This document is a directed research project submitted to Strayer University examining the economic impact of the United States' relationship with Panama. It includes an abstract, table of contents, and chapters exploring the historical relationship between the two countries, the influences each have on the other's economy, the economic effects of transferring control of the Panama Canal, and the future economic relationship. The introduction provides context on the longstanding economic and political ties between the US and Panama, noting the US role in Panama gaining independence and the economic influence it had for most of the 20th century through the canal and military presence. The research questions address how these changes have economically impacted both countries.

1. STRAYER UNIVERSITY
A STUDY OF THE ECONOMIC IMPACT OF THE UNITED STATES’
RELATIONSHIP WITH THE REPUBLIC OF PANAMA
A DIRECTED RESEARCH PROJECT SUBMITTED TO THE FACULTY OF
THE
GRADUATE SCHOOL OF BUSINESS, STRAYER UNIVERSITY
IN CANDIDACY FOR THE DEGREE OF MASTER OF BUSINESS
ADMINISTRATION
To
Dr. Joel O. Nwagbaraocha
By
Darell R. Scott
August 2004

2. ACKNOWLEDGEMENTS
I’d like to thank the Lord, my mother, and father for the gift of life and the privilege to
come from such a cultured, prideful background and families. To my grandparents for
always being there for me and instilling in me life’s values. My brothers and sister, my
cousins, aunts, and uncles. To my daughter Imani, you are the center of my life and I
hope that these writings will give you some perspective of your heritage. To my
girlfriend for just being there through the trials and tribulation of this endeavor. To my
friends that was always supportive. To my professors from Howard University to Strayer
University and all the friends and associates I’ve met along the way.
2

3. ABSTRACT
For over 100 years, the United States and The Republic of Panama has had a
working relationship. Over the years, treaties have been signed, agreements made, and
battles fought, on the behalf of Panama. The United States has continuously played a
significant role in the Panamanian economy and politics. Moving into the 21st century,
Panama now has acquired the Panama Canal and is positioned to be a more prominent
country in Latin America. With the United States transference of the Panama Canal to
Panama and a significantly less U.S. presence, Panama must now find a way to do
without the direct influences of the United States.
My main research question focuses on the economic impact of the United State’s
relationship with the Republic of Panama. Also discussed are sub-questions to better
understand the economic and political significance of the relationship between the United
States and Panama. Questions such as the influences the United States still have on the
Panamanian economy and what influences do other nations have on the Panamanian
economy, the economic effect that the transference of control of the Panama Canal has
had on the United States and what is the economic effect on Panama with the loss of
revenue generated by Americans stationed in the country. The future economic
relationship between the United States and Panama is also another question that is
addressed.
Primary and secondary sources have been utilized for this study. Primary sources
will include interviews with Panamanian nationals and employees of the Embassy of
Panama (Washington D.C.). Amongst the interviewees are scholars in the relationship of
the Untied States and Panama.
Secondary sources include articles from professional academic journals, weekly
publications such as CNN, Reuters, The Washington Times, and various newspaper
publications, Internet articles, as well as books on the specific and broad subjects-areas.
Professional academic journals allow for the various viewpoints and discussions on the
historical and current state of the relationship between the United States and Panama to
be compared and contrasted.
Many interesting revelations were revealed to me in writing this directed research
project. The ―creation‖ of Panama comes off as more of a political opportunity for the
United States, than the ―spreading of democracy for the good of people‖. Panama existed
before the settlement of Jamestown in 1607 and centuries before the United States
intervened in November 1903 to help Panama gain independence from Colombia.
Panamanian nationalists had sought independence from Colombia in the nineteenth
century and unsuccessfully fought for Panamanian freedom in the Colombian civil war of
1899-1903. A French company began building a canal in 1882 to connect the Atlantic
and the Pacific Oceans across Central America. Many men building the canal died of
diseases such as yellow fever, so the project stopped.
In 1890 the Americans tried to cut a canal through Nicaragua and failed. President
Roosevelt talked with Colombia in 1901 about building the canal. A treaty was signed.
The United States requested to buy a six-mile wide and 10 mile long strip of land with
3

4. connected the Atlantic and Pacific for a down payment of $10 millions and $250,000
each year. In 1903 the Colombian senate turned down the offer.
Some people from the French company and some Americans meet with some
Panamanian nationalist to break away from Colombia. A revolution took place. The U. S.
warship Nashville backed up the revolution with its big guns. Three days after the
revolution began; the United States officially recognized the new nation. Less than two
weeks later a treaty for building the canal was signed. Many years later the U. S. paid
Colombia $25 million for their losses.
To many Panamanian nationalists at the time, the U.S. intervention in 1903
complicated the formation of a Panamanian national state. Thus, to Panamanians, the
United States, at best, was a midwife and never the parent of Panamanian nationality.
The economic impact that the U.S. has dad on Panama for much of the last
century was and still is significant. For canal rights in perpetuity, the U.S. paid Panama
$10 million and agreed to pay $250,000 each year, which was increased to $430,000 in
1933. It was increased again in 1955. In exchange, the U.S. got the Canal Zone and
considerable influence in Panama's affairs. The unit of currency used in Panama is the
Balboa (PAB), which is pegged at parity to the dollar. There is no Panamanian paper
currency and the US dollar is the de facto official currency for all but minor transactions.
The United States military forces in Panama numbered slightly under 10,000 troops, at
full strength in Panama. The United States military also employed approximately 8,000
civilians, 70 percent of whom were Panamanian nationals. The U.S. withdrawal has
significantly affected the Panamanian economy through the loss of civilian jobs and the
significant lack of US dollars from military and civilian personnel (upwards of $250
million every year), but the Panamanian government has made significant strides in
improving the economy. Through social reforms, aid from foreign countries, and the
United State’s on going interest in the Panama Canal, the country is trying to lay the
foundation for a prosperous economic future. But still, almost half the population lives in
poverty and unemployment is at 13 percent.
Economically, the current state of Panama is stable and the most advanced in all
of Central and South America, but continue to struggle with poverty, and the lack of
employment. The United States will always have a significant interest in the Panama,
specifically for the Panama Canal. Since the earliest days of Panama, the United States
has placed its ―hand print‖ on the shaping of the country. The Untied States’ presence in
the country provided a substantial ―cash cow‖ for the country, until the transference of
the Canal to Panama in December 1999. Panama is now in the process of creating new
and innovative ways to market itself. Not only is the government upgrading the Canal
and entering into affiliations with countries once thought unlikely (China), but the
government of Panama is pushing the tourism aspect of Panama throughout the world.
Although a lot of Panama’s notoriety revolves around the Panama Canal, and is infamous
for such headline grabbers as Manuel Noriega and Operation Just Cause, the country is
still one of the most economically sound Latin American countries.
4

5. A STUDY OF THE ECONOMIC IMPACT OF THE UNITED STATES’
RELATIONSHIP WITH THE REPUBLIC OF PANAMA
TABLE OF CONTENTS
Acknowledgements
Abstract
Chapter 1: INTRODUCTION 7
Context of the Problem 7
Statement of the Problem 10
Specific Research Questions and Sub-Research Questions 12
Specific Research Question 13
Research Sub-Questions 13
Significance of the Study 13
Research Design and Methodology 15
Organization of the Study 16
Chapter 2: REVIEW OF LITERATURE 20
Chapter 3: HISTORICAL PERSPECTIVE - EXPLORING THE
RELATIONSHIP BETWEEN THE UNITED STATES AND
PANAMA 44
The Role of Treaties 54
Chapter 4: THE INFLUENCES THAT THE UNITED STATES STILL HAVE
ON THE PANAMANIAN ECONOMY AND WHAT INFLUENCES
OTHER NATIONS HAVE ON THE PANAMANIAN ECONOMY 61
The Other Countries 66
Chapter 5: THE ECONOMIC EFFECTS THE TRANSFERENCE OF CONTROL
OF THE PANAMA CANAL HAS HAD ON THE UNITED STATES
AND PANAMA AND WHAT THE EFFECT ON PANAMA IS AND
WILL BE TO THE COUNTRY 73
Military Presence 78
Commercial Use 79
Traveling the Canal 80
5

6. TABLE OF CONTENTS
Chapter 6: THE FUTURE ECONOMIC RELATIONSHIP BETWEEN THE
UNITED STATES AND PANAMA 85
Capitalism Reigns 85
The Panamanian Economy 89
The U.S. Presence – Is the U.S. Really Gone? 94
Chapter 7: SUMMARY, CONCLUSION, AND RECOMMENDATIONS 98
BIBLIOGRAPHY 102
6

7. CHAPTER ONE
INTRODUCTION
Context of the Problem
The United States has had a direct influence on Panama since before the turn of
the century. Even the Panamanian Balboa has been fixed to the U.S. dollar since 1903.
Generations of Panamanians have become intertwined with the United States. Whether it
is through the military or the Panama Canal, United States foreign policy has not only
affected Panama politically, but also economically.
The Western Hemisphere is the United States sphere of influence, as established
by the Monroe Doctrine, a warning to European nations to keep their influence away
from territory not directly under sovereignty. After the Latin American nations declared
their independence from Spain, they looked to other countries to help them develop
economically and politically. The United States aided these countries economically, as
well s politically, by helping certain factions gain power in the respective countries, but
only if the leaders helped look out for the United States’ best interest.1 Panama is a
classic case of Untied States influence.
Despite its small population and area (3.06 million and 30,193 square miles
respectively), Panama is an important center for international trade in the Western
Hemisphere, as both a major shipping thoroughfare and a regional economic power.
Since 1992, an average of 185 million long tons of cargo has passed annually through the
Panama Canal. Panama is also a financial and communications hub that sits at the
crossroads of five international fiber-optic networks and hosts 110 international banks.
1
Calderon, Rodolfo Vera ―The United States Invasion of Panama: A Tri-dimensional Analysis‖
Georgetown University · School of Foreign Service
7

