533. Memorandum From the NSC Inter-Departmental Group for Inter-American Affairs to President Nixon, Washington, April 6, 1970.1 2

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MEMORANDUM FOR THE PRESIDENT

I. THE PROBLEM

Panama has asked us to resume discussions on the canal treaties. We have no realistic choice but to do so. To refuse would create serious antagonisms, exacerbate Panamanian nationalism, risk renewed violence against the Zone, and expose us to charges of bad faith in view of past commitments.

The problem is how far we should go with regard to negotiating new canal treaty relationships.

1. Should we (a) defer basic revisions of the canal arrangement and deal with interim measures designed to satisfy certain Panamanian aspirations, or (b) should we be prepared to enter into comprehensive negotiations regarding all the basic issues affecting our treaty relationship? (A detailed study of this question, NSC/IG–ARA Response to NSSM–86, is attached.)

2. If the latter, what should our position be with regard to these basic issues, and how, if in any way, has our position changed from that reflected in the 1967 draft treaty package?

II. US INTEREST

All agencies have agreed that the primary US interest in this area is the continued availability of an adequate and secure canal system for commercial and national security reasons, which can best be assured through an enduring good relationship with Panama.

Relevant to this interest are the following:

1. Panama aspires to greater participation in canal administration and a larger share of the economic benefits of the canal, which it considers its major national asset.

2. Present US treaty rights to act as if sovereign in the Zone in perpetuity have come into conflict with Panamanian nationalism and Panama’s aspiration to exercise sovereignty over all its territory; there is also a Panamanian desire to control this national asset eventually.

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3. The presence and life-style of an affluent US community living in the vicinity of Panama’s urban slums (about 50,000 US military and civilians live in the Zone) can be exploited for political purposes.

4. The US was publicly committed by President Johnson, with the “full support” of Presidents Eisenhower and Truman, to abrogate the 1903 treaty and to seek new treaty arrangements.

5. The canal’s present capacity may be insufficient by the turn of the century.

6. It is highly vulnerable to sabotage and military attack.

III. TIMING

The first step should be preliminary discussions with the Panamanians, which would probably embrace the root causes of friction in our relations now, i.e. the basic issues of sovereignty, control, defense, jurisdiction, perpetuity and economic benefits to Panama.

US negotiating objectives and strategy should be reviewed in the light of the experience gained from initial exploration if Panamanian views and goals. Depending on the outcome of the preliminary talks, the US negotiating objective might range anywhere from making specific financial and other concessions, to renegotiating the entire treaty structure.

From our point of view there were reasons to delay the beginning of formal negotiations until after (a) the US Congressional elections, and (b) advance discussions with the Panamanians of the forthcoming report of the Canal Study Commission on the feasibility of a sea-level canal.

This report is due December 1, 1970 and its findings will have considerable bearing on US canal objectives. Its public release prior to discussing these objectives in exploratory talks with Panama could be interpreted as precommitting the [Page 3] US position. The Commission’s tentative findings are already available (see Section V) and are expected in final form for coordination within the Administration by midsummer.

A by-product of the delay in entering formal negotiations would be to give us more time to assess the stability of the Torrijos regime which has experienced two attempted coups during the past four months.

There would be advantage in stringing out the exploratory period--the question of how long being a tactical one--as long as this process is not intended by us or taken by the Panamanians to be a deliberate evasion. We could tell the Panamanians at the outset some of our reasons for doing this.

Once negotiations begin, strong pressures are set in motion to conclude treaties. Given the unconstitutional character of the present regime in Panama, the Senate may not be willing to ratify treaties negotiated with it on grounds that the durability of such agreements would be dubious. To preserve the greatest flexibility on this issue, we should make clear to the Panamanian negotiators at the outset that while we will negotiate in good faith, we must reserve to the President of the United States the decision as to when and under what circumstances he will submit new treaties to the Senate for ratification. Consultation with the Congress should be sought before formal negotiations begin. Any possibility of non-ratification by the US of new treaties risks disillusionment in Panama and violence directed at the canal.

IV. KEY ISSUES

If exploratory talks indicate that we should pursue comprehensive negotiations the key issues will be:

A. PROBLEM OF EXPANDING CANAL CAPACITY

The Atlantic-Pacific Interoceanic Canal Study Commission (CSC) has arrived at the following relevant but tentative findings:

- For the foreseeable future, a sea-level canal will be feasible only in Panama and only by conventional excavation.

