Q: Would the new Commission to be established by legislation be similar in structure to the present Panama Canal Company?

A: Again, our present thinking, is that the new Commission would have a structure similar to that of the present Canal Company, and would be established as a corporate agency of the United States. We are now drafting legislation along these lines.

The principal objective is that the new Commission be a self-sustaining entity and that its revenues cover expenditures.

9/22/77

24

Q: What payments are to be made to Panama under the new Treaty?

A: Panama will receive a share of Canal revenues calculated at thirty cents per Panama Canal net ton for each vessel transiting the Canal. We estimate that this formula will initially yield $40 to $50 million a year. The first adjustment will occur five years after entry into force and every two years thereafter to reflect changes in the United States wholesale price index for total manufactured goods. In addition, growth in the volume of traffic through the Canal will boost the amount paid to Panama under this provision.

Panama will also receive a fixed annuity of $10 million out of Canal revenues and an additional amount up to $10 million a year to the extent there is a surplus of Canal revenues.

The Treaty also provides that Panama will be reimbursed for the cost of certain government services (e.g. police, fire, garbage collection) which they will provide under the new treaty. These services are presently being funded by the U.S. out of total revenue at an amount in excess of $10 million. The treaty fixes this payment at $10 million per year subject to reexamination every three years on the basis of actual costs incurred.

September 24, 1977

25

Q. What appropriations would be required for the elements of the economic and military assistance package?

A. No appropriations would be required for any elements of the package with the exception of the $50 million in Foreign Military Sales credits. Appropriations would be required for 10% of that amount which would be deposited in a special reserve account.

9/22/77

26

Q: Can Canal revenues finance both Canal operations and annuity requirements under the new treaty?

A: Yes. We expect an increase in revenues because of additional traffic, a moderate increase in tolls and reduced expenditures of the Canal enterprise since certain activities will be discontinued.

Q: What toll increases will be necessary?

A: A new study of toll economics is underway with results due at year end. We know already however that some toll increases will be necessary. We anticipate that the increase that would be required to recover costs would be in the neighborhood of 30 percent depending on the increased volume of traffic expected in the short term due to North Slope oil. If this volume of traffic exceeds current projections, this toll increase could be less than presently anticipated.

September 24, 1977

27

Q: Is not the canal rapidly approaching the point of diminishing returns through toll increases because of the substantial toll increases of the last three years?

A: Not necessarily. The 1974 and 1976 toll increases were to cover the effects of inflation on operating costs, not to increase a profit margin. Factors external to the Canal (e.g., worldwide prices, maritime technology, etc.) have an effect on the competitiveness of the Canal vis-a-vis alternative modes of transportation and routes.

9/22/77

Q. What do you estimate will be the impact of North Slope oil on Canal traffic?

A. Current Panama Canal Company estimates of North Slope traffic through the Panama Canal are more conservative than earlier order of magnitude estimates (traffic increase of 20-32 million Panama Canal tons during 1978-80; revenue increase by about $25 million per year). The Company is budgeting $7.0-million in toll revenue from this source in 1978, and $9.0-million in 1979. Experience to date (August 18-September 21, 1977) would yield $4.2-million on an annual basis if the current pattern continued.

It appears that once the system (pipeline, ship transportation, etc.) startup problems are solved, North Slope oil passing through the Canal would at last reach budget estimates, and might exceed them. At this point, however the volume and timing/duration of this traffic through the Canal is conjectural.

9/24/77

29

Q: What other economic benefits have been promised to Panama?

A: The United States has told Panama, outside the treaty, that it is prepared to develop an economic program of loans, guarantees, and credits of up to $295 million over a five-year period. This program is designed to contribute to Panama's economic development. This understanding is to be brought into force by a future exchange of notes. This program would consist of:

- Up to $200 million in Export-Import Bank credits;

- Up to $75 million on AID housing investment guarantees;

- An Overseas Private Investment Corporation loan guarantee to the National Finance Corporation of Panama not to exceed $20 million.

