Washington, January 8, 1965.

/1/ Source: Johnson Library, National Security File, Country File, Panama, Vol. VI, Memoranda, September 1964-January 1964. Secret.

SUBJECT
Policy toward the present and future of the Panama Canal

TO
The Secretary of State
The Secretary of Defense
The Director, Central Intelligence Agency
The Chairman, Atomic Energy Commission
The Director, Bureau of the Budget
The Director, U.S. Information Agency

/2/ Attached but not printed; see footnote 3, Document 421.

2. The Secretary of State is requested to begin discussions as appropriate with the Governments of Panama, Colombia, Nicaragua, and Costa Rica, with respect to the possibilities of a sea level canal. The Secretary is requested to determine which of these governments would be interested in the possible construction of a sea level canal through its territory. The United States is prepared to begin negotiations with interested governments on the terms and conditions for the construction and operation of a sea level canal. Depending on the results of these negotiations, it is expected that we would proceed with selected site surveys.

3. We have in mind a treaty for a sea level canal in which sovereignty over the canal area would remain in the country or countries through which the canal would pass. The United States would be authorized, at its option, alone or with others, to undertake construction. Financing would be the primary responsibility of the United States Government, but the door could be left open for it to accept contributions from other sources, both public and private.

4. The United States Government has no final position on the exact form by which interested governments might join in operation of a sea level canal. There are advantages and disadvantages in an international commission which might include representatives of users or of financing groups or of the Organization of American States. There are equally advantages and disadvantages in bilateral operation by the United States and the country through which the canal might run. Moreover, it is possible to think in terms of two layers of responsibility, one bilateral and the other broadly international. Final decisions on these matters will be made by the President in the light of further advice and recommendations from the Secretary of State and the Secretary of Defense.

5. It is expected that the defense of the new canal would be the responsibility of the United States and the country or countries through which the canal runs. We should seek treaty terms which give to the United States the necessary rights and freedom of action to ensure the effective security of the canal regardless of the actions of the other country or countries.

6. The tolls for a sea level canal would be fixed in such a way as to put the canal on a self-sustaining basis, to pay an annuity to the host government, to amortize this investment and to serve the interests of world commerce. Like the present canal, the new interoceanic canal would be open to the vessels of all countries on the basis of equality.

7. Whatever treaties are agreed upon would, of course, be subject to approval and ratification in accordance with the constitutional procedures of the United States and the other country or countries

involved.

8. With respect to the negotiation with Panama, the following principles will guide our negotiators:

(1) We are glad to join with the Government of Panama in searching for solutions which are compatible with the dignity, responsibility and sovereignty of both nations. It is clear that we must make provision for the continued protection and operation of the existing canal by the United States until it is replaced.

(2) We are prepared to negotiate a new treaty with Panama governing the present lock canal, based on the retention by the United States of all rights necessary to the effective operation and protection of the canal, including administration of the areas required for these purposes. This treaty would replace the 1903 Treaty and its amendments. It should recognize Panama’s sovereignty. It should provide for a termination date for rights retained by the United States based on the operational date of a sea level canal wherever it might be constructed. It should provide for the effective discharge by the United States of its responsibilities for hemispheric defense. The present treaties would, of course, remain in effect until a new agreement is reached.

(3) The new treaty for the existing canal should include adequate provisions to ensure continuation of our military bases and activities in the Canal Zone until the closing of the existing canal, without loss of necessary rights or freedom of action. The treaty should make no distinction between the use of bases for purposes of protection of the canal or for hemispheric security. The agreement should contain appropriate acknowledgment of Panama’s contribution to hemispheric security under these arrangements. In addition, arrangements should be included to continue existing U.S. military base rights in the Republic of Panama outside the Canal Zone and to create appropriate status of forces provisions for U.S. servicemen when outside the Zone.

(4) Upon the closing of the existing canal, our military rights under the new treaty as discussed in the preceding paragraph will terminate. Therefore, negotiations should also be started for a base rights and status of forces agreement with Panama, related to hemispheric security, to come into effect upon the closing of the present canal. This new agreement should provide for continuation of U.S. military bases and facilities in the present Zone and outside the Zone in the Republic of Panama, with such changes as are needed. The agreement should also cover whatever new arrangements are needed in connection with the security and defense of the new canal wherever it is located.

(5) Wherever the new canal is built it will create new opportunities. To be sure, closing of the present canal would cause economic problems for Panama, but these would be offset to a great extent by those new opportunities which would be created if the sea level canal were built there. Panama would benefit not only from the actual construction of such a canal, but would also continue to enjoy the benefits of the present canal until the new one were completed. We are prepared to consider now with Panama a program of how best to take advantage of these opportunities and to meet these problems. The efficient employment of Panamanian workers employed in the present canal whose services would not be needed in the operation and maintenance of the sea level canal will form a major topic of our discussions with Panama.

(6) We will also take every possible step to protect the employment rights and economic security during the transition period of United States citizens now employed in connection with the operation, maintenance, and defense of the present canal. We shall do what is necessary to find them employment fitting their skills and experience and by providing retraining where this is called for.

9. In summary, the President’s new policy sets three principal tasks before the United States Government, in order to satisfy the requirements of the present and the future:

(1) Working out satisfactory arrangements for the construction and operation of a new sea level canal;

(2) Providing a new treaty framework for the interim period to govern the operation and administration of the present lock canal; and

(3) Agreement on the terms of arrangements for facilities for defense of the existing and sea level canals and for the security of the Hemisphere.

These three problems are intimately interrelated and, to the maximum degree practicable, should be addressed simultaneously.

/3/ For texts, see Foreign Relations, 1961-1963, vol. XII, Documents 402 and 406.

McGeorge Bundy

Washington, February 1965.

/1/ Source: National Archives and Records Administration, RG 59, ARA Assistant Secretary Files: Lot 70 D 295, Panama. Confidential. The date is stamped on the memorandum but is too faint to determine a day; Rusk was not in the Department February 1-14. (Johnson Library, Rusk Appointment Book) The memorandum indicates that the Acting Secretary saw it.

SUBJECT
Sea-Level Canal Discussions with Central American Countries

/2/ Attached but not printed.

In Nicaragua and Costa Rica, I met with the Presidents and Foreign Ministers, as well as members of the Administration and opposition parties. In Costa Rica, I also talked to all of the former Presidents since 1944.

In Panama, Secretary Ailes and I talked only to the Foreign Minister. Although we met with President Robles and other Panamanian officials, we did not engage in any extensive discussions with him on a sea-level canal, or other matters, because it was clear Robles wanted his Foreign Minister to handle the discussions.

In Colombia, we talked to the President, the Foreign Minister, and the Cabinet in separate meetings. Because Colombia has a National Front Government, this included the country’s important leaders, but it did not include as broad a spectrum of the opposition as we talked to in Costa Rica.

The atmosphere was favorable in Nicaragua, Costa Rica and Colombia-especially in Colombia. We found a general willingness to authorize preliminary reconnaissance of proposed routes and to enter into negotiations looking toward the construction of a sea-level canal. We found a general concern about the future of Panama, if the canal were constructed other than in Panama. Especially in Costa Rica and Colombia, Government leaders offered to be of assistance in bringing Panama around to a favorable attitude. In all three countries we heard suggestions of a multi-lateral arrangement designed to be most helpful to Panama in making the transition from the present lock canal to a sea-level canal.

We found a general misunderstanding in all of the countries about the earnings from the canal; the role which the canal plays in the Panamanian economy; the economic benefits of the canal to the US; the fact that the present canal had not been amortized; and the difference between the rights needed for the present canal and those that might be required for a sea-level canal. I believe we cleared up much of this misunderstanding, but much more needs to be done.

In Panama, we found the Foreign Minister very unhappy that we were discussing a sea-level canal with other countries. He regarded it as blackmail. He insisted that we have a legal and moral obligation to operate the present canal until Panama agrees that we might cease operation. I told him that we would be as helpful as we could to Panama, but we did not consider that existing treaties imposed such a legal or moral obligation. Panama believes that further violence in the Canal Zone would be detrimental to the world position of the US, and it therefore regards violence as a bargaining weapon. It also considers that it has a trump card, with respect to US military bases in the Canal Zone.

