Memorandum Prepared in the Department of State1
Matters, Thus Far Not Completely Resolved, Which Dr. Arias May Bring Up for Discussion with the President
1. Article II, Treaty (taxation):
The Panamanians object to the limitation of the scope of this Article to income tax alone. They wish it to be extended to cover “contributions or charges of a personal nature of any kind”. This would conform to the terminology used in Article X of the 1903 Convention and give them complete tax jurisdiction over their citizens who are employed by Zone agencies rather than to have their jurisdiction limited to income tax.
They base their case on principle. They say there are no additional personal taxes presently in force to which these persons would become subject. We have thus far refused to consider broadening the scope beyond income tax, saying that their proposal is so vague and undefined that we cannot foresee what would be involved. They say that it is none of the business of the United States what personal taxes Panama may levy on Panamanians so long as this group is not the object of discrimination; a non-discrimination guarantee is embodied in this Article. In reply to our query concerning social security taxes, they have said such taxes are not considered “personal” but that they would be glad to insert a statement in the treaty to the effect that social security taxes would not come within its scope.
The Governor is inclined to be sympathetic with the Panamanian desire to be free of restrictions on the exercise of tax jurisdiction over their citizens but is apprehensive that broadening the scope of this Article might result in the levying of taxes which would complicate his labor relations problem. He seems to have in mind the levying of taxes under the Panamanian labor code—he has not been able to define precisely just what kind of taxes might be involved. His apprehension is based on distrust—that if given an opportunity Panama is likely to attempt to extend its jurisdiction into the Canal Zone; in this case by levying “personal” taxes upon employees which would include Panamanian employees of Zone agencies. In view of this apprehension the Governor does not favor broadening the scope of this Article.
2. Article X (Zone highway)
The Panamanians have refused to agree to our draft. They have proposed joint traffic control over this road. The Governor and CINCARIB will have none of this. Not only is joint traffic control unacceptable in principle (giving Panama a voice in a matter concerning Zone administration) but it is inconsistent with their concept of this road. [Page 1461] They point out that Panama has a trans-Isthmian road which we built for them and continue to maintain; that Panama has no just basis for complaint if we desire to construct a road within the Zone for our own use. They insist that this is a concession Panama must make.
It is not clear just how much emphasis Panama will place on this matter. We think that they will accept it rather than lose the Treaty on this issue alone. However, it is possible that Dr. Arias may bring this up with the President, claiming that it is inconsistent with our traditional close relationship for the U.S. to attempt to discriminate against Panamanian traffic on this road.
3. Article XIII (reopening of treaties, etc.):
Unless we are able to come to an agreement on a text of this Article prior to his call upon the President, Dr. Arias is certain to bring up this subject. He will take exception to any language which might lend itself to the interpretation that the treaties are “frozen” and to language which might imply that arguments based on rebus sic stantibus and equity cannot be brought into play in connection with proposals for the revision of the treaties.
4. Item 10, Memorandum (nautical inspectors):
The Panamanians take strong exception to the phrase “consonant with the jurisdictional position of the United States in the Canal Zone”. They say that this would commit Panama to acceptance of the United States thesis on the question of jurisdiction in the Zone. The Governor admits this is so, saying that we would not enter into any arrangement which did not accord with our position on the jurisdictional question; therefore, this should be made clear in advance. He argues that if any doubt in this regard were permitted to arise we would lay ourselves open to charges of bad faith when we subsequently made it clear that any such arrangements had to conform with our jurisdictional thesis.
Our recommendation on this item is that if Panama continues to object, they be offered the alternative of deleting it from the Memorandum.
5. Item 11, Memorandum (transshipment of commercial cargo at Colón):
The Panamanians profess to attach a great deal of importance to this item and have remained insistent that our undertaking be expressed in more definite terms. Rather than saying that “consideration” will be given to withdrawing from this activity so soon as adequate Panamanian port facilities are available at Colón, they insist that we say that when such port facilities are available we “will withdraw”.
[Page 1462]The Governor is adamant in his refusal to enter into such a commitment. In fact, upon reconsideration, he has certain qualms about the undertaking we have already agreed to give the Panamanians on this subject. He is concerned about mixed cargo, especially that arriving on Panama Line vessels, where, for example, 90% of the cargo would be for the Zone and 10% for transshipment. He is apprehensive that even under the undertaking we have offered them we might have to move such ships from one pier to another; he is certain that this would be the case under the type of wording of the undertaking insisted upon by the Panamanians. Actually, we think we are safe under the present wording since “consideration” of the matter gives some leeway to allow for situations such as this. The type of undertaking desired by the Panamanians, however, would not give us any such leeway; we think the Governor’s position is sound and should be supported.
Our recommended position, therefore, is that we are not interested in handling the commercial transshipment business over our docks and are perfectly willing for Panama to take it over; however, we must remain in a position to arrange for exceptions in cases where ridiculously high costs would be incurred in handling small amounts of cargo.
- Source: This document, presumably dated Nov. 8, was found in the files with the memorandum to the President, infra. (611.1913/11–954)↩