Memorandum by the Assistant Chief of the Division of Central America and Panama Affairs (Wise)1


Subject: General Relations Between the United States and Panama

The attached study is a list of topics of significance in our relations with Panama. They are numerous and varied. Mr. Daniels will recall that many of these matters were discussed at the time of the negotiations of the 1936 Treaty2 as well as before and afterwards. Problems in our relations with Panama are perennial. There never seems to be any complete settlement of most of them. Only certain phases of settlement are reached and after a while some new aspect of the problem presents itself and calls for renegotiation.

Each item is briefly described and insofar as possible the status of pending matters is given.


General Relations Between the United States and Panama

The following study is a brief review of outstanding matters which have entered into our relationships with Panama since 1903. Some of the items referred to can be considered settled, others are still pending and will be important in future negotiations with Panama.

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Convention of 1903 3 and Treaty of 1936

The Convention of 1903 was negotiated with Panama in order to facilitate the construction of the Panama Canal. This was a tremendous undertaking and one for which we lacked experience. Also, Panama’s institutional stability remained to be consolidated, following her achievement of independence from Colombia by revolution. Accordingly, as a safeguard for the Canal project, we obtained in the provisions of the Convention certain far-reaching rights. Among them was the power to intervene in Panama to preserve public order. The decision as to what constituted the necessity for such intervention was left entirely to us. We also acquired the right to take additional lands or adjacent waters which we might need for Canal purposes over and above those comprised in the Canal Zone without consulting the Government of Panama.

In 1933 the Good Neighbor Policy was set forth and in accordance with its principles the United States and Panama signed and ratified the Treaty of 1936 which modified the former convention and placed relations between the two countries on a status consistent with the new concept of international policy. The Treaty of 1936 renounces most of the special rights enjoyed by the United States under the Convention of 1903 and substitutes for those rights the principle that in all matters relating to the operation, maintenance, sanitation and protection of the Panama Canal the two countries are on a partnership basis, and have a joint and vital interest which will cause them to consult together and adopt by common accord the measures necessary to protect that common interest.

Defense Sites Agreement of May 18, 1942 4

Pursuant to the provisions of the 1936 Treaty the two Governments at the outbreak of the recent war consulted together and agreed that Panama would grant to the United States the temporary use for Canal defense purposes of certain lands (which totaled 134 sites before the war was terminated) in territory under the jurisdiction of the Republic of Panama. The provisions of the understanding reached were set forth in the Defense Sites Agreement of May 18, 1942. It provided that “These lands shall be evacuated and the use thereof by the United States of America shall terminate one year after the date on which the definitive treaty of peace which brings about the end of the present war shall have entered into effect. If within that period the two Governments [Page 649] believe that, in spite of the cessation of hostilities, a state of international insecurity continues to exist which makes vitally necessary the continuation of the use of any of the said defense bases or areas, the two Governments shall again enter into mutual consultation and shall conclude the new agreement which the circumstances require.”

An effort was made by the United States in 1946 and 1947 to replace the 1942 Agreement with a new one designed to meet peacetime requirements for the adequate safeguards of the Panama Canal. Although an agreement was signed on December 10, 19475 it was rejected by the Panamanian National Assembly and as a result the United States ordered the evacuation of its armed forces from all sites obtained in Panama under the 1942 Agreement. No plans have been made concerning further negotiations with Panama on the matter.

Twelve-Point Agreement of 1942 6

Simultaneous with the signing of the 1942 Defense Sites Agreement, an understanding was reached between the two Governments concerning the settlement of twelve outstanding problems in the relations between the two countries. The three most important of these, upon which action has already been taken, are the following: (Two other important matters, still pending action, are treated in the next section of this report.)

Waterworks and Sewerage Systems in Panama City and Colon. Pursuant to Public Law 48 of May 3, 1943 the United States transferred to Panama free of cost all of its rights, title and interests in the system of sewers and waterworks in the cities of Panama and Colon. Also, the United States renounced the right which it obtained in the first paragraph of Article VII of the Convention of 1903 as modified by Article VI of the Treaty of 1936 to acquire lands, buildings, water rights or other properties necessary for purposes of sanitation, such as the collection or disposal of sewerage and the distribution of water in the cities mentioned. The United States likewise renounced the authority contained in Article VII of the Convention of 1903 to impose and collect water rates and sewerage rates in those cities for the payment of interest and amortization of the principal and the costs of said works.
Railroad Lots in Panama and Colon. Pursuant to Public Law 48 of May 3, 1943 the United States transferred to Panama free of, cost all of its rights, title and interest to the lands belonging to or of which the Panama Railroad Company had usufruct in the cities of Panama and Colon which were not currently or prospectively needed for the maintenance, operation, sanitation and protection of [Page 650] the Panama Canal, or of its auxiliary works or for the operation of the Panama Railroad.
Cost of Rio Hato Highway. By Public Law 48 of May 3, 1943 the United States liquidated the credit of $2,500,000 made available to Panama by the Export-Import Bank for the construction of Panama’s share of the Chorrera–Rio Hato Road.