The United States has also agreed to establish a military sales credit program of up to $50 million over a ten-year period to improve the ability of Panama's National Guard to participate in the defense of the canal.

All these programs are to be carried out within the limitations of applicable United States legislation and established program requirements.

9/20/77

Q: What is the relationship between the Treaty and this economic program?

A: Obviously the economic development program developed out of the treaty negotiations.

We could not and would not meet all of the Panamanians' initial economic demands because they were not compatible with our basic principle: that the new Commission would have to be self financing from Canal revenues. The Panamanians finally accepted this.

The economic cooperation package grew out of a common view that it was in our mutual interest to enhance the economic stability and security of Panama, our partner in operating the Canal, by promoting its economic development. We realized that the benefits to the US could be increased if the form of assistance would enable US investors, business and labor to share in the returns. And so we proposed, and the Panamanians accepted, the economic cooperation package. The assistance provided for in the package lies outside the Treaty but within existing statutory programs and thus is not being submitted for specific Congressional approval.

In developing this package the Administration had the benefit of consultations undertaken with various members of the Congress.

September 24, 1977

Q: Why are these commitments not included in the Treaty?

A: These arrangements are not included in the Treaty because they are not intended to form part of the rights and obligations of the two parties under the Panama Canal Treaty. These programs will be implemented on their own merits in accordance with applicable United States laws and established program criteria. No specific legislative authority will be sought and full implementation of the program depends on the ability of the two governments to develop appropriate projects.

There is no question of circumventing the Treaty process.

The full details of all these economic arrangements are being made available to the Senate and the Congress.

9/20/77

Q: How much have we given Panama in aid over the years?

A: From 1946 to 1976, Panama received 362.4 million dollars in economic assistance. Minus repayment and interest, the total United States economic assistance to Panama has been 314.5 million dollars.

9/20/77

33

Q: How can you say that the United States will control Canal operations until the year 2000 in view of the fact that the Canal operating agency would be headed by a Panamanian after the year 1990?

A: Just as in a large corporation, the nationality of the head of the Canal operating agency is basically irrelevant to the question of management control.

The treaty itself grants **to the United States** both general and specific rights to carry out the management, operation, and maintenance of the Canal until the year 2000. It also provides that the United States will exercise its rights through a United States government agency which would operate under U.S. law.

Thus, until the year 2000, all Panamanian nationals working for the Canal agency would be serving as employees of the U.S. Government, subject exclusively to our law and direction in carrying out their duties.

One of our primary objectives under the new treaty will be to increase the participation of Panamanian nationals at all levels of the Canal organization. Consistent with this objective, we have agreed on two specific forms of Panamanian

participation at high levels in the organization.
First, four Panamanian nationals will sit on the Board of the new Canal Commission. These individuals will be nominated by the Panamanian Government but we will appoint them. Nevertheless, the U.S. will always retain a majority of the seats on the Board and will have the right to define the specific powers and duties of the Board. Second, a Panamanian will be the Deputy Administrator of the Commission until 1990; thereafter, a Panamanian will be the Administrator with an U.S. national as his Deputy.
This arrangement will ensure that Panama will have personnel with experience at the highest level of management available at the termination of the treaty and should ensure a smooth and orderly transition to Panamanian operation of the Canal after the year 2000.

9/20/77

(w) 34

Q: How many employees will be displaced as a result of the Treaty? What will be done for them?

A: Approximately 600 United States employees and 2800 non-United States employees will be displaced as a result of the Treaty. (Another 1000 United States and 1050 non-United States employees are employed in functions being transferred to the United States military forces in Panama.)

Article X of the treaty specifically mentions optional early retirement and job relocation assistance for Panama Canal Company and Canal Zone Government employees displaced by the treaty. Implementing legislation will be required to effect aspects of these provisions.

9/20/77

36

Q: What has the State Department done to consider the environmental consequences of the Panama Canal Treaties?

