Office of the Historian

611.19/6–1754

Memorandum by the Assistant Secretary of State for Inter-American Affairs (Holland) to the Secretary of State 1

confidential
[Washington,] June 17, 1954.

Subject:

  • Annuity Payment to Panama

Discussion:

The last two meetings with the Panamanian Delegation in the current review of relations with Panama have dealt exclusively with the annuity question. The Panamanians have made it very clear that they regard this as the paramount issue in these talks. They hold that to the Panamanian people the annuity is the symbol of the benefit which Panama derives in return for the grant made by Panama to the United States for the construction of the Canal.

The head of the Panamanian Delegation, an able lawyer, recognizes that Panama has no legal right to demand an increase in the annuity. However, as is to be expected, they advance elaborate legal arguments to support their claims for an increase.

The Panama Canal Company and the Department of the Army are inclined to favor an increase in the annuity. Ambassador Chapin also strongly supports an increase. In view of the importance attached to this matter by both the Government and people of Panama, I concur provided that our legal position in this matter can be properly safeguarded. I feel we can qualify an increase so as to protect our legal position. I am convinced that failure to reach an agreement on the annuity question will jeopardize an overall settlement in these talks.

I think that an offer from us at this time, provided that the Panamanians in writing recognize and admit that they have no legal right whatsoever to an increase, would substantially improve our bargaining position, I am not at all sure they would accept it; but it would define the issue as being a disagreement, not on money, but instead a disagreement as to Panama’s legal right to re-open this treaty.

Recommendation:

That you approve an offer of an increase in the annuity on the condition that Panama specifically recognizes (1) that it has no legal right to an increase or to re-open any article of the treaty and (2) that the increase is granted solely as an act of grace on the part of the United States Government with no recognition of any responsibility.

  1. The source text contains the following notation by Mr. O’Connor: “Secretary and Holland discussed this—17 June—and agreed on a modified course of action.”↩