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

PM–21. Memorandum from the Assistant Secretary of State for Inter-American Affairs (Rubottom) to the Secretary of State¹

Washington, undated

SUBJECT

• Implementation of Decisions Taken on October 12 at White House Meeting on U.S.–Panama Relations.

In accordance with the President’s wishes expressed at his meeting on October 12, and responsive to Brigadier General Goodpaster’s memorandum of October 14 to you (Tab B)², a meeting was held at the Pentagon on October 14 during which plans were discussed for implementation of the President’s desires for improvement of U.S.–Panamanian relations. Attached at Tab B³ is a Memorandum of Understanding as agreed to by State, Canal Zone Government, and Army representatives present at that meeting. You will have already seen Mr. Rubottom’s memorandum of conversation on the White House meeting on October 12 (Tab C).⁴

A Memorandum for the President with a suggested letter for his approval addressed to Panamanian President de la Guardia is at Tab A.⁵ The text of this proposed letter has been concurred in by the departments of the Army. The message refers to previous correspondence between the two Presidents and informs the President of Panama of the action taken by President Eisenhower to achieve increased understanding between the two countries by approving revised operating policies in the Zone.

Discussion:

General Goodpaster’s memorandum mentioned the President’s desire for the establishment of close, continuous liaison between designated working-level representatives of the State Department and the Department of the Army on problems pertaining to the Republic of Panama and United States operations in the Canal Zone. This has not been necessary in view of the fact that such liaison has existed for some time. (Your October 19 reply to General Goodpaster is at Tab A).⁶ A meeting of representatives of the appropriate agencies had been scheduled at the Pentagon for October 14 and, in the light of the decisions taken at the October 12 meeting at the White House, it was possible to re-orient the discussion toward the implementation of the President’s instructions to eliminate certain of the frictions affecting relations between the two countries. Attending the meeting were Assistant Secretary of the Army Roderick, Assistant Secretary Rubottom, United States Ambassador to Panama Harrington, Governor Potter of the Canal Zone, and Lieutenant General Gaither, CHICARIB, in addition to members of their respective staffs. While Mr. Roderick was clear in his understanding of the President’s instruction, and this coincided with Mr. Rubottom’s understanding, the Canal Zone and military representatives present displayed an antipathetic attitude toward the changes in procedures which will effect the way of life of residents in the Zone. It is believed, however, that once the initial emotional impact of the impending changes has been absorbed, distastes for these changes will diminish and it would appear that while the Zone authorities and residents will not like the new system they will realize that they must live with it. In fact, the Department of the Army already appears to be reconciled thereto.

At the Pentagon meeting agreement was reached on the following points, which had been discussed previously at the White House:

1. Housing Project

With regard to the proposal for the construction of “middle class” housing located in Panama for Panamanian employees of the Canal Zone, the Department of the Army representatives discussed the possibility of financing this project along the lines set forth by Mr. Dillon at the White House, i.e., one thousand dwellings costing approximately $5 million to be financed directly from Panama Canal Company funds. Governor Potter stated that the Canal Zone Government did not have sufficient funds available for this purpose and that a direct Congressional appropriation for housing would be required unless another source of funds was found. The Department of the Army agreed to seek means for financing such construction.

2. Third Country Purchases

The Department of the Army representatives agreed to change existing procurement procedures to eliminate insofar as possible further purchases from other than United States or Panamanian suppliers of imports for resale in this Canal Zone. (This would raise questions of compliance with United States obligations under Article XVII of the GATT.⁷ In the past, we have taken the position that limitations on third country purchases by the Canal Zone authorities do not contravene Article XVII.) General Gaither pointed out that those principally affected by this change would be his troops and United States employees of the Canal Zone.

3. Sales of Luxury Items

The Department of the Army representatives agreed to establish a uniform definition of “luxury items” and the price limits of these items which may be sold in commissaries, post exchanges and other sales outlets in the Canal Zone. There was considerable discussion as to what should be considered as a “luxury item” and a list of such articles is being prepared for guidance. General Gaither was not convinced that the maximum value of PX items should be less than that prevailing at other overseas bases.

