530. Paper Prepared by the NSC Inter-Departmental Group for Inter-American Affairs, Washington, January 27, 1970.1 2

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SUMMARY

PAGE NO.
I. Background and Essential Elements 1
II. Desirability of Concluding New Treaties 12
A. US Interests
B. US Objectives
III. Timing with Respect to New Treaties 13
IV. Negotiating Options 15
Introduction 15
Option A -- Defer negotiations on abrogation of the existing treaty structure and negotiate interim measures providing substantial benefits to Panama 17
Option B -- Negotiate major revisions in the 1967 draft treaties 20
V. Related Treaty Issues 23
A. Multinational Participation in Canal System
B. Tolls

Annexes:

A. NSAM No. 152, April 30, 1962, Panama Canal Policy and Relations with Panama

B. Text of the United States - Panama Agreement of April 3, 1964, as Announced by the OAS

C. President’s Statement on Panama Canal, December 18, 1964

D. NSAM 323, January 8, 1965, Policy toward the present and future of the Panama Canal

E. Statement by the President on the Progress of Treaty Negotiations with Panama, September 24, 1965

F. Office of the White House Press Secretary, Press Release, June 26, 1967

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SUMMARY

The Government of Panama may soon request the United States to renew canal treaty negotiations which, during the period 1964–67, resulted in three draft treaties concerning the present lock canal, a new sea-level canal and defense arrangements. Since then, there has been no action beyond the initialing of these drafts, due primarily to political developments in Panama.

Recent events in both countries give rise to the need for a re-examination of US interests, objectives and the matter of timing, as well as available policy options, with respect to any future canal treaty negotiations.

On our part, we wish to ensure the continued availability of an adequate and secure Isthmian canal system for the benefit of US and world commerce and the national security of the US. We also seek to maintain an enduring, mutually acceptable relationship with the Republic of Panama.

There are, we believe, two basic policy options:

The first would have the US defer negotiations on abrogation of the existing treaty structure and negotiate interim measures providing substantial benefits to Panama. This option is premised on the judgment that the US in not now in a position either to abrogate the basic treaties or to provide for the termination of US operation of the existing canal at any fixed date.

The second option would have the US pursue the general course defined by the 1967 drafts, together with significant revisions to meet developments since then. This option is premised on the judgment that the deeply rooted causes of friction in our relations with Panama should be dealt with now (rather than in piecemeal fashion as in 1936 and 1955), and that the areas of agreement with Panama reflected in the 1967 treaty drafts form the proper basis for achieving a new political relationship with Panama regarding the canal.

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[Omitted here are Sections I–IV.]

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IV. NEGOTIATING OPTIONS

Introduction

This paper defines two options in treaty negotiations with the Panamanian Government. There are at least two other courses of action open to the United States, neither of which merits full treatment as an option.

The first of these quasi-options would be to sign the 1967 draft treaties in their present form. The main virtue of these drafts lies in the fact that they reflect a then existing consensus in the Department of State, the Joint Chiefs of Staff, and other interested components of the Executive Branch on the US side, as well as considerable agreement within the Government of Panama at that time. The chief reason the treaties were not submitted to Congress for ratification, however, was that the difficulties these drafts were encountering in Panama in a pre-election period made it most unlikely that the Panamanian Government would proceed with ratification.

The 1967 drafts, moreover, were written before the Canal Study Commission’s tentative determination that Route 10 in Panama, adjacent to the present canal, would be the most promising site for a sea-level canal. The Commission expects to reach firm conclusions on its essential findings not later than June of 1970. Consequently, we are now better prepared to seek definitive rights to a specific sea-level canal route should we choose to do so under Option “B” below. Further, the 1967 drafts contain the undesirable provision that were the US not to begin construction of a sea-level canal by the end of 1999, the present canal would become Panamanian property. There is now an opportunity to attempt to improve on this provision.

Finally, indications from the present regime in Panama are that these drafts are no longer acceptable in their present form and any intent on our part, therefore, to make them the basis for our future relations with Panama would be unrealistic. For these reasons, we do not believe that a negotiating position limited solely to the content of the 1967 drafts should be seriously entertained.

The second quasi-option would be to start afresh in any forthcoming negotiations, without a feeling of any degree of commitment to the 1967 treaty drafts, leaving it to ad hoc, ad referendum strategy to determine the final [Page 5] form and content of new treaties. The advantage of this course would lie in the fact that we do not know precisely what the Panamanian demands will be or whether either of the two following options would be fully relevant to these demands. Further, both sides would be free from whatever stigma attaches to the 1967 drafts.

On the negative side, it ill behooves the US with the experience of negotiating the 1967 drafts in Panama behind us, and with our understanding of the causes of friction in our present relations with Panama, to enter negotiations affecting key issues in our relations without taking this experience into account. We know enough now about future canal needs and about the remedies for some of the irritants in our relations to be able to prepare a respectable negotiating position beforehand. Failure to do so might cause misgivings in Panama about our good faith.

