417. Memorandum From Secretary of Defense McNamara to President Johnson 1


  • Actions Taken in the Canal Zone to Improve Relations with Panama Since the Riots of January 1964

Under the supervision of the Secretary of the Army, as a part of a continuing program to improve relations with Panama, the following specific actions have been taken since January by the Canal Zone Government and the Panama Canal Company.

[Page 875]

Flying Panamanian flags in the Canal Zone.

Action. During the January riots, the decision was made to adhere meticulously to the agreement to fly the Panamanian flag wherever the U.S. flag is flown on land by the civilian authorities in the Canal Zone. Dual flag poles and dual flags have been installed at all schools in the Canal Zone. A formal agreement with the Republic for the half-masting of flags on national days of mourning is under discussion. Pending such agreement, the flags of both nations are half-masted for either nation’s days of mourning.


Disciplinary action against U.S. citizen employees.

Action. Two employees whose opposition to the Administration’s policies exceeded normally acceptable standards have been discharged, and a third has been demoted. These employees’ acts included publication of libelous material and other acts of rank insubordination. The discharged employees’ appeals are currently under consideration in the U.S. Civil Service Commission. These discharges will have a salutary effect on any employee who may be inclined to make inflamatory public statements in opposition to conciliatory moves toward Panama.


Wage increases to Panamanian employees.

Action. A series of wage increases was initiated in 1962, designed to eliminate the marked gap between wage levels in categories of jobs held for the most part by Panamanian citizens and the categories held mostly by U.S. citizens. The third and final increase under this program was put into effect in July 1964. The program will increase annual labor costs in Canal Zone agencies by approximately seven and one-half million dollars.


Hiring of Panamanian citizens for the Panama police force.

Action. In the past all police positions in the Canal Zone have been designated as Security Positions, reserved for U.S. citizens only. Thus, law enforcement in the all-negro non-U.S. citizen communities within the Canal Zone and along the Canal Zone border has been carried out by white U.S. citizen policemen, creating both national and racial conflicts in police actions involving Panamanians. On August 21, 1964, by an amendment to Army regulations made possible by Executive Order 11171, authority was granted to the Governor of the Canal Zone to employ 25 Panamanian citizens for the police force outside the Security Position category. This action was not taken in response to any Panamanian demand, but it gives promise of better relations between the Canal Zone police and the Panamanian citizens in the Zone. It also opens a new category of jobs formerly closed to Panamanian citizens.


Review of security positions.

Action. At the time of the establishment of the Canal Zone Merit System in 1959 some 4,000 jobs in the Canal Zone were classified as Security Positions, reserved for U.S. citizens. Periodic reviews since that time reduced the number to approximately 2,500. The Governor of the Canal Zone has been directed to restudy the Security Positions in the Canal organization with a view to further reducing the total.


Desegregation of public accommodations.

Action. Traditionally, Canal Zone communities and public accommodations have been segregated along national lines, which amounted to racial segregation in that most Panamanian citizen employees are negro. With the passage of the Civil Rights Act in the U.S., the Governor of the Canal Zone issued orders eliminating the last vestiges of racial segregation by desegregating all swimming pools and Government housing within the Zone.


Reduction of the tropical differential.

Action. While again, not in response to any Panamanian demand, the Secretary of the Army has formally proposed to the employee organization in the Zone a prospective reduction in the tropical differential paid to U.S. citizen employees from 25% to 15%. Although not done for this purpose, such a reduction would have a beneficial effect on relations with Panama. When carried out, it would help eliminate accusations of inequality of treatment and will create some additional job opportunities for Panamanians. This action derives from a three-year study and is now in the final stages of discussion with employee representatives. The Secretary of the Army will visit the Canal Zone on 28 August to participate in these discussions. A final decision on implementing details of the reduction is expected soon afterward.


Establishment of a Labor Advisory Committee.

Action. For approximately two years, the Governor of the Canal Zone has been discussing with representatives of the Government of Panama the establishment of a bi-national Labor Advisory Committee to advise him on labor matters involving Panamanian employees of the Canal enterprise. General agreement has been reached with Panama on the terms of reference for the Committee, and its early establishment is anticipated.


Panamanian Consultants to the Board of Directors of the Panama Canal Company.

