[LC]

Fact Sheet

May 5, 1964

# THE CRISIS IN PANAMA

## A. Relevant Treaties and International Agreements

1. The Treaty of 1903 empowered the U.S. to act as "if it were sovereign" within the Canal Zone "in perpetuity" and "to the entire exclusion of the exercise by the Republic of Panama of any such sovereign rights, power or authority". The U.S. agreed to pay immediate compensation of $10 million plus annual payments of $250,000 beginning nine years after ratification.

2. Two treaties in 1936 and 1955 increased the annuity to $1.93 million.

3. An executive agreement of January 10, 1963 provided that the Panamanian and U.S. flags would be flown together in the Canal Zone wherever the flag of the U.S. was flown by civilian authorities; and that private organizations and persons in the Zone were free to display flags at their will over their places of residence or business.

## B. Present crisis

1. On December 31, 1963, in order to avoid immediate dissention, Zone officials, in the absence of any U.S. ambassador, directed that, effective January 1964, no flags would be flown in front of schools. On January 7, a group of American students raised a U.S. flag at their high school in defiance of the order. On January 9, a group of incensed Panamanians marched to the school and planted the Panamanian flag, whereupon violence broke out.

2. Panama severed diplomatic relations with the U.S. and demanded "complete revision" of the treaty provisions. It also brought charges of aggression before the UN Security Council and the Council of the OAS.

NOTE: It was the first time in the history of the OAS that the U.S. had been accused of aggression under the Rio Treaty.

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3. The issue was narrow, and enmeshed in domestic politics on both sides. Both Panamanian and U.S. presidents are running for reelection this year. Discussions were deadlocked on the question of whether new terms should be "discussed" (as the U.S. wanted) or "negotiated" (as Panama wanted).

4. On April 3, after almost 3 months of controversy and negotiations, the U.S. and Panama issued a joint declaration for the immediate resumption of diplomatic relations. They also called for the adoption of procedures for the "prompt elimination of the causes of conflict between the two countries".

The agreement said there would be talks "without limitation or
preconditions of any kind" looking toward a "just and fair
agreement" - neither side using the word it disliked. The
talks are scheduled for the end of May.

5. On May 4, it was disclosed that Panama will now ask the U.S. for economic consessions rather than for a formal revision of the Canal treaty at the May discussions.

A key feature in Panama's new position is a request for the
restoration to Panama of port facilities at least on the
Atlantic side of the Canal. It has also been reported that
Panama will ask for equality of Panamanian labor, skilled or
otherwise, with U.S. workers in the Zone, and a curtailment
of commissary privileges for residents of the Zone in order
to give greater access to Panamanian suppliers.

NOTE: The new position was described by Panamanian officials as a tactical shift that in no way means Panama is abandoning her long-range objective to overhaul the treaty, especially to modify the clause giving the U.S. control of the canal in perpetuity.

C. Democratic Record -- a Record of Mishandling and Neglect

1. In August 1963 U.S. Ambassador to Panama, Joseph Farland, resigned to protest both the misuse of foreign aid funds and the Administration's indifference to the basic problems in U.S.-Panamanian relations.

Upon his departure, Farland, one of the most popular ambassa-
dors in Panamanian history, was not invited to either the
White House or before the House Foreign Affairs Committee to
state his concern. He was not debriefed by the State Depart-
ment.

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A new ambassador was not appointed and, therefore, when the
trouble occurred no ambassador was there to deal with it.

2. LBJ recently said of Panama: "No purpose is served by rehashing either recent or ancient events."

3. Panama is another example of the Administration's lack of foresight in its relations with the Western Hemisphere and testimony to the fact that the Alliance for Progress has failed to win the confidence and trust of the Latin American people.

D. <u>Goldwater Position</u>

"Any basic concessions we make them (the Panamanians), it only prolongs the time that they'll make a real effort to take that Canal over. And I repeat again, it's ours. We built it, with their permission, under a treaty that's been in existence now -- existent for 6 decades. There's no reason to change it..."

