Foreign Relations of the United States, 1977–1980, Volume XXIX, Panama

207. Memorandum From Secretary of State Vance to President Carter ¹

Washington, January 23, 1979

SUBJECT

• Funding the Panama Canal Commission

In your discussion with Chairman Murphy on January 19,² he indicated his preference for a Canal operating agency whose funds would be appropriated by Congress as a part of the Department of Defense budget. He noted his disagreement with the proposal contained in the Administration’s Panama Canal Treaty implementing legislation to establish the Panama Canal Commission as a Government corporation.

You asked for my comments.

The present Canal operating agency, the Panama Canal Company, is a US Government corporation. It prepares and submits to Congress an annual budget showing its projected revenues and expenses for the upcoming year. The budget is routinely reviewed each year in the Transportation Subcommittee of the House Appropriations Committee, and approved by law, subject to any limitations imposed by Congress. The Company’s financial transactions are audited by the General Accounting Office under principles similar to those governing commercial transactions.

The Treaty does not specify the organizational form of the Commission. This issue is left for determination by the United States.³

The Treaty implementing legislation proposed by the Administration, with DOD concurrence, would continue the present system by creating the Panama Canal Commission as the corporate successor to the Panama Canal Company.

Chairman Murphy has introduced legislation which would abandon the corporate form and create the Commission as an agency subject to the authorization and appropriations process, under the general supervision of the Department of Defense. All revenues received by the Commission would be deposited in the Treasury. The Commission would expend money in such amounts and for such purposes as provided in annual authorization and appropriation acts. Murphy’s desire is to tighten the degree of Congressional control over the Commission.

I believe the corporate form proposed by the Administration’s legislation is preferable to Chairman Murphy’s proposal for the following reasons:

—As a corporation, the Commission will be expected to be self-sustaining, thus limiting the possibility of subsidizing the Canal operation from general revenues through the annual appropriations process.⁴

—Efficient operation of the Canal requires a degree of operating flexibility and management discipline which the corporate form provides. It was for this reason that Congress in 1951 established the Panama Canal Company as a Government corporation.⁵

—Abandonment of the corporate form could politicize the operation of the Canal, through annual debates in Congress, and might lead to efforts by the shipping industry to keep toll rates uneconomically low.⁶

—The need for continuity supports retention of the corporate form. Conversion to another form of organization during the difficult period of transition to the new relationship with Panama would be unnecessarily disruptive.⁷

—Effective Congressional control over the Commission exists under the corporate form by virtue of the authority of Congress to review the corporation’s budget. Through this procedure, every aspect of the Commission’s operations is potentially subject to Congressional oversight and modification.⁸

—Finally, intensified Congressional involvement in Canal operations risks reducing the Panamanian voice in our delicately balanced partnership, with potentially adverse consequences.⁹

If you would like, I should be glad to get in touch with Chairman Murphy and make these points, expressing the Administration’s position that we should retain the present type of arrangements at least through the two-and-a-half year transition period.¹⁰

1. Source: Carter Library, National Security Affairs, Staff Material, North/South, Box 42, Pastor, Country, Panama, 1–5/79. No classification marking. Carter initialed the top-right corner of the memorandum and wrote: “Cy.” Brzezinski forwarded the memorandum with Carter’s notations to Vance under a January 31 covering memorandum. (Ibid.)
2. See Document 206.
3. Carter underlined “does not specify” and highlighted this paragraph.
4. Carter placed a checkmark in the right margin.
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10. Carter placed a checkmark in the right margin and wrote in the left margin “ok.”