- Construction of additional canal capacity before the end of this century would be advantageous for canal [Page 4] users, but failure to provide it will not impose intolerable constraints upon U.S. and world trade because of the availability of alternative routes and transportation modes.

- The Panama Canal is of major importance to the national security of the United States. A sea-level canal would represent a significant improvement in the ability of an Isthmian canal to support military operations both in its lessened vulnerability to interruption by hostile action and in its ability to transit the large aircraft carriers that cannot now pass through the Panama Canal.

- An adequate Isthmian canal is of great economic value to many nations, but more than 65 percent of the traffic through the canal in recent years has been to, from, or between US ports. This relationship is expected to continue, and future canal costs that are financed through tolls must inevitably be borne in larger measure by the United States than all other users combined.

- Additional locks for the present canal could be less costly than a sea-level canal, but would constitute only a short-term solution to capacity requirements and would eliminate none of the political and military disadvantages of the present canal.

- The potential advantages for the United States of a conventionally excavated sea-level canal in Panama under treaty arrangements that ensure continued US control and defense appear to be sufficient to justify its construction.

- The most attractive combination of potential long-term political, military, and capacity advantages is offered by a sea-level canal on Route 10 (about ten miles west of the present canal) to be operated as part of a canal system that includes the existing canal. The latter should be operated until the sea-level canal is safely in operation and thereafter retained in a standby status for reactivation in emergencies or when future traffic exceeds the capacity of the sea-level channel.

US and Panamanian interests as seen in the light of tentative CSC findings suggest two basic options in negotiating for expanded canal capacity:

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1. Defer negotiating on expanding canal capacity until we know more definitely what we want to do.

2. Negotiate now for definitive rights to construct either a third set of locks, or a sea-level canal on Route 10 to be operated in conjunction with the existing canal.

Under either option, the Executive Branch would be relieved of the need to make an early decision on how to expand canal capacity. Option 1, however, would fail to take advantage of the opportunity to obtain definitive rights as a trade-off for US concessions on other issues. To obtain these rights later would probably involve additional US concessions. Option 2 may require the US to make concessions to Panama for rights we may never use.

B. SOVEREIGNTY

The 1903 Treaty grants the US “all the rights, power and authority within the Zone... which the United States would possess and exorcise if it were the sovereign...”

While we recognize Panama’s “titular sovereignty” in the Zone, we now limit its expression to symbolic gestures such as flying the Panamanian flag. To Panamanians, the foregoing provision is probably the most irritating feature of the treaty. Panamanians aspire to exercise full and effective sovereignty over the Zone, which would include the extension of Panama’s governmental, legal and economic systems to the Zone.

As discussed in part E below, response to this aspiration will depend upon how we define the limits of our jurisdiction in the Zone.

C. CONTROL OF CANAL OPERATIONS - How Much? What Form?

“Control” as defined in this memorandum includes only control of the operation of the canal itself.

Panamanian Views

Panamanians would prefer at least an equal voice in canal operations.

US Views

There is extensive opposition in the House of Representatives to dilution of US control of the canal. The Senate [Page 6] was prepared in 1967 to accept treaty revision, but may be less willing to do so today. Senators Russell and Thurmond are among those known to oppose abrogation of the 1903 Treaty.

Careful, thoughtful study must be given to the mechanism that will best serve our needs in controlling a canal system.

1967 Drafts

Effective US control was non-negotiable. 5–4 board arrangement with control over canal operations and canal areas.

Options on Nature and Form of Control of Operations:

A. Exclusive US Control

Advantage

- Preserves a presently satisfactory system from US viewpoint and assures continued efficient canal operation.

Disadvantage

- Denies Panamanian aspirations for participation in canal management.

B. Joint US-Panamanian Control (1967 Drafts)

Negotiate the creation of a canal authority, involving joint US-Panamanian administration with majority US control to operate, maintain and develop a canal system.

Advantages

(a) Significantly meets Panamanian aspirations for an active role in canal system management.

(b) Capitalizes on whatever consensus still exists in Panama for the concept of joint US-Panamanian control reflected in the 1967 drafts.

Disadvantage

- Reduces the degree of control the US currently enjoys and risks complicating US-Panamanian relations by repeated splits between US and Panamanian members.

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C. Multinational Control

Arrange for some form of multinational participation in the financing and administration of the canal system.

