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

PM–36. Memorandum of Conversation, by the Assistant Secretary of State for Inter-American Affairs (Rubottom)¹

Washington, March 21, 1960

SUBJECT

• PANAMA

PARTICIPANTS

• The President
• The Secretary
• The Secretary of the Army
• The Under Secretary for Political Affairs
• Assistant Secretary Roderick
• General Persons
• General Goodpaster
• Assistant Secretary Rubottom

Secretary Brucker referred to the President’s memorandum of one month ago² as providing the basis for the meeting and then distributed copies of a paper “Proposed Action by Panama Canal Company and Canal Zone Government,”³ listing a ten-point summary of a more detailed paper which he handed to the President⁴ which the latter began to read. Secretary Brucker retained a copy of the detailed proposal for his own reading but did not have other copies of the basic paper to distribute.

The President, after a few minutes, inquired about the apprentice plan, recalling that he had heard from an American source regarding their poor treatment in the Canal Zone training school. General Goodpaster said that Robert Burroughs had been the source of this report.

Mr. Roderick said that Panamanian apprentices received the same wages as Americans (except the regular 25 per cent foreign residence differential), starting at approximately $1.00 per hour and increasing gradually over the four-year apprenticeship to almost the maximum wage paid to skilled Panamanian workers. He averred that the real problem was that Panamanian apprentices could not compete with the American beginners. To meet this, the new plan proposes that the Panamanian apprentices compete among themselves. The President thought that the wage structure was certainly sufficient to disavow any complaint on that basis.

Secretary Brucker pointed out the link between points 1 and 9 of the proposed action, i.e. increasing wages of Panamanian employees 10 per cent and increasing the pay of teachers in Latin American schools; he referred to the link between items 6 and 7 having to do with the installation of a new water main to supply Panama and a reduced charge for water furnished to Panama; also, items 3 and 4 were related, having to do with the replacement of 500 substandard houses in the Zone and the construction of 500 low-cost houses in Panama for Zone employees. The proposed wage increase of 10 per cent had been recommended deliberately, rather than the 5 per cent increase originally suggested, and the company was thinking of making this an annual increment which would, therefore, eliminate a wage differential between Panamanians and Americans in 10 years. Mr. Brucker said that the company had also deliberately increased the number of apprentices from 20 to 25 per year in its proposal; since the training period is 4 years, there would be 100 Panamanians in the school at all times, a rather impressive figure, he thought.

The President inquired about the U.S. treaty obligations to the world regarding rates charged ships transiting the Canal. Wasn’t there some way we could increase the rates so as to amortize the original building costs for the Canal? Mr. Roderick explained that there was in effect a formula with the Congress which works in the following way: if the Canal Company books show that the rates are too low or too high, the Executive Branch could, after a six-month waiting period, recommend a reduction or an increase in the rates in order to balance the books. The Administration tried in the 83rd and 84th Congresses to include original building costs in the financial base structure of the Canal Company accounts, but the pressures on the Congress were sufficient to nullify the government’s recommendations.

The President noticed that there was no mention of third country purchases or the sale of luxury items in the PX’s. Mr. Brucker declared that the measures affecting these points had already been placed into effect.

Mr. Merchant commented that this action had had favorable repercussions.

Secretary Brucker said that his Department was prepared to move ahead on all points in the company proposal although enabling legislation would be required for point 4, covering construction of housing units in Panama, and point 8, an increase of pensions paid disabled Panamanian employees, even though ultimately the funds for both of these items would be provided by the company. The Secretary said that Panama obviously would have to cooperate in providing land for the housing and that some kind of negotiation would have to be carried out.

Secretary Herter said that, while the Department was not aware of the detailed terms of the company proposal, it sounded satisfactory. He said that the Department had made a careful long-range analysis of the problems attendant to U.S.-Panama relations and that, after consultation with Mr. Brucker, he would like to come back to the President with recommendations. He believed that the long range U.S. picture regarding the Canal hinged considerably on whether a sea level Canal is to be built and, if so, where it is built.

Secretary Brucker referred to a proposal made to the President to train annually 1000 Latin American doctors, nurses and medical technicians at Gorgas Hospital in Panama. The total cost was estimated at $600,000 per year but since the governments of the trainees would probably be willing to pay their travel costs, roughly half of the total, the balance of the $300,000 annual cost might be divided 50-50 between the United States and the recipient countries.

Secretary Herter expressed awareness of the proposal and said that the Department was studying it. He said that it was an appealing plan.⁵

The President opined that the gesture of the crossed flags on March 1 had worked out well. Why hadn’t we done this five years earlier? As though to answer the question himself, he recalled a telegram of complaint received from one of his brothers urging that the United States make no conciliatory gesture on the flag. Secretary Brucker stressed that the main point is that we are now prepared to do something regarding this problem. He said we should certainly not allow any important anniversary dates in Panama to go by without taking similar steps.

Secretary Herter said that the Department would include recommendations regarding the flag issue in its next meeting with the President on Panama.

The President said that the measures included in the company proposal seemed to him to be satisfactory and that the company should move ahead with them.

General Persons asked the President whether the various items should be given to the Budget Bureau for consideration. General Goodpaster asked whether steps should be taken with the Congress to permit the company to amortize the original construction costs. The President gave an affirmative answer to General Persons but recognized that there were problems with the Congress and with the shipping interests on the second point. The President pointed out that, with respect to any long range decision on a sea level canal, it should not be built in Panama if that country is uncooperative.

Secretary Brucker alluded to the subject of rates charged transiting ships and said that a very careful review would have to be made before attempting to obtain approval of an increase.

Assistant Secretary Roderick said that a study was now being made, looking toward legislative action, to enable the company to pay the government of Panama out of its own funds the $1.5 million increased annuity, resulting from the 1955 Treaty, since the authorizing legislation flowing from that treaty had required that the State Department seek an annual appropriation to make this increased annuity, although the original $430,000 annuity is still paid out of company earnings. The company is also considering steps enabling it to add $20 million to the financial base of the company, this being the cost of the bridge now under construction, in order that this might be chargeable against earnings, at least insofar as interest, which is now being charged on the base annually, is concerned.

1. Source: Department of State, Central Files, 611.1913/3–2160. Confidential; Limit Distribution.
2. See Document PM–35, footnote 2.
3. The Panama Canal Company and the Canal Zone Government proposed, in this paper, to authorize a 10% increase in the wages of Panamanian employees; to expand the apprentice program to admit 25 Panamanians annually; to replace 500 substandard housing units in the Canal Zone; to construct 500 low cost housing units in Panama; to withdraw the Panama Railroad terminal from Panama; to install a new water main to increase the water supply to Panama; to reduce the rate charged for water furnished to Panama; to support legislation to increase the pensions paid to disabled Panamanian employees; to increase the pay of teachers in Latin American schools; and to continue the review of security positions to keep the number at a minimum. (Eisenhower Library, Staff Secretary Records, “Panama Canal”)
4. Not found.
5. In a memorandum dated April 15, Under Secretary of State Dillon informed the President that the State Department had completed its feasibility study of the hospital and medical training program at Gorgas Hospital and had concluded that the program was feasible; that Gov. Potter had agreed to its implementation; that the International Cooperation Administration was prepared to proceed; and that Ambassador Harrington would bring the matter before the Foreign Ministry of Panama in order to obtain Panama’s cooperation. (Eisenhower Library, Whitman Files, Dulles-Herter Series)