because of the exemption from taxation than Government employees living in this country. I recommend that the President of Panama be informed that this matter will be given careful study in order to determine whether it appears advisable to seek congressional legislation.
3. Measures tending to prevent the passing of goods by employees to persons not entitled to the Commissary privilege, such as:
- a)
- Prohibition to employees to purchase goods amounting to more than 50 per cent of their salaries;
- b)
- Sale to contractors and their employees to be restricted to those who devote all of their time to work in the Canal who operate exclusively in the service of the Canal and who actually reside in the Canal Zone.
I recommend that the Panamanian request under (b) above be granted.
I also recommend that special instructions be issued to the Governor of the Canal Zone to take all possible measures to prevent contraband activities on the part of those entitled to commissary privileges. Since a record is made of all sales to each person having commissary privileges it should be readily possible to check up from time to time and determine whether or not any Canal Zone employee is spending more than his salary in the commissaries. The Panamanian authorities would thus feel that this rule would discourage commissary patrons [Page 858] from purchasing for friends not entitled to commissary privileges.
4. Instructions to clerks in the Commissaries to report persons who purchase more than they reasonably need.
President Arias’ request under this item would be met by the suggestion last made under Item 3.
5. That restaurants and club houses in the Canal Zone be limited to accept as customers Canal employees only.
6. That admission to Moving Picture houses in the Canal Zone be paid by means of coupons so that non-employees of the Canal should not be admitted.
The Secretary of War asks for further consideration of these items by the Governor of the Canal Zone. My recommendation is that we agree at once with the request of President Arias on these two items. I can see no reason why the restaurants, clubhouses and moving picture houses in the Canal Zone should admit non-employees of the United States Government in competition with similar activities in Panama. Of course, these centers furnish opportunity for social meetings between Panamanians and Americans, but if the Panamanian Government desires that these centers be limited only to employees of the American Government, I think we should agree.
7. Abrogation of the clause which binds lessees or contractors of the restaurants to purchase their provisions from or through the Commissaries.
I recommend that we agree with President Arias’ request. There seems no reason why the restaurants should not be free to purchase their provisions wherever they desire.
8. Restriction of the services of the United States hospitals and dispensaries in the Canal Zone to United States employees, excepting only emergency cases.
I recommend we accept President Arias’ request. These hospitals are operated by the Canal Zone Government with officers of the Medical Corps of the United States Army. They are open to the general public and so compete with Panamanian hospitals. I recommend that they should be open only to United States Government employees and to the officers, crews and passengers of ships transiting the Canal who need emergency treatment.
9. Discontinuance of beer gardens on the Canal Zone and measures tending to avoid that beer be imported and sold by the Commissaries at prices below normal, by reason of the exemption of the excise tax on beer exported to the Canal Zone.
My recommendation on this item is that beer sold in the Canal Zone should be made to pay the same excise tax as beer sold in the United [Page 859] States. This matter is similar to that of the sale of cigarettes mentioned in Item 2 above.
10. Suspension of radio activities by the Navy within the jurisdiction of the Republic of Panama.
(This will be treated after Item 18.)
11. Assistance for repatriation of aliens who went to the Isthmus attracted by the Canal work arid have become a charge to Panama.
The War Department heartily endorses this measure and so do I. The Secretary of War has authorized the Governor to submit an estimate of appropriation for $150,000 for the purpose of giving this assistance. I propose to cooperate with the Secretary of War when this matter is presented to Congress.
12. Suspension of sales to ships.
I recommend there should be a limitation on sales to ships by the commissaries. Obviously the commissaries should be allowed to sell certain articles essential to shipping, such as fuel and food supplies. As noted under Item 1 above, the Secretary of War will prohibit sales of tourist goods for resale on ships. In addition I recommend that the sale of other articles not necessary to shipping transiting the Canal should be prohibited, or that a reasonable surtax be placed on such sales. There was once a surtax of 25 per cent on these sales, and Panamanian merchants then felt they could compete. At present members of the crews of ships purchase articles of clothing, cigarettes, et cetera. I see no reason why, for instance, a foreign sailor on a foreign ship transiting the Canal should be allowed to purchase cigarettes from the United States Government at prices cheaper than American citizens can purchase them in the United States.
