3. Paper Prepared in the Department of State1
[Omitted here is the table of contents.]
POLICY REVIEW MEMORANDUM: PANAMA
I. CURRENT SITUATION
Our basic national interest in Panama is that the Canal remain efficient, secure, neutral, and continuously open to all world shipping at reasonable tolls. The present Canal has served us well over the years, and is still a “major” defense asset which enhances U.S. capability for timely reinforcement of U.S. Forces and flexibility in deployment (Tab 1, Strategic Importance of Canal).2[Page 5]
While its near-term economic value may be enhanced by the requirement to transport Alaskan oil to the Gulf Coast, it is now an aging utility of declining commercial value. Of total tonnage that transits the Canal, about 44% originates in, and 22% is destined for, U.S. ports. These figures represent 16% of total U.S. export and import tonnage. More than 30% of Panama’s foreign exchange earnings and 13% of its GNP are attributed to the presence of the Canal.
Alternatives to the Canal have emerged—use of super tankers, land bridge, pipelines. After 63 years of operation, the Canal’s strategic significance has diminished, while its potential as a source of conflict has increased. Moreover, it is the intelligence community’s estimate that while delay in a treaty invites violence against the Canal, it would also endanger Torrijos’ position.3 Therefore both Panama and the United States have incentives to negotiate seriously and quickly.
The Panama Canal Company and Canal Zone Government are independent financially self-supporting agencies of the United States Government. The Secretary of the Army acts as the direct representative of the President in supervising the operation of these agencies. (For further data concerning the Canal and Zone, see Tab 2.)4
Our central objective over the past 12 years has been to protect our national interest by negotiating a new treaty with Panama that would eliminate what have been viewed as anachronistic “colonial” aspects of our presence in Panama without endangering the continuing operation, safety and availability of the Canal. Any agreement must be acceptable to Panama, the Congress, the Federal agencies involved and the American public.
Our negotiators believe that we can, with continued effort, shortly be within reach of a treaty with Panama that will meet these requirements, provided that both sides are willing to make compromises on certain issues. Though we differ over questions related to the exercise of sovereignty, particularly over the nature and duration of the United States defense role, Panama’s national interest in an open, efficient and safe canal is similar to ours. The Torrijos Government is—in comparison to any successor government conceivable now—one from which we can get more of what we want and one with which we have the best chance of negotiating a lasting treaty (National Intelligence Estimate [NIE] Summary, Tab 3).5[Page 6]
Much progress has been made since 1974 including agreement to cede legal jurisdiction over the present Canal Zone to Panama and to increase Panamanian participation in the operation of the Canal while retaining a primary U.S. operation and defense role. The negotiations have, however, been essentially stalled since February 1976. The major issues that remain to be resolved include treaty duration (which is particularly important to Panama), and post-treaty defense rights and neutrality (which are particularly important to the U.S.). Other politically sensitive issues include employee benefits (which affect some 3,800 U.S. citizen employees) and United States use of the lands and waters of the Canal Zone during the treaty period on which positive movement has been made during the past year on an informal and “what if” basis.
Once our negotiators reach agreement in principle on the main treaty issues, they can begin to draft the actual treaty—a process that has not yet commenced.
It should be emphasized that domestic politics in both countries have added greatly to the numerous problems inherent in this complex negotiation; they affect—sometimes unpredictably—many individual issues, as well as the pace and conduct of the negotiations and their public presentation in both Panama and the U.S. (Tab 4, Major Forces Involved).6
The negotiation of a new Canal treaty, moreover, is not a purely bilateral issue. Panama has elicited broad expressions of support from individual countries, the United Nations, the OAS and in the non-aligned movement of developing countries.
While Panama probably overemphasizes the value of international support at the negotiating table, a breakdown of the negotiations would gravely burden our policies throughout this Hemisphere, where the talks are generally viewed as a practical test of U.S. credibility. Conversely, to many Latin American countries the Canal is even more important commercially than it is to the United States. Those countries are supportive of a Canal treaty that will insure continuous effective operation and defense of the Canal.