Multinational participation could take at least three basic forms:

(1) Full multinationalism under which no single nation retains majority control

(2) A multinational arrangement under which major user nations would have a minority participation in essentially a bilateral US-Panamanian administration under majority US control

(3) Multinational participation under which the US (with 51%) and Panama with (49%) could sell over time and under controlled conditions, portions of their equity in a canal authority (organized along corporate lines) to major user nations. Thus a built-in mechanism would be provided by which an initially bilateral relationship could in time be converted into a multinational one.

Alternative (1) would probably be found undesirable by both Panama and the US, because neither would have control under this arrangement. Alternative (2) would be attractive to the US, as it would ensure US control within a multinational framework, but not to Panama, because Panama’s real and apparent roles would be diminished. Alternative (3) would probably be the only form of multinational control that Panama might seriously consider.

Advantage

Some form of multinational participation could have political and financial benefits for the US. It could reduce the political costs of our exposure as an isolated target of Panamanian nationalist pressures. It could also reduce somewhat the burden on the US taxpayer by obtaining international financial support for new canal investment.

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Disadvantages

(a) Panama would probably maintain its historic resistance to multinational participation, because it fears that its influence over and benefits from the canal, as well as its leverage in dealing with the US, would be reduced.

(b) The economic inducements for multinational participation by major user nations are not great. These nations are satisfied with the present state of affairs, and consider that the operation of an Isthmian canal is primarily a US responsibility. They also would be unlikely to wish to become entangled in US-Panamanian relations.

(c) As long as the US retains majority control over a canal administration with multinational participation, the anticipated foreign policy benefits of multilateralism to the US would probably be marginal.

D. DEFENSE

Control and defense are related but not inextricably linked. One can envision a situation in which the US might relinquish operational control of the canal to Panama, or a multinational entity, but retain rights of defense. This situation presupposes an efficiently operated canal system responsive to US security requirements.

We maintain military forces and bases in the Canal Zone, and a training area in the Republic of Panama. These forces have two principal missions: (a) to defend the highly vulnerable lock canal; and (b) to carry out hemispheric defense activities including training of Latin American military forces.

Panamanian Views.

Panamanians recognize the need of the U.S. to maintain troops and facilities in Panama for defense of the canal. There are indications, however, that senior officials [Page 9] of the National Guard, including General Torrijos, would like to include in any new canal arrangement a joint canal defense role for the Guard. An issue in treaty negotiations may be the U.S. right to perform hemispheric defense functions from Panamanian territory.

US Views

The main threats to the existing canal are sabotage of the highly vulnerable lock system, and hostile actions by Panamanian mobs against the Zone.

The kind of defense rights we seek will be governed partly by what we decide on the matter of increasing canal capacity. In any case, DOD would wish to maintain about the same number of troops, kinds of military facilities, and rights of movement that we now have, although a single sea-level canal might permit a reduction of troop levels more readily than a third set of locks or a canal system embodying the existing canal and a sea-level canal.

1967 Drafts

In the 1964–67 treaty talks Panamanian negotiators opposed treaty provisions authorizing the use of US military bases in Panama as staging areas for US operations in other Latin American nations, but they accepted a clause authorizing the use of bases for “related security purposes” which we interpreted as permitting hemispheric defense. We have held in the past that we need treaty arrangements giving us unilateral defense rights for the canal, even to the extent of engaging in armed defense against Panamanians, if necessary. In the 1967 drafts we obtained these rights.

Options on Defense of the Canal System;

A. Maximum control (as we now have) over defense areas with the unilateral right to defend the canal

Advantage

- The strongest and surest way to protect the canal.

Disadvantage

- Does not meet Panamanian aspirations to participate in canal defense.

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B. Panamanian (GN) participation in canal defense under a combined command structure with the US in control

Advantages

(a) While somewhat diluting the unilateral control concept this arrangement would still adequately guarantee canal defense

(b) This arrangement would probably appeal to Panama.

Disadvantages

(a) A combined command is inevitably more complex and cumbersome

(b) Reliability of GN component would be directly influenced by the political situation in Panama

(c) Control of violence directed at the canal would be complicated.

Options on US Hemispheric Defense Functions from Panama:

A. Ask for specific treaty rights to conduct hemispheric defense activities from Panama

Advantage

- Best possible way to obtain such rights.