Principal Pending Problems

Claims. Our El Encanto claim against Panama arose thirty years ago as a result of the expropriation by Panama of land owned by United States citizens. The United States has agreed to a cash settlement of $400,000 or to arbitrate in the original amount of $1,409,000 plus interest.
Six soldiers of the United States Army were injured during disturbances which occurred in Panama in 1915 and resulted in our so-called Soldiers’ claim, amounting to $7,150. We have agreed to settle for $3,156.
Panama’s Malambo Fire claim against the United States arose in 1906 as a result of a fire in Colon caused by alleged negligence of United States Government employees. Panama has expressed a willingness to reduce the original claim from $125,000 to $53,800.
In the interest of an en bloc settlement of these three claims, the United States has presented a proposed draft convention whereby Panama would agree to pay to the United States in cash the balance of the three claims, a sum amounting to $349,356. Before the defense sites issue became so complicated Panama informally had agreed in principle to this procedure and to settlement in the amount stipulated. There have been no recent negotiations on the settlement of these claims. This Government’s position consistently has been that Panama must settle the El Encanto claim before serious consideration will be given by the United States to meeting Panama’s requests concerning other pending problems of significance.
Aeronautics Agreement. This Government has drafted a proposed agreement, the provisions of which would establish a permanent United States-Panama joint aviation board to provide for the coordination, supervision and regulation of air traffic in Panama. This board would be the sole agency for prescribing rules and regulations relating to civil and military air traffic in Panama, giving due consideration to the special needs of both Governments.
Recently, our draft was discussed informally with the Panamanian Foreign Office which considers that its provisions are written too much in the same tone of the defense sites agreement just rejected by the National Assembly.
Moving of the Railroad Station at Panama. As an important item of the Twelve-Point Agreement reached in 1942, the United States [Page 651] agreed to remove from their present site the terminal facilities of the Panama Railroad in Panama, including the station, yards and other appurtenances. This agreement was subject to the making available without cost to the United States by Panama of a new site deemed suitable for the purpose by the two Governments.
This Government is to receive no important benefits from the change and as long as Panama does not urge compliance with this agreement the matter should lie dormant. There are many details with respect to the proposed removal of the station which have not been defined and it will take considerable negotiation to determine the rights and responsibilities of each Government with respect to disposition of the old site and construction projects at the new one.
Tunnel or Bridge Under or Over the Canal at Balboa. As another important item of the Twelve-Point Agreement of 1942, the United States expressed its awareness of the importance to Panama of constant and rapid communication across the Canal at Balboa and stated its willingness to agree to the construction of a tunnel under or a bridge over the Canal at that point. This commitment was to be satisfied following the end of World War II. In the meantime the United States agreed to improve the present ferry service.
Recently Panama has shown more interest in our financial assistance toward completing the Inter-American Highway with a cement surface to the Costa Rican border than in the construction of additional crossing facilities at Balboa. No negotiations have been undertaken concerning this interest of Panama. The United States has been unwilling to begin any serious consideration of a tunnel or bridge until plans for the modernization of the Panama Canal have been completed and approved. A bridge would be much cheaper than a tunnel. It has been estimated that the latter would cost some $30,000,000.
Racial-Labor Discrimination in the Canal Zone.7 Panama persistently charges that United States citizens are given better treatment in the Canal Zone than are its own citizens. Our obligations under the 1936 treaty require a policy of equality of opportunity and treatment for Panamanians employed in the Zone. Although the State Department in its relations with Panama endeavors to place into actual practice the treaty commitments of this Government with respect to the exercise of a policy of non-discrimination in employment practices in the Canal Zone, full cooperation from all sectors of this Government has not been obtained.
Arrangements were made by the State, War, Navy and Labor Departments for a labor relations adviser to be assigned to the Canal [Page 652] Zone Governor for the first four months of 1947. On June 1, 1947, he submitted a lengthy report on labor relations which offered evidence of both official and unofficial discrimination against Panamanians in the Zone and made definite recommendations for reforms.
Although the Governor during the past two years has taken steps to eliminate some of the causes for the charges against us for discrimination practices, the racial-labor policy of the Canal Zone needs thorough revision. Accordingly, this Government should take more positive steps than it has in the past to adopt necessary measures to eliminate discrimination and to coordinate labor policies of the various agencies of this Government working in the Canal Zone. Adoption of the recommendations of the report of the labor relations adviser would be a significant step in the right direction. To bring this about will require the full cooperation of the Secretary for National Defense and of the Governor of the Canal Zone.
