42. Memorandum From Secretary of State Vance to President Carter1

1. PANAMA—You requested a review of the status of our negotiations.2 The current round of negotiations with Panama which began May 9 continued this week and will resume in Washington May 31.3

All agreements reached so far in the round of negotiations are tentative and contingent upon reaching overall agreement on all outstanding issues.

As a result of agreements reached prior to this round as well as during the discussions during the past three weeks, the two sides have reached tentative agreement on the following issues:

Canal Zone and Canal Zone Government

The Canal Zone and the Canal Zone Government will cease to exist at the beginning of a new treaty. During the first three years of the treaty, all jurisdiction over the Zone will pass to Panama.4 In turn, Panama will grant use rights to the U.S. to operate and defend the Canal. The jobs of the Americans (and Panamanians) who work for the Zone Government will be phased out over the first three years of the treaty.


The two countries shall jointly guarantee the permanent neutrality of this canal (or any other canal to be constructed in Panama in which the U.S. is a participant). Neutrality guarantees non-discriminatory access and tolls to merchant and warships of all nations—even nations that may be at war with the United States or Panama. We have told the Panamanians that we shall interpret the treaty as giving us the [Page 148] freedom to take whatever steps are necessary to meet any threat to the neutrality of the Canal.5


During the life of the new treaty the United States will have all the necessary rights to defend the Canal6 with growing Panamanian participation in defense arrangements.

The United States will turn over to Panama by the end of the treaty all military bases in Panama. Some bases will probably be turned over in the early years of the treaty, others will be retained until the end.7

Life of the Treaty

The treaty will last until December 31, 1999.

Agency to Run Canal

The Canal will continue to be operated by a U.S. Government agency.8 The agency will hire more Panamanians (75% of employees are currently Panamanian) at all levels (but the jobs of U.S. citizen employees will be secure). The agency will be run by a policy level board of 4 Americans and 3 Panamanians. (Appointed by the U.S.) The Administrator of the Agency will be American until 19909 and after that Panamanian.

Lands and Waters

Well over half of the land of the Canal Zone will be turned back to Panama. A joint Panamanian-American public authority will be set up to operate the ports and the railroad.

The U.S. Government agency that operates the Canal will administer housing of its U.S. citizen employees.

Although several details remain to be concluded on some of the above issues, the last major issue—payments to Panama for the Canal (called economic benefits)—will be the major subject of next week’s discussions. We currently pay $2.3 million a year. We will probably offer $35 to $40 million per year. They will probably ask for much more. These payments are to come from the Canal tolls. The need for some increase in tolls is anticipated.10

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If the Panamanians are realistic on the economic benefits, conceptual agreement on all outstanding issues is possible within the next three weeks and before the OAS General Assembly.11 Thereafter treaty drafting will be undertaken based on the agreements reached. The American and Panamanian negotiators, by mutual agreement, are refraining from disclosing any details of agreements reached during this round of talks.12

[Omitted here is information unrelated to Panama.]

  1. Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 18, Evening Reports (State), 5/77. Secret.
  2. In a May 25 memorandum to Todman, Sebastian informed him of Carter’s request for an update on the current state of U.S.-Panamanian negotiations, to be sent to S/S-S by close of business May 27. (Department of State, Principal and S/S Memoranda for 1977, Lot 79D31, Box 2, S/S Memoranda April-June 1977)
  3. A total of 11 meetings were held during the May round of negotiations. All but the first two sessions were held in the Deputy Secretary of State conference room. Dolvin’s updates and interim reports on the May round are in the National Archives, RG 218, Records of Chairman George S. Brown, Box 48, 820 (Panama) Bulky 1 Jan 1976—31 May 1977. Memoranda of conversation for the final two meetings held May 26 and 27 are in the National Archives, RG 185, Subject Files of the 1979 Panama Canal Treaty Planning Group (1950–1980), Box 3, U.S. Negotiating Team—Washington, D.C.
  4. Carter underlined: “all jurisdiction over the Zone will pass to Panama,” and wrote in the right margin: “should be worded in language acceptable to U.S. Public.”
  5. Carter underlined “whatever steps are necessary to meet any threat to the neutrality of the Canal” and wrote “spell out clearly” in the right margin.
  6. Carter underlined: “all the necessary rights to defend the Canal.”
  7. Carter underlined this sentence and wrote: “at whose discretion?” in the right margin.
  8. Carter underlined “U.S. Government agency” and wrote “express clearly” in the right margin.
  9. Carter underlined “1990” and wrote in the right margin, “Why change before 2000?”
  10. Carter wrote in the right margin: “I need data on tolls now collected, & operating expense, & payments to Panama.”
  11. The OAS met from June 14–17 in Grenada.
  12. Carter wrote in the right margin: “Cy—How much consultation with Congress?”