Panama regards a canal as its primary natural resource, and gives little evidence of a willingness to consider seriously an economic development program in which a canal is only one industry. The Foreign Minister expressed willingness to consider international control of a sea level canal during the period of amortization. But afterwards, he said the canal would be under the exclusive control of Panama. Panama would be willing to consider some restrictions on its authority to set tolls, but it was clear that Panama regarded itself as one of the world’s main toll roads, and that its present intention is to exact a tribute as high as the traffic will bear. The Foreign Minister seemed unwilling to accept our view that a canal should be thought of as a service to world commerce, with the primary benefits for Panama to be derived from secondary developments, such as new ports, industries, and other economic activity.

I will be talking to Robert Anderson in the next few days about additional personnel he may need to continue the necessary negotiations. I believe we should now move forward as rapidly as possible with the objective of concluding the necessary treaties with the interested countries by the end of this year.

Washington, May 10, 1965.

/1/ Source: Johnson Library, National Security File, Bundy Files, Memos to the President, Vol. X. No classification marking.

SUBJECT
Panama Canal Treaty Negotiations

Agreement has been reached by Tom Mann, Jack Vaughn, Steve Ailes and Bob Anderson on a new and forthcoming approach to the Panama Canal treaty negotiations. On the basis of the new instructions, Anderson hopes to be able to hold rapid and fruitful discussions with the Panamanians.

The core of the new approach is to tell the Panamanians that:

(1) Our aim is to negotiate with them promptly a sea level canal treaty acceptable to both countries;

(2) U.S. base rights and a status of forces agreement will be negotiated along with but separate from the canal treaty;

(3) if agreement on a sea level canal is reached and U.S. base rights are obtained, we will alter our existing rights under the 1903 treaty and work out an interim treaty or a transitional agreement covering the period from the present to the coming into effect of the sea level canal treaty; and

(4) we will attempt to finish our negotiations with the Panamanians before talking further about site surveys or a sea level canal with Colombia, Costa Rica or Nicaragua.

/2/ In a May 7 memorandum to Bundy, Mann emphasized the need to keep Congress informed: "We should be very sure that Congress is going along with us at all stages of the negotiations." (Ibid., NSC Histories, Panama Crisis, 1964)

/3/ May 12.

McG. B.

/4/ This option is checked. In a telephone conversation with Anderson on May 17, the President told him: "God almighty, you watch Panama any way you can." Johnson continued, "Where you can really talk to ’em and-gonna work out all right-do it so they can’t say that we messed around for a year and wouldn’t talk to ’em." (Recording of telephone conversation between President Johnson and Robert Anderson, May 17, 9:07 a.m.; Johnson Library, Recordings and Transcripts, Tape F 65.29, Side A, PNO 1 and 2)

Washington, June 22, 1965.

/1/ Source: Johnson Library, National Security File, Country File, Panama, Inter-Oceanic/Panama Canal Negotiations, Vol. I. Confidential.

SUBJECT
Panama-Canal Negotiations

/2/ According to the President’s Daily Diary, the meeting with the President was held between 12:30 and 1 p.m. on June 23. (Johnson Library) William Jordan briefly covers this meeting in Panama Odyssey. (p. 109)

Agreement has now been reached by the United States and Panamanian Special Representatives to negotiate, separately but concurrently, (1) base rights and status of forces agreements, (2) a new treaty to replace the 1903 Treaty and (3) a sea level canal treaty and to submit them as a package to the legislative authorities of both countries. I am informed that the Panamanian negotiators accept willingly that the United States should have responsibility for protection of the Canal and the ultimate say in the operation and maintenance of the Canal; they have, however, taken a firm position that Panama should share in the activities of the Canal Zone Government as well as the Panama Canal Company. A decision is therefore required whether the United States can agree to joint management and, if so, what form such an arrangement should take.

/3/ Attached but not printed.

Consideration has been given to providing for participation by Panama on the Board of Directors of the present Panama Canal Company. This course, which also accepts the concept of joint administration, would be difficult to negotiate, would probably never be entirely acceptable to Panama, and would not offer the political advantages of a clean break with the past and a fresh new start with Panama. I believe an entirely new approach might also be easier to take to Congress.

That decision in this matter be deferred pending full discussion with Ambassador Anderson on Wednesday.

Dean Rusk

Washington, August 30, 1965, 1:30 p.m.

/1/ Source: Johnson Library, National Security File, Memos to the President, McGeorge Bundy, Vol. 13. Confidential.

SUBJECT
The Panama Canal Negotiations

1. I have just talked at length with Bob Anderson and he tells me that the political problems of the Panama negotiations are now getting ripe for a brief report to you. I agree with him. There are decisions in the offing which only you can make and which I think you will want to make directly with Bob.

2. The essence of the situation is that Anderson and his team are very clear now on the need for a Joint US-Panama Authority to run the present Canal under the new treaties with Panama. You have approved this idea in principle, and for discussion, but there is no final Presidential decision, and still less any public White House position.

3. In discussing this idea on the Hill, in a preliminary way, Anderson’s colleagues, Jack Irwin and Bob Woodward, have found substantial preliminary resistance from the House Subcommittee led by Mrs. Sullivan, and also from Senator Hickenlooper.

4. Anderson himself has stayed away from the House Subcommittee so far. He does not want to be in the position of giving them a fat target before there is a definite US Government position. He fears that if he were to advocate the Joint US-Panama Authority before you have made your own decision, he would be inviting public and definite opposition from Mrs. Sullivan and others.

5. Anderson is convinced that the Joint Authority will be indispensable to a successful negotiation. He is also convinced that real US interests can be protected, essentially by giving both Presidents a veto of changes in the existing code which covers the existing Canal. Anderson & Company therefore plan to make a flat recommendation to you in favor of a Joint Authority.

6. The next question is that Bob needs to know whether you want him to be the spokesman or whether you wish to announce your decision yourself, perhaps to an appropriate group of bipartisan leaders. He and I are inclined to think that if the President and Commander-in-Chief were spokesman on an issue of this sort, the chances of effective support would be greatly increased. This is, of course, what happened when you announced that you planned to negotiate these new treaties last December.

/2/ Document 428.

/3/ None of the options is checked, but Bundy wrote at the top of this memorandum: "Hold for Panama meeting Thurs." The President met with Anderson and Irwin in the Oval Office at 1:55 p.m. on September 2. (Johnson Library, President’s Daily Diary) No other record of this meeting has been found, although a September 14 memorandum from Assistant Secretary for Inter-American Affairs Jack Vaughn to Rusk indicated that "The President approved" the Anderson and Irwin recommendations "and directed Ambassador Anderson to canvass the Congress to ensure that there would be sufficient Congressional support." (National Archives and Records Administration, RG 59, Central Files 1964-66, POL 33-3 PAN)

8. I have talked to Larry O’Brien about the problem of Mrs. Sullivan-and probably Dan Flood-and he thinks we have a lot of ways of handling this sort of opposition, and that on the Hill in general it is well understood that it is time for change in US-Panama relations. I will plan to ask him to join in the Anderson meeting (if he hasn’t gone off to deliver the mail).

McG. B.

Washington, September 2, 1965.

/1/ Source: Johnson Library, National Security File, NSC Histories, Panama. Confidential. The memorandum was unsigned, but a handwritten line at the top of the first page indicates it was from Anderson and Irwin.

SUBJECT
Panama Canal Treaty Negotiations

Since May, the United States negotiators have been discussing with the Panamanians three treaties, an Interim Treaty (regarding the existing Canal), a Sea Level Canal Treaty and a Base Rights and Status of Forces Agreement. All aspects of the discussions have been carefully coordinated with the Departments of State and Defense on a continuing basis. We have reached a point in the negotiations at which we wish to bring to your attention the far-reaching nature of the proposals which have been discussed, and alternatives, and to recommend courses of action for your decision.