E. <u>Republican Citizens Committee's Critical Issues Council Proposals</u>

1. Canal improvements costing about $75 million should be made;

2. Tolls should be raised by 30% and annuity (now $1.9 million) increased to $15 million;

3. Canal Company should begin to amortize $460 million debt;

4. U.S. should rotate civilian personnel in Zone;

5. More Panamanians should be trained to fill higher paying, technical jobs;

6. U.S. should promise more Alliance aid if Panama pursues reforms under Alliance charter;

7. U.S. and Panama should agree to a wholly-new treaty within 25 years;

8. U.S. ambassador should be given sole authority to speak for the U.S. in Panama.

F. <u>Recommended NAR Position</u>

1. Support Panamanian requests mentioned above in B, 5.

2. Support Republican Council's proposals.

3. Call for renegotiation by the U.S. and Panama of the present Panama Canal Treaty on a basis that respects Panama's legitimate interests and the security of the Canal.

4. Call for the construction of a new sea level canal using nuclear energy.

5. See Latin American fact sheet for proposals on Latin American in general.

3. See Latin American fact sheet for proposals on Latin American
unclear energy.

4. Call for the construction of a new sea level canal using
material interests and the security of the Canal.

1. Support Panamanian requests mentioned above in B. 2.

## F. Recommended WAR Position

the U.S. in Panama.

8. U.S. ambassador should be given sole authority to speak for
27 years;

7. U.S. and Panama should agree to a wholly-new treaty within
forms under Alliance charter;

6. U.S. should promise more Alliance aid if Panama burrows re-
technical jobs;

5. More Panamanians should be trained to fill higher paying
technical jobs;

3. Canal Company should begin to amortize $400 million debt;
increased to $12 million;

2. Tobacco should be raised by 30% and annuity (now $1.9 million)
increased to $12 million;

## E. Republican Citizens Committee's Critical Issue Council Proposals

extant for 6 decades. There's no reason to change it...
their termination under a treaty that a person in existence now
-

 Canal over. And I repeat again, it's one. We put it, with
 its time that they'll make a real effort to take that
 Any basic concessions we make them (the Panamanians), it only

## D. Coldwater Position

people.

ed to win the confidence and trust of the Latin American
retrieval to the fact that the Alliance for Progress has fail-
ures in its relations with the Western Hemispheres and

3. Panama is another example of the Administration's lack of
releasing either recent or ancient events.

2. FBI recently said of Panama: "No purpose is served by
trouble occurred no ambassador was there to deal with it.
A new ambassador was not appointed and, therefore, when the

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Fact Sheet

April 13, 1964

# THE CRISIS IN PANAMA

## B. Present crisis

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D. Goldwater Position

E. <ins>Republican Citizens Committee's Critical Issues Council Proposals</ins>

F. Recommended NAR Position

Support Republican Council's proposals (Para E, above).

[10]

January 13, 1964

Ann Black

# THE CRISIS IN PANAMA

## I. Background

Ever since its opening in 1914, the Panama Canal has been a source of Latin American grievances against the U.S.

a. **Treaty of 1903** empowered the U.S. to act as "if it were sovereign" within the Canal Zone "in perpetuity" and "to the entire exclusion of the exercise by the Republic of Panama of any such sovereign rights, power or authority." In return, the U.S. agreed to immediate compensation of $10 million plus annual payments of $250,000 beginning 9 years after ratification (1904).

b. **Status of the Canal Zone** -- The Canal Zone is in effect a U.S. Government reservation. Its Governor, appointed by the U.S. President, is also ex-officio President of the Panama Canal Company, a corporate Government agency that operates the canal.

Living in the Canal Zone are more than 36,000 Americans, including 21,500 members of the military and their dependents and 14,600 civilians who work for the military, the canal company or the zonal government, and their dependents. Their standard of living is far above that of the average in the Republic of Panama.

c. **Years of Resentment** -- Over the years ant-American resentment has grown and the contrast between the Zonal and Panamanian ways of life has been exploited by agitators. A particular grievance has been discrimination against Panamanians in employment in the zone. The U.S. has attempted to meet dissatisfaction by agreeing to some limited modifications of the basic treaty. In 1955 the annual "rent" for the canal and its zone was raised to $1.93 million.

In answer to charges of discrimination against Panamanians, the U.S. in 1955 agreed to equal pay for equal work.