In sum, the successful conclusion of a new treaty that would protect our basic national interests in the Canal would do more than remove a source of tension and potential bloodshed: it would strengthen the reputation of the United States as a force for creative world leadership.[Page 7]
A. Negotiating History
The commitment to negotiate a new treaty to replace the Hay-Bunau-Varilla Treaty of 1903—which gave the United States the rights to construct, operate, maintain and defend a canal across Panama in perpetuity—was made publicly in 1964 by President Johnson after consulting with former Presidents Truman and Eisenhower.7
Three draft treaties were initialled in 19678 but never signed by either country. The 1971–72 negotiations ended in a stalemate which led to a United Nations Security Council meeting in Panama in 1973, where the United States was forced to exercise its right of veto.9
In February 1974 the Secretary of State and the Panamanian Foreign Minister signed a Joint Statement containing eight principles (Tab 5) to guide the formulation of a new treaty.10 These principles stipulate essentially that:
—the new treaty will be for a fixed term;
—Panama will grant the United States the rights and use of lands necessary to operate and defend the Canal during the treaty’s lifetime;
—the United States will return to Panama jurisdiction over all of its territory (the Canal Zone) and provide for increased Panamanian participation in the operation of the Canal.
B. Negotiating Approach and Guidance
Ambassador Ellsworth Bunker was appointed Chief U.S. Negotiator in late 1973. Bunker’s approach, which was fully coordinated between the Departments of State and Defense, was to attempt to satisfy Panamanian aspirations for full sovereignty over all of its territory, while ensuring that the U.S. would maintain primary responsibility for the operation and defense of the Canal during the treaty’s lifetime.[Page 8]
Presidential Guidance is contained in NSDMs 302, 131 and 115 (Tab 6).11 It should be noted that these NSDMs were written to address individual treaty questions at particular moments in the negotiations. They are not, therefore, all inclusive. The main issues treated in the NSDMs concern duration, jurisdiction, lands and waters, expansion and post-treaty guarantees.
Within the framework of this guidance, Ambassador Bunker was able to negotiate three conceptual agreements with Panama in November 1974. These are:
—Threshold Agreement on Protection and Defense of the Canal. This would give the United States primary responsibility for the protection and defense of the Canal during the lifetime of the treaty. Panama would participate in Canal protection. Panama and the United States would retain unilateral rights to take action necessary to protect and defend the Canal. Both parties committed themselves to maintain the permanent neutrality of the waterway.
—Threshold Agreement on Increasing Panamanian Participation in the Administration of the Canal. Panama agreed that the United States would have the primary responsibility for the operation of the Canal during the term of the treaty. Panamanian citizens would have growing participation in all levels of employment and in the formulation of overall policy concerning Canal operation.
—Threshold Agreement on Jurisdiction and Rights of Use. It was agreed that jurisdiction over the Canal Zone would return to Panama during a three-year transition period. Panama would confer upon the United States, the use of the areas which are necessary for the specific purposes of the operation, maintenance, protection and defense of the Canal. The specific lands and waters areas would be determined during the treaty negotiations.
In March 1975 Bunker also obtained Panama’s agreement to a draft Status of Forces Agreement granting to United States military forces stationed in Panama standard military privileges and immunities (Tab 8).12
C. Areas of Disagreement with Panama
The major issues of disagreement are: (1) treaty duration; and (2) Canal neutrality and United States post-treaty defense rights:
—Duration. Panama believes this to be the key remaining issue. It has consistently, vigorously and publicly maintained that December 31, 1999, is the latest possible date for treaty termination. Its position [Page 9] appears fixed. The United States agreed basically with that date only as it applies to the termination of United States control over Canal operation. As provided in NSDM 302, we have insisted on a 40-year duration for United States defense rights (Paragraph B, Tab 9).
—Neutrality Guarantees and Post-Treaty Defense Arrangements. We have proposed that Panama and the United States guarantee the neutrality of the Canal jointly and that there be a post-treaty agreement on joint defense. Panama agrees in principle that the Canal should be permanently open on a nondiscriminatory basis to all world shipping. Panama, sensitive to the “perpetuity” implications of this formula, wants UN members to guarantee the Canal’s neutrality after the treaty’s termination (Paragraphs C and D, Tab 9).