The first of the two options described below would defer negotiations on key treaty issues until a later date, while offering to negotiate now interim concessions desired by Panama. The second option would negotiate now those key treaty issues.

The key issues were alluded to in the areas of agreement jointly announced by Presidents Johnson and Robles on September 24, 1965:

1. The 1903 Treaty will be abrogated;

2. the new treaty will effectively recognize Panama’s sovereignty over the area of the present Canal Zone;

3. the new treaty for the existing Canal will terminate after a specific number of years or on the date of the opening of the sea-level canal, whichever occurs first;

4. the new treaties will provide for the defense of the existing canal and any sea-level canal which may be constructed in Panama; United States forces and military facilities will be maintained under a base rights and status of forces agreement.

No matter which option is selected, the sense of Congress should be sought before negotiations begin, and it may be desirable to include Senate representation in the negotiating team.

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Option A: Defer negotiations on abrogation of the existing treaty structure and negotiate interim measures providing substantial benefits to Panama.

Discussion

This option is premised on the judgment that the United States is not now in a position either to abrogate the basic treaties or to provide for the termination of US operation of the existing canal at any fixed date.

To make this approach acceptable to Panama, the U.S. could offer to negotiate interim matters that would be beneficial to Panama but would not, at least until a definitive decision can be made regarding the new canal, concede changes in the basic treaty structure or give up basic U.S. rights. The interim actions could resolve some pressing problems for Panama and could include items of benefit to the U.S. The interim measures negotiated would involve legislation, ad hoc treaties, executive agreements, or administrative action, depending upon the requirement in each case. An illustrative list of possible interim measures is:

1. Transfer of Old France Field to Panama for use by the Colon Free Zone

2. Arrangement for use of New France Field by Panama as a commercial airport

3. Open the Canal Zone to private business under new ground rules, including application of Panamanian tax, labor, social security, and customs laws; to some extent this would respond to Panama’s aspiration to exercise sovereignty in the Canal Zone

4. Construction of a four-lane highway in the Canal Zone from Thatcher Ferry Bridge to the border of Arraijan, to connect with a projected similar highway in Panama

5. Financial assistance in other highway projects in Panama, such as a new transisthmian highway

6. Transfer to Panama of certain areas and facilities such as the Cristobal piers, Shaler Triangle, Kennedy Avenue, Fourth of July Avenue, and Gavilan Point (border streets or areas)

7. Increase direct compensation to Panama, by increasing the annuity or otherwise

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8. Agreement for the continued use by the United States of the Rio Hato military training area in Panama

9. Increased involvement of Panamanians in the operation of the Canal.

Advantages

1. Negotiation of interim measures could be identified as the first step of a new U.S. policy to maximize Panamanian benefits from the canal. The goal of this policy, stated or unstated, would be an open-ended U.S. presence in Panama until such time in the future when we have reason to believe that our national interests no longer require that we remain there. The U.S. would defer definitive negotiations on the exercise of sovereignty and control until vital decisions had been made about the future of the canal. In short, the negotiators would know at the later date exactly what canal or canals they are negotiating about, and in what time frame, so that U.S. interests and objectives could be better protected.

2. By the time canal decisions are made, Panama may have returned to constitutional government, thereby resolving the problems presented now in concluding and ratifying basic treaties with the military dictatorship.

3. This option might have a much better chance of Congressional acceptance than fundamental revision of the 1903 Treaty relationship. Prior consultation with the Congress should obviate any problems in gaining the necessary legislative approval of provision of increased benefits to Panama.

4. Through deferral of definitive negotiations until after the sea-level canal decisions, the Congress will have had an opportunity to participate in the sea-level canal decision and will be more likely to support treaties negotiated on the basis of such decisions.

5. By its willingness to negotiate from time to time, on a continuing basis, interim actions beneficial to Panama, the United States would demonstrate its desire to be helpful and to work with the Panamanian Government.

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6. If the interim changes are adequate in number and substance, and developed over a period of time, the Government of Panama might have a politically feasible basis for not pressing for definitive treaties until the United States has made decisions on the sea-level canal.

7. The interim actions could include some matters beneficial to the US, such as an extension of the agreement covering use of the Rio Hato military training area in Panama by US forces.

8. Although the interim concessions involve matters covered in the 1967 draft treaty package, the U.S. bargaining position would not be weakened to the point of jeopardizing future negotiations, because the basic treaty concessions that Panama wants, such as sovereign rights in the Canal Zone, would still remain.

Disadvantages:

1. It could be difficult for any Panamanian government to agree to new treaty arrangements which do not contain basic revisions of the existing treaty structure. If the US should refuse to negotiate on these key concepts, there is a risk of deterioration in US relations with Panama that could lead to violence as in 1964.

2. This approach requires the US to hold in abeyance the areas of agreement announced by Presidents Johnson and Robles in 1965 which were the basis of the 1967 drafts.

3. Panama can be expected to assert that it is now entitled to all the concessions in the 1967 drafts as a minimum, and failure to obtain these could present problems to the existing regime.

