Foreign Relations of the United States, 1958–1960, Volume V, Microfiche Supplement, American Republics

PM–20. Memorandum of Conversation, by the Assistant Secretary of State for Inter-American Affairs (Rubottom)¹

Washington, October 12, 1959

SUBJECT

• U.S. Relations with Panama

PARTICIPANTS

• The President
• The Secretary
• The Secretary of the Army
• The Under Secretary
• Assistant Secretary of the Army Roderick
• President of Eximbank Waugh
• General Manager, DLF, Mr. Brand
• Assistant to the President Rocco Siciliano
• General Goodpaster
• Assistant Secretary Rubottom

The meeting started with a presentation by Secretary Brucker of the problems which the Panama Canal Company, of which he is the President, has encountered in its relations with the Government and the people of Panama. He was assisted by Assistant Secretary of the Army Roderick who used charts to describe the problems principally related to: (1) Equal pay for equal work (single-wage scale) and (2) Area of procurement of goods sold in the Canal Zone. Details of this presentation are available in the attached memorandum.²

Following the presentation of the Secretary of the Army the President said that he had heard from Panamanians on several occasions three principal complaints: (1) Unfair wages paid to Panamanians due to failure of the United States to live up to its 1955 Treaty obligations; (2) Purchases by the Canal Zone authorities of goods outside the United States and Panama, especially New Zealand beef and Ecuadoran rice; and (3) Sale of luxury goods in the Canal Zone commissaries and PX’s. (Secretary Brucker said that orders had already been issued to the PN’s to stop the sale of goods costing more than $50.) The President told the group that the United States had come a long way since the days of laissez-faire and he referred as an example to our own agricultural subsidy program. He felt that it was time for the United States to decide what is in the best interest of all the United States and not just to look at the “mathematics” of our jobs or our treaty obligations. He opined that the Governor of the Canal Zone³ was perhaps the best that we have ever had but that he could scarcely be expected to judge the Panamanian situation “objectively.”

With respect to sovereignty it is clear that residual sovereignty still rests with Panama, but actually the Panamanians had not mentioned this problem to him, their principal complaints being the points listed above. Secretary Brucker stated that the sovereignty problem did not seem to be too serious to him.

Secretary Herter raised the question of the “security” jobs which are held exclusively by Americans and which is a serious point at issue there. Secretary Brucker replied that they were reviewing these assignments now, that all teachers had now been removed from the security list, and that 300 other security jobs had been removed from the lists. Mr. Rubottom recalled the clipping given to him by the Panamanian Foreign Minister in Santiago,⁴ following the latter’s open attack on the U.S. policies in the Canal Zone at the Foreign Ministers meeting, which consisted of two job descriptions, in English, which were word for word the same and which offered slightly over a dollar to a Panamanian and approximately $2.30 for an American doing road machine work. Assistant Secretary Roderick said that the Canal Zone authorities were “caught in this middle” between the U.S. objectives on the one hand and the requirement to cut costs on the other. He acknowledged that they might actually pay a U.S. wage under the terms of some of the contracts awarded there, while the contractor himself would ultimately pay the going Panamanian wage for the work prescribed.

The President referred to his philosophical approach to all these problems. He said that times had changed since the 1903 Treaty was signed and that the United States could not operate the Canal Zone as though it were “an island.” The Secretary said that we should place a more favorable interpretation on our treaty commitments, in accordance with their spirit, wherever possible.

Mr. Siciliano reverted to the discussion on labor problems, and said that, unless more incentive could be given to Panamanian workers, fewer and fewer Panamanians would be hired in the future rather than more of them. Assistant Secretary Roderick said that it would probably be necessary to guarantee Panamanian apprentices certain jobs at the end of their training period.

There ensued a discussion of third-country purchases which was acknowledged by Secretary Brucker to be one of the principal problems with Panama. He pointed out the high-quality New Zealand beef could be purchased more cheaply than the same quality from the United States. He said that Panamanian beef was not of the same quality. He seemed to acknowledge that, if instructed to do so, the Canal Zone could purchase all of its beef from the United States or Panama. He also pointed out the problem of the U.S.-operated dairy. Mr. Roderick recalled that Ambassador Arias had acknowledged last week that Panamanians, with few exceptions, were not yet in condition to sell milk that met U.S. standards. They seemed to think that, with technical assistance, and with the passing of time, this problem could be overcome.

Mr. Dillon raised the question of housing for the Panamanian employees of the Canal Zone and how to finance such projects. The Development Loan Fund might find that such financing would conflict with its lending policies. He inquired why the Panama Canal Company could not finance the housing out of its own profits and have the employees reimburse the cost of the housing to the company itself. Mr. Waugh agreed that this was a wise proposal for middle-class housing but doubted that the Canal Zone should undertake to finance very low-cost housing for the lowest paid workers. Mr. Dillon thought that the financing of 1000 houses at an approximate cost of $5 thousand each or a total project of $5 million (as earlier mentioned by Secretary Brucker) would not set a precedent that would create difficulties for us elsewhere in the world, if the Canal Company itself were to finance the project. The President asked about those who would still be living in sub-standard housing. It was generally agreed that 1000 houses would not solve the problem but that it would be a big step forward.

The President declared that these problems with Panamanians vitally affect our foreign relations. They are not just a master of “good business”. He said that the Department of the Army and the State Department would have to coordinate more closely in dealing with the Panamanians, since our differences with that country kept coming to his attention.

Mr. Rubottom referred to the recent discussions with the Panamanian Ambassador, who had stated quite frankly that Panama considered the Canal to be its greatest asset. He recalled Ambassador Arias’s farewell speech of three years ago when he had remarked that it was “easier to get the United States to sign an agreement than to live up to its terms.” He had publicly criticised Assistant Secretary Roderick by name on the same occasion. It was clear that the Panamanians intended to do one of two things, or possibly both: (1) carry their case to the International Court of Justice, and (2) keep up the pressure on the United States in public forums such as the Santiago meeting and the United Nations, or press for renegotiation of existing treaties.

Mr. Rubottom said that the United States should go as far as possible to live up to the spirit of the Treaty in order to be able to respond to Panamanian accusations and that it also should do as much as possible to help the Panamanians develop their economy outside the Canal Zone. He referred to the fact that Ambassador Arias would be paying a farewell call on the President in a few minutes and suggested that the President make clear that we intended to treat Panama fairly but that continued public attacks on the United States would have the effect of tying our hands and reduce our capacity to cooperate with them in the future.⁵

The President at the close of the meeting said that his orders were to have the Panama Canal Company desist in its purchases from third countries and to reduce to the greatest extent possible the handling of luxury goods in commissaries and PX’s.

1. Source: Department of State, Central Files, 611.19/10–1259. Confidential; Limit Distribution.
2. Not printed.
3. Maj. Gen. William E. Potter.
4. For documentation on the fifth meeting of consultation on Ministers of Foreign Affairs of the American Republics, held at Santiago, Chile, August 12–18, 1959, see Documents CH–23; CR–24; DR–11; VE–34.
5. The President conveyed this message to Ambassador Arias in the course of their conversation. A memorandum of the conversation, dated October 12, is in Presidential Memoranda of Conversation, Lot 66 D 149.