Imported Labor in the Canal Zone. Although the immigration of laborers into the Canal Zone rests solely with this Government, the United States is willing to cooperate to the extent feasible in satisfying the immigration policy of the Republic of Panama. Specifically, the United States in 1942 agreed, so far as practicable, to fill the needs for labor in the Canal Zone with classes of persons whose immigration is permitted by Panama and to forbid the entry into the territory of the Republic, except as might be necessary on brief routine business, of those persons (whom Canal Zone authorities have found or may find it necessary to introduce into the Canal Zone) whose immigration into the Republic is prohibited by Panama. We agreed to repatriate such persons when their services were no longer required.
Although those laborers brought into the Canal Zone for wartime projects have been repatriated, the Panamanians complain that our cooperation with the Republic with respect to the prohibition of undesirable immigration for continuing Canal Zone work is not as close as it should be.
Competition of Canal Zone Commissaries and Post Exchanges with Panamanian Commerce. Panamanian merchants complain bitterly that Canal Zone commissaries and Army post exchanges offer them unjust competition. They complain that there exist sales of luxury and tourist articles in the Zone contrary to the provisions of the 1936 Treaty.
The civilian and military authorities of the Canal Zone maintain that the Panamanian complaint is for the most part unjust and charge that the difficulties lie largely with Panamanian merchants who place exorbitant prices on their merchandise in order to make big profits from tourists.
In an exchange of notes accompanying the 1936 Treaty and in the Twelve-Point Agreement of 1942, the United States agreed to afford regular and continued opportunity “for mutual conference and helpful exchange of views bearing on this question”. Panamanian authorities have not taken advantage of our agreement to enter into a thorough study of the situation. Panama’s standard of living is definitely improved through the presence of Canal Zone stores. During the war Panamanians depended greatly on the Canal Zone for food supplies.
Permanent Market in the Canal Zone for Panamanian Merchandise. The Panamanian Government requests that the United States guarantee a permanent market in the Canal Zone for Panamanian produce at pre-established prices and quantities. While much Panamanian produce is bought by the Canal Zone and while steps have been taken recently to increase the market for Panama, Canal: Zone authorities are reluctant to work out with Panama any guaranteed market because of Panama’s inability to reciprocate with a guarantee for the quality and quantity of produce required and at prices equal to those obtained in other parts of the Caribbean or in the United States. Panama has insisted on a price guarantee equal to that which would be paid for the same produce in New Orleans.
We have expressed our willingness to continue conferences already begun with a view to working out arrangements whereby Panama could set up a central agency to accumulate produce from small operas tors in order that sufficient quantities can be assembled to justify purchase by the Canal Zone.
Importation of Alcoholic Beverages into the Canal Zone. By Executive Order of March 25, 1935 the direct importation of hard liquor into the Canal Zone was prohibited. Since then, all hard liquor has entered the Canal Zone through the Republic of Panama, resulting in about one hundred per cent increase in cost per case. The Executive Order was issued as a result of Panamanian claims that direct importation of liquor from the United States or elsewhere was in direct competition with the local Panamanian industry and prevented Panama from taking advantage of the economic opportunities inherent in its geographical location.
Civilian, Army and Navy employees in the Canal Zone have tried unsuccessfully on various occasions since 1935 to have this Executive Order rescinded. Panama insists that the present policy of the United States be maintained. This Government at present is reviewing this question with a view to possible cancellation of the Executive Order. Such an act, of course, will arouse violent protest from Panama.
Revision of Monetary Agreements. Panama has requested a revision of the Monetary Agreement of 1904 as modified by subsequent [Page 654] exchanges of notes. Inasmuch as the present language of these agreements represents somewhat of a paternal attitude toward Panama, the Department agrees that a review is in order.
Commercial Treaty. Panama suggests that an appropriate way for settling a number of matters which are claimed to afford unjust economic competition with Panamanian business would be through the negotiation of a commercial treaty. The United States would be glad to consider any suggestions made by Panama regarding the negotiation of a treaty of friendship, commerce and navigation which would have the effect of establishing commercial relations between the two Governments on a permanent basis. However, the commercial treaty which this Government would be disposed to negotiate would be along the lines of treaties of a standard type already negotiated with other countries. This Government would be unwilling that such a treaty contain provisions relating to special problems in our economic relations with Panama which are considered to be outside the scope of a commercial treaty.