8. Although the country has consistently maintained one of Central America's
highest per capita gross domestic products, approximately 37.3% of its population lives
in poverty, including nearly 18.8% in extreme conditions, according to government
statistics. 2
In the 1960s, Panama experienced buoyant growth in virtually all areas of the
economy as a result of the boom in canal-related activities and the growth in private
investment. GDP expanded at an average of 8 percent per year. Employment grew at 3.5
percent per year, well above the population growth of about 3 percent a year. Most of the
new jobs were generated by the private sector.
In the 1970s, Panama's average annual growth rate of GDP fell to 3.4 percent.
Many factors contributed to the decline. In the international arena, reduced canal use
(especially after the Vietnam War), rising oil prices, international inflation, and recession
in the major industrial countries had a negative impact on Panama's economy.
Domestically, investment fell in response to government policies of agrarian reform,
expropriation of private power companies, creation of state industries, protection of labor,
controls on housing, subsidies, and high support prices. In addition, the prolonged
negotiations between the United States and Panama over the canal adversely affected
investor confidence. The government sought to regain private investment by investing in
large infrastructure projects and by expanding or acquiring productive enterprises. Two-
thirds of the new jobs created in the 1970s were in the public sector. The public-sector
deficit expanded, and the government was forced to borrow money from abroad. By 1980
the external debt had reached 80 percent of GDP.
2
Energy Information Administration, Country Analysis Briefs, Panama Country Analysis Brief
8

9. In 1982 Panama, like most of Latin America, felt the impact of the world
recession. Once again, the government sought to remedy the declining private-sector
investment through increased public expenditures. In the same year, the public-sector
deficit reached 11 percent of GDP. In 1983 and 1984, the government imposed a severe
austerity program, which had the imprimatur of the IMF. Public investment was reduced
by 20 percent in 1983 and by a further 8 percent in 1984. The public deficit was also cut,
to about 6 percent of GDP in both years. In addition, the government undertook structural
adjustment measures in the areas of industry and agriculture and instituted changes to
streamline the public sector. The simultaneous recession and reduction in public
expenditures caused GDP to fall in 1984, the first decline in more than twenty years. In
the following years, however, Panama, avoiding the economic slump that plagued most
Latin American countries, experienced moderate growth.3
Panama has had a steady higher standard of living than most of its neighbors, due
primarily to the Canal and the American presence. Its annual per capita income in 1995
($2400) was among the highest in the developing world. By all major social indicators --
income, literacy, education, live births, life expectancy, birth rate, etc. -- Panama was
closer to upper-class Latin American nations such as Argentina and Uruguay, than to its
immediate neighbors.
This is not to deny social and economic inequities and the obvious differences
between Americans who lived in the Canal Zone and the general Panamanian population.
But for many years the United States has been pumping and annual $300 million into the
local economy.
3
Referenced April 2004: http://reference.allrefer.com/country-guide-study/panama/panama58.html
9

10. "Integrity is the best national defense" is a social abstraction, devoid of serious
content and satisfying only the soul. Panama has been used to American dollars for most
of this century. Now they are not going to get them, and this simple fact alone may spell
great trouble for the years ahead.
For well over a century, the United States has had direct ties to Panama. From the
building of the Panama Canal to various treaties to the military presence, the United
States has significantly played a role in the Panamanian economy and history, whether
good or bad. Major objectives of this study will focus on the impact that the United
States military withdrawal from Panama has had on the economy. Also, to be analyzed is
the effects that the transference of control of the Panama Canal will have on not only the
Panamanian economy, but also on the country’s relationship with the United States.
Panama and the United States have had a history of mutual dependency.
Statement of the Problem
This study seeks to examine the economic impact that the United States has had
on Panama. The economic state of Panama has been affected on two levels by the United
States. The first being the impact of the withdrawal of the United States military. The
United States military forces in Panama numbered slightly under 10,000 troops. The
United States military also employed approximately 8,000 civilians, 70 percent of whom
were Panamanian nationals. The U.S. withdrawal has significantly affected the
Panamanian economy through the loss of civilian jobs and the significant lack of US
dollars from military and civilian personnel (upwards of $250 million every year).
10

11. The United State’s transference of the canal to the Panamanian people has also
had a profound economic effect on Panama. The immediate cost to Panamanians through
the loss of U.S. dollars and the wide potential costs of managing and maintaining the
Panama Canal under Panamanian rather than U.S. control are substantial.
Panama has a substantial number of key problems being faced. As previously
stated, one being the economic impact that the withdrawal of U.S. troops will have on the
economy. This can be measured in some hundreds of millions of dollars lost annually
and includes both annual U.S. government payments to Panama and business for
Panamanians generated by Americans stationed there. That is a significant amount
because Panama's national earnings are only about $2.5 billion annually. The land and
assorted facilities the U.S. handed over, and the training the U.S. provided for those who
will now manage the canal, were a substantial bonus.5
Another key problem is the control of the Panama Canal. The question is whether
Panamanians on their own can govern themselves and/or manage the canal according to
their own needs and international expectations. Of course they are capable of running the
canal, the question is whether the national culture will allow trained professionals, now
and in the future, to work honestly and independently to keep the canal functioning as it
has in the past. So far there are positive indicators, including the will of many
Panamanians to prove they can do it, and negative indicators, mainly the record of
Panamanian history. If Panama fails, the people of Panama and the world will pay a
heavy price, directly and indirectly. Gen. Wilhelm warns that the most likely threats to
the canal are not external but "internal and non-lethal," ranging from corruption to
5
Online NewsHour, ―Controlling the Canal‖, William Ratliff and John J. Tierney
11

12. watershed mismanagement.5 Since the completion of the Canal in 1914, the United
States has operated and defended the Canal, investing somewhere in the neighborhood of
$32 billion in the process. The strategic value of this waterway far exceeds the monetary
investment that the United States has made in it.6 But as long as the U.S. has a navy and
international interest, the canal will be militarily useful and sometimes important, though
if military forces are kept at optimum levels it will not be critical.
Panama also faces many economic challenges, outside of its relationship with the
United States. Although the country has consistently maintained one of Central America's
highest per capita gross domestic products, approximately 37.3% of its population lives
in poverty, including nearly 18.8% in extreme conditions, according to government
statistics.2 Half the population of Panama is centered around the Canal and cities such as
Colon and Panama City. The Canal is a premiere source of revenue for the country. A
major challenge facing the current government is turning to productive use the 70,000
acres of former U.S. military land and the more than 5,000 buildings that reverted to
Panama at the end of 1999. The Panamanian government has to find new ways to attract
other countries to Panama. Panama has been far too dependent on the U.S. dollar.
Specific Research Questions and Sub-Research Questions
In answering the following research question, an attempt will be made to conduct
an in-depth analysis of the economic influence the United States has traditionally had on
the Republic of Panama.
6
Bradley, Scott ―The Panama Canal Give-away‖, Utah Eagle Forum
2
Energy Information Administration, Country Analysis Briefs, Panama Country Analysis Brief
12

13. Specific Research Question
What is the economic impact of the United State’s relationship with the Republic
of Panama?
Research Sub-Questions
Also discussed are the following sub-questions to better understand the economic
and political significance of the relationship between the United States and Panama.
 What is the historical perspective of the United State’s relation with the Republic
of Panama?
 What influences does the United States still have on the Panamanian economy
and what influences do other nations have on the Panamanian economy?
 What economic effects does the transference of control of the Panama Canal
have on the United States and what is the economic effect on Panama with the
loss of revenue generated by Americans stationed in the country?
 What is the future economic relationship between the United States and
Panama?
Significance of the Study
As a natural born Panamanian-American, this author feels that it is necessary for
future generations of Panamanian-Americans be made aware of the importance of the
United State’s influence on our mother country, politically, through the military, and
most important economically. Although Panama has consistently maintained one of
13

14. Central America’s highest per capita gross domestic products, approximately 37.3% of its
population lives in poverty, including nearly 18.8% in extreme conditions, according to
government statistics. 4
Panama has historically been a major strategic location for U.S. With the
transition of the Panama Canal from U.S. control to Panamanian control, the U.S. may
have ―lost‖ a strategic ―foot hold‖ on Central America. The United States has let go of
the 14 military bases that lined the canal’s bank. The United State’s civilian presence,
mostly through the military, has also been significantly impacted, thus leading to a loss of
significant revenue into the country.
This study will assist in revealing the in-depth relationship that the United States
has had with the Republic of Panama and the profound economic effects of the
relationship on not only Panama, but the United States, as well. Panama's economy is
based primarily on a well-developed services sector that accounts for nearly 80% of
GDP. Services include the Panama Canal, banking, the Colon Free Zone, insurance,
container ports, flagship registry, medical and health, and other business.
A major challenge facing the current government under President Mireya
Moscoso is turning to productive use the 70,000 acres of former U.S. military land and
the more than 5,000 buildings that reverted to Panama at the end of 1999.
Administratively, this job falls to the Panamanian Inter-Oceanic Regional Authority.
GDP growth for 2002 was about 0.8% compared to 0.3% in 2001. Though
Panama has the highest GDP per capita in Central America, about 40% of its population
2
Energy Information Administration, Country Analysis Briefs, Panama Country Analysis Brief
14

