The Ambassador in Panama (Wilson) to the Secretary of State

No. 3685

Sir: I have the honor to refer to the Department’s instructions No. 821 of May 25, 1942,23 and No. 2289 of February 3, 1943, regarding the preparation of a concise proposal for a management contract under the provisions of which The Panama Canal would continue to operate the water and sewerage systems in the cities of Panamá and Colón once the title to them has been transferred to the Panamanian Government. (For a review of conversations with Canal Zone authorities in an effort to obtain a draft of a management contract please see third paragraph of my letter to Mr. Bonsal24 dated November 2, 1942).25

Governor now furnished me, under date of a transmitting letter of February 8, 1943, with a memorandum of February 526 prepared by Colonel C. G. Holle, Assistant Engineer of Maintenance, on the subject of the proposed transfer of the water and sewerage systems of the cities of Panamá and Colón. Governor Edgerton has informed me that his memorandum was submitted as a basis for discussions with me on the subject, and that before formulating any conclusions more definite and final than it presents, he desired to discuss this rather complicated subject with me at more length. I have today had a discussion of the subject with the Governor, and report hereinafter in more detail concerning such discussion. In the meanwhile, and while recognizing that Colonel Holle’s memorandum was prepared merely as a basis of discussion, I think it advisable to transmit herewith a single copy for the Department’s information, since the memorandum presents information which will be of considerable interest to the Department. Incidentally, Governor Edgerton expects to leave the Canal Zone in a few days for Washington to attend [Page 651] the hearings on The Panamá Canal budget, and he will undoubtedly call at the Department, as is his custom, in order to discuss with officials of the Division of the American Republics matters relating to Panamá.

I shall cover hereinafter the more important points discussed this morning with Governor Edgerton:

(1). Question of authority for The Panamá Canal to enter into a management contract with the Republic of Panamá, (Paragraph 3, Holle memorandum).

It was agreed that statutory authority would probably not be required and that The Panama Canal could enter into a contract with the Republic of Panamá to manage the water and sewerage systems if authority to do so were conveyed to the Governor by the President of the United States. Presumably the President, after Congress has approved the pending legislation affecting Panamá, will issue an Executive Order authorizing the transfer of the railroad lots and the water and sewerage systems. In the Executive Order the President could also authorize the Governor of The Panama Canal to make appropriate arrangements, if desired by Panamá, to continue to operate the water and sewerage systems once they are passed to Panamanian ownership, as a measure of cooperation with Panamá, for such period as may be desired by Panamá. Probably the first document which should be drafted and considered by the State Department is the text of the Executive Order. Governor Edgerton’s office will draft this Executive Order and will consult with the Embassy regarding it, after which the draft will be forwarded to the State Department.

(2). The water and sewerage systems of New Cristobal.

