The Secretary of State to the Panamanian Chargé (Ehrman)51

Sir: I refer to Executive Resolution No. 580 dated November 13, 1940 issued by the Panamanian Government (Secretaría de Hacienda y Tesoro) sustaining Executive Resolution No. 251 dated August 30, 1940 with relation to taxation by the Republic of Panama of private business enterprises established in the Canal Zone, and invite consideration of the assertion contained in the latter resolution that “the Republic maintains fiscal jurisdiction in all the territory of the Canal Zone”.

I need not say that this Government will desire urgently to bring to the attention of the Government of the Republic of Panama any specific instances in which attempts are made to impose taxation on private enterprises established in the Canal Zone which are exempted from such taxation by reason of the treaty commitments between our two countries, but I desire now in a general way to invite the attention of the Panamanian Government to the provisions of Article III of the Convention between the United States of America and the Republic of Panama signed at Washington, November 18, 1903 which states

“The Republic of Panama grants to the United States all the rights, power and authority within the zone mentioned and described in [Page 472] Article II of this Agreement and within the limits of all auxiliary lands and water mentioned and described in said Article II which the United States would possess and exercise if it were the sovereign of the territory within which said lands and waters are located to the entire exclusion of the exercise by the Republic of Panama of any such sovereign rights, power or authority.”

As you are aware, the provisions of this article were left unimpaired by the General Treaty between the United States of America and Panama signed at Washington on March 2, 1936.

Accordingly, it would appear that the assertion contained in the Executive Order referred to above was drafted without taking into account the pertinent treaty provision.

Accept [etc.]

For the Secretary of State:
Sumner Welles
  1. Copy transmitted to the Ambassador in Panama in instruction No. 437, January 14, not printed.