15. lives in poverty. The unemployment rate surpassed 14% in 2002. The United States
cooperates with the Panamanian Government in promoting economic, political, security,
and social development through U.S. and international agencies. Cultural ties between the
two countries are strong, and many Panamanians come to the United States for higher
education and advanced training. About 19,000 American citizens reside in Panama,
many retirees from the Panama Canal Commission and individuals who hold dual
nationality. There also is a rapidly growing enclave of American retirees in Chiriqui
Province in western Panama.5
This study will assist future generations of Panamanian /Americans, Panamanian
citizens, and Americans in understanding the effects that the United States has had on the
Republic of Panama and how changes can be implemented to improve the economic
stature of Panama and the on-going relationship between the United States and Panama.
Research Design and Methodology
Primary and secondary sources have been utilized for this study. Primary sources
will include interviews with Panamanian nationals and employees of the Embassy of
Panama (Washington D.C.). Amongst the interviewees are scholars in the relationship of
the Untied States and Panama.
Secondary sources include articles from professional academic journals, weekly
publications such as CNN, Reuters, The Washington Times, and various newspaper
publications, Internet articles, as well as books on the specific and broad subjects-areas.
5
U.S. Department of State, Bureau of Western Hemisphere Affairs, September 2003, Background Note:
Panama
15

16. Professional academic journals allow for the various viewpoints and discussions on the
historical and current state of the relationship between the United States and Panama to
be compared and contrasted.
Organization of the Study
The first chapter of this study has been devoted to describing the context of the
problem, statement of the problem as well as the significance, objectives, and
methodology of the study.
Chapter 2, Review of Literature, is devoted to an extensive literature review of
economic reports, political reports, business reports, government reports, media
perspectives, editorials, and interviews. The Internet served as a major secondary source
to access most of the aforementioned literature. Interviews were conducted as a primary
source of first hand accounts and opinions of the past, current, and future environment of
Panama.
Chapter 3, Historical Perspective – Exploring the Relationship between the
United States and Panama, looks at the history between the United States and the
Republic of Panama. The United States cooperates with the Panamanian Government in
promoting economic, political, security, and social development through U.S. and
international agencies. Cultural ties between the two countries are strong, and many
Panamanians come to the United States for higher education and advanced training.4
The United States has cast a long shadow over Panamanian life since the country's birth,
occasionally intervening in its internal affairs -- as in 1989, when U.S. troops deposed
4
U.S. Department of State, Bureau of Western Hemisphere Affairs, September 2003, Background Note:
Panama
16

17. Panamanian strongman Manuel Noriega. American control of the economic -- and literal
-- heart of Panama was a source nearly constant and sometimes violent resentment by
Panamanians. 8
Chapter 4 focuses on the Influences that the United States still have on the
Panamanian Economy and what Influences other Nations have on the Panamanian
Economy. About 19,000 American citizens reside in Panama, many retirees from the
Panama Canal Commission and individuals who hold dual nationality. There also is a
rapidly growing enclave of American retirees in Chiriqui Province in western Panama.
Twenty-nine opinion polls over this decade have revealed a steady 70 to 75 percent of
Panamanians in favor of a continued U.S. presence, with most of this due to the economic
benefits.5 With virtually no serious debate, Congress committed $6 billion to pay for
U.S. intervention in Bosnia, where no perceptible U.S. vital interest is at risk. Closer to
home, Congress had proven unwilling to spend a fraction of that amount (less than $100
million per year) to maintain an essential U.S. military presence at the isthmus at Panama
and to block eventual control of the isthmus by interests allied with Communist China.
Key port facilities on the Atlantic and Pacific sides of the Canal (Cristobal and Balboa)
have been leased by Hutchison Whampoa, 10% of which is owned by China Resources
Enterprises (100% of which is controlled by the Red Chinese government). Red Chinese
influence in Panama is growing in many ways. Recently, the Bank of China extended a
15-year $120 million loan to Panama at 3% interest to finance the government's
8
Referenced May 2004, CNN.com: http://www.cnn.com/1999/US/12/14/panama.canal.01/
5
Online News Hour, ―Controlling the Canal‖, William Ratliff and John J. Tierney
17

18. investment program and to purchase and sell assets. Taiwan has considerable investments
in the Republic of Panama.20
Chapter 5 analyzes The Economic Effects the Transference of Control of the
Panama Canal has had on the United States and Panama and what the effect on Panama is
and will be to the Country. For many years the United States has been pumping and
annual $300 million into the local economy. Panama has had a steady higher standard of
living than most of its neighbors, due primarily to the Canal and the American presence.
Its annual per capita income in 1995 ($2400) was among the highest in the developing
world. By all major social indicators -- income, literacy, education, live births, life
expectancy, birth rate, etc. -- Panama was closer to upper-class Latin American nations
such as Argentina and Uruguay, than to its immediate neighbors. The U.S. ran the canal
as a public utility for the global community, pumping profits and sometime much more
into maintaining the facility, Panama intends to run it as a business for profit. Panama's
intention could be dangerous if it expects to make much from the canal itself since doing
so would require either a significant hike in tolls or cutting corners in maintenance, or
both. The former would drive users to seek more cost-effective alternatives while the
danger of the latter, even in the medium term, is self-evident. Canal administrator Alberto
Aleman Zubleta has acknowledged that canal profits come mainly from businesses made
possible by the efficient operation of the waterway itself.
Chapter 6 discusses the Future Economic Relationship between the United States
and Panama. Despite its small population and area (3.06 million and 30,193 square miles
respectively), Panama is an important center for international trade in the Western
20
Lt. Gen. Gordon Sumner, Jr. (USA-Ret) Howard Phillips “Who Will Control the Path Between the
Seas?‖ The Washington Times Commentary Section Monday August 18, 1997
18

19. Hemisphere, as both a major shipping thoroughfare and a regional economic power. The
Untied States understand the strategic importance of Panama. Panama is vital to the U.S.
shipping industry and was an opportune military location to train not only U.S. troops,
but also Latin American forces. The unit of currency used in Panama is the Balboa
(PAB), which is pegged at parity to the dollar. There is no Panamanian paper currency
and the US dollar is the de facto official currency for all but minor transactions.
Not only is the Panama Canal important to Panama for income and jobs, but it is
also considered to be vitally important to the United States economy. Many U.S. exports
and imports travel through the Canal daily (over 10% of all U.S. shipping goes through
the Canal). Exports represent jobs for U.S. citizens because U.S. workers made the
products. Imports enable U.S. consumers to receive needed products.
Since the United States is the only superpower in the world, the United States is
interested in keeping the global economy running smoothly. If world trade is disrupted, it
can lead to worldwide economic problems. Therefore, any disruption in the flow of goods
through the Panama Canal could directly hurt the U.S. and global economies.
The final section, Chapter 7, concludes with a Summary, Conclusions, and
Recommendations for the further development of the Panamanian economic system.
Panama faces many challenges. Some of these challenges are made more difficult with
the loss of a significant U.S. presence. With proper economic development initiatives,
the ―weeding out‖ of government corruption and the business opportunities that are
available to such a unique country, Panama can prosper in the new millennia.
19

20. CHAPTER TWO
REVIEW OF LITERATURE
* Calderon, Rodolfo Vera ―The United States Invasion of Panama: A Tri-dimensional
Analysis‖ Georgetown University · School of Foreign Service
The author speaks on the various reasons of the United States’ intervention in
Panama. The reasoning was to protect the United State’s interests, both economically
and politically. The author notes how the United States has a tradition of funding rebel
forces in Latin America. The author notes the U.S. policies towards governments that
fall out of favor and how Panama (especially during the Noriega regime) was affected by
U.S. policies, thus leading to Operation Just Cause. The author also questions the
integrity of that U.S. operation.
From the texts, the real reason behind the United States intervention in Panama
was to protect United States’ interests, both politically and economically. The United
States has a tradition to fund rebel forces in Latin America when the present government
falls out of favor, such as the Bay of Pigs Invasion in Cuba and the Contras in Nicaragua.
However, while the governments of Latin America are in agreement with the United
States goals, then any type of illegal activity is neglected, as was the case with Noriega.
When Noriega started becoming more independent of United States influence, his
connections with insurgent groups across the world, but more specifically in Latin
America, were no longer ignored. These ties to groups under United States scrutiny then
became public attention and were used to justify the intervention of the United States in
the South. Considering how Latin American countries are dependent on the North for
their economic relationships, it could also be argued that the United States wants to
20

21. maintain this dependency of the South on the North. This was also seen through the
United States economic sanction on Panama before the invasion, which then promised
financial aid once Noriega was taken out of power.
Taking the three levels of analysis into account, the systemic level best proves
why the United States intervened in Panama. If it were not for the global issue of drug
trafficking and the United States’ War on Drugs, the U.S. would not have had a
legitimate reason for their intervention and military presence in Latin America. The
United States desire to keep the Latin American governments in check also resulted in the
invasion of Panama, mainly because Panama was becoming increasingly rebellious and
the United States could not allow for that type of rebelliousness to spread to other Latin
American countries, especially with the fight against Communism, which indeed was
coming down in the other side of the world with the fall of the Berlin Wall. In addition,
the criticism received by the United States was at the international level, with Latin
American countries demanding the decrease of American troops and influence in Latin
America. Followed closely is the individual level of analysis because if it were not for
Noriega’s personal agenda and his decision to play both sides of the card, he would not
have fallen out of favor with the United States.
21

