Foreign Relations of the United States, 1955–1957, American Republics: Central and South America, Volume VII

141. Memorandum From the Acting Secretary of the Army (Finucane) to the Secretary of Defense (Wilson)¹

Washington , July 31, 1956 .

SUBJECT

• Arrangements Between the Panama Canal Authorities and Panama

1. In accordance with our discussion on 26 July 1956, I have reviewed the situation and actions concerning the points mentioned in the President’s memorandum to you dated 25 July 1956.² I am convinced that the United States, as represented by officials of the Departments of State, Defense and Army, has been scrupulously fair and considerate of Panamanian problems while at the same time assuring that proper United States treaty rights in the Canal Zone are not prejudiced.

2. The United States has had the right since 1903 to import all items into the Canal Zone free of any Panamanian duty. However, President Roosevelt’s Executive Order of 1935 in effect grants a monopoly to Panama on sales of liquor for consumption in the Canal Zone and subjects all liquor consumed in the Canal Zone to Panamanian taxation. This taxation finally became excessive. Therefore, in the 1955 Treaty, Panama agreed to effect a 75 percent reduction in this taxation as long as the United States continues to require that purchases be made from Panamanian merchants. The availability of alcoholic beverages at a reduced price when sold for importation into the Canal Zone does raise a smuggling problem. However, administrative control procedures are in effect which limit liquor purchases to a reasonable amount.

3. With regard to fair treatment for Panamanian employees, implementing legislation for a single wage plan for Canal Zone agencies has been submitted to Congress but not yet enacted. Before the legislation was requested, the plan was reviewed to insure that it would comply with the letter and spirit of the Treaty by the State Department; the military departments; the Canal Zone Government; the Presidential Advisor on Personnel Management, Mr. Philip Young; the Special Counsel to the President, Mr. Gerald D. Morgan; the Administrative Assistant to the President, Mr. Bryce N. Harlow; and officials of the Bureau of the Budget. This single wage plan, when implemented, will insure equality of treatment as positions will be classified without regard to nationality of the incumbent or proposed incumbent. Rates of pay for positions which can be filled by local recruitment will be based on local wage rates, and rates of pay for positions for which recruitment is required in the United States will be based on rates of pay in the United States. In actuality, the present and proposed wages are substantially greater than those in effect for similar jobs in the Republic of Panama. The Treaty itself provides for overseas differentials and an allowance for those elements, such as taxes, which operate to reduce the disposable income of a United States citizen employee as compared to a non-United States citizen employee. Security positions are excluded from the equality provisions of the Treaty.

4. Evidence of fair relations beyond the letter of treaty commitments includes: a recently instituted wage increase at a cost of about $1,200,000 a year; accommodation since 1950 of members of the Panamanian Guardia Nacional (a total of 199 students through 1955) in the Military Police and Signal Courses of the U.S. Army Caribbean School; continuous change by the Panama Canal Company of job classes requiring higher skills in order to increase those for which Panamanians may be employed; and, plans of the Panama Canal Company to train additional Panamanians for those jobs requiring higher skills.

5. With regard to Panamanian allegations of “seemingly endless delays,” I consider that there are no unjustifiable delays by the Department of Defense in the United States–Panama negotiations. Rather, this allegation would be more aptly applied to Panamanian government actions. For example: the United States requested, in November 1955, that the Republic of Panama make available two parcels of jungle, hill-top land (approximately 12 acres) for the erection of essential radar stations for the Nike Battalion to be deployed to the Canal Zone. Despite United States insistence that the language and intent of the 1936 treaty clearly establish the basis for such cooperation, the Republic of Panama has not yet granted the use of these areas to the United States.

6. I am attaching additional background information provided by Mr. Roderick which elaborates the views expressed herein concerning the points mentioned in the President’s memorandum.³ I believe this information will be of value to you.

7. In accordance with your suggestion, Mr. Roderick plans to leave for the Canal Zone on 2 August, as a follow-up on the President’s trip.

8. This memorandum is classified Secret because of the reference to radar sites in paragraph 5 above. Other information included can be treated as “Official Use Only.”⁴

Charles Finucane

1. Source: Eisenhower Library, Whitman File, Administration Series. Secret. This document was included in a folder entitled “Wilson, Charles E. 1956.”
2. Supra.

3. In the memorandum, entitled “Additional Information on Arrangements Between the Panama Canal Authorities and Panama,” Roderick concluded as follows:

   “In summary, I consider that the United States has been scrupulously fair and considerate of Panamanian problems and more than ready to meet them halfway; Panamanian allegations of ‘seemingly endless delays’ in resolving matters of mutual concern are unfounded; and that the US sovereign rights in the Canal Zone, obtained in the Treaty of 1903, are being adequately protected.”

4. Secretary of Defense Charles E. Wilson forwarded this memorandum to President Eisenhower under cover of a letter dated August 1. (Eisenhower Library, Whitman File, Dulles–Herter Series)