Readjustment of Colón Corridor. Panama has requested a substantial readjustment in the route of a road which passes through the Canal Zone and joins the Panamanian city of Colón with the Republic proper. The realignment as contemplated deviates considerably from the Corridor plan as set forth in the 1936 Treaty. A new convention between the two Governments will be necessary to modify legally the 1936 Treaty. In the meantime, the two Governments have effected an exchange of notes which state that the readjustment is desirable from the standpoint of both Governments and provides that work on the realignment of the Corridor may be undertaken pending the negotiation of a convention.
Panama has requested technical assistance in the planning and building of an overpass at Randolph Road (within Canal Zone jurisdiction) to connect the Trans-Isthmian Highway with the Colón Corridor. We have agreed to build this overpass provided Panama provides the necessary funds.
Realignment of Inter-American Highway around Rio Hato Air Base. The Department feels that Panamanian complaints concerning Army interruption of traffic on the Inter-American Highway at the Rio Hato Air Base have been justified. The Army was requested to take immediate steps to re-route the Highway in such a way as to bypass the airstrip and thus to eliminate interference with Panamanian traffic. The Army had prepared to initiate measures to realign the Highway when the defense sites issue became so complicated. With the evacuation of all defense sites in Panama, this question may be academic.
Coordination of Radio Communications. Panama has invited [Page 655] the United States to furnish both general and private service radio communications for all commercial aviation on the Isthmus. It is important to the United States Army that there be one central communications control. Accordingly, the interested departments of the Government are endeavoring to find an arrangement whereby the Panamanian request can be acted upon favorably.
National Aviation Code. The Panamanian Government has requested assistance in the drawing up of new civil aviation regulations for the Republic. Inasmuch as Panama’s aviation regulations directly concern United States activities on the Isthmus, this Government is willing to cooperate, once an aeronautics agreement had been reached, by sending an expert to the Panamanian Government under Public Law No. 63.
Transfer of Cristobal Dock. In connection with its plans to establish a free trade zone, Panama has asked for one of the Cristobal docks suitable for international navigation. It is believed that the Canal Zone authorities definitely object to such a transfer, since it would give rise to many complications in the control of the bay and dock area now under our exclusive administration.
Dock at Coiba. The Panama Canal has expressed its willingness to construct at cost for Panama a dock at the Coiba penal colony.
Transfer of Cativá Naval Hospital to Panama. Panama has been rather persistent in requesting that the Naval Hospital at Cativá he transferred to the Republic for Panamanian use, together with jurisdiction over the land on which it stands. The Navy Department just as persistently has taken the position that it has no intention of abandoning the use of the Hospital and has no interest in considering its transfer to Panama. The Department supports this position.
Telephone and Cable Circuits. Panama has asked that the Army provide, in so far as military requirements permit, certain circuits in various existing telegraphic lines and cables. Before evacuation of the defense sites the United States had made available certain circuits and was willing to provide certain additional circuits consistent with military requirements.
Transfer of Paitilla Point to Panama. Paitilla Point is no longer needed as a military reservation either for defense purposes or for the peacetime operation of the Canal. Accordingly, if the authority of the Congress could be obtained therefor, the United States would transfer to Panama free of cost all of its rights, title and interest in Paitilla Point.
Transfer to Panama of Tracts known as Aspinwall, Vialette and Huerte San Doval. Inasmuch as these land tracts are no longer needed for Canal Zone military purposes, the United States, with the [Page 656] authority of its Congress would transfer to Panama free of cost all of its rights, title and interest in these three tracts.
Visa and Immigration Matters. Panama has asked for an agreement with us for reciprocal issuance of visas to merchants and in general for border cooperation in immigration matters. The Department at an appropriate time will request the Congress for general legislation which will authorize the Secretary of State to negotiate bilateral or multilateral agreements relating to the movements of non-immigrants.
Proposed Radio Convention.8 During the negotiation of the 1936 Treaty the executive branches of Panama and the United States agreed on the provisions of the Radio Convention for the regulation of radio communications in Panama and the Canal Zone. The convention was ratified by the Republic of Panama but not by the United States Senate. This Government continues to feel the desirability of a convention of this nature and, accordingly, is preparing in draft form a new proposal which is to be submitted to Panama in due course.