—In addition, there are other areas of disagreement with Panama. They are:
—The lands and waters in the present Canal Zone, use of which will be required by the U.S. for the operation, maintenance, defense and protection of the Canal (Paragraph E, Tab 9).
—The privileges and immunities to be accorded U.S. employees of the entity (a very sensitive point for the “Zonians”) (Paragraph F, Tab 9).
—The nature and structure of the Canal entity (Paragraph G, Tab 9).
—The financial benefits which Panama would receive under the new treaty which involves the question of whether appropriated funds or only Canal earnings should be used for compensation (Paragraph H, Tab 9).
—Expansion (Paragraph I, Tab 9).
D. U.S. Options on Major Issues
Duration, neutrality and post-treaty arrangements are closely related and are the major issues in the negotiations. This inter-relationship makes these issues somewhat complex but also offers opportunities for negotiation of compromise formulas that will meet essential United States security interests while being consistent with Panamanian concerns and domestic pressures. It is important to keep in mind that on these issues tradeoffs which are mutually perceived to protect each party’s basic interests could provide the basis for a final agreement.
Panama has flatly rejected the duration position (December 31, 1999, for operation and 40 years for defense) presented by the United States negotiators. Informally, the Panamanian negotiators have emphasized, however, that if we could terminate both operation and defense rights (including military presence) by 2000, it could then be “flexible” concerning new arrangements for protecting United States security interests beyond the year 2000. Panama has not offered a formula for such arrangements.
Our options on the duration for U.S. control of Canal operation are: (1) hold with 1999; (2) go to 20 years as provided in existing guidance; or (3) choose some slightly earlier date (Tab 9A, Discussion).
On duration for defense, we can hold at 40 years with several sub-options or choose a shorter period down to the year 2000.[Page 10]
Panama’s willingness to accept a given period for duration of U.S. defense rights under a new treaty is contingent at least in part on the type of military presence or rights which the U.S. would be authorized to maintain after Panama assumes full control of the Canal’s operation. The options that may be acceptable from the point of view of our defense needs range from (a) a full military presence such as we now maintain to (b) a token presence for the purpose of maintaining a logistics base to (c) no presence but a right to return to protect the Canal. There has been no decision within the Government on whether it is necessary to keep troops and bases in Panama after our operation rights terminate in order to protect U.S. security interests (Tab 9B, Discussion). The uniformed services have not yet identified the level of residual military presence or the type of formal arrangements with Panama necessary to reasonably assure the Canal’s defense in the post-treaty period.
Regarding the closely related questions of neutrality and post-treaty arrangements, Defense and State agree that the U.S. wants solid assurance (after our operational rights terminate) that the Canal will be kept open permanently and on a nondiscriminatory basis to world shipping and to U.S. military and commercial vessels.
The two Departments also agree that we could further the objective of assuring access by inserting a clause in the neutrality agreement guaranteeing that the waterway will be open on a nondiscriminatory basis to ships of all nations—a provision to which Panama has not objected. The issue is what states should be the guarantors and what provisions if any need to be included to make that abstract neutrality effective.
There is general Defense agreement that several options are open for attaining the guarantee of neutrality and to make clear that U.S. interest in the Canal is not diminished. One way to achieve this objective would be to provide for a continuing right for the U.S. to take such action unilaterally in Panama after the year 2000 as the U.S. (by itself) determined was necessary to protect our interests in the Canal. (This was the formal Defense position under the prior Administration.) Another way of meeting this objective—which is also consistent with the Defense position—would be a formal “agreement to agree” on a post-treaty defense arrangement. Obviously, this “agreement to agree” could take varied forms—e.g., a mutual security agreement separate from but coordinated with the Canal treaty.
State is convinced that Panama would never accept an explicit perpetual U.S. right of unilateral intervention. State further believes that if we were to agree to a treaty ending in 2000, Panama might accept a mechanism whereby Panama and the United States jointly guaranteed in the neutrality treaty (perhaps joined by others, such as [Page 11] other Latins) that the waterway will always be open and neutral. State’s reasoning is that if Panama ever closed the Canal to U.S. shipping, we could move to counter that threat unilaterally whatever the treaty formula. Defense believes a formal legal provision concerning post-treaty defense is important both in itself and from the point of view of ratification. State and Defense agree that some provision in the treaty, or a unilateral U.S. declaration relating to a U.S. role in post-treaty defense or insuring the Canal’s neutrality, would be useful in the ratification process and would establish a basis for U.S. action if it were to become necessary.
