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Panama Canal - Reversion to Panama 1964-99

By authority delegated to him as the personal representative of the President, the Secretary of the Army had special responsibilities for Panama Canal matters which included operations of the Canal Zone government and Panama Canal Company. The Canal Zone government was administered under the supervision of the Secretary of the Army by the governor of the Canal Zone who was appointed by the President. Management of the Panama Canal Company was vested in a board of directors appointed by the Secretary of the Army as "stockholder," representing the interests of the United States as owner of the corporation. The Secretary of the Army served on the board of directors and appointed the Under Secretary of the Army as a member and chairman of the board.

During the early years, the Panamanians complained they did not receive a fair share of revenues generated by the canal, and they resented the United States' operation of the canal. In 1936, the two nations amended their 1903 treaty to increase the annual annuity paid to Panama to $430,000, and the United States gave up its right to intervene in Panama and maintain public order. In 1955, another amendment increased the annual annuity to $1.93 million, limited the U.S. involvement in Panama's internal affairs, established a single pay scale for Americans and Panamanians employed by the Panama Canal Company, and made Spanish an official language along with English within the Canal Zone. In 1955, the Panama Canal Company turned over to the Republic of Panama the Panama City railroad yards and other properties, valued at $22 million. Seventeen years later, in 1972, the annuity was adjusted again to $2.1 million, and then again in 1973 to $2.33 million.

The early 1960s saw the beginning of sustained pressure in Panama for the renegotiation of this treaty. Panama has centered on the Panama Canal since the beginning of the century. Under the 1903 treaty, the United States acquired unilateral rights to build and operate a canal in perpetuity. It also acquired the Canal Zone -- a 553 square-mile area in which the United States exercised the rights, power, and authority of a sovereign state.

Growing nationalistic sentiment expressed in student demonstrations in 1955, 1958, 1959, and 1964 helped to finally convince the United States to renegotiate the Hay-Bunau-Varilla Treaty. In January 1964, Panamanian dissatisfaction with this relationship boiled over into riots. A three-month suspension of diplomatic relations followed. The growing bilateral tension in the 1960s gave weight to the views of those who believed that a new Canal Treaty was needed to replace the 1903 treaty and to establish a new relationship with Panama. Negotiations were carried on throughout the first half of the presidency of Marcos Aurelio Robles.

On 24 September 1965 President Lyndon Johnson and President Robles of Panama, issued a joint announcement in which they outlined areas of agreement that had been reached in treaty negotiations concerning the Panama Canal. The United States proclaimed to the world that the US intended to abide by commitments with full respect for the rights of others. The commitment was the statement delivered by President Johnson on 18 December 1964, in which he proposed that the United States should press forward with Panama and other interested governments in plans and preparations for a sea level canal in this area, and that the United States should initiate with Panama an entirely new treaty to govern the operation of the existing Panama Canal during the remainder of its life. The joint statement demonstrated that the United States and Panama had reached a significant phase in an orderly negotiating process in this very complex matter. Both countries were making efforts to understand and meet the needs of both the present and the future with full recognition of the rights as well as the responsibilities of each Country.

With the abrogation of the 1903 treaty and the recognition of Panama's sovereignty over the area of the present Canal Zone, the United States had shown its awareness of the "winds of change" prevailing throughout the world. At the same time, participation by both countries in the administration of the canal demonstrated the mutual sense of responsibility and cooperation prevalent in the negotiations.

The areas of agreement reached include the following:

"1. The 1903 treaty will be abrogated.

"2. The new treaty will effectively recognize Panama's sovereignty over the area of the present Canal Zone.

"3. The new treaty will terminate after a fixed number of years or on the date of opening of the sea level canal whichever occurs first. ...

"The new treaties will provide for the defense of the existing canal and any sea level canal which may be constructed in Panama. U.S. forces and military facilities will be maintained under a base rights and status of forces agreement. "

When the terms of three draft treaties -- concerning the existing lock canal, a possible sea-level canal, and defense matters -- were revealed in 1967, Panamanian public reaction was adverse. The new treaties would have abolished the resented "in perpetuity" clause in favor of an expiration date of December 13, 1999, or the date of the completion of a new sea-level canal if that were earlier. Furthermore, they would have compensated the Panamanian government on the basis of tonnage shipped through the canal, an arrangement that could have increased the annuity to more than US$20 million.