13. Suspension of the bonded warehouse business created under the system known as “Carnal Zone for orders”.
The Governor of the Canal Zone has agreed to meet President Arias’ request only in part. I see no reason why the request should not be granted in full, and what is in effect a bonded warehouse business apparently run for the convenience of American merchants be abandoned by the Canal Zone administration.
14. Suspension by the Panama Railroad Company of all business transactions with persons or concerns other than the United States Government or the Panama Canal and payment of taxes on such business as is not connected with the operation of the railroad and its dependencies.
I agree with the Secretary of War that it will be necessary for the Panamanian Government to be more specific in its request for suspension by the Panama Railroad Company of certain business transactions. I understand, however, that the Panama Railroad Company operates laundries, pressing establishments, et cetera, which perform [Page 860] services for persons other than employees of the United States Government. I think this should be prohibited and orders to this effect could be issued at once.
The Treaty is clear as to exemption from taxation of the Panama Railroad Company.
15. Delivery to Panama by the Panama Railroad Company of the property located in the city of Colon which is not owned or in the possession of the Company and which is not required in the construction or operation of the Canal.
I agree with the Secretary of War that no disposition can be made of these lands except by Act of Congress.
16. Allotting to the Republic of Panama of sites in the ports of Balboa and Cristobal for the establishment of houses and guards for the proper control by the Republic of importations and immigration into the jurisdiction of Panama.
Article IX of the Treaty of 1903 gives the Republic of Panama “the right to establish in such ports and in the towns of Panama and Colon such houses and guards as it may deem necessary to collect duties on importations destined to other portions of Panama and to prevent contraband trade”. I recommend that we inform President Arias that we are prepared to make the necessary arrangements whenever the Republic of Panama so desires.
17. Arrangements tending to insure the prompt construction by the Republic of Panama of the road between Alhajuela and Colon.
This matter of granting consent to the Republic of Panama for the construction of a section of the proposed trans-Isthmian highway was referred to the War Department some time ago. I recommend that we allow Panama to build this road with a minimum of restrictions as regards width, materials used, route, et cetera, required by the military necessities of protection of the Canal. There is a view that granting this permission to Panama will require a formal treaty subject to ratification. We should reach a decision on this point at as early a moment as possible and expedite our reply to Panama so that Panama can begin this work at an early date. Panama has a serious unemployment problem and wants to put men to work on this highway.
18. Arrangements tending to avoid the unjustified exclusion of Panamanian products from the Canal Zone, such as foodstuffs, provisions, cattle, building materials and other articles which are used or consumed in the said Zone.
The Secretary of War states that Title III of the Treasury and Post Office Appropriation Act for the fiscal year ending June 30, 1934, approved March 3, 1933,4 may prevent the purchase of some [Page 861] of the products of Panama. It seems to me that the provisions of Title III of the Act in question give enough latitude to the heads of Departments so that the Secretary of War, through administrative orders, could direct that purchases of Panamanian articles be made. If not, I recommend that the necessary legislation be sought.
10. Suspension of radio activities by the Navy within the jurisdiction of the Republic of Panama.
Although there is no reference to the control of radio in the Treaty of 1903, it has been considered by the United States that its general provisions give the United States the right to control radio in Panama. The Navy Department has insisted upon such control. In 1914, the President of Panama issued a decree giving the United States complete control of radio in Panama,5 but in December, 1930, this decree was revoked.
After consultation with the War-and Navy Departments, the State Department instructed the Legation at Panama on November 23, 1931,6 to state to the Panamanian Government:
“That while the United States has no desire unnecessarily to restrict the development of radio facilities in the Republic of Panama, it feels that a measure of control by the United States over radio communications therein sufficient to prevent the efficient protection, defense, or operation of the Panama Canal from being endangered, is essential.…”
With these preliminary remarks the Legation was instructed to endeavor to arrive at an agreement similar to the provisions on radio contained in the unratified treaty of 1926.7
The proposed agreement specified that private radio installations could not be erected or operated in the Republic of Panama without licenses granted by the Panamanian Government after approval by the United States, and that such installations, which were to be owned and operated by Americans and Panamanians only, were to be subject to inspection, censorship, control or closure by Panama, the inspectors to be furnished by the United States. These installations were to be closed without delay by Panama upon the request of the United States, when in the latter’s opinion they were detrimental to the safety or operation of the Canal and its defenses, or if the terms of their licenses were violated. Panama was also obliged to consult with the United States before erecting or operating installations of her own.