22. * Energy Information Administration, Country Analysis Briefs, Panama Country
Analysis Brief, Author Unknown
Panama is important to world energy markets because the Panama Canal is a
major transit center for oil shipments and a potential choke point. Panama is also key to
plans to connect the electricity grids of North and South America.
The author gives a strong background on the Republic of Panama. Despite its
small population and area (3.06 million and 30,193 square miles respectively), Panama is
an important center for international trade in the Western Hemisphere, as both a major
shipping thoroughfare and a regional economic power. Since 1992, an average of 185
million long tons of cargo has passed annually through the Panama Canal. Panama is also
a financial and communications hub that sits at the crossroads of five international fiber-
optic networks and hosts 110 international banks. The Panamanian economy is one of
Latin America's most stable, with the Panamanian Balboa being fixed to the dollar since
1903. Panama's Colon Free Trade Zone (CFZ), established in 1953, is the largest in the
Western Hemisphere and contributes substantially to the country’s economy. The CFZ
allows all goods, except firearms and petroleum products, to be imported, stored,
modified, repacked, and re-exported without being subject to any customs regulations.
The strategic importance of the Panama Canal, shipping and port services not
only makes Panama's economy highly dependent on world trade trends, but also
vulnerable to fluctuations in the global economy. On May 2, 1999, Mrs. Mireya Moscoso
was elected to a five-year term as president. Since entering office, the Moscoso
administration has been trying to reduce the country’s public debt while alleviating
poverty by funding social projects. However, fiscal restraints, namely the Fiscal
22

23. Responsibility Law that stipulates that the public-sector debt cannot exceed 2% of GDP
in a given year, may make it difficult for the government to implement these programs in
their entirety. The author covers such areas as Energy in Panama, Treaties, The Panama
Canal, Canal Traffic, Trans-Panama Pipeline, and Canal Expansion and Modernization.
The Information contained in this report is the best available as of October 2003 and can
change.
* The Library of Congress - Country Studies - Panama
This particular site gives the readers an expanded background on Panama. This
site, with the information courtesy of The Library of Congress, focuses on the
Panamanian economy, foreign economic relations, agriculture, and industry, amongst
other subjects.
Although a dated site, a good perspective of Panama under the Torrijos era is
give. Information is given up until December1987. This site focuses more on the state of
the Panamanian economy and how it is affected by various factors through the mid
1980’s.
The Torrijos era (1968-81) stands as a dividing point in Panama's economic
history. Under Torrijos, the state took a more active role in the economy and initiated
ambitious social projects. The public sector expanded to an unprecedented degree, as did
the fiscal deficit and the external debt. In the 1980s, Panama was forced to address some
of the excesses of the 1970s, and to adjust its policies, often under the aegis of the
International Monetary Fund and the World Bank.
23

24. * U.S. Department of State, Bureau of Western Hemisphere Affairs, September 2003,
Background Note: Panama
The U.S. Department of State offered general information and history on Panama.
A basic country profile is provided including information on Panama’s geography,
history, people, government, and economy. Also provided is contact information for both
the Panamanian and United States Embassies in Panama and the U.S.
The United States cooperates with the Panamanian Government in promoting
economic, political, security, and social development through U.S. and international
agencies. Cultural ties between the two countries are strong, and many Panamanians
come to the United States for higher education and advanced training. About 19,000
American citizens reside in Panama, many retirees from the Panama Canal Commission
and individuals who hold dual nationality. There also is a rapidly growing enclave of
American retirees in Chiriqui Province in western Panama.
Panama continues to fight against the illegal narcotics and arms trade. The
country's proximity to major cocaine-producing nations and its role as a commercial and
financial crossroads make it a country of special importance in this regard. Although
money laundering remains a problem, Panama passed significant reforms in 2000
intended to strengthen its cooperation against international financial crimes, and the
conclusion of the Speed Joyeros case in April 2002 marked the dismantling of a major
money-laundering network with scores of arrests in several countries.
24

25. Panama's history has been shaped by the evolution of the world economy and the
ambitions of great powers. Rodrigo de Bastidas, sailing westward from Venezuela in
1501 in search of gold, was the first European to explore the Isthmus of Panama. A year
later, Christopher Columbus visited the isthmus and established a short-lived settlement
in the Darien. Vasco Nunez de Balboa's tortuous trek from the Atlantic to the Pacific in
1513 demonstrated that the isthmus was, indeed, the path between the seas, and Panama
quickly became the crossroads and marketplace of Spain's empire in the New World.
Gold and silver were brought by ship from South America, hauled across the isthmus,
and loaded aboard ships for Spain. The route became known as the Camino Real, or
Royal Road, although was more commonly known as Camino de Cruces (Road of the
Crosses) because of the frequency of gravesites along the way.
Panama was part of the Spanish empire for 300 years (1538-1821). From the
outset, Panamanian identity was based on a sense of "geographic destiny," and
Panamanian fortunes fluctuated with the geopolitical importance of the isthmus. The
colonial experience also spawned Panamanian nationalism as well as a racially complex
and highly stratified society, the source of internal conflicts that ran counter to the
unifying force of nationalism.
* Online NewsHour – ―Changing of the Guard”
Does handing over the Panama Canal pose national security dangers to the United
States? William Ratliff of the Hoover Institution at Stanford University and John J.
Tierney of The Institute of World Politics in Washington, D.C., respond to your
25

26. questions. These excerpts from a forum on the ―Changing of the Guard‖, speaks to the
transference of power of the Panama Canal from the United States to Panama. Other
issues such as the maintenance of the Canal, the economic impact that the transference
has on Panama, and the relationship between the U.S. and Panama run prominent through
the forum.
The construction of the Panama Canal came with tremendous human and
financial cost. Nearly 20,000 people died during its creation as the U.S., following French
attempts, struggled to carve the 51-mile passage. In addition, the final bill rose to more
than $387 million -- following a $40 million investment for the land and 10 years of
digging. But when the canal opened in 1914, it was immediately heralded one of the
world's great engineering achievements. More importantly, it formally opened a transit
way to the western United States and the Pacific Ocean. The average traffic until World
War I was about 2,000 ships per year.
Through the decades, however, many experts in the United States began arguing
that the canal, also expensive to maintain, had become a much less important waterway in
America's strategic interests. Others, in contrast, maintained the canal was an American
possession and vital to national security. Plus, they added, the two countries originally
negotiated a "perpetual" sovereignty agreement after the United States bought the
holdings in 1902. But in 1977, under mounting pressure by the Panamanians, President
Jimmy Carter negotiated a formal hand-over of the canal to Panama's government under
an agreement called the Carter-Torrijos Treaties. The treaties established a twenty-two
year framework to systematically grant full control of the canal to Panama, set to end at
noon on December 31, 1999. The agreement was ratified in the Senate by a single vote
26

27. and was approved by Panamanian voters in a nationwide plebiscite. Therefore, after
noon December 31, the U.S. gave control to Panama, which had already negotiated a
contract with Panama Ports, a subsidiary of Hong Kong Corporation Hutchinson
Whampoa, to manage the canal. In times of military need, United States warships,
according to Carter-Torrijos, have right-of-way on the canal. But opponents to the treaties
are afraid the canal could still become a choke-point, instead of a passage, when the
United States needs it most.
The forum is very informative and offers interesting perspectives on the
relationships between the U.S. and Panama from two prominent spokesmen. One very
interesting interview focuses on the United State’s continued interests in the Canal. The
article talks about the ―threat‖ posed by China and other countries in controlling the
Canal.
* Bradley, Scott ―The Panama Canal Give-away‖ Utah Eagle Forum
The author gives an unabashed view on the Panama Canal. Although they are
general, the author does provide incite on a broad range of subject. These include ―The
Treaties‖, ―U.S. Dependence Upon the Canal‖, and the ―China Connection‖. The
author’s review offers valuable information on the U.S. – Panama relationship such as
―The Senate ratified a treaty which differs from the treaty agreement the Panamanians
ratified and, in addition, the U.S. House of Representatives has not given their consent to
dispose of this territory or property which belongs to the United States. The United States
Constitution does not give the power to the Senate, through the treaty ratification process,
to dispose of U.S. property without the approval of the House.‖
27

28. ―In 1903, during the administration of President Theodore Roosevelt, the United
States concluded the Hay-Bunau-Varilla Treaty with the new Republic of Panama,
conveying to the United States "in perpetuity" a ten-mile-wide strip across the isthmus
for construction of a canal. The United States paid Panama $10,000,000.00 in gold. In
1914 the United States completed the tremendous engineering feat of constructing the 51
mile long canal, overcoming the disease infested jungles and the seemingly
insurmountable physical challenges. Since then the United States has continued to
operate and defend the Canal, investing somewhere in the neighborhood of $32 billion in
the process. The strategic value of this waterway far exceeds the monetary investment
this Nation has made in it.
Since 1903 the Canal territory has been considered United States
territory in every sense of the word. It was always understood that this was not "occupied
territory" which was held by an imperialistic United States. This is truly part of the
United States. During the Truman administration, men like Alger Hiss, and other
fomenters of international intrigue and discontent, started a movement to build the belief
that the United States was imperialistic if it did not return the Canal to its "rightful
owners," the people of Panama. This perspective was fostered through successive
Presidential Administrations, and those who held this position were ultimately in a
position to carry out this lie.‖
The author focuses on many issues that where not fully discussed in the general
public, before the transference of the Canal. One issue being the perception of a
heightened military threat by ―unfriendly‖ countries – particularly China.
28