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d. **Flag Controversy** -- The major issue of controversy, however, has been the question of sovereignty. In 1959 anger over U.S. control of the zone led to riots and demonstrations. The immediate issue was the Panamanians' insistence on flying the Panamanian flag in the zone, which American officials refused to do. Eisenhower subsequently conceded that there should be "visual evidence" of Panamanian "titular" sovereignty, and directed that the Panamanian flag and the U.S. flag be flown at one site -- the U.S. Canal Zone Building.

However, this concession did not resolve the issue. During June 1962 President Kennedy and Panamanian President Chádrí met in Washington to discuss the problem. They appointed representatives to discuss the points of dissatisfaction with provisions of the U.S.-Panama Treaty. On January 10, 1963, these representatives announced:

> "It has been agreed that the flag of the Republic of Panama will be flown together with the flag of the U.S. on land in the Canal Zone where the flag of the U.S. is flown by civilian authorities. Private organizations and persons in the Zone are free to display flags at will over their places of residence or business."

This announcement placated the Panamanians but infuriated American residents. Much of the opposition came from American students, apparently with the encouragement of their parents. On December 31, 1963, Zone officials acted to remove the immediate cause of dissension by directing that, effective in January 1964, no flags would be flown in front of schools.

The situation was exacerbated by the absence of a U.S. Ambassador to Panama. In August 1963, Joseph Farland resigned the post after a series of differences with the State Department.

## II. Present Crisis

The recent trouble began on January 7, 1964, at an American high school in the Canal Zone. A group of students hoisted a U.S. flag at the school in deliberate defiance of the Governor's order to the contrary. The principal brought it down. The students ran up another. The principal had a talk with the students, but apparently the flag remained flying. Behind the students' attitude were the strong feelings of their parents and many Americans in the zone that equal display of Panama's flag was a first step toward many encroachments on the peculiar political-economic situation.

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Newspapers played up the incident, and there were reports that the students were protesting the flying of Panamanian flags. Panamanians were incensed, and on January 9, a group of them marched to the high school and planted the Panamanian flag. There were reports that the Americans drove them out and defiled their flag. Thereupon violence broke out.

a. **Panama Actions** -- President Chiari severed relations with the U.S. and demanded "complete revision" of the treaty provisions possibly including nationalization or internationalization of the canal.

Panama also brought charges of aggression before the U.N. Security Council and the Council of the OAS, both of which were called into emergency session. But Panama deferred a request for specific U.N. action, and left it to a special OAS Peace Committee to attempt conciliation. The Security Council restricted its efforts to a call for an immediate cease-fire.

**NOTE:** It was the first time in the history of the OAS that the U.S. had been accused as an aggressor under the Rio Treaty.

b. **U.S. Actions** -- On January 10, President Johnson telephoned President Chiari to discuss the crisis. The Panamanian President agreed to call for calm on both sides and Johnson said that he would immediately dispatch a group of U.S. officials led by Thomas C. Mann, the newly appointed Presidential Advisor and Assistant Secretary of State for Inter-American Affairs to survey the situation. Mann is remaining in Panama to sit with the OAS Peace Committee as a permanent delegate.

c. **OAS Actions** -- The OAS Peace Committee has considerable autonomous power to mediate disputes without requiring specific authority from the OAS Council. So far it has reached a tentative agreement on a plan to let the Panamanian National Guard patrol within the borders of the Canal Zone. The Committee is also seeking a more specific agreement about the number of places where flags should fly. It is presumed it will then go on to try to make some arrangements for the other major issues of dispute. (See below.)

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### III. Issues in the Crisis

a. **The Flag** -- The Panamanians wish to have their flag flown in the Canal Zone as a sign of "titular" sovereignty. This issue has been hopefully resolved. On January 12, the U.S promised to implement the January 1903 agreement -- to make sure that the flags of both nations would henceforth fly side by side in the Canal Zone.

b. **The Canal Treaties** -- Panama has requested that the treaties originally signed in 1903 be renegotiated to give Panama an increased share of revenues, which total about $100 million a year. Panama, in its argument, ignores the fact that the Canal's profits, under U.S. law, are not taken out of the country but are used to operate and improve the Canal. However, the U.S. pays an annual rent of only $1.93 million for the zone. When the Canal opened, the rent was $405,000 which, in real dollar values, was more than today's fee and ship tolls remain what they were 50 years ago.

c. **Nationalization or Internationalization of the Canal** -- Although President Chiari is opposed to proposals for nationalizing or internationalizing the Canal, there is a strong nationalist sentiment who support them.

