32. Action Memorandum From the Director of Panamanian Affairs (Bell) to Ambassador at Large (Bunker) and the Panama Canal Treaty Co-Negotiator (Linowitz)1

U.S.–PANAMA TREATY NEGOTIATIONS: Interagency Working Group Recommendations on Economic Arrangements

Reference: Action Memorandum dated March 23, 19772


The Action Memorandum of March 223 established a basic strategy regarding the development of an economic arrangements position. [Page 130] The first steps in that strategy have been completed. The Interagency Working Group included representations from State, Defense, A.I.D., Treasury and OMB. The Group met during the period March 28 to April 6, and prepared a statement of Recommendations, which is attached as Tab A to this memorandum.4 During the period of Working Group discussions, consultations were also carried out with several House members and Senate and House staffers on the issue of economic arrangements. Memcons of these discussions are included as Tab B.5 The results of these brief consultations served as input to the deliberations of the Working Group.

The Working Group reached two conclusions which serve as basic premises to its recommendations:

—Much data relating to the scope of operations of the Canal and its ability to generate revenue under the new treaty is not available and its development should be a priority consideration; and

—To the maximum extent possible, any transfer of benefits to Panama should sustain from Canal revenue.

Based on these conclusions, the Group made the following recommendations:

—that the Negotiators seek to create a technical study group to compile information on the maximum revenue that can be derived from the Canal operations under varying assumptions and examine the anticipated reduction in expenses as a result of the transfer of responsibilities to Panama;

—that the level and types of payment to Panama under the treaty should be payable from Canal revenues;

—that the value of the Canal assets be calculated and recognized as part of the total “compensation” package to Panama and should be considered as a negotiating tool for the United States Negotiators;

—that the annual payment to Panama consist of an amount per Panama Canal ton but should not be less than a low, fixed sum for a period of time to be determined on the basis of mutual agreement;

—that an inflation factor should be built into any annual payment position of the United States Negtiators;

—not to commit the United States to an overall economic development program in the treaty;

[Page 131]

—that the United States not commit itself to a security assistance program in the treaty; and

—that the economic arrangements of the treaty should provide for a bilateral mechanism to aid the implementation of the treaty and the Canal operations during the treaty.

Discussion of each recommendation as well as options are discussed in Tab A. Should you accept these recommendations, they will establish the parameters for the drafting of the United States Negotiators’ positions,6 including fallbacks, and a draft Threshold Agreement on economic arrangements. We believe that Congressional consultations on this issue have been useful and should continue.

The Working Group is prepared to discuss its report with the Negotiators should the Negotiators require amplification of its recommendations.

Action Requested:

That you approve the Working Group’s recommendations for submission to interagency clearance.7

Approve ______ Disapprove ______

Approve with exceptions ______

That we proceed to implement the first recommendation on creating a technical study group.8

Approve ______ Disapprove ______

That we proceed to prepare a United States position based on the Working Group’s recommendation.9

Approve ______ Disapprove ______

Richard Wyrough for
S. Morey Bell



Tab A—Statement of Recommendations

Tab B—Congressional Consultation Memoranda

  1. Source: Department of State, American Embassy Panama, Panama Canal Treaty Negotiation Files, 1964–1977, Lot 81F1, Box 127, Pol 33.3.2—Compensation 1977. Confidential. Copies were sent to Jorden, Tragen (USAID), Todman (ARA), Lion (AA/LA), and Pezzulo (H).
  2. Not found.
  3. The March 22 action memorandum proposed a schedule and actions which included providing the negotiators with a statement of recommendations for economic arrangements under a new Panama Canal Treaty. Bunker approved the schedule and actions. (Department of State, American Embassy Panama, Panama Canal Treaty Negotiation Files, 1964–1977, Lot 81F1, Box 127, POL 33.3.2—Land and Water Jan-March 1977)
  4. Attached but not printed.
  5. Memoranda of conversation dated April 4, 5, and 8 and a memorandum for the files dated April 6 are attached but not printed. Members of Congress consulted included Representative David Obey (D–Wisconsin), Representative Lee Hamilton (D–Indiana) and Murphy.
  6. On April 15, Bunker forwarded the recommendations to Dolvin under a covering letter, stating his wish to “use these recommendations as the basis for preparing a coordinated United States Government position on economic arrangements under a new treaty” and requesting Defense’s views. (Washington National Records Center, OSD Files, FRC: 330–84–0047, Neg Panama & Panama Canal Zone—16 Feb 77–15 Apr 77)
  7. There is no indication of approval or disapproval of the recommendation.
  8. There is no indication of approval or disapproval of the recommendation.
  9. There is no indication of approval or disapproval of the recommendation.
  10. A typed signature indicates Wyrough signed for Bell.