A: The Department has prepared a draft environmental impact statement (EIS) which was made available to government agencies, environmental groups and the general public on August 30. We expect to release a final EIS when we have incorporated comments received from all interested parties.

The environmental statement which has been prepared indicates that, while implementation of the Treaty will have certain effects on the environment, these impacts will be limited and manageable. In addition, the Treaty itself makes special provision for environmental protection. The two governments commit themselves to implement the Treaty in a manner consistent with protection of the natural environment of Panama. In addition they have agreed to establish a Joint Environmental Commission which will make recommendations to both governments on ways to avoid or mitigate adverse environmental impacts.

FYI: Environmental effects of treaty implementation would include loss of jobs by certain American and non-American employees and possible deforestation (if protective measures prove inadequate) of parts of the present Canal Zone which revert to Panama. The treaty provisions cited above and Article X dealing with job placement and early retirement for displaced employees should mitigate and control these adverse impacts.

9/22/77

Expansion of Canal

Q: There has been some discussion of a new sea-level canal. Is there any possibility of this? What about the environmental effects of such a canal?

A: The Treaty commits Panama and the United States to study jointly the feasibility of a sea-level canal and, if they agree that such canal is necessary, to negotiate mutually agreeable terms for its construction. In addition the United States will have the right throughout the term of the basic treaty to add a third lane of locks to increase the capacity of the existing canal. Panama has undertaken in the Treaty not to authorize or undertake the construction of any new Canal in its territory except pursuant to agreement with the United States. In return, the United States has undertaken not to negotiate with third countries for rights to construct a new Canal elsewhere in the Hemisphere during that period. (The 1970 United States Government study of possible alternative routes for a sea-level canal concluded that from an engineering standpoint the preferable route for such canal is in Panama.)

With respect to the environmental effects, the draft EIS discusses several existing studies of the potential environmental impacts of a sea-level canal. Of course, in studying the feasibility of a sea-level canal, the United States and Panama would assess the potential environment impacts.

9/20/77

38

Q: Is the present Panamanian Government headed by General Torrijos a dictatorship?

A: It would be very unfair to characterize the present Panamanian Government in such terms. It is not a democracy as we understand that term. Its legal basis is the Constitution of 1972 drafted by a national commission composed of 25 Panamanians from all sectors of national society, approved by the National Assembly of Municipal Representatives. The Constitution guarantees common, basic rights and freedoms. The Constitution also authorized General Torrijos to perform certain functions during a six-year term, due to expire in 1978. Popular representation in Government is effected through the 505 directly elected members of the National Assembly of Municipal Representatives, primarily a consultative body, which has limited powers but which elects the President and Vice-President. Routine legislative functions are exercised by the National Legislative Council (consisting of the President, Vice President, Chief of Government, Ministers of State and the Legislative Commission, which is appointed by Torrijos and has the power to propose legislation). The Judiciary is appointed by the Executive power and is divided into a supreme court, civil and criminal tribunals, and administrative courts.

9/20/77

[L] 39

Q: The Panamanian Committee on Human Rights has issued several reports describing human rights violations by the Torrijos Government. How does the State Department evaluate these allegations?

A: The "Panamanian Committee for Human Rights" is a self-appointed, anonymous group which has issued three booklets which purport to catalog violations of human rights in Panama. In reality, only the first half of the first volume addresses human rights in any detail.

We have studied the allegations of human rights violations contained in the booklets and have found that most refer to incidents which occurred between the 1968 coup and 1972 -- the period of Torrijos' consolidation of power. Many of the allegations involved persons who were actively plotting to overthrow the government or waging guerrilla warefare against it. After 1972, there was a sharp drop in the number of incidents. Amnesty International in 1973 published a report on torture which stated that the most serious allegations of torture in Panama dated from before 1970. Amnesty's 1975-76 report does not contain a section about Panama.