We have informed key Senators and Representatives about the general progress of the negotiations and are meeting with varying degrees of concern, in some cases deep concern, because of the prospect that the United States may actually relinquish practical aspects of sovereignty, and because there might be delegated to a new Joint Authority the important functions which the Congress has heretofore controlled directly, such as: formulation of new laws for the Canal Areas, approval of the budget and expenditures, and decisions with respect to tolls, commercial enterprises and employment conditions.

Based upon your decisions resulting from this meeting, we recommend that you advise the leaders of Congress (including the majority and minority leaders of the Foreign Relations, Armed Services, Appropriations and Commerce Committees of both Houses and the House Merchant Marine and Fisheries Committee and its Panama Canal Subcommittee) of your policy goals with respect to the Panama Canal and of the guidelines you have given to the United States negotiators. In view of the extent to which the suggested new participation by Panama in the practical application of sovereignty will depart from tradition, it is doubtful that anyone but you can persuade the leaders of Congress to accept these changes.

I. Interim Treaty

/2/ See footnote 3, Document 421.

We have been discussing with the Panamanians two formulas for Panamanian participation in the administration and operation of the Canal:

(1) a proposal (suggested by us) that Panama be given a minority participation on the Board of Directors of the existing Panama Canal Company, the authority and responsibility of the Board to be expanded to include functions now exercised by the Governor, and

(2) a proposal (suggested by Panama but also considered independently by us to be a possible solution) to create by the Interim Treaty a Joint Authority in which the United States and Panama would share as partners full authority and responsibility to operate the Canal and administer the Canal Areas.

We recommend proposal (2), the Joint Authority, because:

(a) While meeting the principal aspirations of Panama, we believe we can retain for the United States (i) the ultimate control of the administration and operation of the Canal through majority control of the Board of Members or by having a "casting vote," and (ii) the unilateral right for the President of the United States to defend and secure the Canal under any circumstances in which he believes such action necessary.

(b) It is an overt expression of Panamanian sovereignty and will be a major step in eliminating the "foreign colony" stigma with which Panamanians view the Canal Zone.

(c) It seems to offer the best hope of concluding a mutually satisfactory bilateral arrangement with Panama which will both ensure the continued effective operation and defense of the Canal and reduce the likelihood of violent United States-Panamanian confrontations.

(d) It is doubtful that we could negotiate successfully Panamanian membership on the Board of Directors of the existing Panama Canal Company. The Panamanian negotiators state that the Panamanian Government has never officially recognized the Panama Canal Company, that its existence has been a continued source of irritation to Panama, and that it is not compatible with a recognition of Panama’s sovereignty.

(e) United States agreement to participation by Panama on the Canal Company’s Board of Directors would, in effect, be accepting the idea of joint administration without receiving the political benefit which would flow from an offer of a new and real form of partnership with Panama, as under the Joint Authority proposal.

(f) The United States can include in the Treaty provisions which will ensure fair treatment to the employees (both United States and non-United States) in the light of the changed circumstances, and the United States Government can take action independent of the Treaty to provide for the United States employees.

The principal disadvantages of the proposed Joint Authority are:

(a) It removes the United States, and particularly the United States Congress, from direct control over the Canal. Ultimate control would be exercised through a Board of Members the majority of whom would be appointed by the President of the United States.

(b) A significant number of Senators and Representatives will oppose strongly a real partnership with Panama. They will consider it a "giveaway" and a weakening of our historic position of strength in Central America, a position they believe is needed to ensure the defense of the Western Hemisphere and to retain reasonable tolls for the benefit of both world commerce and United States shipping and those who ship the cargoes, particularly those ships and cargoes involved in trade between the east and west coasts of the United States. Their principal concern, however, might be said to be the instability of Panama and its Government, the seeming lack of capacity of its people, the lack of concern of the controlling "oligarchy" for the masses, and the activity of Communist elements.

In addition to the above two proposals, Panamanian representation on the Board of the Canal Company and creation of a Joint Authority, there are several possible alternate concepts of administration. Among these are:

(a) Maintain the existing Panama Canal Company and Canal Zone Government while granting significant concessions to Panama.

(b) Abolish the Panama Canal Company/Canal Zone Government and reestablish an independent United States Government agency

similar to that existing before the establishment in 1950 of the Panama Canal Company; grant significant concessions to Panama, perhaps including some form of Panamanian participation in the functions of the United States Government agency.

(c) Create by treaty a multinational agency composed of representatives of the United States, Panama and the principal users of the Canal, or perhaps others selected by any variety of ways.

(d) A plan, known as the Machado Plan, under which the World Bank would be authorized to organize an international corporation to purchase the interests of the United States in the Panama Canal Company and the Canal Zone Government and obtain from Panama a long-term franchise to operate the Canal as an international waterway on a self-sustaining and self-liquidation basis. This plan might provide a quick and practical business solution of the problem and avoid many of the political differences which have arisen in the past.

Alternatives (a) and (b), maintenance of the existing organization or establishment of a new independent Government agency, would be much more acceptable to Congress than the proposed Joint Authority, but neither would meet the Panamanian aspiration for sovereignty. We believe Panama would refuse Alternative (a) but might be induced to accept Alternative (b) for a specified and fairly short term of years if convinced there was no hope for some form of real participation.

Alternatives (c) and (d), multinational operation and the Machado Plan, would be difficult to sell both to Panama and to Congress, but we believe it possible to do so to the Panamanians if they are convinced they cannot negotiate a satisfactory bilateral arrangement.

These two subjects present primarily internal United States political problems.

One of the traditional purposes of the Canal has been its contribution to world commerce. The United States never raised tolls since the Canal was opened, and inflation has had the effect of reducing tolls to approximately one-third of the 1914 toll. Strong voices in Congress have opposed any increase in tolls, even though many Canal Governors have recommended increasing them.

It would probably be possible to establish a new tolls system, based party on value of cargo, which would be more equitable while more profitable. We recommand that the Joint Authority be empowered to hold toll hearings and fix tolls, possibly subject to the Presidents of the United States and Panama each having a unilateral power to veto

increases.

The unrecovered United States investment in the existing Canal enterprise is fixed variously at from $329,000,000 (net direct investment) to $463,000,000 (equity of the United States Government). There are two schools of thought: (i) those who believe that the United States has been more than repaid through the use of the Canal for commercial and defense purposes for a period of over 60 years, including two world wars, the Korean war and the current world situation, and (ii) those, including many in Congress, who believe the unrecovered investment should be recovered.

The Panamanians dispute the amount of our unrecovered investment and argue that the United States has adopted intentionally the policy that has resulted in no amortization. They point out that the United States can afford to subsidize world commerce but that Panama cannot, so either the tolls should be raised to bring an optimum income to Panama or the United States should pay Panama an equivalent sum.

A related factor is that the Panama Canal Company now pays interest to the United States Treasury (approximately $11,000,000 in 1964) on the interest bearing investment of $329,000,000 computed on the basis of statutory criteria established by Congress. After payment of the interest, the Panama Canal Company now is not able to establish adequate reserves for capital improvements.

If you approve the Joint Authority proposal, we shall try to achieve some formula which will permit recovery of the unrecovered investment in the 1903 Canal, either by agreeing on a figure to be amortized under the new arrangement or by obtaining a new equity when the sea level canal financing is arranged. Acceptance of the Joint Authority proposal would have the effect of discontinuing present interest payments to the United States Treasury.

Among other difficult and sensitive issues in the negotiations of the Interim Treaty are the law to be applied in the new "Canal Areas," the system of courts, the financial solvency of an independent Joint Authority, the commercial enterprises of the Panama Canal Company, the welfare of the employees, and the question of defense and security of the existing Canal. We believe that reasonable solutions can be achieved under the Joint Authority proposal.

With respect to the duration of the Interim Treaty, Panama opposes strongly tying the duration to the effective date of a sea level canal because of the United States position that we may build the sea level canal in Colombia or elsewhere. However, we believe we can obtain an Interim Treaty with a duration of between 35 to 60 years.

