Papers Relating to the Foreign Relations of the United States, 1922, Volume II

811 f 244/50

The Panaman Secretary of Government and Justice on Special Mission (Alfaro) to the Secretary of State³

[Translation⁴]

Washington, April 2, 1921.

Excellency: In compliance with instructions received from my Government for the discharge of the special mission with which I am entrusted, I have the honor to lay before the Department of State for its enlightened consideration, various matters to which I desire to call the special attention of the American Government, as their satisfactory settlement is of vital importance to the Republic of Panama. These have their origin in the special relations created by the project of the Canal and the treaty of November 18, 1903,⁵ concluded for the purpose of facilitating the construction of a canal to unite the Atlantic and Pacific oceans.

The circumstance that the said treaty was concluded 15 days after the proclamation of the separation of Panama, and the urgent necessity that it be signed without delay by the two countries, explains why such a document contains articles, some of which are vague, some too broad, some inconsistent, and which, applied as interpreted by the American authorities of the Isthmus, impart to that covenant a unilateral and oppressive character which it is impossible to admit was the mature thought or deliberate intent of the two signatory countries.

The application of several of these articles has given rise to constant controversies between the two countries because the Republic of Panama considers itself seriously menaced in its economic, commercial, civil and even international life by the manner in which the treaty is now applied and interpreted by the American authorities of the Isthmus. Panama, therefore, in opposing such interpretations is fighting for her very life. And, inasmuch as the United States not only cannot do us injury through the application of the treaty as Panama interprets it, but has on many occasions manifested its intention not to do us any injury or in any way hinder our development and prosperity, the Government of Panama considers that the time has come frankly to express its grounds of complaint and its wishes for the purpose of reaching with the United States an understanding that may once for all define the extent of the rights and obligations flowing from the treaty.

All these differences are briefly enumerated in this memorandum. They show that the treaty in its present form is open to more or less conflicting and absurd interpretations and allegations and the two countries ought to be earnestly interested in removing those causes of disagreement.

The Panaman Government proposes one of two measures:

1. The concluding of a new treaty amending or explaining that of November 18, 1903, and in which would be included all the clauses that facilitate the use and defense of the Canal that is now built.

2. The signing of a protocol in which by way of explanation, the juridical scope of each of the articles of the Canal treaty, about which there are divergent interpretations, shall be fixed.

Those questions are as follows:

I. Concession of More Land for the Canal Works

One of the articles that has given rise to the greatest difficulties is that relative to the grant of lands and waters which Panama bound herself to make to the United States for the construction, maintenance, operation, sanitation and protection of the Canal, which grant is dealt with in article II of the treaty.

The authorities of the Panama Canal maintain the theory that they can take and occupy immediately any area of the territory of the Republic and place it under the jurisdiction of the United States without any more formality than a notice to the Panaman Government that they have taken that area as being necessary for the construction, maintenance, operation, sanitation or protection of the Canal. The most recent example of that doctrine is the taking of an area of land in Las Minas Bay, which caused a formal protest from the Government of Panama, presented in a note of the Legation dated the 24th of January of this year⁶ and is now under the consideration of the Department of State, according to Under Secretary Norman H. Davis’ note of February 12, last.⁷

Panama cannot accept such an interpretation, since it would be tantamount to placing in the hands of foreign authorities the absolute power of destroying the existence of the State. That could be done by simply declaring that the whole Panaman territory from the boundaries of the present Canal Zone to the Colombia and Costa Rica borders, is necessary for the construction, maintenance, operation, sanitation and protection of the Canal, and the Republic of Panama would no longer exist. Such an interpretation is unacceptable and never could be intended by the contracting parties, because it cannot be conceived that a treaty should contemplate in one of its articles the possibility of the juridical death of a nation whose independence and sovereignty are guaranteed by the United States in another article, namely, the first of the same treaty.

II. Necessity of Determining What Land Is Needed for the Canal

But this is not all. There is also something else that is likewise essential to the life of the Republic, and that is the necessity of divesting article II of the indefinite and all embracing character with which some officials desire to clothe it. Article II of the treaty granted to the United States, as has been remarked above, the right to acquire certain lands in the Republic of Panama, in addition to those which formed the ten-mile strip described in the same article; but that was provided in case the grants which comprised the said strip proved insufficient for the work of construction, sanitation, and operation of the undertaking that was to be begun in 1904. From that year to date, the United States has received or taken without any compensation whatever to the Republic of Panama, the following additional areas outside the Canal Zone:

1. The land needed for the formation of Gatún Lake to the level of 87 feet above the level of the sea, the lake now covering 167 square miles;

2. The land needed to raise the same lake up to 100 feet above the level of the sea;

3. The former Chagres land commonly known as Fort Lorenzo;

4. The Paitilla land near the City of Panama measuring 50 hectares;

5. The Island of Largo Remo in Las Minas Bay measuring 220 hectares;

6. 14.95 hectares on the Island of Taboga;

7. 125 hectares in Las Minas Bay east of Colon.

