188. Memorandum From the Director of the Office of Management and Budget (McIntyre) to President Carter1


  • The Panama Canal Commission

As you know, the two major civilian agencies now operating in the Panama Canal Zone—the Panama Canal Company and the Canal Zone Government—are to be abolished and a new agency, the Panama Canal Commission, created. Under the supervision of a Board consisting of five United States and four Panamanian nationals, the Commission will be responsible for managing, operating, and maintaining the Canal. The Commission will operate, with substantial Panamanian participation, in territory under the plenary jurisdiction of the Republic of Panama (although the Commission itself will be immune from Panamanian jurisdiction).

OMB has consulted with NSC, Frank Moore’s staff, Landon Butler, William Jorden (Ambassador to Panama), State, Defense, Treasury, Transportation, Commerce, and the Office of the Secretary of the Army on a number of issues not settled heretofore. That process has suggested [Page 461] what I believe to be the appropriate resolution of a number of issues. This memo indicates the issues and the decisions I will communicate to the affected agencies unless you indicate otherwise.


1. Lead agency

The Secretary of the Army has had principal oversight responsibility for the Canal for over 25 years; DOD wishes to continue this arrangement, but Transportation wants to assume responsibility. DOD argues for continuity, while Transportation claims that the Canal is primarily a transportation facility and that changed circumstances resulting from the Treaty require a change in agency oversight. There are some concerns that moving responsibility to Transportation will upset the Senate Armed Services Committee, which will consider legislation implementing the Treaty. Landon Butler, NSC, State and Commerce support the DOD position; Transportation is not supported by any other agency; Frank Moore’s staff and Treasury take no position.

I conclude that responsibility should remain with DOD, at least for now, but that the Canal Administrator, who is the American most visible to the Panamanians, henceforth should be a civilian rather than a military person and that at the first opportunity after the 30-month transition period, consideration should be given to moving oversight responsibility to Transportation.


2. Board membership

Most participants support the idea of making the five U.S. Board members representatives of the five agencies with a major interest in the Canal—DOD, Transportation, State, Commerce and Treasury. Landon Butler and the Secretary of the Army suggest that Board members be U.S. Government officials, but that they be selected on an individual rather than an agency basis.

I think that under the new circumstances created by the Treaty, wider, formal agency involvement in overall policy direction of Canal operations is necessary and therefore propose that the five principal agencies be represented on the Board.


3. Overall U.S. policy formulation

The issue here is whether the five U.S. Board members should serve as an interagency coordination group for overall Canal policy. [Page 462] All participants but DOD support this idea. DOD argues that most problems involving the Canal can be settled between it and State.

It seems clear to me that there should be a Washington-level coordinating group and that having the U.S. Board members handle this task is appropriate.


4. Role of the U.S. Ambassador

Present policy guidance, including your letter to all our ambassadors last October,5 would call for the U.S. Ambassador to Panama to have responsibility for the direction, coordination and supervision of the Panama Canal Commission. State and Defense have agreed to an exemption to this policy in this instance. We agree that the unique policymaking environment of the new Commission, with its joint Panamanian-U.S. Board membership and the formal mechanism for coordination of Canal policy by the U.S. Board members as discussed above, will make the role of the Ambassador somewhat redundant with respect to the Commission. We propose, therefore, that in the legislation implementing the Treaty this exemption be made explicit (language attached).


5. Special Immigration Status

The issue here is to what extent we should grant liberal immigration rights to Panamanian citizens who have been employed by the U.S. Government in Panama for 15 years or more. The Secretary of the Army has urged that these people and their families be given special immigration status under the Immigration and Nationality Act and that they be exempted from the restrictions in that Act pertaining to physical health and proof that the immigrant will not become a public charge. Although State and Justice have agreed to all these provisions, I think that waiving the public charge restriction of the immigration law would set an undesirable precedent and ought not to be included in the implementing legislation.

[Page 463]


6. Source of Pension Funds

A number of Panamanian citizens who are currently employees of the U.S. Government in the Canal Zone will become employed by the Republic of Panama or the private sector in Panama when the Treaty becomes effective. They will then be eligible to join the Panamanian Social Security system and we have agreed under the Treaty to make a contribution to the Panamanian system for each employee who chooses this course. Our contribution will be equal to the amount of the U.S. Government’s contribution to our Civil Service Retirement Fund during the time the individual was employed by a U.S. agency. The Civil Service Commission believes this cost ought to be funded by the general fund of Treasury. State and Treasury believe that this provision should be funded from amounts already credited to the Civil Service Retirement Fund.

I believe that using the Civil Service Retirement Fund to pay this expense is preferable to seeking a new appropriation for this Treaty-related expense.



Draft Language9


Section 102. Authority of Ambassador

(a) The Ambassador to the Republic of Panama shall have full responsibility for the coordination of the transfer to the Republic of Panama of those functions that are to be assumed by the Republic of Panama pursuant to the Panama Canal Treaty of 1977 and related agreements.

(b) The Administrator of the Panama Canal Commission and personnel under his supervision shall not be subject to the direction or [Page 464] supervision of the United States Chief of Mission in the Republic of Panama with respect to the responsibilities of the Commission for the operation, management or maintenance of the Panama Canal as established in this or other acts, and the Panama Canal Treaty of 1977 and its related agreements; in other respects, section 16 of the Act of August 1, 1956, ch. 841 (22 U.S.C. 2680a) shall be applicable.

  1. Source: Carter Library, National Security Affairs, Staff Material, North/South, Box 42, Pastor, Country, Panama, 8–12/78. No classification marking. Carter initialed the top-right corner of the memorandum.
  2. Carter wrote: “ok.”
  3. Carter wrote: “ok.”
  4. Carter wrote: “ok.”
  5. The text of Carter’s October 25, 1977, letter outlining the authority and responsibilities of chiefs of mission was transmitted in telegram 256085, to all diplomatic posts, October 26, 1977. (National Archives, RG 59, Central Foreign Policy File, D770394–0548)
  6. Carter wrote: “ok.”
  7. Carter wrote: “If employees in Zone are discharged without cause they should be permitted to immigrate—otherwise, ok.”
  8. Carter wrote: “ok.”
  9. No classification marking.