Public Announcement of Progress in Negotiations

The President of Panama wishes to make a public announcement of progress in the negotiations before the opening of the Panamanian National Assembly on October 1. It may be advisable to have a joint announcement of the President of the United States and the President of Panama in order to assist the President of Panama and to have more control over the exact wording. What can be said will depend on the progress made not only on the Interim Treaty but also on the Sea Level Canal Treaty and the Base Rights and Status of Forces Agreement. The primary interest of the Panamanians is the Interim Treaty.

II. Sea Level Canal Treaty

In the Sea Level Canal Treaty we are seeking essentially an option to construct a sea level canal in Panama at a time and place and by a means of our own choosing. Panama wishes to have a sea level canal if one is constructed, but the concept of the option causes difficulty to Panama because of our announced intention to seek similar options from Colombia and from Nicaragua and Costa Rica. If we are successful in signing three satisfactory treaties with Panama it may be advisable to reconsider present plans to proceed with site surveys in Colombia, Costa Rica and Nicaragua.

We anticipate difficulty, particularly in obtaining an open-ended option to construct a sea level canal by nuclear methods. Consequently, it may be necessary to agree to share with the host countries the decision with respect to construction of a canal by nuclear means.

No decision has yet been made with respect to the agency to control a sea level canal. Should it be multinational, binational, or possibly a combination of the two?

We recommend that the treaty provide for a multinational agency composed of representatives of the United States, the host country, the financiers and the principal users of the Canal but include a provision to permit the United States and the host country to decide on a bilateral agency rather than a multinational agency if the United States and the host country, before the financing arrangements are made, each determines that it prefers a bilateral arrangement.

Although there are numerous other complicated problems, such as the method of financing, defense of the canal, tolls, compensation of the host country, question of provision for repayment to the United States of the unrecovered investment in the 1903 Canal, and the duration of the controlling agency and of the treaty (including Panama’s desire to own the sea level canal outright after the cost has been amortized), we refer to these only for your general information and do not seek decisions at this time.

Congressional criticism is most likely to be reflected in concern over multinational control of a sea level canal, and over control of tolls. Some have expressed the view that a new canal should be built outside of Panama.

III. Base Rights and Status of Forces Agreement

The Base Rights and Status of Forces Agreement has been prepared by the Department of Defense and is based on similar agreements with other countries. The present draft provides that the bases will be made available by Panama free of charge, in keeping with a worldwide Department of Defense policy. The Panamanians may expect payment.

The prosposed Base Rights and Status of Forces Agreement will be opposed by some in Congress on the grounds that we are giving up areas in which we are now "sovereign," turning them over to Panamanian sovereignty, and taking them back under a treaty which gives us less control than we now possess.

IV. General

In the Sea Level Canal Treaty draft, we have provided for an annual payment of a fair and reasonable return to Panama, without specifying the amount. In the Interim Treaty we provide for a payment to Panama in the proportion of Panama’s interest in the Joint Authority. There is no provision in the Base Rights and Status of Forces Agreement for any payment to Panama. We have included in the Sea Level Canal Treaty draft a general undertaking to assist Panama in meeting the adverse economic impact of a sea level canal which will be caused by a sharp decrease in employment and similar changes in the existing economy.

The Panamanians have indicated that they will put a price on the use of their land and water areas (their "greatest natural resouce") and either expect to receive it from the canal revenues, or for the United States to pay the difference. As stated earlier, there is a possibility Panama may demand rent for use of the military bases. They will ask United States assistance in meeting their economic problems when the sea level canal is opened.

The Panamanian President, Foreign Minister and special negotiators have expressed, at various times, a pointed hope that the United States might be willing, because of the unique relationship with Panama, to grant Panama trade preferences or even a complete exemption from customs duties in the United States market. The most active negotiator, Ambassador Aleman, has said that this would result in new investments in small industries in Panama-on the order of those that have been developed in Puerto Rico-which would have markets in the United States, and that this business would become so important to Panama eventually that Panama would beseech the United States to remain in partnership in canal operations in order to retain the trade preference that would be made dependent upon the Canal partnership. Such a trade relationship would be logical, would cost the United States virtually nothing (since there are now few Panamanian products that would compete more effectively in a duty-free United States market), and would assure the United States an increasing reciprocal market in Panama while promoting a longer Canal partnership.

/3/ Attached but not printed is Annex A, a list of 31 members of Congress briefed by Irwin and Woodward.

Washington, September 11, 1965, 11 a.m.

/1/ Source: Johnson Library, National Security File, Country File, Panama, Inter-Oceanic/Panama Canal Negotiations. No classification marking. A note on the memorandum indicates the President saw it.

RE
Panama

/2/ September 13. The "write-up" has not been found.

Hickenlooper said that while he would have done it differently, he would not actively oppose your judgment. Russell said he was against the proposals and would vote against them, and would make a brief statement for history against them, but he knew that if you were for them, they would carry, and he wanted you to know specifically that he was not going to make a general fight against you on this issue. He disagreed, and he wanted history to know of his disagreement, but that was all.

Mrs. Sullivan was the one person who gave indications that she might wish to make a fight on the issue. She couched her argument in terms of the failure of American policy to meet the needs of the simple people of Panama. She claimed that we were merely giving further aid and comfort to the "oligarchy." Henry Wilson and others who know her think this is merely a screen for her real concern, which is with the Americans in the Zone and the powers of her committee. Tom Mann and Henry Wilson are going to try to find ways of talking further with her.

/3/ On September 24 President Johnson read an approved joint statement on areas of agreement on a potential treaty that was simulataneously released in Panama by President Robles. The statement and Johnson’s prefatory remarks are printed in Public Papers of the Presidents of the United States: Lyndon B. Johnson, 1965, Book II, pp. 1020-1021.

I have the impression that Bob Anderson has been determined to show that anything Goldberg can do, he can do better.

McG. B.

Washington, July 14, 1966.

/1/ Source: Central Intelligence Agency, Job 79-R01012A, O/DDI Registry. Secret; Controlled Dissem. According to a note on the cover sheet this estimate was prepared in the Central Intelligence Agency with the participation of the intelligence organizations of the Departments of State and Defense and the National Security Agency. The United States Intelligence Board concurred in this estimate on July 14.

PROSPECTS FOR STABILITY IN PANAMA

The Problem

To estimate the situation in Panama and the prospects for stability over the next six to twelve months.

Conclusions

A. Discontent with social and economic conditions, particularly with the high level of unemployment and the poor and inadequate housing in the cities, is continuing to grow among the Panamanian population. Criticism of the Robles government’s handling of the Canal negotiations will probably become more intense after the National Assembly reconvenes on 1 October. Students and urban slum dwellers will probably be in the forefront of any violent manifestations against the Panamanian elite or against the US.

B. New civil disturbances are probable over the next six to twelve months; more likely than not they will be precipitated by sudden, unpredictable incidents. We believe that the Communists in Panama have the capability to intensify and broaden such disturbances to some extent, but that the Robles government and the Guardia Nacional would still be able to restore control. Even if no disorder or upheaval takes place during the period of this estimate, the Panamanian political situation is likely to become somewhat more fragile than it is at present.

C. Arnulfo Arias and his Panamenista party have the strength-which the Communists lack-to transform a civil disturbance into a popular rising against the Robles government. In the event of prolonged and widespread disturbances, the Guardia probably could not maintain control without outside assistance-presumably from US forces in the Canal Zone. However, Arnulfo seems inclined to bide his time, hoping that rising discontent over the Canal issue will bring him to power in the presidential elections of May 1968, if not sooner. In the event that both the Panamenistas and the Communists should take part in a successful effort to overthrow Robles, we think that Arnulfo would dominate the successor regime without allowing the Communists to gain major influence.

[Omitted here is the 5-page Discussion section of the estimate.]

Washington, July 25, 1966.

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1964-66, POL PAN-US. Secret. Drafted by Clark and cleared by Gordon.

SUBJECT
Panama

/2/ The meeting was held in the Cabinet Room at the White House. Johnson participated in the meeting between 6:43 and 7:35 p.m. (Johnson Library, President’s Daily Diary)

/3/ A summary record of the IRG/ARA meeting is in the National Archives and Records Administration, RG 59, ARA/IG Files: Lot 70 D 122, IRG/ARA Action Memos, 1968.