The Canal work being completed and the tracts of land sought for that purpose having already been delivered, that concession is now terminated and complied with in fact. Yet some of the authorities of the Canal, who believe that they are dealing with an indefinite and permanent concession, do not seem to understand it so, an attitude which is not just and, furthermore, is inconsistent with the guarantee of independence as given in article I of the same treaty.

That interpretation is damaging to the interests of the Republic of Panama, because it places upon all, absolutely all, the lands and properties of the Republic the burden of sudden condemnation without previous indemnity. This checks and paralyzes the development of industry and agriculture, especially near the Canal, owing to the latent threat of condemnation which alarms capital and discourages enterprise.

III. Land Grants for Fortifications

The specific point of additional land grants is now particularly important as the two countries are discussing the occupation of part of a Panaman island, that of Taboga, for the erection of permanent fortifications there. Panama regards as serving the vital interest of the two countries, the idea of giving to the Canal the greatest measure of protection and admits in principle the necessity of fortifying Taboga, but it maintains at the same time that article II of the treaty does not authorize the occupation of land on the continent or in islands for fortifications and other purposes through the mere declaration or one-sided action of the United States.

The Government of Panama declares its readiness to conclude a special convention relative to the fortifications and defenses of the Canal and to grant in return for equitable compensation, such land as may be needed for the purpose, unless the Government of the United States prefers to acknowledge that the question of fortifications is included in article XXV of the treaty, which specifically refers to the purpose of insuring the protection of the Canal and maintaining its neutrality.

IV. Condemnation of Land for the Panama Canal

Article VI [VII] of the Canal treaty authorizes the United States to acquire through condemnation all the land and properties needed and suitable for the construction, maintenance, operation and protection of the Canal.

The Government of Panama insists that the clause in article VI of the treaty which provides that “the appraisal of said private lands and private property and the assessment of damages to them shall be based upon their value before the date of this convention” (1903), is to be applied with the understanding that the basis of a value is not the value itself, and that lands and properties acquired 17 years or later after the date of the treaty cannot be paid for by way of compensation at the price they commanded in 1903 without infringing on the most universally respected principles concerning property rights. The price or value of 1903 must be taken as a basis or starting point for the appraisement to be made.

The Attorney General of the United States, Mr. J. C. McReynolds, now Associate Justice of the Supreme Court of the United States, discussing article VI of the treaty of the Canal, in an opinion he handed down on October 13, 1913, said the following:

“That clause was agreed on in 1903 and undoubtedly refers to property which the United States intended immediately to occupy and as a matter of fact the properties needed for the immediate construction of the Canal were promptly occupied and the indemnities relative thereto were ordered paid by the first commissions.

“Now, ten years later, the Government has extended its occupancy to other lands and those additional lands recently occupied are those upon which the commission has rendered awards. It would surely be a very harsh and unjust interpretation to apply that clause in a way that would deny compensation for the improvements made in the ten years during which the government has not occupied the property for public utility purposes.”

Again, the Honorable Robert Lansing, former Secretary of State, in a letter addressed to the American members of the Mixed Commission, on February 19, 1915, said:

“It is to be noted incidentally that the Department is of opinion that a fair basis for awards in claims presented to the Commission would be to pay damages for the value of the property, including the buildings, up to the date of the expropriation without, however, taking into account the increased value given to the property by the Construction of the Canal. As the Department understands the question, this would conform to the opinion of the Attorney General given to the Secretary of War on October 13, 1913.”

The Government of Panama wishes that an understanding be reached on this point based on the foregoing opinions of the Attorney General and of the Department of State.

V. The Panama Railway Company

The grants and condemnations of land have not been the only source of difficulties arising between the two countries on account of conflicting interpretations of the clauses of the treaty. Controversies that have never been satisfactorily settled have arisen over economic, commercial, and fiscal matters that are of paramount importance to Panama and which to the United States are really of very small consequence. The Panaman Government believes that those differences spring from the very character of the treaty which was concluded with a view to a canal to be built and which did not and could not foresee all the contingencies, necessities and problems of a canal already built and in operation.

The treaty, for example, authorized the United States to secure by purchase the Panama Railway as being an indispensable auxiliary element for the construction of the Canal, but the purchase was made, leaving in existence, through a legal fiction, the company that owned the railroad. Out of this there has arisen a dilemma of juridical conditions and situations which the treaty could not intend to cause or allow. When there is a question of Panama demanding of the railroad company compliance with the national law to which every company in the country is subject, then it is alleged that the railway is United States property; if anybody complains that the Government of the United States may not engage in certain pursuits, such as renting houses or engaging in certain transactions, or commercial or industrial business, then it is alleged that the business is conducted by the railway company.

