211. Action Memorandum From the Secretary of State’s Special Representative for Panama Treaty Affairs (Popper) to the Deputy Secretary of State (Christopher)1

Costs to the US of Implementing the Panama Canal Treaty

Conservative elements in Congress have as you know characterized the Panama Canal Treaty of 1977 as a “giveaway,” requiring the turnover to Panama of billions in real estate and equipment. In attacking the Administration’s Treaty implementing legislation, opponents have concentrated on the cost to the United States. They have criticized the Administration for conveying the impression during last year’s Treaty [Page 508] debate that there would be no cost to the United States taxpayer. (While our rhetoric was by no means always clear, the intent was to indicate that payments to Panama under the Treaty would come from Canal revenues, not from the US Treasury.)

In February 1978 Secretaries Vance, Brown and Alexander sent a letter to Senators stating that expenses to the United States were not likely to be much more than $350 million over the life of the Treaty.2 You used this figure in responding to questions from the Panama Canal Subcommittee when you testified before it last month,3 although you did indicate that there would be some additional expense. On request of Congressman Bauman, we agreed to furnish a breakdown of these costs to the US over the life of the Treaty.

As the attached memorandum shows, the 1978 figures were indeed too low.4 In recalculating and refining its estimates, the Defense Department has raised its global figure from under $200 million to $757 million. The Office of Personnel Management figure exceeds $200 million (up from $150 million). Together with other incremental costs, the overall total to be reported on this basis would be $980 million. Taking into account offsetting savings, the figure can be reduced to $869 million.

A certain increase in the $350 million estimate was to be expected, as the legislative proposals for early retirement benefits were worked out, the cost of relocating military facilities became clearer, and other requirements not originally envisaged gradually came into view. Much of the major escalation is due to the DOD recomputation, which may be unduly generous. For example, the tabular computation of projected DOD costs is headed by an item entitled “base operations” for which an annual increased appropriation of $16.5 million is projected through a period of 21 years. DOD has not yet clarified for us why “base operations” should be any more expensive in the future than in the past. This one item accounts for over $300 million of the estimated cost to DOD.

The way in which we respond to the charges regarding Treaty costs may have a determining effect on the character of the implementing legislation. The credibility of the President and the Secretaries is at issue. It should not be needlessly jeopardized to protect DOD budgetary flexibility.

We appear to have two options. We can publish the figures as they now stand, or we can undertake a high-level blue-pencilling operation. [Page 509] In either case we will have to explain that the new figures are based on further analysis and the emergence of additional requirements. We would contrast the result with the $4 billion total being used by the opposition.

L and H favor the second option (blue-pencilling). We see its advantages, but are concerned about the delay—Subcommittee mark-up goes forward March 27—and the risk of charges that we had “massaged” the original estimates.


That you discuss the matter with the Secretary and with Deputy Secretary Duncan to determine how we should proceed5 (Talking Points are attached).6

  1. Source: National Archives, RG 59, Central Foreign Policy File, P790047–1586. Confidential. Drafted by Popper on March 22. ARA, L, and H concurred. A typed notation on March 24 from Christopher to Popper reads: “DOD apparently scrubbing figures, after Brown requested.”
  2. See Document 144.
  3. See Document 208.
  4. Draft memorandum, dated March 22, is attached but not printed.
  5. Christopher did not indicate his approval or disapproval of the recommendation. See footnote 1 above.
  6. Attached but not printed.