/4/ Enclosure 1, Status of Treaty Negotiations; enclosure 2, Urban Impact and Development Loan Program for Panama, FY 1967; enclosure 3, New Development Authority for Panama; and enclosure 4, Grant Aid for National Guard, are attached but not printed. Enclosure 5, SNIE 84-66, is Document 430.

The following conclusions were reached by the IRG/ARA:

1. That we continue our present policy of endeavoring to negotiate expeditiously new canal treaties with the Robles Government.

2. That a special Inter-Departmental Working Group be formed to develop by September 6, 1966 a contingency plan for use should treaty negotiations reach an impasse within the next six months.

3. That we press forward with the GOP to develop and carry out an urban impact program.

4. That we impress upon the GOP the urgent need to draw up a long-term economic development plan to fit into the anticipated new treaty arrangements; that we seek the establishment by Panama of a Development Authority for this purpose; and that we offer our assistance and cooperation in this undertaking.

5. That we meet the GOP’s request for grant aid to expand the National Guard.

A decision is needed regarding the priority this program should receive, considering the FY 1967 AID funds available and the competing demands of other areas.

Assuming that the GOP will be receptive to United States proposals for formulating a long-range economic development plan and establishing a Development Authority, a decision is needed on whether specific assurances can be given to the GOP that expanded financial and technical resources will be made available to the Development Authority to implement the plan.

The proposal to complete the Darien portion of the Pan American Highway which you mentioned in your April 15, 1966 speech in Mexico has relevance to Panama’s long-range development. A decision on this matter which is being requested separately would assist in formulating a long-range development plan for Panama.

The IRG/ARA has agreed that in spite of the political risks involved the United States should finance the new 500 man addition to the Guard and the salaries of the 500 men added in 1965. This assistance would be made through a general budgetary support grant which would be made in such a way as to involve the least possible political risk. Your approval is requested of the course of action agreed upon by the IRG/ARA.

Dean Rusk

Washington, July 27, 1966.

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1964-66, POL PAN-US. Secret; Sensitive.

MEMORANDUM FOR
The Secretary of State
Administrator Gaud
Director Helms
Secretary Resor
Assistant Secretary Gordon
Ambassador Anderson

SUBJECT
Presidential Directives on Panama

In order that we all have a clear understanding of the directives given by the President at the conclusion of our Panama review meeting on Tuesday, July 26, I thought it useful to recapitulate them as follows:

/2/ In a July 27 memorandum to the CIA’s Deputy Director for Plans setting forth the President’s directive for the Agency, Helms noted that "the President wants us to watch the situation in Panama most closely and to do everything we can to guard against being caught by surprise in terms of riots, attempts to overthrow the government, and other possible troubles in the area." (Central Intelligence Agency, Job 80-B01285A, DCI (Helms) Chronological Files, July 1, 1966-December 31, 1966)

/3/ A draft of a Department of State contingency study on Panama, based on the President’s directive, was prepared on September 16. (Johnson Library, National Security File, Memos to the President, Walt W. Rostow, Vol. 15)

3. Assistant Secretary Gordon, in consultation with Administrator Gaud, is to:

/4/ Department of State and AID proposals for dealing with economic and political issues in Panama were presented to the President under cover of a July 25 memorandum from Rusk to Johnson. (National Archives and Records Administration, RG 59, Central Files 1964-66, POL PAN-US)

b. develop a plan for a Panama Development Authority, which Mr. Gordon will try to persuade the Panamanians to accept.

c. assist United States businessmen interested in private investment in Panama.

4. Secretary Gordon is to proceed with arrangements for further grant assistance to strengthen the National Guard.

5. In order to assure full coordination within the government, Secretary Gordon is to pass on all public statements and new initiatives relating to Panama. He is to coordinate these closely with Ambassador Anderson for their possible effect on the canal negotiations.

W. W. Rostow

Washington, September 22, 1966.

/1/ Source: Johnson Library, National Security File, Country File, Panama, Vol. VIII (part 2 of 2), September 1966-May 1967. Secret. A note on the memorandum indicates that the President saw it. Copies were sent to Moyers and Henry Rowen of the Bureau of the Budget.

SUBJECT
Status of Panama Account

This is where we stand on implementation of the directives which you gave at the Panama Review Meeting on July 26.

Dick Helms has completed the review. As a result, changes in [less than 1 line of source text not declassified] have been made. [1-1⁄2 lines of source text not declassified]

/2/ See footnote 3, Document 432.

Jack Irwin was not able to make an estimate of the prospects for successful negotiations by our target date of September 15 for the reasons discussed in the last paragraph of this memorandum.

/3/ Tab B, attached but not printed, is a draft report, "Possible Unilateral United States Activities," September 8.

/4/ Tab C, attached but not printed, is an undated report prepared by Klutznick on Panama aid program.

/5/ Tab D, attached but not printed, is a September 9 memorandum from Ball to President Johnson.

Ambassador Adair has discussed the desirability of setting up an Authority with President Robles and Foreign Minister Eleta. He got a non-committal, lukewarm response.

The Klutznick team looked into the matter and concluded that the better part of wisdom was to work through the existing Planning Board and try to strengthen it. They found that the Board as an institution is equipped to handle budget, economic and social planning as well as physical planning and evaluation. The main problem is an incompetent Director. State/AID are trying to get him replaced and the staff augmented with capable people.

/6/ A handwritten note by Rostow next to this paragraph reads: "I’m going to dig into this personally."

We have told the Panamanians that we are willing to subsidize (indirectly) an increment of 500 men for the balance of this fiscal year if they will put the increase in their budget. (We are already paying for 500 men added to the force last year.) They want us to pay for 1000 men without it showing in the budget in the mistaken idea that this is the best way to hide our subsidy.

A 500 increment is as much as they can successfully handle. President Robles’ opposition is already starting to make political hay of the fact that the government is carrying 500 more men on the force than appears in the current budget and that the U.S. is footing the bill.

Negotiations advanced at a steady clip during July and August. The first round on the draft treaties served to identify areas of difference. The second round focused on analysis of the differences and means for resolving them.

Half way through this round (September 1) the Panamanians asked for suspension of talks while they returned to Panama to help work out their government’s position on economic compensation. This has caused a delay in our timetable of September 15 for Jack Irwin’s estimate of the prospects for reaching a settlement.

Negotiations are tentatively scheduled to be resumed on September 27. Jack expects that it will be several more weeks before he can give you a valid judgment on the prospects. Jack is understandably cautious. But the record of the negotiating sessions show a good spirit and flexibility on the part of the Panamanians. At this point, there is more reason for optimism than pessimism.

On August 24 Jack Irwin briefed the Senate Foreign Relations Committee on the status of the negotiations. Fulbright, Hickenlooper, Gore, Lausche, Carlson and McGee were present. The Senators were interested, full of questions and appreciative. There were no surprises beyond Fulbright’s comment that he would vote against a sea-level canal treaty that did not provide for multilateral operation.

Walt

Washington, March 14, 1967.

/1/ Source: Johnson Library, National Security File, Country File, Panama, Vol. VIII, September 1966-May 1967. Confidential. A notation on the memorandum indicates Johnson saw it.

SUBJECT
Panama Canal Negotiations

Bob Anderson called me today from New York in order to pass on this word:

/2/ Panamanian Foreign Minister Eleta made a similar request to Rusk when he visited Washington in January. (Memorandum of conversation between Rusk and Eleta, January 18; National Archives and Records Administration, RG 59, Central Files 1967-69, POL 33-3 PAN-US)

/3/ According to a memorandum of conversation of a meeting between Gordon and Panamanian Ambassador Ricardo Arias, April 2, the Ambassador told President Johnson that President Robles hoped that all outstanding questions concerning the treaty negotiations "might be settled through direct presidential discussions" at the upcoming meeting in Punta del Este. Johnson replied that "both sides had good negotiating teams and there was no reason to ‘pass the buck’ to the Presidents at this time. He understood the importance of the time element, but thought that the negotiations could be pushed ahead rapidly by the negotiating teams themselves." (Ibid., POL 33-3 CZ)

Bob says that three points still remain unsettled in connection with the negotiations: (1) compensation, (2) how long the treaty should last, and (3) jurisdiction over personnel. He proposes that when Robles raises the question of compensation with you, you might want to point out to him that it would be difficult to have Congress accept a guaranteed revenue figure substantially in excess of the present $2 million per year, and that therefore it would be mutually advantageous to explore other ways of providing added revenue to Panama. (Bob proposed, for example, some tariff arrangements which might be favorable to Panama.)