Other Panamanian Requests

In addition to the foregoing, Panama has indicated that it wishes to discuss with the United States the items mentioned below. Panama has presented no detailed description of its desires and the definite scope of these requests is not understood. No consideration has been given to them to date. They are:

Revision of conventions on extradition and other agreements existing today covering the surrender of persons wanted or pursued by police, judges or prosecuting attorneys of the Republic of Panama and of the Panama Canal, respectively;
Mutual assistance in the administration of justice between Panama and the Canal Zone. A revision of the existing policy regarding the admission into hospitals and asylums of the Republic of Panama and of individuals who work in the Canal Zone who are not Panamanians;
A revision of existing agreements on the use of hospitals and doctors in the Canal Zone by persons residing in Panama;
Negotiations of agreements regarding the cooperation of military forces and police of Panama with corresponding organizations of the United States, especially in the Canal Zone; and
Negotiation of agreement tending to avoid interference or difficulty of any nature between the broadcasting stations established in the Canal Zone and Panamanian broadcasting stations.

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Miscellaneous Cooperation Already Extended

During the past year the following Panamanian requests were agreed to and action was effected:

The United States eliminated the 25% differential granted by the Panamanian Railroad Company in favor of cargoes from the United States consigned to the United States Government agencies in the Canal Zone. This differential was eliminated with the reservation that nothing in the agreement would prohibit the United States from reinstating this or any other differential if special conditions in the interest of the United States, not prejudicial to business interests of Panama, so warrant.
Construction of Tocumen Airport. The assistance of United States engineers and equipment or the facilities of the Public Roads Administration were made available to Panama in order that the construction of the new international airport at Tocumen could be completed rapidly. Engineering assistance was provided on a reimbursable basis and road equipment on a rental basis. Administration of the project was in the hands of Panamanians.
Service of Agricultural Technicians. The United States agreed to designate under Public Law No. 63 the services to Panama of technicians in various fields of agricultural science. Two of these experts have already been selected and one has gone to Panama. A third is to be found.
Coinage of Additional Silver Currency. The United States agreed to coin for Panama one million balboas in silver currency provided Panama would purchase and deliver the necessary amount of silver to the Treasury mint.

General Economic Policy Toward Panama

The United States’ economic policy toward Panama is based primarily on the Treaty of 1936. The policy in general is “to enable the Republic of Panama to take advantage of the commercial opportunities inherent in its geographical situation”. This policy specifically is not to permit the establishment in the Canal Zone of private business enterprises other than those directly related to the Canal and to guarantee opportunity of employment and treatment in the Canal Zone to Panamanians on the same basis as to United States citizens.

  1. Addressed to the Assistant Secretary for Political Affairs (Armour), the Director for the Office of American Republic Affairs (Daniels), the Chief, Division of Central America and Panama Affairs (Newbegin), and W. Tapley Bennett, Jr., Area Specialist, CPA.
  2. For the general treaty of friendship and cooperation signed at Washington March 2, 1936 (accompanied by sixteen exchanges of notes, and additional exchanges of notes signed February 1 and June 25, 1939), see Department of State Treaty Series No. 945, or 53 Stat. 1807.
  3. For the Isthmian canal convention (the John Hay–P. Buneau-Varilla treaty) signed at Washington, November 18, 1903, see Department of State Treaty Series No. 431, or 33 Stat. 2234.
  4. For text of the agreement for the lease of defense sites, signed at Panama on May 18, 1942, see Department of State Executive Agreement Series No. 359, or 57 Stat. (2) 1232.
  5. For documentation on this subject, see Foreign Relations, 1947, vol. viii, pp.881 ff.
  6. Department of State Executive Agreement Series No. 452, or 59 Stat. (2) 1289.
  7. For previous documentation on discussions of alleged discriminatory treatment in the Canal Zone, see Foreign Relations, 1947, vol. viii, pp. 948 ff.
  8. For previous documentation on the regulation of radio communications in Panama and the Canal Zone, see Foreign Relations, 1947, vol. viii, pp. 967 ff.