The intensity of Panamanian nationalism, however, was such that many contended that the United States should abandon involvement in Panama altogether. Proposals for the continued United States military bases in the Canal Zone, for the right of the United States to deploy troops and armaments anywhere in the republic, and for a joint board of nine governors for the zone, five of which were to be appointed by the United States, were particularly unpopular. Robles initially attempted to defend the terms of the drafts. When he failed to obtain treaty ratification and he learned that his own coalition would be at a disadvantage in the upcoming elections, he declared that further negotiations would be necessary.

The civilian government was overthrown in late 1968, and by January 1969 power actually rested in the hands of Omar Torrijos and Boris Martínez, commander and chief of staff, respectively, of the National Guard. By 1971 the negotiation of new treaties had reemerged as the primary goal of the Torrijos regime.

In the 1970s, about 5 percent of world trade, by volume, some 20 to 30 ships daily, were passing through the canal. Tolls had been kept artificially low, averaging a little more than US$10,000 for the 8- to 10-hour passage, and thus entailing a United States government subsidy. Nevertheless, canal use was declining in the 1970s, because of alternate routes, vessels being too large to transit the canal, and the decline in world trade. The canal, nevertheless, was clearly vital to Panama's economy. About 25 percent of the country's foreign exchange earnings and 13 percent of its GNP were associated with canal activities. The level of traffic and the revenue thereby generated were key factors in the country's economic life.

On 24 June 1971, in National Security Decision Memorandmn 115, US President Richard Nixon decided that " ... decided that the United States negotiating objective should continue to be control of canal operations and defense for an open-ended period .... the initial United States negotiating objective should be to permit US jurisdiction to be phased out within a minimum of twenty years while protecting non-negotiable rights for US control and defense of the canal for the duration of the treaty. However, Arnbassador Anderson is authorized to negotiate a shorter time period for the phase-out of jurisdiction if, after initial negotiations, he deerris such action necessary to achieve our nonnegotiable objectives."

Negotiations for a new set of treaties were resumed in June 1971, but little was accomplished until March 1973 when, at the urging of Panama, the UN Security Council called a special meeting in Panama City. A resolution calling on the United States to negotiate a "just and equitable" treaty was vetoed by the United States on the grounds that the disposition of the canal was a bilateral matter. Panama had succeeded, however, in dramatizing the issue and gaining international support. The United States signaled renewed interest in the negotiations in late 1973, when Ambassador Ellsworth Bunker was dispatched to Panama as a special envoy. Treaty negotiations led to a declaration of principles signed in 1973 by Secretary of State Henry Kissinger and his Panamanian counterpart, Juan Antonio Tack.

In early 1974, Secretary of State Henry Kissinger and Panamanian foreign minister Juan Antonio Tack announced their agreement on eight principles to serve as a guide in negotiating a "just and equitable treaty eliminating once and for all the causes of conflict between the two countries." The principles included recognition of Panamanian sovereignty in the Canal Zone; immediate enhancement of economic benefits to Panama; a fixed expiration date for United States control of the canal; increased Panamanian participation in the operation and defense of the canal; and continuation of United States participation in defending the canal.

American attention was distracted later in 1974 by the Watergate scandal, impeachment proceedings, and ultimately the resignation of President Richard M. Nixon. Negotiations with Panama were accelerated by President Gerald R. Ford in mid-1975 but became deadlocked on four central issues: the duration of the treaty; the amount of canal revenues to go to Panama; the amount of territory United States military bases would occupy during the life of the treaty; and the United States demand for a renewable forty- or fifty-year lease of bases to defend the canal. Panama was particularly concerned with the open-ended presence of United States military bases and held that the emerging United States position retained the bitterly opposed "perpetuity" provision of the 1903 treaty and thus violated the spirit of the 1974 KissingerTack principles. The sensitivity of the issue during negotiations was illustrated in September 1975 when Kissinger's public declaration that "the United States must maintain the right, unilaterally, to defend the Panama Canal for an indefinite future" provoked a furor in Panama. A group of some 600 angry students stoned the United States embassy.