The Panamanian Foreign Minister, Fernando Eleta, spoke to me about this situation a couple of times in Buenos Aires. I am not, however, close enough to the negotiations to comment on Bob Anderson’s suggestions, but I know he would be pleased to discuss them with you personally if you had a few minutes to do so before the Summit.

Sol M. Linowitz

US/MC-9

Punta del Este, April 13, 1967, 8:45 a.m.

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1967-69, POL 7 IA-SUMMIT. Confidential. Drafted by Neil A. Seidenman (OPR/LS) and approved in the White House on April 28. The discussion was held during a "working breakfast."

SUBJECT
U.S. Panamanian Canal Treaty Negotiation

PARTICIPANTS

President Robles said he wished to take up two points in particular with President Johnson, and in the matter of "one farmer to another." The first was the matter of arrangements under the new treaty governing the administration of justice in the Canal Area Panama wishes to uphold its sovereignty over the Area, but considers that such sovereignty cannot be successfully exercised without the ability to administer justice in the criminal, civil and administrative fields. Panama recognizes that the effective functioning of the Joint Authority will require certain preconditions. Panama considers joint administration of justice acceptable, however, with reference only to cases directly related to the operation of the Canal. He appealed to President Johnson to help to bring about agreement between the two countries on this score. He stated that from the Panamanian standpoint, criminal acts not related to the operation of the Canal should not be prosecuted by any but Panamanian authorities, as provided by the Constitution and laws of Panama.

/2/ Arthur D. Little Company studied the issue of tolls and concluded that they could be raised 125 percent without affecting Canal traffic.

President Robles went on to say that Panama wants no more than a fair return from the Canal, so as to be able to secure the financial resources needed for economic and social development programs. Those programs are now proceeding well, but they would stand to suffer in the absence of sufficient funds to feed them. An important source of such funds should be Panama’s share in Canal revenues, by virtue of its geographic and human contribution to the Canal.

President Robles said the negotiation of these problems can proceed in the climate of tranquility that his administration has maintained. It is of great political importance for President Robles to be able to sign the treaty as soon as possible, so as to eliminate the nationalistic passions and emotional effects surrounding this issue, which otherwise could give rise to agitation and set up a prolonged chain of disturbances in Panama.

President Robles said that the key elements of timing include the fact that the ordinary session of the Panamanian Legislative Assembly begins in October 1. During that session, according to the rules of procedure, a whole range of issues may be taken up, with all the attend-

ant opportunities for prolonged and politically biased debate. If the agreement can be concluded well before the ordinary session, President Robles would be able to call a special session, in which debate would be limited exclusively to the Treaty.

President Robles said that the other key date is that of forthcoming elections in Panama. He has been able to create a climate of tranquility for the signing and ratification of the Treaty. However, if the process drags on too long, he would hardly be able to contain the situation throughout the weeks and months of political campaigning, which is already in its initial stages. The presidential elections are to take place on May 1, 1968.

President Johnson expressed understanding of the wishes of President Robles, and said that we, too, want to conclude the agreements at the earliest possible date. We share Panama’s sense of urgency, and are anxious to do all possible to speed up the negotiations. He will speak with Ambassador Anderson promptly on his return and issue appropriate instructions to our negotiators to this effect. The President told Robles that he would personally follow the progress of the negotiations. He agreed with him in his desire to avoid dragging on too long, which could make trouble for both countries, and he would be prepared to meet again with Robles if this should be useful.

With regard to Panama’s share of benefits from the Canal, President Johnson stated that he assumed the amounts to be received by Panama would be determined, based on the revenue sharing concept, upon traffic volume through the Canal and Canal earnings derived from the volume. The President assured Robles of his awareness of Panama’s needs for development programs. There are problems of mutual concern in all our countries, and we appreciate their importance to Panama.

With reference to the issue of justice, President Johnson said the United States would be happy to review the question of civil justice. There are some problems involved, but he would ask that the civil issue be reviewed again, in order to discover some solution that would be mutually satisfactory.

/3/ On April 22 Rostow reported to President Johnson that "all concerned are operating with the sense of urgency you promised Robles." He outlined progress in the areas discussed between the Presidents at Punta del Este, indicating that "Anderson and the Panama Review Group will want to discuss the deal with you prior to sounding out key Senators and presentation to the Panamanians." (Memorandum from Rostow to President Johnson, April 22; Johnson Library, National Security File, Country File, Panama, Vol. VIII (part 1 of 2), September 1966-May 1967)

President Robles brought up the subject of land return to Panama. He explained that as things now stand, Panama City and Colon, at their present stage of growth, are hemmed in, with no further space available in which to expand. He stated that these lands are not needed for the operation or defense of the Canal. If they could be returned to Panama, this would provide for further development of these two cities. He noted that this matter is also politically sensitive, and could lead to irritations and resentment. Secretary Rusk commented that he had spoken recently to Secretary McNamara on the subject of return of land areas to Panama and that Secretary McNamara said he would review sympathetically Panama’s requests. President Johnson said he, too, would review this issue.

/4/ Johnson’s statements at Punte del Este are in Public Papers of the Presidents of the United States: Lyndon B. Johnson, 1967, Book I, pp. 444-451.

SNIE 84-67

Washington, May 4, 1967.

/1/ Source: Central Intelligence Agency, Job 79-R01012A, O/DDI Registry. Secret; Controlled Dissem. According to a note on the cover sheet this estimate was prepared in the Central Intelligence Agency with the participation of the intelligence organizations of the Departments of State and Defense and the National Security Agency. The United States Intelligence Board concurred in this estimate on May 4.

PANAMA

The Problem

To consider the prospect for political stability and for the Canal treaties between now and the scheduled inauguration of a new president in October 1968.

Conclusions

A. Increased tension and political turbulence are likely as the presidential campaign and the issue of new Canal treaties impinge on a situation none too stable in the first place.

B. The small number of elite families, long in political and economic control, may be hard pressed in the elections of May 1968 to keep one of their own in the presidency and to retain dominance of the National Assembly. The challenge will come from Arnulfo Arias, whose anti-elite Panameñista Party is the country’s only mass movement. The danger of serious disorders will probably become somewhat greater than at present, and could become much greater.

C. Although there are a great many important political variables in Panama, the timing of the completion of the treaty negotiations will be a crucial factor in determining the extent of political unrest as well as the chances for ratification and implementation of the treaties.

D. In view of such uncertainties on the political scene, there will clearly be major problems in getting the Canal treaties completed, ratified, and then held to by the government succeeding that of President Robles. Unless the treaties are ratified before October 1967, there is small chance of getting satisfactory treaties completed until after a new administration takes office in October 1968.

[Here follows the 8-page Discussion section of the estimate.]

Washington, June 9, 1967, 8:25 p.m.

/1/ Source: Johnson Library, National Security File, Country File, Panama, Vol. IX, Memoranda and Miscellaneous. No classification marking. There is an indication on the memorandum that Johnson saw it.

Mr. President:

Bob Anderson called me this afternoon to tell me the following:

/2/ On May 31 Rusk sent the President a memorandum on the status of the negotiations. Rostow transmitted it to the President with the observation: "The remaining hurdle is the price tag-but that’s not exactly trivial!" (Both ibid.)

-On the gut issue of financing, they will keep the 90¢ toll, which leaves 25¢ left over above costs. He would first propose a division of 17¢ for Panama; 8¢ for the U.S. His fallback is 20¢ for Panama, 5¢ for the U.S. This means that Panamanians might fetch up with between $15 and $20 million a year, depending on traffic. This compares with the $80 million a year they sought.