29. * Mabry, Donald J. ―Panama's Policy Toward the U.S.: Living With Big Brother‖ The
Historical Text Archive
Author Donald J. Mabry gives an in-depth historical perspective on Panama and
the Panama Canal. The author focuses on the United States ―being a liberator, the United
States treated Panama as a conquered province. Washington established a military
dictatorship in the Canal Zone; the Canal Zone Commissioner was always an active-duty
U.S. military officer and Zonians, regardless of nationality, had no political power. They
did what the Commissioner wanted or were expelled. The Zone was a military socialist
society; the U.S. government owned virtually all but Zonians' personal possessions.
Outside the Zone, the United States controlled most of the public services in Panama City
and Colón.‖
Also, looked at is the racism that was prevalent in the United States – Panama
relationship. ―Americans viewed Panamanians, even those of the elite class, as lesser
people. Moreover, these Spanish-speakers resented the importation of English-speaking
black workers from the Caribbean because of their language and their ethnicity, a
complaint compounded by the subsequent U.S. refusal to repatriate them once the Canal
was completed.‖
This author gives a very realistic view on the United States NOT being a so-called
―savior‖ to the country of Panama, but more of a ―bully‖. From the way the U.S. initially
took control of the Canal, to the treaties signed to Operation Just Cause, a not so positive
light is reflected on the relationship between the two countries.
29

30. * CNN.com ―U.S. Prepares to Hand Over Panama Canal After 85 years‖
This dated article focused on the United States ―ceremonially hand over the
Panama Canal to Panama‖ and the politics surrounding the transference. President
Clinton was in office during the time of this article. The article speaks to his absence at
the ceremony (but President Carter was in attendance). The article covers the
engineering feet needed to build the Canal and the U.S.’s concern over the Chinese
influence on the Canal.
The canal was a symbol of the American emergence as a world power at the turn
of the century. The United States backed the revolt that separated Panama from Colombia
in 1903; built the canal, which was completed in 1914; and assumed control of the strip
of land surrounding it from the Caribbean to the Pacific.
The United States has cast a long shadow over Panamanian life since the country's
birth, occasionally intervening in its internal affairs -- as in 1989, when U.S. troops
deposed Panamanian strongman Manuel Noriega. American control of the economic --
and literal -- heart of Panama was a source nearly constant and sometimes violent
resentment by Panamanians.
The 1977 treaties ceded the 50-mile long canal and the surrounding Canal Zone to
Panama. Leaving closed U.S. military bases, which cost Panamanians 18,000 jobs.
When opened, the passage cut the sailing time from New York to San Francisco
in half. About 14,000 ships pass through the canal every year, steered by Panamanian or
U.S. pilots. Shipping companies pay $540 million in tolls annually -- and that concerns
30

31. some observers, who fear Panamanian leaders may not be able to resist the temptation to
turn the waterway into a cash cow and a source of patronage.
* Lindsay-Poland, John ―U.S.-Panama Policy: Canal, Bases, and Dollars‖ Volume 1,
Number 14 November 1996, Fellowship of Reconciliation.
This is a very well written article, providing a resourceful background on the
relationship between the U.S. and Panama. A history of mutual dependence underlies
U.S.-Panama foreign policy and accounts for the patterns of dominance and dependence
in bilateral relations. The two nations have convergent interests in safe, efficient
commerce across the isthmus. For the U.S., this resulted from its status as the main user
of the Panama Canal; for Panama, it is because half its population lived on the canal’s
banks, and the canal generates economic benefits. The U.S. also depended on Panama as
a base for hemispheric military operations. Although the canal was the initial reason for
the special U.S. attention to Panama, the selection in 1941 of the Canal Zone as
headquarters for the U.S. Southern Command (SouthCom, previously the Caribbean
Command) sharpened U.S. interest in Panamanian affairs. The U.S. has since moved
SouthCom.
Due to the power differential between the U.S. military and economic empire and
the small nation of Panama, colonialist attitudes have often characterized policy
discussions and obstructed rational decision-making. The enduring impact of the 1989
U.S. invasion of Panama should not be underestimated in considering future U.S.-
Panama policy. The invasion was the twentieth U.S. military intervention in this nation of
2.5 million people and easily the most violent event in Panama’s history.
31

32. Despite the increasing importance of air transport and the rise of other major
trading nations, the U.S. remains the canal’s primary user. One-eighth of all U.S.
seaborne traffic passes through the locks. Its economic utility for the U.S. is in making
inter-oceanic trade cheaper for U.S. shippers and traders—in effect subsidizing the U.S.
shipping industry and its exports.
Although the canal is not owned or operated by the U.S. military, the Pentagon
has always had a role in canal policy. The U.S. army supervised the construction of the
seaway from 1904 to 1914, and the Panama Canal Commission’s Board of Directors is,
by law, chaired by the Assistant Secretary of the U.S. Army, who retains the right to
dictate the votes of the board’s U.S. majority. Except for an interlude during the Carter
administration, when the White House and the State Department assumed a more
prominent role, the Pentagon has been the main powerbroker in U.S.-Panama policy.
The military’s willingness to close the Panamanian bases has been reinforced by
the closure of military bases at home, increasing the reluctance of the Pentagon to pay for
a post-1999 military presence in Panama—at an estimated cost of $200 million a year.
* Infoplease.com - Panama
This web site offers general information on Panama. Information at this site
focuses on giving a general synopsis on the history of Panama. Information of note
focuses on ―between 1850 and 1900 Panama had 40 administrations, 50 riots, 5 attempted
secessions, and 13 U.S. interventions. After a U.S. proposal for canal rights over the
narrow isthmus was rejected by Colombia, Panama proclaimed its independence with
U.S. backing in 1903.‖
32

33. The southernmost of the Central American nations, Panama is south of Costa Rica
and north of Colombia. The Panama Canal bisects the isthmus at its narrowest and lowest
point, allowing passage from the Caribbean Sea to the Pacific Ocean. Panama is slightly
smaller than South Carolina. It is marked by a chain of mountains in the west, moderate
hills in the interior, and a low range on the east coast. There are extensive forests in the
fertile Caribbean area.
For canal rights in perpetuity, the U.S. paid Panama $10 million and agreed to pay
$250,000 each year, which was increased to $430,000 in 1933. It was increased again in
1955. In exchange, the U.S. got the Canal Zone—a 10-mile-wide strip across the
isthmus—and considerable influence in Panama's affairs. On Sept. 7, 1977, Gen. Omar
Torrijos Herrera and President Jimmy Carter signed treaties giving Panama gradual
control of the canal, phasing out U.S. military bases, and guaranteeing the canal's
neutrality.
* The Columbia Electronic Encyclopedia, 6th ed. 2003, Columbia University Press -
Panama
The Columbia Electronic Encyclopedia offers background on the United States
interest in Panama. This reference material gives valuable perspective on the United
States’ active negotiations that led, in 1846, to a treaty by which the republic of New
Granada (consisting of present-day Panama and Colombia) granted the United States
transit rights across the Isthmus of Panama in return for a guarantee of the neutrality and
sovereignty of New Granada.
33

34. Building an inter-oceanic canal was suggested early in Spanish colonial times.
The United States, interested since the late 18th century in trading voyages to the coast of
the Pacific Northwest, became greatly concerned with plans for a canal after settlers had
begun to pour into Oregon and California. Active negotiations led in 1846 to a treaty, by
which the republic of New Granada (consisting of present-day Panama and Colombia)
granted the United States transit rights across the Isthmus of Panama in return for a
guarantee of the neutrality and sovereignty of New Granada.
The isthmus gained more importance after the United States acquired (1848)
California and the gold rush began, and the trans-Panama RR was built (1848–55) with
U.S. capital. At the same time, interest in an alternate route, the Nicaragua Canal, was
strong in both Great Britain and the United States. Rivalry between the two countries was
ended by the Clayton-Bulwer Treaty (1850), which guaranteed that neither power should
have exclusive rights or threaten the neutrality of an inter-oceanic route. In the 1870s and
80s the United States tried unsuccessfully to induce Great Britain to abrogate or amend
the Clayton-Bulwer Treaty.
After the United States acquired territory in the Caribbean and in the Pacific as a
result of the Spanish-American War (1899), U.S. control over an isthmian canal seemed
imperative. Following protracted negotiations, a U.S.-British agreement (see Hay-
Pauncefote Treaties) was made in 1901, giving the United States the right to build, and
by implication fortify, an isthmian canal. It was then necessary for Congress to choose
between Nicaragua and Panama as the route for the canal.
34

35. * Stieber, Halley, ―The Future of the Panama Canal‖ Illumin, Volume 5: Issue 2 March
1st, 2002
This article explores the future of the Panama Canal as part of the global
transportation system. Beginning with a brief overview of how vessels pass through the
canal this article outlines the canal's importance to the global economy. It identifies three
problems the canal is faced with regarding efficient traffic flow: the transfer of authority,
the increasing shipping industry and the environmental impact. The article concludes
with an explanation of the canal's renovations. Current and future renovations will be
able to accommodate for traffic flow well into the future.
On December 31, 1999, the United States handed the Republic of Panama control
of the Panama Canal. While much controversy surrounded Panama's ability to provide
efficient service, business on the canal has been flowing smoothly. However, the switch
in power was only the first of many hurdles the canal has faced and will be facing in
years to come. The amount of traffic through the canal is increasing by 5% to 8% every
year (Murphy 1996); traffic increase is occurring in volume as well as in size. How long
can this almost century-old engineering marvel serve the needs of the shipping world?
With physical and technological improvements, the Panama Canal can expand to provide
for the shipping community in the future.
35

