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

PM–8. Memorandum of Conversation, by the Deputy Director of the Office of Central American and Panamanian Affairs (Leggett)¹

Washington, October 8, 1958

SUBJECT

• U.S.-Panamanian Relations and the Canal Zone

PARTICIPANTS

• The Secretary
• His Excellency Señor Lic. Miguel J. Moreno, Minister of Foreign Relations of Panama
• His Excellency Señor Don Ricardo M. Arias E., Ambassador of Panama
• ARA—Mr. Rubottom
• OAP—Mr. Leggett

Calling at his own request, Foreign Minister Moreno began by expressing his admiration for the skill and firmness displayed by the Secretary in dealing with the current crisis in the Far East² and stated that his Government fully endorsed the position adopted by the United States.

He then turned to certain aspects of U.S.-Panamanian relations concerning the Canal Zone, and expressed his appreciation at having received the opportunity to bring this matter to the Secretary’s personal attention. He said that his Government was under severe pressure from student groups and other elements and that these pressures, although political in expression, were basically economic in origin. They represented, the Foreign Minister went on to say, a desire for better education, improved living conditions, and a higher standard of living. To meet these demands, the Panamanian Government found it essential, he said, to achieve a more favorable economic relationship with the Canal Zone.

The basic difficulty lay in the differing interpretation placed by United States Government agencies and the Government of Panama on the Treaty of 1955 between the two governments and the related Memorandum of Understandings Reached. Of primary importance to Panama, he went on to say, were the questions of importation of merchandise for resale in the Zone, manufacturing and processing activities in the Zone, application of the single wage scale to all Zone employees, remission to the Government of Panama of duties collected on liquor sold in the Zone, and the question of the location of the proposed new passenger terminal by the Panama Railroad Company.

The Foreign Minister asked Ambassador Arias if he would not like to expand upon the problem involved in imports of merchandise from third countries for sale within the Zone. The Ambassador began by saying that the Panamanians did not question the U.S. interpretation of the 1955 Treaty as being perfectly logical and consistent, from our point of view. However, he said, Panama regarded the matter from a different angle. Panama was a small state which, although having benefited greatly from the Canal, nevertheless felt itself entitled to, and of necessity was obliged to obtain, even greater benefits. With no minerals or other natural resources apart from its geographic position, Panama was obliged to rely very heavily on revenues derived directly and indirectly from the operation of the Canal. He stated that he was absolutely convinced of the correctness of this view, despite the theory advocated by some prominent Panamanians that the country should endeavor to develop other sources of income in order to lessen its dependence upon the Canal. He went on to point out that the Canal had been constructed with United States resources, in Panamanian territory, and was, in his view therefore, an entity which was effectively the concern of our two nations alone. For this reason, he said, the Canal Zone market should be reserved for Panamanian and U.S. suppliers, and the introduction of Australian beef and Ecuadoran rice, for example, encroached on Panama’s right to supply this natural market. Panama’s was a dollar economy, he added, and could not hope to achieve the low-production costs of such countries as Ecuador. In short, the Ambassador said that frankly what Panama considered itself entitled to was a “captive market”.

The Secretary observed that we did not subscribe to this theory with respect to our own domestic market and mentioned the Reciprocal Trade Agreements policy³ as evidence of our attitude. The Foreign Minister replied that nevertheless the United States found it necessary on occasion to take protectionist sentiment into account, citing the recent imposition of quotas on lead and zinc imports as an example.⁴ In a brief digression, the Foreign Minister and the Ambassador both complimented the Secretary on his decision to announce the lead-zinc quotas before the recent Washington meeting of Foreign Ministers⁵ convened, and the Foreign Minister commented upon the satisfaction expressed by his colleagues during the opening sessions of UNGA in New York over the Secretary’s remarks in Washington to the Foreign Ministers.

The Ambassador then reverted to the problem of the Canal Zone and raised the question on the wage rate paid Panamanian employees of the Zone. The Secretary stated that he thought that this matter had been settled by the recent legislation enacted by the United States Congress implementing the single-wage provisions of the 1955 Treaty. The Ambassador replied that it was true that the legislation in question had established a given wage for a given job, regardless of whether the job was filled by a Panamanian or an American, and that he hoped that the Executive Order putting this into effect would be promulgated shortly. The broader question which remained unsolved, he said, was not the question of base pay but the difference in the total amount actually paid Americans and Panamanians working side by side and doing the same kind of job. He did not see how the United States could indefinitely maintain one real wage scale for its people in one part of the world and another scale elsewhere.