-We would permit Panamanian jurisdiction over certain criminal cases in the Zone for personnel not associated with the Canal; tourists, etc.

-The lock canal treaty would terminate in the year 2000 except if we were actually in the process of building a new sea-level canal at that time, in which case the treaty would run on to the year 2010.

-The treaty governing the sea-level canal would run 60 years from the time it became operational.

-Compensation to be paid Panama under a sea-level canal treaty would be decided at the time of the financing and in the light of the financing method. (Bob Anderson cleared this position, which varied from his initial instructions, with Bob McNamara and Covey Oliver.)

-We will give up to the Panamanians certain territories which we have agreed with the JCS; but two antenna fields would have to be moved at some future time, involving an estimated cost of $6 million.

-We would also surrender an area in which we have military quarters, which are desirable but not necessary to the defense arrangements.

-We would surrender some piers for which they would be able to earn some money.

-We would surrender one area containing houses now occupied by Panamanians, on the stipulation that the occupants would keep their present houses.

-The Panamanians will accept without change a standard status forces agreement, approved by the JCS.

/3/ A June 10 memorandum from Sayre to Rusk reported on this problem: "Anderson talked twice to General Wheeler and with Secretary Resor on the JCS and Army problems on the sea level canal compensation provisions. Wheeler’s preoccupations relate to the period after the lock canal terminates. They are (1) continued neutrality of the canal, (2) access and transit for U.S. warships, etc., and (3) defense of the canal." (National Archives and Records Administration, RG 59, ARA Files: Lot File 72 D 33, Entry 5396, Panama)

Finally, Bob Anderson notes that we have come to a strategic psychological moment. He thinks he can clinch the deal tomorrow; and that the deal is viable on the Hill. He cannot vouch for its viability in Panamanian politics.

If he gets your go ahead, they will make a firm decision tomorrow morning that they have a treaty and then take a few days getting the details on paper.

/4/ The President’s Daily Diary indicates that Johnson commented on Rostow’s recommendation that the President speak to Anderson: "I’ll have to do that tonight-which I’ll do." There is no indication in the Daily Diary that the President spoke to Anderson, nor has any other record of such a conversation been found. (Johnson Library)

Walt

Washington, June 16, 1967, 7 p.m.

/1/ Source: Johnson Library, National Security File, Country File, Panama, Vol. IX, Memoranda and Miscellaneous. Confidential.

Mr. President:

/2/ June 19.

We have offered:

-17¢ per ton for the Panamanians; we would keep 8¢;

-the lock canal treaty ends in the year 2000, but will continue to 2010 if construction on the sea level canal is under way;

-the sea level canal treaty would run 60 years from the time it became operational;

-we would maintain the right to defend the lock canal for 10 years past the expiration of the treaty (the Panamanians argued for 5 years);

-payments under the sea canal would be negotiated at the time that financing was arranged; but guidelines are written into the present treaty.

They ask:

-20¢ per ton for Panama in the first year; 5¢ for the U.S.;

-an increase of 1¢ up to 25¢ per year in the subsequent five years (at this time that would absorb the calculated amount available after costs without raising tolls; but in the future, that may not be the case since other aspects of the treaty are likely to reduce canal costs.);

-a guarantee for the value of the dollar over the whole period of the life of the lock canal in terms of the purchasing power of the dollar in 1967;

-a guarantee of $1.9 million a year (the present annuity) in addition to the sums to be derived from the new split of profits from tolls;

-a 60-40 division in favor of Panama if tolls should increase (we are calling for a 50-50 split);

-an exchange of letters in which we agree to look into their request for preference in U.S. markets for Panamanian goods;

-a U.S. commitment to build a 4-lane highway 10-12 miles in length from our military base in Rio Hato to La Chorreda;

-the U.S. should build an underpass between the beach and Rio Hato to avoid our military vehicles from crossing the highways;

-that we build an all-weather road from Vera Cruz to Arrajan-about 8-10 miles.

Up to this point he has made no concessions to the Panamanian position. His thought is that he move his offer up from 17¢ a ton to 20¢, leaving us 5¢. As an alternative he is considering letting 20¢ be the base, letting the Panamanian take rise 1¢ a year for 5 years, but reserving 10¢ for ourselves (this reservation would not be real unless tolls were raised over this period or operating costs declined).

Without any commitment he would be prepared to give a letter indicating our willingness to consider the problem of Panamanian preference in the U.S. market.

He is hesitant about the roads, underpass, etc., because he doesn’t know the price tag and they would be subject to Congressional appropriation.

The atmosphere has gotten increasingly emotional as the climax of the negotiation comes near. De La Rosa has stated that he would probably have to resign if the Panamanian proposal is not accepted. They have almost certainly been in informal communication with their President. They have suggested Presidential communications. Bob Anderson has tried to discourage this by saying that’s not the way we operate.

As he approaches this final stage, having narrowed the issues, his general attitude is to be mildly generous about the financial terms-and prepared to take the heat in the Congress for that-rather than to risk for the President and the country a Panamanian explosion.

/3/ In a June 17 note to Rostow, the President wrote: "Walt, call and thank him very much and tell him we follow his general judgment." Rostow annotated this note: "done." (Johnson Library, National Security File, Country File, Panama, Vol. IX, Memoranda and Miscellaneous)

Walt

Washington, June 27, 1967.

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1967-69, POL 33-3 CZ. Confidential. Drafted by Clark and R.A. Frank (L/ARA).

SUBJECT
Panama Canal Treaties

/2/ The statement that Johnson and Robles announced on June 26 was attached, but is not printed. For text, see Department of State Bulletin, July 17, 1967, p. 65, or American Foreign Policy: Current Documents, 1967, p. 660.

The following are the major points in the three treaties:

(a) The Treaties of 1903, 1936, and 1955 with Panama are terminated as are all other agreements or treaties which are inconsistent with the Lock Canal Treaty.

(b) The Administration. A United States-Panama binational entity, called the "Joint Administration of the Panama Canal", would be established and would operate the Panama Canal and administer the "Canal Area". The Administration would assume control of the Canal and Canal Area not sooner than six months nor later than twenty-four months after the Treaty enters into force. The Administration would be governed by a Board of nine members, five appointed by the President of the United States and four appointed by the President of Panama. The Board acts by a majority vote unless otherwise provided in the Treaty. The Chairmanship of the Board would alternate annually between a United States and a Panamanian member. In order to carry out its responsibilities and functions, the Administration would have numerous express rights and powers, including the right and power to promulgate a statute of laws, to establish a court system, and to establish a police force. Some Panamanian civil laws would apply in the Canal Area and some Panamanian criminal laws may apply in the Canal Area. The Panamanian courts would have some jurisdiction in the Canal Area.

(c) The Canal Area. The "Canal Area" is delimited in the Treaty and includes land and water areas which comprise the present Canal Zone. Land and water areas in the present Zone which are no longer necessary for the operation of the Canal would be returned to Panama.

(d) Employees. The Administration would have all rights and powers relating to employment policies and labor relations with its employees. Persons presently employed by the Panama Canal Company and the Canal Zone Government would be transferred to employment of the Administration under conditions established in the Treaty. Such persons would receive the same compensation they presently receive; would be guaranteed increases in minimum wages; would receive salary increases to offset any possible increase in the cost of living or other net financial disadvantage through their transfer; and would continue to receive the benefits of the United States Civil Service retirement law and all other protections and benefits equivalent to those in effect prior to the transfer.

(e) Taxation. The Administration would be exempt from all Panamanian taxes, with the exception that the Administration would pay Panamanian taxes on certain retail or other commercial enterprises it may continue to operate.