4. Most of the interim measures contemplated were involved in the 1967 draft treaty package and could be considered bargaining counters, the piecemeal use of which might weaken the US position in future negotiations. There is a further risk that Congress, in approving the legislation necessary to achieve this option, might impose restraints that could inhibit the US in later negotiations.

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Option B: Negotiate Major Revisions in the 1967 Draft Treaties

Discussion

This option is premised on the judgment that the deeply rooted causes of friction in our relations with Panama should be dealt with now (rather than in piecemeal fashion as in 1936 and 1955), and that the areas of agreement with Panama reflected in the 1967 treaty drafts, together with certain major revisions, form the proper basis for achieving a new political relationship with Panama regarding the canal. The option proposes significant revisions to meet the problems of the 1967 drafts and developments since then, such as the tentative findings of the Canal Study Commission, that have previously been discussed.

The US can justifiably seek major revisions in the 1967 draft treaties in light of the changed circumstances of 1970. While this option provides flexibility in obtaining such changes, it is nevertheless predicated on the parameters of the 1967 treaty drafts:

- abrogation of the 1903 and related treaties

- a new treaty structure encompassing the existing lock canal, rights to construct a sea-level canal, and defense arrangements

- recognition of effective Panamanian sovereignty over canal and defense areas

- a specified termination date for the new treaty

- the non-negotiability of US control over canal operations, and of unilateral defense rights.

The following major revisions in the 1967 drafts should be sought in future canal treaties:

1. The US should maintain control over operation and defense of an Isthmian canal system in Panama well into the 21st century.

2. The US should obtain definitive rights to build and operate jointly with the Panamanians a conventionally excavated sea-level canal on Route 10 in Panama. It would be highly desirable that [Page 10] there be accompanying rights to continue the operation of the existing canal when needed. (This revision might create an Inter-Oceanic Authority under US majority control to operate, maintain and develop a single canal system in Panama.)

3. The US should obtain treaty provisions which would clearly establish our rights to augment the existing canal with new or additional locks and channels, instead of building a sea-level canal to meet future traffic requirements.

The following are desirable (but not essential) revisions to the 1967 drafts:

1. The US should obtain the general right to build a nuclear excavated sea-level canal along Route 17, subject to future agreement in detail, in the event nuclear excavation proves both feasible and desirable before a decision is reached to construct a new canal by conventional means.

2. The US should obtain rights to build a second sea-level canal along the trace of the existing canal, Route 14.

To address Panamanian aspirations and to help achieve U.S. negotiating objectives, new treaties should set a time limit for phasing out governmental and service functions exercised by the Joint Administration in the new Canal Areas (as provided for in the 1967 drafts), leaving the Joint Administration exclusively concerned with canal operations thereafter. To accomplish this goal, an intensive program of training Panamanians to replace US personnel would have to be undertaken at an early date.

Advantages:

1. With its anchor in the 1967 draft treaties, this updated option would take advantage of much of the consensus on key issues previously reached between the US and Panama.

2. By eliminating anachronistic elements in our relationship, it would remove many of the sources of friction in our dealings with Panama, and should significantly improve relations between our two countries.

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3. The US would retain for an extended period the right to choose either the sea-level or the improved lock canal alternative, and the choice of either would extend US control for a long period thereafter. The ultimate choice would require Congressional approval at the time, which should be more acceptable to the Congress than the arrangement proposed in the 1967 draft treaties.

4. There would be significant economic benefits for Panama either in augmentation of the old canal or in construction of a sea-level canal.

5. The US would be in a strong bargaining position: we would be seeking a sufficient number of rights to meet our probable future canal requirements at a time when Panama would be attempting to achieve its own goals in a new treaty relationship. Further, we would not be dissipating our bargaining strength through interim concessions only to return in later years to seek the rights provided in this option.

Disadvantages:

1. The costs of obtaining the revisions we seek to the 1967 drafts are not predictable, but are likely to be substantial no matter how skillfully we negotiate. To the extent that we will be negotiating in advance of any US Government decision regarding a sea-level canal, we would be required to obtain a variety of rights, each with its own price tag.

2. Our agreement at this time to relinquish control and operation of the canal some time in the future may not prove to serve US interests at that future date.

3. This option, even though its content and presentation would be quite different from the 1967 drafts, might still encounter significant Congressional opposition.

4. Congressional opponents will be critical of the weakness of achieving control by a mere 5–4 majority representation on the Joint Canal Administration.

5. The possibility of non-ratification of these treaties by the US risks disillusionment in Panama and violence directed at the canal.

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[Omitted here are Section V, and the Annexes.]

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–169, NSSM Files, NSSM 86. Secret.
  2. The National Security Council Interdepartmental Group for Inter-American Affairs (NSC–IG/ARA) provided two basic options available to the United States for negotiation with Panama over the Panama Canal: maintain the existing treaties and negotiate interim measures providing substantial benefits to Panama, or use the 1967 draft treaties as a starting point for negotiating new treaties.