The principal difficulties with the railway company are as follows:

A. Lands in the city of Colon

The lands of Manzanillo Island, on which stands the city of Colon, are the property of the Republic under a judgment of the Supreme Court of Colombia which recognized only the right of usufruct for a period of years as belonging to the Panama Railway Company. Those lands were to return to Panama as soon as the Canal treaty was approved as provided in article VIII and the Panaman Government has claimed that right and insisted on a delivery of the lands.

The steps taken by Panama to obtain such restitution have thus far proved unavailing and it has even been unable to obtain from the railway company the payment to the Republic of Panama of the taxes which in our country are levied on city lots.

B. Water rates with regard to the railroad lots

Under article VII of the Canal treaty the United States has installed in the cities of Panama and Colon a complete service of water works, paving and sewerage, and it was agreed that the cost of those works would be reimbursed by the Republic of Panama out of the interest accruing to it within 50 years.

The cost of those works and the interest thereon could be paid out of the water rates within the stipulated term and even before; but the extraordinary expenses on account of investments made in the building of streets, sewers, and aqueducts in a large part of the city of Colon which the railroad company claims to own, have been charged to the Republic of Panama and consequently have increased considerably the cost of those public services to the injury of the Republic and for the exclusive benefit of the said company which is collecting large amounts in rent of lots that have been made part of the city, and, as above stated, refuses to pay taxes by alleging a right that does not belong to it. The question hinges on the decision of the principal claim concerning the ownership and transfer of the lots, already mentioned in the foregoing point.

C. Duties and taxes

Under article XVIII of the contract entered into in 1867 between the railroad company and the Republic of Colombia, the company is exempted from the payment of duties and taxes, whether national, municipal or any other kind, on the railroad, its warehouses, piers, machinery, and other works, things and effects of every nature whatsoever belonging to it and, in the judgment of the executive, needed for the service of the said railroad and its dependencies.

It is therefore beyond question that the Panama Railroad Company is bound to pay taxes and duties on any other pursuits or property, commercial or other, in which it has been engaged for sometime past, such, for instance, as rents, stables, city express, etc., that are not connected with the company’s service as a common carrier, which is the only service proper to it.

If the doctrines upheld by the railroad company were admitted by the Republic of Panama, the concern might engage in all kinds of business in the country without paying duties or taxes into the national treasury, and that argument leads to an illogical conclusion.

D. Differences in rates to the detriment of the commerce of Panama

In dealing further with the circumstances which enable the Canal commissariats to sell cheaper than the trades people of Panama, I call attention to the minimum rates charged on their merchandise. Rates are those charged to the commissariats by the railroad company, and it does not seem fair that they are not also granted to our tradesmen, thereby enabling them to sell as cheaply as the commissariats and actually putting a stop to smuggling.

VI. Commissariats

A. Introduction of articles of luxury

These establishments import all kinds of articles of luxury contrary to the provisions of article XIII of the Canal treaty which confines those imports to what are necessary and convenient for their employees. That practice is injurious to the trade and government of the Republic, especially in regard to tobacco. The Government of Panama deems that imports of that kind should be stopped as being contrary to the letter and spirit of the Canal treaty, and that in that manner the commercial and fiscal interests of our Republic will be protected without injury to those of the United States.

B. Smuggling

The system adopted of late years to sell coupons for cash to the employees of the Canal and Panama Railroad, with which to make purchases in the commissariats is one of the things that have largely contributed to the enormous unlawful traffic carried on between those employees and private residents of the cities of Panama and Colon. In evidence of the extent of the harm done us by those establishments, I wish to state that the commissariats yearly import for a population of about 25,000 more merchandise than does the Republic of Panama that has 450,000, with the circumstance added that the imports of the commissariats have been increasing year after year although the population of the Zone has been decreasing since the work on the Canal was completed.

This system permits employees to purchase, without restriction of any kind, since no record is kept by the Canal authorities of the sales for cash of those coupons, and, furthermore, it permits those coupons or the merchandise purchased with them to be handed over to private persons, from whom the money for the purchase has been obtained, either as a favor for a friend or simply as a matter of business that pays well.

The commissariats sell more cheaply, not so much on account of the financial power of the Government of the United States to buy in large quantities for cash, as because of the exemptions from customs duties, the facilities they enjoy, and the minimum rates that are charged to them. The prices for their articles are often lower than those that prevail in business institutions of the United States.