36. * Gillespie, Jr., Charles A., Brandon Grove, Thomas E. McNamara, and C. Richard
Nelson ―The United States and Panama: End of the “Special Relationship‖
The final implementation of the Panama Canal Treaty brought to an end the
―special relationship‖ between the United States and Panama because the elements that
characterized that ―special relationship‖ for almost a century are gone. The canal is no
longer the strategic ―chokepoint‖ that it was; U.S. Southern Command Headquarters
moved to Miami; U.S. forces have been redeployed; and the canal is now entirely under
Panamanian control. As a result, the United States has downgraded Panama as a national
security and foreign policy priority. Meanwhile, Panama faces difficult economic and
political problems, which will require closer cooperation among the political elite. The
authors focus on the true relationship between the two countries.
The authors tempered their positive preliminary assessment of the transition and
prospects for the short term with several concerns that challenge both sides. Although
Panama occupies a lower priority in U.S. foreign policy, the relationship nevertheless
remains important and bears close monitoring. It is still not the time to raise the issue of
stationing U.S. troops in Panama. The needs of both countries are better served by a
visiting forces agreement to handle routine visits and transits.
The authors conclude that the canal is in the hands of competent managers and
faces no serious threats, at least in the short term. Over the longer term, however,
Panama’s economic problems could spill over and adversely impact the canal.
36

37. * Referenced May 2004: Lowtax.net – Panama
The Lowtax.net site provides valuable incite into the Panamanian Geography,
Culture, Government, Economy, Business Environment, Import of Foreign Capital, and
Colon Free Zone.
This site speaks to Panama’s territorial taxation. There are no 'offshore' regimes as
such other than the Colon Free Zone and the export processing zones. There are more
than 120,000 companies in Panama, most of which trade or hold assets externally. It is
reasonably easy to form corporations, and privacy is assured. There are no tax treaties.
Banking and shipping are Panama's two main 'offshore' industries. There are 140 or more
banks, specializing obviously in South and Central American business, and Panama is the
world's largest shipping registry. Once, it would have been fair to say that drug running
and money-laundering were well-rooted in Panama, but with lots of US pushing and
shoving, the country seems to have moved in a better direction lately. There is a small but
growing stock exchange, and there is 'captives' legislation, which is little used.
* Referenced May 2004: BusinessPanama.com
Launched in 1997 by the Council for Investment & Development of Panama,
www.BusinessPanama.com became Panama’s leading Business, Trade & Investment
website. At the end of 2001, the Council for Investment & Development of Panama
ceased operations and the BusinessPanama Group acquired all of its rights and assets
including www.BusinessPanama.com
37

38. Since Panama was well on its way to becoming a destination of choice for
Tourism, www.BusinessPanama.com expanded its content to Tourism in Panama as well
as other additional areas of business, trade and investment.
The Business Panama Group (―BusinessPanama‖) is a well-established group of
companies, professionals and alliance partners promoting and facilitating business,
foreign investments, trade and tourism in Panama by providing information, business
development and support services to individual and corporate investors. This site gives
an up-to date financial assessment of Panama and current and future business
opportunities that are available in the country.
* Moreno, Elida Reuters “U.S., Panama Open Free-Trade Talks Amid Protests‖
April 26, 2004
In this particular article, the author focuses on the U.S.-Central American Free
Trade Agreement, dubbed CAFTA. Panamanian labor unionists and farm workers oppose
a free-trade treaty between the U.S. and Panama. They feared it would hurt Panama's
economy. Farmers want the agricultural sector to be excluded from any agreement on the
grounds it will not be able to compete against the subsidized U.S. farm sector. President
Mireya Moscoso agreed Panama "cannot compete against subsidized countries," but said
the imbalances would be taken into account in the negotiations. Trade between Panama's
service-led economy and the United States totaled about $2 billion last year.
38

39. * Referenced May 2004: Global Perspectives – Central America – Panama Canal
1999-2002 by Wheeling Jesuit University/Center for Educational Technologies
This article focuses on the economic importance of Panama to the United States.
Not only is the Panama Canal important to Panama for income and jobs, but it is also
considered to be vitally important to the United States economy. Many U.S. exports and
imports travel through the Canal daily (over 10% of all U.S. shipping goes through the
Canal). Exports represent jobs for U.S. citizens because U.S. workers made the products.
Imports enable U.S. consumers to receive needed products.
Since the United States is the only superpower in the world, the United States is
interested in keeping the global economy running smoothly. If world trade is disrupted, it
can lead to worldwide economic problems. Therefore, any disruption in the flow of goods
through the Panama Canal could directly hurt the U.S. and global economies.
* Referenced May 2004: External Relation: EU’s Relations with Panama
The article focuses on the relationship between Panama and the European
community. Political relations between the EU and Panama have been shaped by the San
José Dialogue, which was launched at an EU-Central America Ministerial Meeting in
Costa Rica in 1984. Panama is also a signatory to the EU-Central America Framework
Cooperation Agreement signed in February 1993 in San Salvador, which came into effect
in March 1999 following its ratification by all parties. A new political dialogue and co-
operation agreement has been signed in December 2003. All parties have not yet ratified
this agreement. The United States is Panama’s main trading partner, accounting for 46%
of its exports and 33.5% of its imports in 2002. The EU ranks second, accounting for
39

40. some 21% of Panamanian exports and 8.5%of its imports. The principal country's exports
to the UE (excluding the Colón Free Zone) are, in decreasing order, fruits (especially
bananas), ships and floating vessels, fish and crustaceans, skin and leather.
Like the other Central American countries, Panama is covered by the EU’s
Generalized System of Preferences adopted on 7 December 1998 and recently extended
until the end of 2005 without graduation system for small countries, which provides for
special treatment for its agricultural and industrial products.
* Gedrich, Fred ―Panama Canal: U.S. Must Keep Watch‖, Freedom Alliance
January 6, 2003
The author, Fred Gedrich is a senior policy analyst at Freedom Alliance. He
focuses on the Panamanian government’s control of the Panama Canal and of the ―threat‖
that foreign insurgence presents to the U.S. with gaining control of the Canal. He states,
―…the Panama Canal is vitally important to U.S. economic and national security
interests. Americans should not lose sight of these interests and happenings in Panama
and our hemisphere. Our adversaries have shown the proclivity to exploit any situation
that helps their cause, and we should not be caught with our guard down. Diplomatic
relations between Panama and the United States are excellent and there is a strong bond
between our citizens. ―
With eyes of the world focused on the Middle East and Korean peninsula, the
United States must not ignore signs of trouble emanating from its strategically important
and friendly neighbor in Central America: Panama. This country houses the famous
40

41. Panama Canal that, for nearly a century, has served as a prime U.S. economic and
national security interest.
The 50-mile American-made waterway is a spectacular engineering feat. It
separates North and South America and provides merchant ships and military vessels an
8,000-mile shortcut to U.S. ports on the Atlantic and Pacific coasts. In today's dollars, it
cost about $7 billion to construct. The United States uses the Canal more than all the
other nations in the world combined.
The U.S. withdrawal created opportunities for opportunists in the region. A
Columbian-based foreign terrorist organization, FARC, hides in Panama’s southern
jungles because Panamanian security guards are unable to patrol the porous border with
Columbia. In addition, South American drug cartels are flourishing in Panama. U.S.
intelligence reports Panama still serves as a major cocaine transshipment point and a
major drug money-laundering center.
There are other worrisome and potentially explosive conditions in Panama. For
instance, 37 percent of the 2.9 million Panamanians live in poverty, as much as 30
percent of the Panamanian workforce may be unemployed, and tens of thousands of
Panamanians live in squalor in the slums of the Chorillo and San Filepe districts of
Panama City in the shadow of thousands of empty housing units formerly owned by the
U.S. military.
41

42. * Lt. Gen. Gordon Sumner, Jr. (USA-Ret) Howard Phillips ―Who Will Control the
Path Between the Seas?” The Washington Times Commentary Section Monday
August 18, 1997
This dated article by Lt. Gen. Gordon Sumner, Jr. (USA-Ret) (Former Chairman,
Inter-American Defense Board) and Howard Phillips, Chairman of The Conservative
Caucus, Inc., focuses on the transference of the Panama Canal to Panama and the
supposed threat from foreign countries to U.S. security.
The Panama Canal Neutrality Treaty reads as follows: "Nothing in the Treaty
shall preclude the Republic of Panama and the United States of America from
making...agreements or arrangements for the stationing of any United States military
forces or the maintenance of defense sites after that date in the Republic of Panama that
the Republic of Panama and the United States of America may deem necessary or
appropriate."
A U.S.-Panama accord to carry forward the American presence is not "pie in the
sky". Surveys conducted in Panama over a period of years have indicated repeatedly
that the overwhelming majority of Panama's citizens want America to stay. The margin
of support swells to 80% and beyond if the U.S. agrees to pay a leasing fee to maintain its
presence.
* Referenced July 2004: Panamainfo.com
Panamainfo.com is Panama's premier tourism web portal with more than 1000
pages of information in both English and Spanish and 120 links to Panamanian tourism
and international business related websites.
42

43. Founded in May 1999, Panamainfo is the most visited web portal about Panama.
On a Google search on "Panama" in English Panamainfo always comes up on the first
page as one of the first three listings. As interest in the attractions of Panama grows, so
does traffic to Panamainfo. Panamainfo current receives an average of 3400 unique
visitors per day who visit at an average of 15, 000 pages per day.
Panama is a sophisticated dollar-based service economy, a financial sector with
106 banks, the second largest free trade zone in the world and incomparable geographical
location, make Panama one of Latin America’s leading business centers.
Modern Maturity, the American Association for Retired Persons magazine, rated
one region as one of the top four places in the world for Americans to live abroad.
International Living, rates Panama as the number one country outside the United
States for a second home- based its outstanding safety, infrastructure, climate and beauty.
Panama is even blessed by nature- it has none of the disastrous hurricanes and
earthquakes that plague its Central American neighbors.
43