Disadvantages

(a) Requires Panamanian negotiators to deal with controversial political issues in most direct fashion

(b) Might require concessions on our part.

B. Obtain a non-specific but understood permissive clause similar to the 1967 draft treaty, which by our interpretation permitted the US to continue hemispheric activities from Panama

Advantage

- Does not address the issue frontally.

Disadvantages

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(a) Its vagueness could permit future Panamanian Governments to claim the provision was nonspecific and deny the US these activities.

(b) Denial in time of emergency could cause operational delays and increase cost of conducting contingency operations in South America.

C. Seek agreements separate from the canal treaty for the right to perform hemispheric defense functions from Panama as needed.

Advantages

(a) From the treaty standpoint, would distinguish the function of defense of the canal from that of defense of the hemisphere

(b) Avoids requiring Panamanian negotiators to take a position on a controversial issue which proved difficult for both sides during the 1967 negotiations.

Disadvantages

(a) Would remove the issue from a context in which our bargaining power is considerable

(b) If we were to fail to obtain agreement separately, risks non-availability of staging facilities in Panama to support US contingency operations in Latin America

(c) Panama could conceivably fail to fulfill a separate agreement more readily than it could denounce the entire canal treaty.

E. JURISDICTION

The emotional issue of “sovereignty” voiced by Panamanians is in part a question of the exercise of jurisdiction in the Canal Zone.

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The Canal Zone Government provides a wide range of governmental, public service and commercial functions. Many Panamanians resent and challenge these as unrelated to canal operation and defense, and preclusive of an integration of the Canal Zone and Panama.

1967 Drafts

A joint US-Panamanian administration, under US majority control, to exercise jurisdiction in delimited canal areas over all activities related to the operation of the canal, including basic administration of justice and provision of municipal services in the canal areas. Key elements in Panama were critical of this arrangement in 1967 as falling short of their desires for Panamanian jurisdiction.

There are various options regarding our jurisdiction in the Canal Zone (as distinct from options relating to control over canal operations and defense):

A. Cede non-essential lands and facilities (including Zone schools and residential areas used by Panamanian citizens) to Panama and negotiate concessions as to Panamanian jurisdiction over commercial activities and non-essential governmental functions

Advantages

(a) Assures the U.S. maximum control over land areas bordering the canal; would enhance security and defense

(b) This option would probably be most acceptable to Congress.

(c) Panama would obtain greater economic advantage, control over Panamanian citizens in the Zone, and a participatory role in the administration.

Disadvantages

- There would be continued Panamanian resentment over the “sovereign” functions retained by the US and special privileges retained by US personnel.

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B. Abolish the Canal Zone and set up a joint US-Panamanian administration, under U.S. majority, control, to exercise jurisdiction in delimited canal areas over all activities related to the operation of the canal, including basic administration of justice and provision of municipal services in the canal areas. Panama would be allowed to exercise its jurisdiction in matters not directly related to canal operations, including commercial and banking activities

Advantages

(a) The concept of a Canal Zone, historically resented by Panama, would be eliminated.

(b) The US, in having majority control of the Authority, would protect its vital interests in territory essential to canal and defense.

(c) Panama would have partial jurisdiction in newly defined canal areas, and full jurisdiction in Canal Zone areas returned to it.

Disadvantage

- Congress was critical of this arrangement because the US would only have majority control over Like canal areas, and Congress itself would have no role in administration of the canal areas.

C. Relinquish all jurisdiction over Panamanian territory other than the canal itself and related defense areas and obtain treaty guarantees against interference in canal operation

Advantages

(a) Panamanian aspiration to exercise jurisdiction over what is now the Canal Zone would be fulfilled.

(b) Best calculated to gain Panamanian acceptance and the preservation of US control over the operation and defense of the Panama Canal for a long period

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(c) A Canal Authority could confine itself strictly to canal operation instead of also concerning itself with municipal services.

Disadvantages

(a) Congress could be expected to be critical of relinquishing jurisdiction over the Canal Zone.

(b) US relinquishment of territorial jurisdiction over those areas bordering the canal may jeopardize U.S. control over canal operations and defense.

(c) Creates a continuing opportunity for Panama to harass canal operations through arbitrary application of tax, police and other powers over the provision and use of goods and services.

F. PERPETUITY

Panamanian Views

Historically there has been strong Panamanian objection to the perpetuity clause in the 1903 Treaty. The issue essentially involves the duration of US control over canal operations, defense and jurisdiction over territory.