Our options on a neutrality guarantee are:
(a) joint U.S.-Panama guarantee with explicit right of intervention*;13
(b) joint U.S.-Panama guarantee*;14
(c) a guarantee joined by some other countries;
(d) a unilateral U.S. guarantee; or
(e) no external guarantee, with Panama promising to operate the Canal on a neutral and nondiscriminatory basis.
Our options on post-treaty defense arrangements involve three areas:
(a) U.S. presence
(1) full presence similar to current forces
(2) token forces
(3) logistical base
(4) no presence
(b) U.S.-Panama defense agreement
(1) continuous U.S. defense role until agreement reached on different role
(2) agreement to agree with continuation of treaty regime if no agreement reached
(3) agreement to agree without continuation of treaty regime if no agreement reached
(4) agreement to negotiate without continuation of treaty regime if no agreement reached
(5) no provision for continuing U.S. role[Page 12]
(c) U.S. defense rights
(1) explicit Panamanian agreement to U.S. right to intervene
(2) unilateral U.S. declaration of intention to act if necessary to protect interests
(3) silence: U.S. reliance on Panama’s realization of U.S. capability to intervene.
III. ISSUES—NEXT STEP
The discussion in this section assumes that the new Administration wishes to have a new treaty rapidly and, therefore, addresses how to resume the negotiations and carry them forward at a satisfactory pace to their completion. Another issue—Congressional concern—will be addressed later.
Option I—Start with a Formal Offer
Negotiations would be resumed only after inter-agency agreement had been reached on instructions regarding major outstanding issues. The instructions would involve the fixing of negotiating positions on these issues and would identify a range of choices for each.
Option II—Informal Exploration
At Presidential direction the U.S. would resume negotiations promptly and seek through informal exploration with Panama to fill remaining U.S. needs in exchange for U.S. acceptance of the year 2000 as the duration of a new treaty. Having first obtained—in lieu of formal guidance—an informal understanding with the President on the limits of his flexibility, the Chief Negotiator also would be empowered to address other options (trade-offs) on a “what if” basis if they emerge from the discussions. Following the talks with Panama, our negotiators would then report back to the President with a draft “conceptual agreement” and recommendations for such changes as may be necessary in Presidential instructions.
Discussion of Options
Option I would provide the new Administration an opportunity to examine in depth the status of the negotiations and reach a coordinated position on the major outstanding issues. It would provide clear guidance on how and at what pace to proceed. At the same time it could facilitate coordinated efforts to gain support for a treaty with the public and Congress. However, the time involved in early resolution of intra-USG differences would substantially delay resumption of negotiations. Such a delay could prevent us from reaching agreement with Panama and gaining Congressional acceptance of a treaty this year. Failure to resume the negotiations within a few weeks following the inauguration [Page 13] could also be interpreted by our Congressional opponents, Panama and probably the nations of this hemisphere as a signal that the new Administration lacks commitment to move rapidly toward a new treaty.
Option II would allow early resumption of the negotiations and would provide the negotiators with broad flexibility to probe for the basis of agreement with Panama without requiring a time-consuming prior review of U.S. positions. By providing an early positive signal as to our intent, Option II would assure Latin America and the Third World of our interest in speedily resolving the issue. The first step under this option would be an initial airing of inter-agency views through discussion of an options paper culminating in an NSC meeting and an understanding between the President and the Chief Negotiator on the limits of U.S. proposals. The negotiators would then meet with their Panamanian counterparts for exploratory discussions. The improved understanding of possible alternatives resulting from these early discussions would then allow the different USG agencies to surface the issues more clearly for prompt Presidential decision.
Option II could permit the initialing of a “conceptual agreement” with Panama by mid-March and presentation of a draft treaty to the President for final concurrence by June 15. Formal treaty signing could occur by July 1 and presentation to the Senate could follow by as early as August 1 (an early submission would be broadly advantageous to permit ratification prior to the 1978 elections).