Mr. Rubottom pointed out that, in order to recruit employees for work in the Zone, it was necessary to offer them certain financial incentives. He also pointed out that were we to raise base wages in the Canal Zone to U.S. levels for all employees, regardless of citizenship, the resulting contrast with the relatively low wage-scale level in the republic would bring tremendous pressure on the Government of Panama for wage increases which it could not possibly grant. Mr. Rubottom reminded the Foreign Minister that we had, at the Panamanian Government’s request, withdrawn commissary privileges from Panamanian employees of the Zone. While that action had benefited Panamanian industry and commerce, it had also the effect of reducing the purchasing power of the Panamanians working in the Zone.

We were very conscious of Panama’s financial and economic problems, Mr. Rubottom continued, and were giving careful and serious consideration to the development projects outlined in the Memorandum presented to Dr. Milton Eisenhower⁶ during his visit to Panama. Mr. Rubottom also mentioned a recent conference in which he, Assistant Secretary of Army George H. Roderick, Governor Potter, and Ambassador Harrington had discussed Panama’s problems. Finally, he stated that Mr. Robert Burroughs and Mr. Ralph Cake, members of the Board of Directors of the Panama Canal Company, together with Governor Potter, had called on the Under Secretary last week to present their views on Panama’s need for economic and social betterment. It was evident, he added, that the various United States Government agencies concerned were giving the most serious consideration to the matter.

The Foreign Minister spoke again briefly, making particular mention of imports of such luxury items as diamonds, French perfumes, and Persian rugs for resale in the Zone, from which Panama derived no financial advantage. The Ambassador commented on the vast contrast in the standard of living in the Zone and that in the Republic and the impression this contrast made on the people of Panama. The preferred position in supplying the Canal Zone market, together with other benefits being sought, should be financed, in the Ambassador’s opinion, from the revenue derived from the operation of the Canal. He pointed out that Canal tolls had not been raised since 1914, despite increases in freight rates, wages, and so forth in the interim, although he admitted that any increase in the tolls which we might decide to make would become a major international problem.

The Secretary concluded the discussion by pointing out that the Department and the White House had been much concerned over the delay in the passage of legislation implementing the 1955 Treaty. Now, he said, it appeared that the problems posed by the Foreign Minister concerning interpretation of the provisions of that Treaty were not of a legal character, but dealt rather with the manner in which the Treaty provisions were applied in detail. No immediate reply could be given, he added, but he said that he and Mr. Rubottom would undertake a serious study of the points the Foreign Minister had raised and would ascertain if something could not be done.

On his departure, the Foreign Minister handed the Secretary an envelope which, he stated, contained an Aide Memoire⁷ on the subjects discussed.

1. Source: Department of State, Central Files, 611.1913/10–858. Confidential.
2. For documentation on U.S. policy with respect to the Chinese offshore island crisis of 1958, see Foreign Relations, 1958–1960, vol. XVI, East Asia-Pacific Region; Cambodia; Laos.
3. Enacted on June 12, 1934, the Reciprocal Trade Agreements Act (48 State 943) empowered the President to lower unilaterally existing tariff schedules by as much as 50 percent for those nations willing to make reciprocal trade concessions. In the Trade Agreements Extension Act of 1958 (Public Law 85–686), enacted on August 20, 1958, Congress granted the President another extension of the Reciprocal Trade Agreements Act of 1934. For the text of the Trade Agreements Extension Act of 1958, see 72 State 673.
4. On September 22, 1958, President Eisenhower announced the imposition of quotas on lead and zinc imports into the United States, effective on October 1. For the text of the White House press release containing the President’s announcement, see the Department of State Bulletin, October 13, 1958, p. 579.
5. The Latin American Foreign Ministers met informally in Washington on September 23–24, 1958, and approved measures to promote inter-American economic cooperation, including the establishment of an inter-American economic development institution.
6. Not printed; 611.1913/10–2958.
7. Not printed; 611.1913/10–858.