[Page 862]The Legation was not successful in obtaining such an agreement, Panama considering the provisions desired by the War and Navy Departments much too stringent. President Arias has now confirmed this view. He states that for Panama to enter into a formal agreement with these provisions would be humiliating to Panama’s sovereignty and would place Panama as a “vassal” state in the eyes of other countries. He states, however, that he is willing to give us in fact everything we require in the way of control over radio in Panama for the protection of the Canal. It seems to be largely a matter of form in which the question is handled. If it is not possible to reach any agreement with President Arias while here, I recommend that the matter be discussed further with him by our Minister in Panama.
As regards particularly “ship to shore” service the Navy Department contends that it is absolutely necessary for the Navy to handle all radio communications of this nature, not only messages relating to Canal transit, but also commercial messages, stating that otherwise there would be interference with Naval radio, loss of revenue to the Navy Department, lack of opportunity to train Naval radio personnel, and danger to the defense of the Canal because during the “twilight” period preceding war there would be reluctance on the part of the United States Government to censor or control commercial radio stations in Panama. Panama, on the other hand, states her willingness, in time of war or threatened hostilities, to give the United States complete control over radio, but in time of peace objects to the Navy Department dictating what kind of radio service Panama can have in her own territory. At one time the Navy Department maintained that the use in Panama of ordinary broadcast receiving sets was inimical to the defense of the Canal. Furthermore, it is only recently that the Navy Department has agreed that broadcasting could be undertaken in Panama without jeopardizing the Canal. This Department is not convinced by the arguments of the Navy Department that “ship to shore” service operated by private interests under appropriate safeguarding provisions would endanger the operation or defense of the Canal, and does not see how this Government can further take the position that Panama cannot have such service. Engineers of the Federal Radio Commission have stated that from a technical standpoint such service should not materially interfere with naval radio operations.
I therefore recommend that at such time as it appears possible to make a satisfactory arrangement with Panama concerning radio control, we agree that no special restrictions be placed on “ship to shore” service with the exception of that relative to transiting the Canal.
[Page 863]President Arias recommends that certain declarations be made that may be considered “as the bases of the relations between Panama and the United States in so far as the Panama Canal and the Canal Zone territory are concerned”. The three specific declarations which he proposes seem to me undesirable in certain respects from the point of view of this Government, and I therefore propose that they be rephrased as follows:
- 1.
- Now that the Panama Canal has been constructed, the provisions of the Treaty of 1903 between the United States and Panama contemplate the use, occupancy and control by the United States of the Canal Zone for the primary purpose of the maintenance, operation, sanitation and protection of that Canal.
- 2.
- In view of that primary purpose the Republic of Panama is recognized as entitled, as a sovereign nation, to take advantage of the commercial opportunities inherent in its geographical situation so far as that may be done without prejudice to the maintenance, operation, sanitation and protection of the Panama Canal by the United States of America, which is earnestly desirous of the prosperity of the Republic of Panama.
- 3.
- The Government of the United States would sympathetically consider any request which the Government of Panama might make for the solution by arbitration of any important question which might arise between the two Governments and may appear impracticable of decision by direct negotiations, provided that such question is purely economic in its nature and is not so closely associated with the maintenance, operation, sanitation and protection of the Canal as to involve possible derogation from the rights granted to the United States by the Treaty of 1903.
Faithfully yours,
- Not printed.↩
- 47 Stat. 1489.↩
- Foreign Relations, 1914, p. 1051.↩
- Instruction not printed.↩
- Foreign Relations, 1926, vol. ii, p. 833.↩
- Marked “Personal and Unofficial.”↩