Implementing Actions Needed by Option I
—Develop a USG position on all outstanding issues; subsequently, issue instructing NSDM. If this option is selected, see Tab 9 for a discussion of the major unresolved treaty issues together with their related options.
—Explain to Panama that the new Administration will require some time to formulate new positions.
—Take the necessary steps to obtain public support for a treaty (Tab 10).
Implementing Actions Needed by Option II
—Instruct the negotiators after prompt inter-agency coordination and early NSC consideration to explore informally Panama’s willingness to accept our needs on all oustanding issues in the event we were to accede to the year 2000 as the date of the treaty’s termination. Empower the negotiators to address other options (tradeoffs) on a “what if” basis if they emerge from the discussions.
—Take the necessary steps to obtain public support for a treaty (Tab 10).
There are two matters which will require early attention, whatever the option selected.[Page 14]
The first concerns Congressional relations and the negative impact from a possible reintroduction in the Senate of the Thurmond Resolution opposing the treaty negotiations.15 While there is almost no possibility that such a resolution would be adopted, it could be a liability for the success of the negotiations and the treaty effort if it were to attract the sponsorship of something approaching a blocking third of the Senate membership. Sponsorship would tend to commit Senators and make it more difficult for them to support a treaty when one is submitted to the Senate. There is a danger that a number of Senators might sign the resolution without fully appreciating the depth of the Administration’s commitment to a new treaty effort—or the dangers to our interests in the Canal from failure to have a new treaty. It would be highly desirable to communicate the Administration’s views to individual Senators and to urge them not to pre-judge the treaty issue.
The second matter which will require attention concerns interagency coordination. Until now the negotiators have relied on ordinary interagency coordination procedures supplemented by the efforts of the State-Defense Support Group, which has functioned as a negotiators’ “think-tank”. This group regularly drafts informal papers which, if approved by the negotiators, are then introduced into the formal interdepartmental clearance process.
State believes that it is likely that this procedure will not fully serve the Administration’s purposes once the negotiating process is resumed and efforts are accelerated in pursuit of an early treaty. It is State’s view that a mechanism must be established which will permit rapid coordination of negotiating issues. Accordingly, State believes that it would be highly desirable to establish an interagency committee under the chairmanship of the Under Secretary of State for Political Affairs. The members of this committee, which would function below the level of the Policy Review Group, would be fully empowered to speak for their agencies in addressing rapidly the negotiators’ requests for Executive Branch guidance. The Committee would include representatives from State, Defense, NSC, Secretary of the Army, and Treasury and (when appropriate) Labor, Commerce, Transportation, Justice, CIA, OMB and the Civil Service Commission. Defense believes that except for the most unusual circumstances, the coordination authority available to the negotiators and the existing Washington interagency mechanism will be more than adequate for issues not requiring higher level [Page 15] decision. Issues involving other agencies/departments of the Executive Branch will be complex in nature and necessarily require thorough analysis to insure that irrevocable mistakes are not permitted, through haste, to become part of a major new treaty. When interagency issues are identified, the appropriate agency should be tasked to respond to State/Defense request for coordination. Defense suggests that standby representatives of agencies listed above be identified early on, and if a full interagency committee effort should be required at some future date, the committee be chaired by a designated member of the NSC staff.
Tab 1—Strategic Importance of the Panama Canal
Tab 2—Description of Canal operations
Tab 3—NIE Summary
Tab 4—The Forces Involved in the U.S. and Panama
Tab 5—Joint Statement of Principles
Tab 6—NSDM 302, 131 and 115
Tab 7—Threshold Agreements
Tab 8—SOFA (Summary)
Tab 9—Major Unresolved Treaty Issues
Tab 10—Steps to Obtain Public Support for a Treaty.