44. CHAPTER 3
HISTORICAL PERSPECTIVE - EXPLORING THE RELATIONSHIP
BETWEEN THE UNITED STATES AND PANAMA
To say that the United States and The Republic of Panama has had a relationship
over the last century would be a major misinterpretation of the word ―relationship‖. The
United States assisted Panama in gaining independence from Colombia. Ever since the
United States’ assistance, the relationship between the U.S. and Panama has been filled
with everything from political manipulation to economic imprisonment to racism.
In 1903, during the administration of President Theodore Roosevelt, the United
States concluded the Hay-Bunau-Varilla Treaty with the new Republic of Panama,
conveying to the United States "in perpetuity" a ten-mile-wide strip across the isthmus
for construction of a canal. The United States paid Panama $10,000,000.00 in gold. In
1914 the United States completed the tremendous engineering feat of constructing the 51
mile long canal, overcoming the disease infested jungles and the seemingly
insurmountable physical challenges. Since then the United States has continued to
operate and defend the Canal, investing somewhere in the neighborhood of $32 billion in
the process. The strategic value of this waterway far exceeds the monetary investment
this Nation has made in it.6
6
Bradley, Scott ―The Panama Canal Give-away‖ Utah Eagle Forum
44

45. Republic of Panama18
National name: República de Panamá
President: Mireya Moscoso (1999)
Area: 30,193 sq mi (78,200 sq km)
Population (2004 est.): 3,000,463 (growth rate: 1.3%); birth rate: 20.4/1000; infant
mortality rate: 21.0/1000; life expectancy: 72.1; density per sq mi: 99
Capital and largest city (2003 est.): Panama City, 1,053,500 (metro.area), 437,200 (city
proper)
Other large cities: San Miguelito, 309,500; Colón, 44,400
Monetary unit: Balboa; U.S. dollar
Exchange Rate: US$1.00 = B/.1.00 (fixed exchange since1904)
Languages: Spanish (official); many bilingual in English
Ethnicity/race: mestizo (mixed Indian and European ancestry) 70%, West Indian 14%,
white 10%, Indian 6%
Religions: Roman Catholic 85%, Protestant 15%
Literacy rate: 93% (2003 est.)
18
Referenced May 2004: Business Panama
http://www.businesspanama.com/latestnews/article.php?nid=108
45

46. Economic summary: GDP/PPP (2002 est.): $18.06 billion; per capita $6,200. Real
growth rate: 0.7%. Inflation: 1.1% (2001 est.). Unemployment: 16%. Arable land:
7%. Agriculture: bananas, rice, corn, coffee, sugarcane, vegetables; livestock; shrimp.
Labor force: 1.1 million (2000 est.); note: shortage of skilled labor, but an oversupply of
unskilled labor; agriculture 20.8%, industry 18%, services 61.2% (1995 est.). Industries:
construction, petroleum refining, brewing, cement and other construction materials, sugar
milling. Natural resources: copper, mahogany forests, shrimp, hydropower. Exports:
$5.8 billion (f.o.b., 2002 est.): bananas, shrimp, sugar, coffee, clothing. Imports: $6.7
billion (f.o.b., 2002 est.): capital goods, crude oil, foodstuffs, consumer goods, chemicals.
Major trading partners: U.S., Sweden, Costa Rica, Honduras, Colombia, Japan,
Venezuela.
Communications: Telephones: main lines in use: 396,000 (1997); mobile cellular:
17,000 (1997). Radio broadcast stations: AM 80, FM 44, shortwave 0 (1998). Radios:
815,000 (1997). Television broadcast stations: 38 (including repeaters) (1998).
Televisions: 510,000 (1997). Internet Service Providers (ISPs): 6 (2000). Internet
users: 45,000 (2000).
Transportation: Railways: total: 355 km (2002). Highways: total: 11,400 km; paved:
3,944 km (including 30 km of expressways); unpaved: 7,456 km (1999). Waterways:
882 km navigable by shallow draft vessels; 82 km Panama Canal. Ports and harbors:
Balboa, Cristobal, Coco Solo, Manzanillo (part of Colon area), Vacamonte. Airports:
103 (2002).
International disputes: none.
46

47. Country Flag10
Map
As previously stated, for canal rights in perpetuity, the U.S. paid Panama $10
million and agreed to pay $250,000 each year, which was increased to $430,000 in 1933.
It was increased again in 1955. In exchange, the U.S. got the Canal Zone—a 10-mile-
10
Referenced May 2004: Infoplease.com
http://www.infoplease.com/ipa/A0107870.html
47

48. wide strip across the isthmus—and considerable influence in Panama's affairs. On Sept.
7, 1977, Gen. Omar Torrijos Herrera and President Jimmy Carter signed treaties giving
Panama gradual control of the canal, phasing out U.S. military bases, and guaranteeing
the canal's neutrality10, until December 1999.
Politics and economics reared there ugly horns well before the Hay-Bunau-Varilla
Treaty. Panamanian nationalists eagerly point out that Panama existed before the
settlement of Jamestown in 1607 and centuries before the United States intervened in
November 1903 to help Panama gain independence from Colombia. Panamanian
nationalists had sought independence from Colombia in the nineteenth century and
unsuccessfully fought for Panamanian freedom in the Colombian civil war of 1899-1903.
To them, the U.S. intervention in 1903 complicated the formation of a Panamanian
national state. Thus, to Panamanians, the United States, at best, was a midwife and never
the parent of Panamanian nationality. The temporary Panamanian representative to the
U.S., Phillipe Bunau-Varilla, a Frenchman, violated his instructions from the new
Panamanian government to await the arrival of officials from Panama before negotiating
a treaty. Instead, he wrote a treaty so generous in giving away Panamanian authority that
John Hay, U.S. Secretary of State, quickly signed it before the Panamanian delegation
could force changes. The new Panamanian government reluctantly accepted it, fearing
either Colombian or United States military intervention if it didn't.
Instead of being a liberator, the United States treated Panama as a conquered
province. Washington established a military dictatorship in the Canal Zone; the Canal
10
Referenced May 2004: Infoplease.com http://www.infoplease.com/ipa/A0107870.html
48

49. Zone Commissioner was always an active-duty U.S. military officer and Zonians,
regardless of nationality, had no political power. They did what the Commissioner
wanted or were expelled. The Zone was a military socialist society; the U.S. government
owned virtually all but Zonians' personal possessions. Outside the Zone, the United
States controlled most of the public services in Panama City and Colón. Americans
viewed Panamanians, even those of the elite class, as lesser people. Moreover, these
Spanish-speakers resented the importation of English-speaking black workers from the
Caribbean because of their language and their ethnicity, a complaint compounded by the
subsequent U.S. refusal to repatriate them once the Canal was completed.
The U.S. actively discouraged Panamanian self-determination, for Washington
saw its interest as the maintenance of a compliant Panamanian government. Foreign
soldiers and foreign laws controlled the Zone; Panamanians could be arrested by foreign
personnel, tried in foreign courts, and punished by foreigners all on Panamanian soil. The
bifurcation of the nation by this foreign enclave prohibited the integral development of
the nation, and, instead, skewed national development towards the cities of Panama and
Colón, each a terminus of the Canal. As these two cities grew, Panamanians wanted
unused Zonian land converted into Panamanian-owned farms to produce food to feed the
urban populations along the canal.
Panamanians also criticized the 1903 treaty for treating Panama unfairly in
economic terms. Panama had no right to tax in the Zone or fix the toll rates on the canal.
The rent on the Zone was fixed by treaty, thus making it extraordinarily difficult to
change, and inflation reduced the value of the rent paid. The United States imported
49

50. goods directly into the Zone, both escaping Panamanian taxes bypassing Panamanian
merchants. Panamanians or black West Indians were paid at the "silver rate" whereas
U.S. citizens were paid at the higher "gold rate."
Panamanian sovereignty has always been the source of friction between the two
nations. Soon after the Hay-Bunau-Varilla treaty was signed in November, 1903,
Panamanians argued that the treaty's phrase "as if it were sovereign" only gave the United
States "jurisdictional sovereignty" over the Canal Zone and that the Zone was
Panamanian. Washington officials understood the distinction, although they usually
ignored it, but the average U.S. citizen erroneously believed that the Zone was U.S.
territory and that Panama had yielded all rights in the Zone in perpetuity.
Washington regularly intervened in Panamanian politics, usually through
diplomats but too often through soldiers, to support favored local elites, those who
supported U.S. policies because they benefited most directly from them. Throughout the
history of Panamanian-U.S. relations, the United States could always rely on those
Panamanians who prospered from the American presence.7
A history of mutual dependence underlies U.S.-Panama foreign policy and
accounts for the patterns of dominance and dependence in bilateral relations. The two
nations have convergent interests in safe, efficient commerce across the isthmus. For the
U.S., this results from its status as the main user of the Panama Canal; for Panama, it is
because half its population lives on the canal’s banks, and the canal generates economic
benefits. The U.S. has also depended on Panama as a base for hemispheric military
7
Mabry, Donald J. ―Panama's Policy Toward the U.S.: Living With Big Brother‖ The Historical Text
Archive
50