4. Single Wage Plan

The Department of the Army representatives (1) agreed to institute an incentive program to attract Panamanian participation in an apprentice and related training program which would qualify Panamanians to work in higher grades in Canal Zone establishments; (2) agreed to re-examine “security” classification positions with a view to reducing them further; and (3) agreed to examine means of adjusting wages for manual-type labor paid to unskilled and semi-skilled employees, such adjustment probably to date from February 1960, the first anniversary of the new wage plan. According to Governor Potter, changes in existing regulations may be required in order to implement these decisions.

ARA agrees with Ambassador Harrington’s suggestion that, as a result of the strong personal interest taken by the President in the current state of United States-Panamanian relations and in view of the President’s instructions to the responsible United States officials to undertake to interpret the 1955 Treaty in a broader sense then heretofore, a letter should be sent to President de la Guardia of Panama by President Eisenhower stating that he has approved a number of revisions in Canal Zone operating policies which he believes will redound to the benefit of Panama. This letter would have effect of taking the immediate pressure off the United States, particularly during the forthcoming presidential campaign in Panama, and would place us in a more favorable light before the bar of world public opinion. At the outset, the Department of the Army and Governor Potter did not favor sending the letter, but desired that the same points be made orally to the Panamanian President by our Ambassador. They have now receded from that position and have concurred in the letter as drafted. ARA feels strongly that the suggested letter should be signed by the President, for, in addition to the reason set forth above, it would be a clear indication of the president’s desire to cooperate with Panama in minimizing certain frictions in our foreign relations. Moreover, if at some future time Panama should take the 1955 Treaty compliance issue to the IOJ, we would have a written record of our attempts to be cooperative and that we had, in fact, leaned over backward to assuage Panamanian desires. It is ARA’s view that the message should be released to the press upon its delivery by Ambassador Harrington. ARA is, however, not laboring under any delusion that these steps will halt further Panamanian attempts to seek additional benefits from our presence in the Canal Zone.

ARA anticipated that these decisions affecting our operations in the Canal Zone will come to the notice of the Congress, of the Board of Directors of the Panama Canal Company, and of the public in general, and that considerable comment will result therefrom. ARA in conjunction with H plans to undertake immediately to brief the members and staffs of the appropriate committees in Congress on the background of the decisions taken at the White House to point out that the foreign relations aspects of this matter outweigh the possible inconveniences which they may cause to Canal Zone residents or members of the Armed Forces on duty there.

ARA will maintain continuing liaison with the Department of the Army’s representatives to assure that the President’s wishes are carried out.

Recommendation:

That you sign the attached Memorandum for the President (Tab A), submitting for his consideration a letter addressed to Panamanian President de la Guardia, starting that he has approved certain changes in operating policies of the Canal Zone authorities and recommending that the message be released to the press upon delivery by our Ambassador in Panama.

1. Source: Department of State, Central Files, 611.19/10–2859. Confidential. Drafted by Frederick D. Sharp III, the Officer in Charge of Panamanian Affairs, on October 21. The source text is an uninitialled carbon copy that was attached to a Memorandum of Understanding dated October 19, the contents of which had been agreed to by representatives of the Department of State, the Canal Zone Government, and the Department of the Army at a meeting at the Pentagon on October 14.
2. Not attached to the source text. The record copy of Goodpaster’s memorandum is in the Eisenhower Library, Staff Secretary Records, “Panama.”
3. Not printed. See footnote 1 above.
4. Rubottom’s memorandum of this conversation is printed as Document PM–10.
5. The text of the memorandum for the President and the draft letter for transmittal to President de la Guardia are printed as Document PM–22 and Enclosure.
6. Not attached to the source text. The record copy of Herter’s reply to Goodpaster is in the Eisenhower Library, Whitman File, Dulles-Herter Series.
7. Article XVII of the General Agreement on Tariffs and Trade, concluded at Geneva on October 30, 1947, dealt with non-discriminatory treatment on the part of state-trading enterprises. For the text of Article XVII of the General Agreement on Tariffs and Trade, see 4 Bevans 664.