The U.S. certainly will not permit nationalization of the canal notwithstanding the fact that the canal is no longer considered of vital strategic importance by the U.S. military. Nevertheless the canal continues to have considerable value to the U.S. for commercial traffic and the zone is an important base and staging area for U.S. defenses in the Western Hemisphere. Moreover, nationalization of the canal would set a precedent that would jeopardize the U.S. hold on its Guantanamo Bay base in Cuba. Finally, the U.S. has a heavy investment in prestige and status in its control of the canal which would suffer if there were unilateral nationalization.

The U.S. would also undoubtedly oppose any full-scale internationalization of the canal and zone since that too would effectively eliminate U.S. control. But conceivably, it might accept a degree of international consultation on the canal and zone through the OAS or other Hemispheric body. The object would be to give Panama and the other Latin nations a voice in affairs of the zone without bypassing Washington's authority.

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d. <u>Equal Opportunities</u> -- This is one of the main problems involved. Panama insists that her nationals be given equal opportunities in Canal Zone jobs and equal pay for work performed. Zone residents oppose this.

Background -- At present the zone government employs about 4,000 U.S. citizens and 10,000 non-U.S. personnel, mostly Panamanian citizens. The U.S. military services in the zone employ about 2,000 U.S. civilian Panamanians and Americans are hired by the Canal Zone Personnel Board, which operates very much like the U.S. Civil Service.

Under a 1955 agreement with Panama, a single basic wage was set for every job category regardless of nationality. But the U.S. worker was to receive by agreement with Panama, a 25% increment to the basic wage in every category. The reason for the differential was that U.S. employees had to have an inducement to move from the U.S. Furthermore, the Panamanian employee's job rate was reduced slightly -- about 5% below the basic wage on the average to account for the fact that he paid lower taxes to his Government than did the U.S. employee. In setting the basic rates, the wages for the less-skilled jobs were oriented toward the prevailing pay in Panama while at the upper end of the job scale, the rates were based on those in the U.S. For the most part, the Panamanians are employed in the less-skilled jobs.

e. <u>Commissaires</u> -- Panama insists that the Canal Zone give priority to Panamanian businessmen in obtaining food and other supplies for the commissaires in the area. There has been progress toward solving this problem by an agreement that goods will be bought only in the U.S. and Panama and not from a "third" country.

f. Taxes -- Panama wants the Canal Zone Company to withhold on her behalf the taxes of Panamanian employees. This issue has been actively under discussion.

g. **New Canal** -- Preliminary talks have been held on the possibility of building a new canal through the isthmus.

SUGGESTED NAR POSITION

Q. What do you think of the recent events in Panama?

A. The US has suffered an enormous setback in its efforts to achieve progress and stability in the hemisphere. The Panama crisis is acutely embarrassing at a time when US relations in Latin America and the whole Alliance for Progress are strained. The crisis could have been avoided by a little foresight on the part of our policy administrators.

In the age of anti-colonialism -- a sentiment the US encourages -- our own Caribbean positions were obvious targets for nationalist agitators. For years Panamanians, including many who could not be called leftist or anti-American, have demanded amendment of the existing archais situation.

Less myopic planning in Washington would have adjusted more imaginatively to these facts. President Chiari admitted little more than two years ago that for this generation, as he saw it then, Panama didn't wish control of the canal and wasn't prepared to operate it. "But," he added, "we should have better participation in its benefits."

Chiari doesn't really like the idea of internationalizing the canal by, for example, putting it under the Organization of American States. Panama would have preferred to negotiate with a single country, the USA. But by being dilatory with problems in our own backyard, we allowed latent trouble to fester.

What is needed is a revision of the bilateral treaty which governs the canal and the Canal Zone. This must include zonal rights, larger rental, higher tolls. Such a sensible approach could then contemplate what, if anything, Panama should pay when present installations are turned over for power production and what might be the terms for US purchase or rental of the new strip of land we will need soon for a modern canal.

If we don't face facts, there won't be any usable canal 15 years from now. And unless we awaken to the implication for us of worldwide anti-colonialism, we face further difficulties elsewhere.