- Source: Carter Library, National Security Affairs, Staff Material, North/South, Box 42, Panama, PRM–1, 1/77. Secret. Prepared in response to PRM–1. The Defense Department and CIA contributed to the paper.↩
- Tab 1 is attached but not printed.↩
- A reference to National Intelligence Estimate (NIE) 84–1–77, “Panama: Developments and Prospects,” dated January 6. (Central Intelligence Agency, National Intelligence Council, Job 82B00421R: NFIB Documents—Microfiche, Box 1, Folder 4: Soviet Civil Defense Collection and Production Strategy for 1972)↩
- Tab 2 is attached but not printed.↩
- Tab 3, the précis of NIE 84–1–77, is attached but not printed.↩
- Tab 4 is attached but not printed.↩
- On December 18, 1964, Johnson announced his decision to propose to Panama the negotiation of a new Panama Canal Treaty. For the full text of Johnson’s remarks, see Public Papers: Johnson, 1963–1964, Book II, pp. 1663–1665.↩
- See Foreign Relations, 1964–1968, vol. XXXI, South and Central America: Mexico, Document 439.↩
- The U.N. Security Council held 10 meetings in Panama City March 15–21, 1973, many of which focused on the canal and the Canal Zone. On March 21, the Security Council voted on a draft resolution sponsored by Panama and Peru, which, among other things, called for the prompt execution of a new canal treaty. The U.S. vetoed the draft resolution, arguing that its matters were in the process of bilateral negotiations, making it inappropriate for the Security Council to adopt a resolution dealing with those matters. For further explanation of the meetings, the draft resolution and the Security Council decision, see Yearbook of the United Nations, 1973, pp. 165–170.↩
- Tab 5 is attached but not printed. For the text of the principles, see the Department of State Bulletin, February 25, 1974, pp. 184–185.↩
- NSDMs 302, 131, and 115 are attached but not printed. For the full texts of NSDM 302, 131, and 115, see Foreign Relations, 1969–1976, vol. XXII, Panama, 1973–1976, Document 95; Foreign Relations, 1969–1976, vol. E–10, Documents on American Republics, 1969–1972, Document 555; and Foreign Relations, 1969–1976, vol. E–10, Documents on American Republics, 1969–1972, Document 549.↩
- Tab 8 is attached but not printed.↩
- Defense prefers either Option (a), or Option (b) if coupled with either (1) an “agreement to agree” on a post-treaty U.S. defense role with a clear understanding that without such agreement, U.S. defense rights under the treaty will continue or (2) a treaty agreement on a post-treaty defense role. [Footnote is in the original.]↩
- See footnote 13 above.↩
- Thurmond introduced Senate Resolution 301 on March 29, 1974. The resolution sought to ensure that the U.S. Government retained and protected its sovereign rights and jurisdiction over the Panama Canal Zone. Thurmond reintroduced this resolution on March 4, 1975, as Senate Resolution 97. For more information on Thurmond’s resolution, see Foreign Relations, 1969–1976, vol. XXII, Panama, 1973–1976, Documents 38 and 39.↩
- See footnote 11 above.↩
- See footnote 11 above.↩
- The Inter-American Treaty of Reciprocal Assistance, known as the Rio Pact or Rio Treaty, was signed by 19 American countries on September 2, 1947, in Rio de Janiero. It asserted that aggression toward one American state would be considered an attack on all countries bound by the treaty.↩
- See Foreign Relations, 1969–1976, vol. XXII, Panama, 1973–1976, Documents 102 and 108.↩
- See Foreign Relations, 1969–1976, vol. XXII, Panama, 1973–1976, Document 99.↩
- See footnote 20 above.↩
- See Foreign Relations, 1969–1976, vol. XXII, Panama, 1973–1976, Document 114.↩
- See footnote 10 above.↩
- For a brief summary of the January 1975 meetings in Panama, see Foreign Relations, 1969–1976, vol. XXII, Panama, 1973–1976, Document 66.↩
- See footnote 8 above.↩
- According to the President’s Daily Diary, Carter hosted a breakfast meeting with Democratic congressional leaders on January 25 from 7:57 to 9:08 a.m. (Carter Library, Presidential Materials, President’s Daily Diary)↩
- Not found.↩
- Not found.↩
- See Document 43.↩
- Carter delivered remarks to the American people on February 2 but did not mention Panama. For the text of the remarks, see Public Papers: Carter, 1977, Book I, pp. 69–77.↩