With respect to tobacco and chewing tobacco, the smuggling 13 such that the importation of chewing tobacco into the Republic of Panama has ceased, and that of the other kinds has decreased to an amazing degree.

The Army post-exchanges and commissariats, which also import tobacco, have had a notable part in making the situation worse because the soldiers purchase there large quantities of that staple with the intention of smuggling it into our country.

Lastly, the Canal authorities have instituted the practice of granting permits to persons who are neither employees of the Canal nor diplomatic officers, to purchase at the commissariats, although both the treaty and the Taft Agreement⁸ positively provide that merchandise can only be imported duty free for the Government of the United States and its employees.

In view of the evils above set forth, it is to be hoped that the Government of the United States, animated by a sentiment of justice towards the Republic of Panama, will order a discontinuance of the sale of coupons for cash and continue to enforce only the system of supplying coupons on pay-roll deduction as was done in the first years of the building of the Canal; and lastly that the right to purchase at commissariats be confined to employees of the Canal and members of the diplomatic corps exclusively.

C. Sales to vessels passing through the Canal

Under article XIII of the Canal treaty, the right given to the United States to import articles duty free into the Canal Zone is for the exclusive purpose of providing its employees with necessary and convenient articles and in no case for that of selling them to foreigners. And according to article [Section] I of the Executive order of December 3, 1904 (Taft Agreement) the United States may only import free of duty into the ports of Ancon and Cristobal, coal and oil to sell as fuel to the vessels passing through the Canal.

The commissariats which, as is plain, are not and cannot be concerns for business with the public, are now supplying vessels that pass through the Canal with all articles that they need and this is regarded by the Republic of Panama as an act which does not conform to the stipulations of either the Canal treaty or the Taft Agreement.

VII. Facilities for Maritime Transportation

Steamships from ports of the south Pacific discharge merchandise intended for Panama at the port of Cristobal on the Atlantic instead of that of Balboa, which is at the gates of the city of Panama, owing to a deficiency of facilities for loading and unloading. That merchandise has to pay extra freight for transportation from Cristobal to Panama by railway, thereby increasing the price of the articles.

The Government of the United States should offer facilities to the steamship companies of the south Pacific for loading and landing merchandise at the port of Balboa, and this is requested so as to avoid having a higher rate for the Pacific at Panama than at Colon.

VIII. Foreign Companies Established in the Canal Zone

The Panama Canal has granted permission to various companies established in the city of Panama to move into the Canal Zone and has granted those companies and their employees the privilege of the commissariat as though they were employees of the American Government. Those companies have imported building material into the Canal Zone or purchased it from the Panama Canal without paying import duties to the Republic of Panama. These acts are contrary to the stipulations in article XIII of the Canal treaty and to the Taft Agreement, which, as noted above, expressly provided that everything introduced into the Canal Zone that is not for the service of the United States shall pay duty to Panama.

It is reasonable to suppose that hereafter, in view of what has taken place, other concerns established in our cities will try to secure the same benefit for themselves and the matter will have very serious consequences upon revenue, upon the owners, and upon the commerce of the Republic. Those companies and concerns ought also to pay to Panama the taxes that are levied upon them and those taxes cannot be collected on account of lack of cooperation from the Canal authorities.

IX. Manifest Dues

For some time past manifest dues on merchandise intended for the Republic of Panama coming from abroad, have been collected by consuls of the United States. That practice is contrary to the obvious spirit and intent of the Executive order issued by the Secretary of War of the United States on December 6, 1904, which forms part of the Taft Agreement, and the Government of Panama therefore believes that the practice ought to be stopped.

X. Cemetery for the City of Colon

The city of Colon finds itself in a very peculiar situation. It is a city without any site of its own for the burial of the dead. The old cemetery in use since the days when the city was founded in 1851 or 1852 has been included within the Canal Zone and at present the authorities of that Zone charge a heavy rate for the burial of the dead. That situation, in the opinion of the Panaman Government, is indefensible, and the remedy would lie in turning over the present cemetery to the municipal authorities at Colon so that they may administer it and use it freely without charges of any kind, or that a plot of land wherein a new cemetery exclusively belonging to the city could be established and conveyed to the city.

Trusting that Your Excellency will see fit to give your benevolent and enlightened consideration to the foregoing matters in order that they may be satisfactorily adjusted, I have the honor to subscribe myself Your Excellency’s very obedient and true servant.

R. J. Alfaro

3. Left at the Department on April 4 by Señor Alfaro.
4. File translation revised.
5. For text of treaty, see Foreign Relations, 1904, p. 543.
6. Ibid., 1921, vol. ii, p. 616.
7. Ibid., p. 619.
8. See Foreign Relations, 1904, p. 640, and 37 Stat. 560.