Action. Panama has long aspired to some participation in the management of the Panama Canal Company. The President recently [Page 877] approved the recommendation of the Secretary of the Army that two prominent residents of Panama, one Panamanian citizen and one U.S. citizen businessman, be appointed as consultants to the Board of Directors of the Panama Canal Company. The U.S. Ambassador and the Governor of the Canal Zone have nominated appropriate individuals and invitations will be extended to them at an early date.


Scholarships in the Canal Zone College.

Action. In early June, the Governor of the Canal Zone announced a scholarship program for ten Panamanians to attend the Canal Zone College. Forty-seven applicants took examinations, and final selection of the winners was made on August 15.


50th Anniversary of the Panama Canal.

Action. The 50th Anniversary of the opening of the Canal occurred on August 15th of this year. The Anniversary was commemorated by quiet and restrained ceremonies which were not offensive to Panama.


Resumption of community relations programs.

Action. The Governor of the Canal Zone and the U.S. Ambassador have discussed with the Foreign Minister of Panama the resumption of various Canal Zone-Republic of Panama community relations programs. Canal Zone support of rural medical clinics has been resumed, and the city officials of Colon joined in Canal Zone 4th of July celebrations. Other similar activities are being encouraged.


Electric power and water for Panamanian border communities.

Action. Prior to the January riots, action was under way to provide Canal Zone water and electric power to several Panamanian border communities remote from Panamanian sources. The lines required within the Canal Zone have been installed, and initiation of service awaits only the completion of installations required on the Panamanian side.


Coordination of public information activities.

Action. Steps have been initiated to improve coordination of the public information activities of the Canal organization, the military commands, and the U.S. Embassy, both in normal times and during emergencies.


Sea level canal proposal.

Action. At the invitation of Ambassador Anderson, the Secretary of the Army explained the status of the sea level canal project to [Page 878] Ambassador Illueca of Panama on 7 July. The scope of the engineering problems, the economic advantages to Panama of such an arrangement, and the possibilities of a canal in Colombia were covered. Subsequent statements by Panamanian officials indicate their recognition that the U.S. must eventually build a sea level canal and could possibly build it outside Panama.

The numbered actions above are confined to those primarily within the authority of the Secretary of the Army and the Governor of the Canal Zone. They do not include actions such as AID activities, loans, and grants, wholly within the authority of the U.S. Ambassador and the Department of State or actions within the Canal Zone in support of State Department discussions. The latter are being handled by the Department of State through Ambassador Anderson and Ambassador Vaughn and are still in the preliminary discussion stages. They include proposals such as the extension of Panama’s commercial activity in the Canal Zone, release of unneeded lands and installations, a corridor under Panama’s jurisdiction across the Zone, enforcement of certain Panamanian laws in the Canal Zone, and many other Panamanian aspirations requiring inter-agency action of Congressional approval to accomplish. Progress on these broader matters has been delayed pending the installation of the new President in Panama. They will also be affected by Panama’s reaction to a formal U.S. proposal for site surveys including the required option for operating rights in a sea level canal.

The best prospect for a major improvement in U.S.-Panamanian relations is that offered by the sea level canal project. If the United States and the Republic of Panama can agree on the nature of the operating rights which the United States must have if a sea level canal is to be constructed in Panama, this agreement would put to rest many of the emotional issues which now plague our relations. It would also clear the air of many of the uncertainties with respect to United States policy which are the source of most of the unrest among the U.S. citizens in the Zone. Initially, this agreement would be operative only with respect to survey rights but would also include a detailed option for further arrangements for U.S. operating rights in a sea level canal. It would not commit the U.S. in any way to the construction of such a canal. The Department of State and the Department of the Army are actively engaged drafting a proposal along these lines which will be ready for clearance with appropriate Congressional committees and discussion with Panama in the near future.

S. 2701, the site survey authorization bill, has passed the Senate and is scheduled for House action in early September. A hearing was held on 17 August 1964 before the Senate Appropriations Committee [Page 879] on the proposed FY 1965 funds for the site surveys which are the first step in the sea level canal project.2

Robert S. McNamara
  1. Source: Johnson Library, National Security File, Country File, Panama, Vol. VI, August 1964–January 1965. Confidential. A note on the first page reads: “Classified confidential only because of the references to the hiring of Panamanians for the Canal Zone police force (Item 4), and the proposed reduction in the 25% tropical differential pay (Item 7). These are sensitive matters with our U.S. citizen employees.”
  2. This bill became Public Law 88–609 on September 22, and created the Atlantic-Pacific Interoceanic Canal Study Commission to determine the best means of construction, and estimated cost of such canal.