General Torrijos has played down the importance of termination dates. He has pointed out that a satisfactory new US-Panamanian partnership can be indefinite and that “one partner can suggest changes and the other will in good faith try to work out any problems that arise.”

US Views

Congressional opinion on this issue probably favors either continuing the perpetuity clause, or setting a termination date some time well into the 21st century.

1967 Drafts

The 1967 drafts provided that US control over the existing canal would terminate in 1999. Control over a sea-level canal would end in 2067.

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OPTIONS:

A. Negotiate an open-ended arrangement involving continuation of the new treaty indefinitely unless changed by mutual agreement, possibly making specific provision for periodic review

Advantages

(a) This arrangement would probably be acceptable to Congress as it approximates the “in perpetuity” provision

(b) Panama’s desire that the new treaty not contain an “in perpetuity” clause as such might be met, and the arrangement would be responsive to Torrijos’ suggestion that the treaty need not contain a specific termination date.

Disadvantages

(a) Panama might object to the US having a veto over revision or termination of the agreement and the Government of Panama might be disinclined to risk criticism in Panama that the indefinite arrangement is in effect an “in perpetuity” clause.

(b) The U.S. would be open to Panamanian demands for fundamental revision of the treaty at any time after it comes into force or at intervals of periodic review.

(c) Panama could not anticipate control of the lock canal or a sea-level canal at a specific date as was provided for in the 1967 drafts.

B. Negotiate specific dates for termination of U.S. control over (a) canal operations (b) defense, and (c) territory (these dates may vary). U.S. and international interests in canal operations (e.g. reasonable toll structure, neutrality and non-discriminatory use of the canal) could continue to be protected by treaty after control reverts to Panama

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Advantages

(a) If dates for termination of control are set well into the 21st century, U.S. interests could be protected until advances in technology and transport might make the canal less important to the US.

(b) Setting specific dates for termination of US control and jurisdiction to Panama would meet Panamanian aspirations to some day control the canal and exercise jurisdiction over all Panamanian territory.

(c) Panama would be subject to treaty restrictions on the management of the canal after control of the canal is given to Panama as a safeguard to US and international interests.

Disadvantages

(a) Panama would probably object to a termination date set well into the 21st Century, and the termination dates established in the 1967 drafts (1999 for the lock canal and 2067 for a sea-level canal) would probably be used by Panama as de-limiting the minimum that she expects.

(b) Congress may be critical of specific termination dates.

G. ECONOMIC BENEFITS TO PANAMA

The total foreign exchange benefits to Panama from the Canal Zone in all forms (including US military activities, salaries, sales of goods and services, and direct payments) are now slightly in excess of $100 million a year and constitute about 67% of Panama’s total foreign exchange earnings. Panama does not participate in any form of revenue sharing from the canal operation except for the annuity of $1.9 million.

The 1967 drafts contained a formula for sharing revenues with Panama based on tonnage of cargo transiting the canal. It was expected that there eventually would be an increase in toll rates which have not been raised since 1914. If the formula were applied, Panama’s annual share of revenues would amount initially to about $20 million. Recent studies indicate that [Page 17] tolls could be increased across-the-board 25% without significantly affecting traffic through the canal. Such an increase in FY 1969 would have resulted in an increase of tolls income of approximately $25 million. A revised system, allowing selective increases on certain cargoes, would probably permit a somewhat larger average increase. In FY 1969 this would have amounted to approximately $35 million.

It is recognized that an increase in revenues from the canal will be a primary negotiating goal of Panama. During the preliminary negotiations, the US should express a willingness to seek means to create substantial additional revenues for Panama. These increased revenues would come from either existing or augmented tolls or from US appropriations. Efforts to augment the tolls would be resisted by many shipping interests.

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–169, NSSM Files, NSSM 86. Secret. NSSM 86 is Document 528. Attached is an annex titled, “NSC/IG–ARA Response to NSSM–86.” A portion of that annex is published as Document 530.
  2. The National Security Council Inter-Departmental Group for Inter-American Affairs (NSC–IG/ARA) reviewed the key issues for the United States in writing new Canal treaties with Panama. The NSC–IG/ARA focused on the following concerns: canal capacity, sovereignty, control and defense of the Canal, jurisdiction, the timing of the transfer, and economic benefits of the Canal for Panama.