(f) Tolls. The Treaty provides that the Administration will operate the Canal to provide to Panama and the United States a fair return "in the light of their contributions to the creation and maintenance of the Canal and in the interest of world commerce". The Administration, in its first year of operation, would pay to Panama seventeen cents per long ton of commercial cargo transiting the Canal, and that annual payment would increase by one cent for five succeeding years, the annual payment to Panama thereafter being twenty-two cents per long ton. In fiscal 1969, seventeen cents per long ton would, according to present predictions, be approximately sixteen million dollars. The Administration would, in its first year of operation, pay to the United States eight cents per long ton of commercial cargo, and that annual amount would increase by one cent for two years, the annual payment to the United States thereafter being ten cents per long ton.

(g) Neutrality and Non-Discrimination. The Panama Canal would remain neutral and would be open to vessels of commerce and of war of all nations on terms of entire equality and non-discrimination.

(h) Termination. The Treaty would remain in force until December 31, 1999; however, it would be superseded by the Sea Level Canal Treaty if the United States constructs a sea level canal.

The Sea Level Canal Treaty in effect provides that the United States has an option, which it must exercise within twenty years, to construct a Sea Level Canal on the site of the present Lock Canal or in the Darien region of Panama. The Sea Level Canal would be operated by an

"Inter-Oceanic Canal Commission". The Commission would be governed by a Board consisting of nine members, five appointed by the President of the United States and four by the President of Panama. The United States, after consultation with Panama, may offer others the right to participate in the financing of the Canal, and, in this case, those who participate in the financing might be represented on the Board. The Board would have numerous express powers to operate and maintain the Sea Level Canal; however, the "Canal Area" would be abolished and the Commission therefore would have no powers with respect to court, laws, and law enforcement. The Treaty would terminate sixty years from the date the Sea Level Canal is opened, but not beyond 2067.

Both the Lock Canal Treaty and the Sea Level Canal Treaty provide that Panama and the United States shall provide for the defense, security, neutrality, and continuity of operation of the Canal in a Defense Treaty signed on the same date. Under the Defense Treaty, the United States retains certain defense areas in which it may maintain its Armed Forces. The Treaty provides that "In case of an international conflagration or the existence of any threat of aggression or any armed conflict or other emergency endangering Canal defenses," Panama and the United States "would take such preventive and defensive measures necessary for the protection of and common interests in effectuating purposes of the Defense Treaty." The United States may act unilaterally in the Defense Areas or in the Canal Area. The United States would be able to use the Defense Areas for "related security purposes" and would consequently continue other military activities, such as training. The Defense Treaty contains extensive provisions relating to the status of our forces similar to other status of forces agreements.

Washington, August 8, 1967, 7 p.m.

/1/ Source: Johnson Library, National Security File, Country File, Panama, Vol. IX, June 1967-April 1968. Secret. There is an indication on this memorandum that Johnson saw it.

SUBJECT
Robles Delays Signing of Panama Canal Treaties

Panamanian President Robles has assured Ambassador Adair that the Panama Canal Treaties will be signed but not without further delay.

Robles hopes to be able to sign before the end of August but the State Department believes a more realistic date would be the middle or end of September.

/2/ Telegram 368 from Panama, August 8, is attached but not printed.

State officials agree with Adair that we should not pressure Robles into an early signing.

/3/ Memorandum from Rusk to President Johnson, August 8. (Johnson Library, National Security File, Memos to the President, Walt W. Rostow, Vol. 37, August 1-10, 1967) On August 10 Sayre informed Rusk that the President had approved the official release of the draft treaties, but only after consultation with Panama. On August 11 Anderson stated he "saw no positive advantage to releasing the draft treaties." Eleta and Panama’s chief negotiator both thought release at this time "undesirable." (Memorandum from Sayre to Rusk, August 16; National Archives and Records Administration, RG 59, Central Files 1967-69, POL PAN-US) Leaked texts of the treaties had already appeared in the Chicago Tribune and were printed in the Congressional Record of July 17, 21, and 27, 1967.

Walt

Washington, October 6, 1967, noon.

/1/ Source: Johnson Library, National Security File, Country File, Panama, Vol. IX, June 1967-April 1968. Confidential. A handwritten L on the memorandum indicates the President saw it.

SUBJECT
Panamanian Developments

A year ago we were concerned about public unrest in Panama arising from sluggish economic conditions. You will recall that you authorized a high impact economic assistance program.

We are a long way from solving Panama’s basic problems of unemployment and maldistribution of income, but the short term gains are encouraging. Our Embassy reports that Panama has achieved a remarkable annual growth rate of 8%, which is expected to continue. Business is booming. Growth in the manufacturing sector is higher than the overall average. Exports are up, but so are imports. The deficit is made manageable by higher earnings from the Zone. The Embassy says that much of the growth stems from confidence by the business community that satisfactory treaties will be negotiated which will bring larger income to Panama.

With respect to the treaties, we have more slippage in the Panamanian timetable. Robles is still consulting key persons on the drafts. This process will not be completed until the end of October. During November, Robles and Eleta expect to consolidate all the changes recommended by the Council, Cabinet and ex-Presidents. The Panamanian negotiating team would return to Washington around mid-November. Talks on the changes they want-Eleta says about 70-are expected to last until the end of January. According to their schedule, signature would take place in late January or February, with ratification to follow in a special session of the National Assembly after their May Presidential elections.

All of this hinges, in the first place, on the nature of the treaty changes they propose. Eleta says most of them are "drafting" changes. Assuming this hurdle is passed, there remains the question of who the Presidential candidates will be and who wins the elections. Beyond that arises the question of whether we want to seek ratification in the middle of our presidential campaign. The prospects for the treaties continue to be "iffy".

Walt

Washington, December 28, 1967.

/1/ Source: Johnson Library, National Security File, Country File, Panama, Vol. IX, June 1967-April 1968. Confidential. A handwritten notation on the memorandum indicates the President saw it.

SUBJECT
Panama: Politics and the Treaties

/2/ In a November 13 memorandum to Helms, Director of the Office of National Estimates Sherman Kent stated, "the political maneuvering now underway in Panama in preparation for the presidential election of 1 May 1968 is increasing the chances of civil disorder and has virtually eliminated any chance of progress on the draft Canal treaties-at least until after a new Panamanian president takes office in October 1968." Kent indicated that Arnulfo Arias was "the odds on favorite" to be the next president if elections were free and fair. He would be "sticky" to deal with. The Robles government, according to the memorandum, was in no position to press approval of the treaties, especially because popular, nationalistic opinion was increasingly opposed to them. (Washington National Records Center, OSD Files: FRC 330 72 A 2468, Panama 000.1, 1967)

This turn of events has worked out well for us:

-we will have gained 5 years of relative stability following the 1964 riots.

-the generous treaties which Bob Anderson negotiated have disarmed our critics.

-the delay in signature is not due to us but to failure of Robles to prepare the way for action in Panama-this is well understood.

-the delay removes the treaties from the Panamanian electoral campaign (elections are on May 12, 1968) as well as our own, which is to our advantage.

At Punta del Este Robles urged you to ask the US negotiators to step up the pace of the negotiations so that he could sign and obtain National Assembly ratification before the 1968 political campaign got underway. You obliged him. But he had not done his homework with his congress. He ran into trouble, temporized, and ended up unable to muster sufficient support to put the treaties through.

The electoral campaign caught up with him. What little chance he had at least to sign the treaties vanished when he mishandled the selection of his successor by his loosely-knit coalition. As a result, four of the parties bolted and joined his arch-rival Arnulfo Arias. If the elections are anywhere near honest, the charismatic Arias is bound to win.

Arias-who was twice elected President and both times deposed by the National Guard-is a flamboyant and erratic leader. His problems with staying in power have been with his own people rather than with us. Whether he has mellowed with the years, we don’t know. We have followed carefully his attitude toward the treaty negotiations. In this he has been most prudent. He has aimed his criticism at Robles as a president who had no right to negotiate the treaties because of his fraudulent election in 1963 [1964]. But he has carefully avoided attacking us or the contents of the treaties.

A year from now when the treaties are looked at again, there may be substantial reasons for a major overhaul. Assuming Arias wins and is allowed to take office, he may seek substantial changes. But we may also want to reconsider the approach in the light of what the Plowshare experiments demonstrate and the Canal Study Commission may have concluded by then on the best route to follow.

Walt