Panama can presently be characterized as a fairly open society. In general, Panamanians enjoy the guarantees of life, liberty

and security of person. But opposition which seems aimed at overthrowing the regime is not permitted. Panamanian officials and police have been, and continue to be, guilty of occasional abuses of authority. The major examples of human rights violations in recent years are the exiling of fourteen Panamanians in January 1976 for engaging in political activities which the government considered hostile and three more in September 1976 for allegedly fomenting riots. There is no evidence, however, that the Panamanian Government makes a practice of arbitrary imprisonment, torture or murder for political or for any other purposes.

On September 13, 1977 the Government of Panama invited the Inter-American Human Rights Commission to visit Panama and study the human rights situation there. We believe the Commission's visit will be useful in determining the human rights situation in Panama.

I wish to point out that we define human rights as including economic and social rights. In this regard, we believe - as I pointed out in my testimony - that Panama is moving in a positive manner.

9/20/77

40

Q: What are the differences between the regime of neutrality established under the new Neutrality Treaty and the present regime?

A: The treaties are very similar. The main differences are:

1. The new treaty specifies that the Canal shall remain secure and open to peaceful transit by the vessels of all nations "both in time of peace and in time of war." The 1903 Convention and the Hay-Pauncefote Treaty do not specify in time of peace and in time of war. The U.S. has considered under the Hay-Pauncefote it could exclude vessels of states which were belligerents of the United States. It was never necessary to do so because no belligerents of the U.S. ever presented themselves for transit. In these negotiations, it was considered desirable to make it explicit that belligerents of all countries would have the right to transit while the U.S. operates the Canal. Our Navy is confident of its ability to deal with enemy vessels.

2. The new treaty also does not contain detailed regulations concerning such things as revictualing by belligerents, as the Hay-Pauncefote Treaty does. Both Parties considered that such detailed regulations were unnecessary.

9/22/77

Q. Are there any other agreements with third countries which will be affected by the signing of the new treaties between the U.S. and Panama?

A. Under a 1914 treaty with Colombia, the U.S. gave that country the right for its troops, vessels, and materials of war to transit the Canal "without paying any charges to the United States." Article VI of the Neutrality Treaty provides that the U.S., so long as it has responsibility for the operation of the Canal, may continue to provide such toll-free transit to Colombia. In addition, it authorizes Panama to continue the practice when it assumes management of the Canal.

9/22/77

[llo]

42

Q: The Senate Select Committee on Intelligence held hearings recently concerning alleged intelligence operations against Panama and an alleged Panamanian attempt to blackmail the US when Panama became aware of those operations. Was there a US effort to monitor Panamanian telephone calls dealing with the negotiations and did Panama attempt to blackmail the US?

A: The Select Committee on Intelligence looked into this matter and as indicated by Senator Inouye's statement satisfied itself that the negotiations were not influenced in any way by U.S. intelligence activities. It has always been our policy not to comment publicly on any intelligence activities which the U.S. may or may not have carried out at any particular time.

9/22/77

(2c) 43

Q: Aren't the Latin American nations who use the canal a bit skeptical, privately, about this treaty?

A: The Latin American canal users have long been interested in making certain that the canal remains available to world shipping, and have repeatedly evidenced their interest to us. Their participation in the signing ceremony at the Pan American Union reflects this interest and their approval. All of the indications we have are that they are satisfied that the treaties protect their interests.

Q: What are the world's leading maritime and trading nations saying about the treaties?

A: The President has received a number of messages from world leaders. I would like to cite just three, which I think will show the attitude of major canal users outside the Hemisphere.

Prime Minister Callaghan wrote "I have heard with great pleasure of the successful outcome of the negotiations between the governments of the United States and Panama leading to the conclusion of new treaties relating to the Panama Canal. As you will know, Britain is a major user of the canal and agreement between the American and Panamanian Governments

on its future should be a source of satisfaction t
maritime nations generally."