51. operations. Although the canal was the initial reason for the special U.S. attention to
Panama, the selection in 1941 of the Canal Zone as headquarters for the U.S. Southern
Command (SouthCom, previously the Caribbean Command) sharpened U.S. interest in
Panamanian affairs.
Due to the power differential between the U.S. military and economic empire and
the small nation of Panama, colonialist attitudes have often characterized policy
discussions and obstructed rational decision-making. The enduring impact of the 1989
U.S. invasion of Panama should not be underestimated in considering future U.S.-
Panama policy. The invasion was the twentieth U.S. military intervention in this nation of
2.5 million people and easily the most violent event in Panama’s history.
The Panama Canal was usually at the center of conflicts. Despite the increasing
importance of air transport and the rise of other major trading nations, the U.S. remains
the canal’s primary user. One-eighth of all U.S. seaborne traffic passes through the locks.
Its economic utility for the U.S. is in making interoceanic trade cheaper for U.S. shippers
and traders—in effect subsidizing the U.S. shipping industry and its exports.9
As previously noted, the United States and Panama have butted heads many times
politically. Arguably, the most famous political upheaval between the two countries has
been ―Operation Just Cause‖. Manuel Noriega, a ruthless dictator that at first was held in
good standing with the United States government had continuously overstepped his
boundaries. He was a known purveyor of the Central American drug trade through
Panama and had dismisses democracy, amongst other human rights violations.
9
Lindsay-Poland, John ―U.S.-Panama Policy: Canal, Bases, and Dollars‖ Volume 1, Number 14 November
1996, Fellowship of Reconciliation.
51

52. Panamanian public opinion definitively turned against Noriega and in favor of U.S.
military intervention when Noriega stole the May, 1989 elections and ordered his
minions to beat the opposition presidential and vice presidential candidates when they led
a massive protest of the electoral fraud. Noriega's newly-constituted Dignity Battalions
had overstepped the bounds of acceptable Panamanian political practice, and done so in
front of the international media. The Panamanian Roman Catholic Church denounced the
regime for the fraud and violence, calling for Panamanians to withdraw their support of
the dictator. The United States recognized the victory of opposition leader Guillermo
Endara. Panamanians openly began suggesting that either a military coup or U.S. military
intervention might be the only way to oust the dictator.
Elements of the Panamanian Defense Force failed to overthrow Noriega in
October 1989. Noriega executed the ringleaders and reorganized the PDF to insure its
loyalty. He also sought to neutralize other dissidents, some of whom fled to the Zone and
U.S. protection. The thug dictator seemed invincible. Elections, Organization of
American States diplomacy, and an attempted military coup had all failed. Noriega was
tightening his grip on the nation, strangling it for his personal ends. In December, 1989,
Noriega, growing bolder by his seeming ability to act with impunity, harassed U.S.
personnel and had the national assembly assert that Panama was in a state of emergency
because of U.S. aggression. For both the average Panamanian and for Washington,
Noriega had gone too far.
Confronted with this intolerable situation, Panamanians welcomed Operation Just
Cause even though U.S. military intervention did not meet the strict guidelines of the
52

53. neutrality treaty. The only legal ground for U.S. intervention is to prevent closure of the
Canal; the U.S. had specifically signed away all other rights to intervene. Noriega had not
threatened to close the Canal. By closing the Canal during the invasion (the only time it
has ever been closed), the United States gave the Panamanian government the right,
under both Panamanian and U.S. law, to resist by military means.
Regardless of the legality or illegality of Operation Just Cause, Panamanians
initially, at least, supported the invasion and the capture of Noriega, and the installation
of Guillermo Endara as the new president of the republic. By December 20, 1989,
Panamanians had so despaired of ridding themselves of the tyrannical dictator that even
usurpation of their nation's sovereignty seemed preferable to his continuance in power.
Such a euphoric response was unlikely to endure, however, and more thoughtful
Panamanians realized that not much had changed in U.S.-Panamanian relations since
1903. The relationship between the two nations remained as unequal as it had been in
1903. Washington could and did manipulate the Panamanian economy at will even
though doing so caused suffering for innocent Panamanians. Endara was as much a part
of the U.S. colonial system as former presidents had been. In the disputed election of
May 1989, he had benefited from the expenditure of millions of dollars in American
funds. He and his vice president had been sworn into office on an American military base
shortly before the invasion and then had to be protected by the U.S. military for several
days. While the Panamanian business and professional classes, from which Endara and
his vice presidents come, clearly supported the new government, Endara's government
had few ties to the majority of Panamanians--farmers, laborers, and the urban middle
sectors. U.S. military forces were still the key to power in Panama, treaties
53

54. notwithstanding. Panamanians realized that the longevity of the Endara government
depended upon the U.S. military and U.S. economic aid. In short, Panama was a client
state.7
The Role of Treaties
Treaties have played a significant role in the relationship between the United
States and Panama. From almost the beginning of the U.S. / Panama relationship there
has been some form of animosity over various treaties between the two nations. Two
provisions of the 1903 treaty immediately became a source of conflict between the two
countries: the division of the economic benefits and the sovereignty question. Of the two,
the economic issue has been the easier to solve. In 1909, the United States agreed to end
private trading in the Canal Zone while allowing only the Canal Commission to sell
imported goods to employees of the canal company without paying Panamanian taxes;
thus Panamanian merchants received some of the protection they wanted although not as
much as they had demanded.
In the 1936-treaty revision, the annuity was adjusted upwards to $430,000 to
offset the dollar devaluation but no other major economic concessions were made until
the 1955 revision. In that year, the annuity was increased to $1,930,000 and the United
States gave Panama the right to tax non-US Zone employees and some goods entering the
Zone, altered some boundaries in favor of Panama, and returned some land as well,
relinquished the exclusive right to construct trans-isthmian railroads and highway, and
granted Panamanians a large share in supplying goods to the Zone market. In a separate
agreement, the United States promised to end wage discrimination against the
7
Mabry, Donald J. ―Panama's Policy Toward the U.S.: Living With Big Brother‖ The Historical Text
Archive
54

55. Panamanians working for the canal company. The United States acted slowly, however,
and anti-US demonstrations marked the late 1950s. In 1960, President Eisenhower took
executive action to implement some of the changes promised in an attempt to reduce
tensions.
The economic issue was linked to the more inflammatory sovereignty question,
which was the more serious threat to US interests in Panama. Since 1904, Panama
contended that it is sovereign over the Zone and that the United States has limited
"jurisdictional sovereignty." US citizens, on the other band, have believed that the Zone
is an integral part of the United States (in ignorance of the 1903 treaty and its subsequent
revisions) or that Panama yielded all Zone rights in perpetuity. As long as Washington
considered the Canal essential to its security, it refused to budge on the issue, for it did
not trust Panama to protect US interests. Panamanian political instability further
discouraged the United States from yielding. The 1936 treaty revision was ratified in
1939 only after Panama agreed to allow the United States to continue military
intervention when the latter thought it necessary. Panama ceased to be a protectorate in
name only. This fundamental disagreement meant that Panamanian demands met fierce
resistance in the United States and the Zone while failure to budge prompted
demonstrations and riots in Panama. Both Panamanian and U.S. politicians found the
sovereignty issue replete with demagogic appeal.
Nevertheless, the United States slowly yielded to Panama's demands albeit
unwillingly. Defense sites acquired in 1942 were abandoned in 1947 after violent
demonstrations encouraged the Panamanian congress to reject the extension agreement.
The 1955 treaty was negotiated after a series of anti-Yankee protests; and was only fully
55

56. implemented after student demonstrations, attacks on the US embassy, and threatened
mob invasions of the Zone. The US government decided that its interests were best
served by conceding. In response to more nationalist demands, Eisenhower, in 1960,
ordered the Panamanian flag flown in parts of the Zone and President John Kennedy, in
1963, ordered the Panamanian flag be flown jointly with the US flag over civilian
installations and that foreign consuls accredited to Panama are allowed to operate in the
Zone. Such actions temporarily improved relations but did not solve the sovereignty
problem.
Continued Panamanian nationalism, combined with a decline in the importance of
the canal, resulted in the proposed 1967 treaty revision. In 1964, US high school students
raised the US flag in violation of orders and instigated a riot in which 24 were killed and
hundreds injured. Because US troops clashed with Panamanians in the Zone, President
Chiari demanded an Organization of American States and a United Nations investigation
of what he called US aggression and suspended diplomatic relations. Shortly thereafter,
negotiations on a new treaty began. President Lyndon Baines Johnson, however,
determined not to yield the canal, agreed to negotiate three treaties. One would change
the military defense of the canal. The second would recognize Panamanian sovereignty
over the Zone and give it more control over the canal. The third was for the possible
construction of a new canal (since the Panama Canal was antiquated and incapable of
handling the super ships being built) after the best possible site was determined. That the
proposed new canal was not specified and discussions included possible construction in
Nicaragua or Mexico, the United States had tremendous leverage over Panama, The
treaties were not ratified, however, because they faced opposition within the United
56

57. States and the military government which replaced the 1967 government was not satisfied
with the terms.
By the mid-1970s, the United States was willing to concede to Panama's demands
on the sovereignty issue if both nations could get the necessary ratifications. Since the
development of a two-ocean navy, nuclear submarines and carriers, long-range bombers
and missiles, the Canal's strategic importance and the necessity of the military bases there
have declined. Some experts assert that the Canal has no strategic value. The
development of excellent internal transportation in the United States as well as the use of
super ships (which cannot go through the Canal) has reduced the commercial importance
of the Canal to the United States. About 80% of the traffic through the canal by the 1960s
was Latin American. By December, 1973, the two nations agreed in principle that the
United States would return the Zone to Panama while gradually involving Panama in the
Canal's operation and defense, that Panama would receive a more equitable share of the
benefits, that the United States would retain only three of its fifteen military installations
in the country, and that the new treaty would have a fixed life.
A new treaty was finally ratified in April 1978 under the leadership of President
Jimmy Carter and General Omar Torrijos. The negotiations were often bitter and the
treaty faced strong opposition in the US Senate. The Canal Zone would be returned to
Panama in 1999. The US would leave its military bases in Panama but would have the
right to intervene militarily to protect the canal, a proviso Panamanians did not like.
Operation of the canal became Panamanian.
The Panama Canal Company, the Canal Zone, and its government were
disenfranchised on October 1, 1979, and replaced by the Panama Canal Commission that
57