Colonel Holle’s memorandum treats in detail of this question (paragraph 5, K (3), pages 9–12). It will be noted that the recommendation is made that, because of the special situation of the water and sewerage systems of New Cristobal,27 these systems should not be transferred to Panamá but should be retained by the United States, and that this point be clarified in the Congressional hearings and the Joint Resolution amended accordingly. As a result of the conference this morning, Governor Edgerton is now in accord with me that, despite the special considerations which set the New Cristobal systems apart from the Panamá City and Colón systems, nevertheless the spirit and intent of the agreement between the United States and Panamá in this matter, as set forth in the May 18, 1942, exchange of notes, and reflected in the Joint Resolution introduced in the present Congress, would seem to have been to include the New Cristobal systems, and that it therefore would be inadvisable to urge on Panamá the contention that the New Cristóbal systems should be retained by [Page 652] the United States. We agreed, however, that while the New Cristobal systems should be included in the transfer instrument and pass to Panamá, nevertheless an attempt should be made, when it comes to discussion of the management contract with Panamá, to make a separate arrangement covering the operation of the New Cristobal systems which would leave the operation and management of these systems entirely in the hands of The Panamá Canal. I agreed, at the Governor’s request, that at an appropriate time I would take this aspect of the matter up with the Panamanian officials and attempt to obtain their consent to it. The argument would be that, in the first place, the capital costs of these utilities in New Cristobal were not added to the capital costs of the Colón systems, and that Panamá has never been charged for amortization or interest on the New Cristobal systems. Furthermore, Panamá has never contributed to the cost of repairs and maintenance of the water and sewerage systems in New Cristobal, nor to the cost of repair and maintenance of pavements, nor to the cost of cleaning the streets and the collection of garbage in New Cristobal. The entire cost for all of these services in New Cristobal has been met by the United States, whereas in Colón and Panamá City the cost of these services has been charged against the water rates. Also the water into individual Panamá Canal quarters is not metered and it would, therefore, be impossible to bill the individual residents for the water consumed on a quantity basis. In view of the above considerations, and others brought out in Colonel Holle’s memorandum, it would be urged upon the Panamanian Government that an agreement be reached permitting The Panama Canal to continue to operate the water and sewerage systems in New Cristobal, collecting water rents from the United States employees living in that area, and applying such rates to the partial reimbursement of the cost of maintenance and repair of these systems, as well as of the maintenance and repair of pavements, and the cost of street cleaning and garbage collection. The balance of the cost of these services in New Cristobal would be met by the United States.

I have some doubt whether Panamá will agree to the special status of the New Cristobal systems for operation purposes as outlined above. Such an arrangement might be regarded by Panamá with suspicion as an opening wedge in a renewed drive to obtain political jurisdiction for the United States over New Cristobal. The advantages, however, of such an arrangement are so obvious that they would seem to warrant an attempt to obtain Panamá’s agreement, and I shall therefore at some suitable moment broach the matter to the Panamanian authorities.

As regards the operation of the water and sewerage systems of Colon and of Panamá City, there would be proposed to Panamá a draft management contract along the general lines of the outline set [Page 653] forth on pages 16–19 of Colonel Holle’s memorandum. In addition, there would be stipulations in the contract for the training of Panamanians so as to provide increased participation of Panamanian personnel in sanitation activities in these cities, in accordance with the exchange of notes accompanying the General Treaty of March 2, 1936.28 There might also be a clause inserted in the management contract which would refer to the Joint Board (two representatives of Panamá and two of The Panama Canal) appointed in 1940 on the basis of the exchange of notes attached to the 1936 treaty, to make recommendations on this question of training additional Panamanian personnel, as well as on other technical problems.

(3). Transfer instrument.

The transfer instrument would follow the outline set forth on pages 14–16 of the Holle memorandum, omitting of course the suggestion under paragraph 7–a that the water and sewerage systems of New Cristobal be retained by the United States. Also, as recommended in paragraph 7–f, the provision of the exchange of notes of May 18, 1942, that employees of The Panama Canal and Panama Railroad residing in Panamá not be charged more than other residents of Panamá and Colón for similar services, should be expanded in the transfer instrument to cover all employees and agencies of the United States.

As indicated at the outset of this despatch, the Governor’s office will begin immediately drafting of the Executive Order to be issued by the President covering the transfer of the railroad lots and the water and sewerage systems and conveying authority to The Panama Canal to operate the latter utilities if desired by the Government of Panamá. The Governor’s office will also begin the drafting of the transfer instrument and the management contracts. Governor Edgerton will wish to discuss these drafts with me after his return from Washington, and as soon as we have conferred and reached agreement concerning them I will transmit the drafts to the Department for consideration.

Respectfully yours,

Edwin C. Wilson
  1. Foreign Relations, 1942, vol. vi, p. 609.
  2. Philip W. Bonsal, Chief of the Division of the American Republics.
  3. Not printed.
  4. Neither printed.
  5. Most of the Canal employees of Cristóbal lived in this section of the city.
  6. Department of state Treaty Series No.945; 53 Stat (pt. 3) 1807.