Prime Minister Fukuda wrote: It is, indeed, an
occasion for felicitation that the negotiations for
a new arrangement on the Panama Canal, which was
completed in 1914 by the collaboration of the United
States of America and the Republic of Panama, have
been concluded in a satisfactory manner, after many
years of persevering efforts of both countries,
and have thus brought about today's signing of the
treaties. As a major user of this Canal, the main-
tenance of the security of the Canal and the ensuring
of the freedom of indiscriminatory passage of the
Canal are of vital importance to Japan. My country
has, therefore, followed the progress of the negotia-
tions with great interest. I should like to take
this opportunity to express my warmest admiration for
your Excellency's outstanding leadership as demon-
strated in the successful conclusion of the treaties."

Chancellor Helmut Schmidt of the Federal Republic of
Germany: "It is with deep satisfaction that I have
noted the signing of the new Panama Canal Treaties.

I would like to extend to you my cordial congratulations on this outstanding occasion. The treaty is of prominent significance for your country's relations with Panama. It opens the way to a peaceful solution of an international problem. Its importance, however, is not limited to the mutual relations between the nations of the western Hemisphere. The treaty is also an important element to guarantee commercial and transportation communication between all peoples of our increasingly interdependent world. May the treaties serve peace and deepen the understanding among the comity of nations."

9/22/77

44

Q. What appropriations or other financial support would be authorized in the implementing legislation?

A. Our present intention is not to request any appropriations with respect to the operations of the Canal under the Treaty or with respect to the payments to be made to the Republic of Panama. Again, our objective is that the new Panama Canal Commission be a self-sustaining entity.

We presently contemplate, however, that the new Commission will succeed to the authorities now applicable to the present Canal Company. For example, the Canal Company has the authority to borrow funds from the U.S. Treasury, with the obligation to repay. The present Canal Company also has an authorization for appropriations to cover any operating deficits. The present Company does not depend on this latter authorization for its operations, and the new Commission would not either.

9/22/77

45

Q. Will legislation be required to implement the treaty provisions transferring U.S. interests in the Canal Zone to Panama? Doesn't Article IV of the Constitution give the Congress exclusive responsibility for the disposition of U.S. treaties and property?

A. As you know, we have had extensive discussions with various Congressional committees on this Constitutional question. Our position consistently has been that a treaty written to be self-executing can transfer property of the United States under domestic law without implementing legislation.

Under domestic law, Article IV of the Constitution provides that the Congress shall have power to dispose of property belonging to the U.S., but it does not provide that the power is exclusive of the treaty power. It is well established that treaties may be concluded on any subjects appropriate for international negotiation, and that the treaty power extends to all areas within the legislative authority of Congress that are not expressly reserved by the Constitution to the exclusive jurisdiction of Congress.

The drafting history of the Constitution makes it plain that the framers understood that U.S. territory and property could be disposed of by treaty, and the Attorney General of the U.S. has provided a formal opinion confirming this conclusion.

- 2 -

The property transfer provisions of this Treaty
have been written to be self-executing. Thus, when
this Treaty is ratified by the President upon the
advice and consent of the Senate, its provision
concerning the transfer of U.S. property interests
in the Canal Zone will become the supreme law of
the land, in accordance with Article VI of the
Constitution.

9/22/77

46

Q: What new procedures and criteria for setting tolls will be necessary under the legislation?

A: **Procedures.** In order to make the Canal's operations more responsive to economic forces, we may propose that the present six-month notice period for changing tolls be reduced to three months. We are also considering an expedited procedure so that any toll increase that may be necessary to have the new Commission begin operations on a self-sustaining basis can be implemented when the Treaty enters into force.

**Criteria.** The current basis for the setting of tolls is basically that they will cover the operating costs of PCC and the CZG. These costs, of course, will have to be revised to reflect the new financial requirements of the Treaty, as well as an operational and capital expenses. As at present, the operating expenses would be defined to include expenditures for government services, including $10 million for those services to be performed by Panama.

9/20/77

48

Q: How great is National Guard participation in Panama's Government? Is it not a military government?