Negotiations remained stalled during the United States election campaign of 1976 when the canal issue, particularly the question of how the United States could continue to guarantee its security under new treaty arrangements, became a major topic of debate. Torrijos replaced Foreign Minister Tack with Aquilino Boyd in April 1976, and early the next year Boyd was replaced by Nicolás González Revilla. Rómulo Escobar Bethancourt, meanwhile, became Panama's chief negotiator. Panama's growing economic difficulties made the conclusion of a new treaty, accompanied by increased economic benefits, increasingly vital.

The new Panamanian negotiating team was thus encouraged by the high priority that President Jimmy Carter placed on rapidly concluding a new treaty. Carter added Sol Linowitz, former ambassador to the OAS, to the United States negotiating team shortly after taking office in January 1977. Carter held that United States interests would be protected by possessing "an assured capacity or capability" to guarantee that the canal would remain open and neutral after Panama assumed control. This view contrasted with previous United States demands for an ongoing physical military presence and led to the negotiation of two separate treaties. This changed point of view, together with United States willingness to provide a considerable amount of bilateral development aid in addition to the revenues associated with Panama's participation in the operation of the canal, were central to the August 10, 1977 announcement that agreement had been reached on two new treaties.

On 07 September 1977, President Carter and General Torrijos signed the Panama Canal Treaties at the headquarters of the Organization of American States in Washington, DC. The Panamanian people approved the new treaties in a plebiscite held on October 23, 1977.

The treaties were enacted on Oct. 1, 1979. At that time, the Panama Canal Commission (PCC), a U.S. Government agency, was formed to replace the Panama Canal Company, to operate and manage canal activities. Revenues that were generated by tolls and transit services supported the operation, labor and maintenance expenses, and capital investment programs. The revenue also provided Panama a $10 million fixed, annual payment, a $10 million inflation-adjusted payment for public services that Panama provided, an annual percentage of toll revenues, and a payment of up to $10 million if revenues exceeded PCC expenditures in a given year. During the transition period, the PCC replaced American staff, ship pilots, and members of the board of directors with Panamanians trained to operate and manage the canal after the turnover.

The 1977 Panama Canal Treaties replaced the 1903 Hay/Bunau-Varilla Treaty between the United States and Panama, and all other United States-Panama agreements concerning the Panama Canal which were in force on that date. The treaties comprise a basic treaty governing the operation and defense of the Canal from October 1, 1979, to December 31, 1999 (Panama Canal Treaty); and a treaty guaranteeing the permanent neutrality of the Canal (Neutrality Treaty).

In early 1978 President Carter agreed to the "DeConcini Reservation" among others. The "DeConcini Reservation gave the US the legal right, with or without Panama's consent, to use military force to re-open the canal or restore operations should the canal be interfered with. The US Senate ratified the Neutrality Treaty on March 16, 1978, and the Panama Canal Treaty on April 18, 1978. The treaties entered into force on October 1, 1979. The protocol to the Neutrality Treaty is open to accession by all nations, and more than 35 had subscribed by 1999.

The United States had primary responsibility for the operation and defense of the Canal until December 31, 1999. After that date, the United States and Panama maintained a regime of neutrality for the Canal, including nondiscriminatory access and tolls for merchant and naval vessels of all nations. A US Senate condition attached to the instruments of ratification allows the U.S. and Panama to negotiate a post-1999 defense-sites treaty, if both countries find such a treaty in their mutual interest.

In order to meet its treaty responsibilities, the United States had the right to use specified land and water areas and facilities in Panama necessary for the operation, maintenance, and defense of the Canal until December 31, 1999. US warships were entitled to expeditious passage through the Canal at all times, however, and the United States continued to have the right to ensure that the Canal remains open and secure.

After December 31, 1999, the canal was administered by a new organization, the Panama Canal Authority (PCA), an autonomous agency of the Government of the Republic of Panama. It operates as a for-profit organization and instituted its own management structure, without influence from the Panamanian Government. The President of Panama appoints 10 members to the board of directors, with the Panamanian National Assembly approving nine of those members and appointing the tenth member. Terms of each member are staggered to ensure political independence.



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