A: Generally speaking, it is not, as we have become used to the term in Latin America. The Commander of the Guard, General Torrijos, is concurrently the Chief of the Government. One member of the Guard's general staff, LTC Ruben D. Paredes, serves concurrently as Minister of Agricultural Development. A few individual officers in the Guard hold posts in the civilian government at lower levels. However, the Guard as a whole does not have a voice in the day-to-day running of the Government. Rather, it appears to serve as an institutional auditor of the affairs of the civil government at all levels. In this capacity, the National Guard as an institution can and does exercise a certain amount of control, and an ultimate political veto.

9/23/77

49

Q: Can we realistically expect that the Panamanian National Guard can ever undertake full responsibility for Canal defense or even make a significant contribution? Won't the protection of the Canal in the long run really be in U.S. hands?

A: During the life of the treaty the U.S. will be responsible for the defense of the Canal. During that period we believe the GN could play a useful role in assisting with routine security for canal installations. This would require an expansion of Panama's current strength and capabilities. By the end of the treaty, we would hope that Panama could assume major responsibility for Canal defense. Panama would, however, require considerable assistance in the event of an all-out attack by a major power. Under the neutrality treaty we will be in a position to take action ourselves -- if we deem it necessary to protect the canal's neutrality.

9/23/77

50

Q: We have heard that Cuba is providing arms, training and assistance to the National Guard, and that it is seeking to indoctrinate the Guard's members with anti-American ideas. Is this true?

A: So far as we are aware, the National Guard has not acquired any weapons from Cuba, and we know of no plans for it to do so. The United States has historically been the principal supplier of arms and training for the National Guard, and it is our policy to retain this role through the development of a harmonious, cooperative relationship with that force.

9/23/77

51

Q: The Panamanian National Guard last year acquired some new armored vehicles from the United States. Why were these provided and how will they be used?

A: Panaman's purchase of 16 military vehicles from the Cadillac Gage Company was strictly a commercial transaction. No USG funding was involved. The Executive Branch did approve an export license request from Cadillac Gage for the transaction with Panama. As is true in all cases of this type, there was a thorough review by all interested officers and agencies before approval was given.

The vehicles sold by Cadillac Gage are amphibious, multi-purpose, wheeled armored cars. They can be used as fast infantry personnel carriers, reconnaissance vehicles, and escort or police vehicles. The vehicles do not represent a major increase in Panama's limited military capability.

The vehicles do not in any way constitute a military threat to the security of the Panama Canal or the United States armed forces stationed there. As you know, we have a substantial military presence in the Canal Zone and rapid reinforcement capability.

9/23/77

Q. How can we cut off military aid to two Latin American countries for human rights violations and at the same time implement a Canal treaty that will provide immense benefits to a government like that of Torrijos?

A. The Department has indicated in other contexts that we do not automatically link our concern for human rights with other issues. Without commenting on the human rights situation in Panama or necessarily agreeing with the implications of the question, I believe we should make it very clear that our major interest in Panama is to keep the Panama Canal open, efficient and neutral. To do this we believe that we need a new treaty with Panama. Both sides have long recognized that this new agreement should provide Panama with an increased share of the economic benefits of the Canal operation. I think we should keep in mind that we expect that this long-term relationship will continue after the Torrijos regime leaves power.

9/23/77

53

Q. Should we enter a treaty relationship with a Government which violates basic human rights?

A. It is the policy of the United States Government to deplore and to seek to prevent violations of human rights wherever and whenever they occur. Panama is no exception. For example, we consider that the Panamanian Government erred seriously in exiling 14 political opponents in January 1976, and have told its leaders so. If other serious human rights violations occur, we are willing to speak out. However, it is not our policy to allow our disapproval of such actions to be the sole determinant in considering whether, or how, we will pursue relations with another state to further our own interests. Our primary interest in Panama is the Canal, and it is essential that we protect that interest.

9/23/77

54

Q. Have we done anything to encourage the present Panamanian Government to improve its performance on human rights?

A. Yes, we have discussed the Administration's policies regarding human rights with Panamanian officials, and they are very much aware of the importance being given to this area. The major example of human rights violations in Panama in recent years was the exile of 14 prominent Panamanians in January and three more in September 1976. We expressed our concern about the exilings to the Panamanians on both occasions. The Panamanian Government understands that we do not condone such violations.

9/23/77

55

Q. What has become of the Panamanians who were exiled by the Torrijos Government in 1976?

A. In January 1976, 11 persons were arrested by the Government of Panama and immediately sent into exile in Guayaquil, Ecuador. In addition, one person was sent to Guayaquil immediately upon returning from a foreign trip, and two men received safe passage to Ecuador after gaining refuge in the Venezuelan Embassy in Panama.

Five of these men have been allowed to return to Panama. Of the remainder, some are living in the U.S., largely in Miami, and others are living in Mexico or elsewhere in Latin America. At least two have had recent speaking engagements in the U.S.

In addition, the Torrijos Government on May 26 published a list of 82 earlier exiles who were declared free to return to Panama.

9/23/77

56

Q. What significance does the Administration attach to statements by Panamanian exile groups urging that the U.S. Government not enter into a treaty with Panama?

A. We do not attach great importance to these statements. The number of Panamanian exiles is relatively small and there are differences of opinion among the exiled groups. In testimony before the Congress, a spokesman of the Panamanian Committee for Human Rights stated that all Panamanians since 1903 have wanted a new treaty, and that the Committee supports a new treaty, but not with the Torrijos Government. I would also like to add that the representatives of the Panamanian social democratic party in exile accuse the Torrijos Government of being too soft on the United States in the treaty negotiations and promise a tougher negotiating stance if they come to power.

We are negotiating with an eye to our long-term relationship with future Panamanian governments and not only this one and to protect our own interests in the Canal.

9/23/77

57

Q: Are we showing our implicit approval of the Torrijos Government, and of its actions and policies by concluding a treaty with it?

A: No. The United States believes a new treaty relating to the Panama Canal is the most practical means for protecting its own real and important interests in the canal. Our conclusion of a treaty with the Government of Panama does not mean that we either approve or disapprove of that government.

9/23/77

Q: Shouldn't we be concerned about negotiating a canal treaty with a government that acts arbitrarily in violation of treaty obligations, as in the detention of Canal Zone policeman William Drummond? How can we depend on such a government to honor any agreements it makes with us?

A: Our Embassy strongly protested the detention of Mr. Drummond. Panama has not responded to that protest, an indication that the Drummond detention has been something of an embarrassment.

In our judgment, Panama will honor an agreement which recognizes and responds to Panama's interests. The draft treaties recognize both U. S. and Panamanian interests. They provide for our interest in a secure, efficiently operated, and available canal, and recognize Panama's interest in eliminating the concepts of perpetuity and U. S. sovereign-like rights and in a gradual assumption of responsibility for canal operation and defense. It is our judgment that these treaties because they balance both countries' interests, will be honored by Panama. It would not be in Panama's interest to violate them.

9/23/77

59

Q: What is the communist influence, particularly
Cuban influence, in Panama?

A: This was the subject of hearings before the House
International Relations Committee somewhat less
than a year ago. I can make available to the
Committee copies of correspondence between the
Department and that Committee.

Since Panamanian law prohibits political parties, the
communist party of Panama (Partido del Pueblo -- PdP)
has no legal status, but is permitted to exist. It
consists of approximately 500 members, and maintains
a very modest profile.

It does not participate formally or informally in the
government. Its leaders have been periodically exiled
for various periods of time. We are not aware of any
leading government officials who are confirmed PdP
members.

Panama established relations with Cuba in 1974. The
Cuban Embassy is large, but its profile is not high.
I understand that Panama carefully monitors the
activities of the Cuban Embassy. Reports of large
concentrations of Cuban troops in Panama are without
foundation.

9/23/77

-- possibility of a Soviet purchase of
50,000 metric tons of Panamanian unprocessed
sugar beginning in 1978, at prices well above
the world level; and,

-- possible Soviet activities in Colon
Free Zone.

9/23/77