Implementing the Panama Canal Treaty of 1977--Good Planning but Many Issues Remain

ID-80-30: Published: May 15, 1980. Publicly Released: May 15, 1980.

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Since early 1978, U.S. Government officials in Panama, former Canal Zone officials, and representatives of Panama have been preparing for the orderly and efficient implementation of the Panama Canal Treaty. Two principles have guided the planning activities: (1) the tactical capabilities of the military forces to defend the Panama Canal will not be degraded, and (2) the present quality and level of all current services and support to U.S. citizens in the area will be sustained to the maximum extent possible. Within this framework, the United States and Panama have made good progress in implementing the changes mandated by the Panama Canal Treaty. The transfer to Panama of various port and railroad activities, certain health and sanitation services, vehicle licensing, and utility billing and price setting has proceeded smoothly. In addition, commercial retail operations were satisfactorily transferred to Panama for operation by private interests. Substantial progress has been made in implementing the important personnel changes required by the treaty or by the Panama Canal Act of 1979. Nevertheless, certain basic unresolved issues and problems hinder full implementation of the treaty.

Although progress has been made in terminating U.S. territorial jurisdiction in the former Canal Zone, issues requiring further attention and resolution include: (1) assurance of procedural quarantees; (2) impact of Panama laws on terms and conditions for business and nonprofit activities; (3) taxation of U.S. contractors; (4) customs reporting; and (5) land-use licensing matters. Problems hindering the transfer of property and public services include Panama's problems in determining a method of maintenance for specific shipyard facilities and in developing procedures to verify the costs of providing certain public services. Several unresolved issues could adversely affect the cost and quality of postal or health services. The issues pertain to U.S. and Panama disagreement over airport terminal payments for mail delivery; lack of final agreement on mail privileges for nonprofit activities; lack of criteria and guidance on certain health care billing matters; and lack of military exchange, commissary, and housing privileges for Panamanian health care professionals. Other issues of concern include whether the: (1) system of preference will result in a real increase in Panamanian employment; (2) new minimum pay levels and annual increases will create a situation whereby two U.S. Government employees performing the same duties will earn different wages; (3) new Panama Area Wage Base will equalize the wage levels in Panama and not jeopardize Panama's income derived from the Canal; and (4) cost of living allowance can be computed to recognize individual circumstances.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretaries of State and Defense and the Administrator of the Panama Canal Commission should closely monitor the extent to which basic unresolved issues and problems impede full treaty implementation and, through concerted action by the principal U.S. Government agencies and by Panama as appropriate, work to resolve these matters without delay. Such actions should include encouraging Panama to: take the necessary steps to insure that procedural guarantees are assured for persons specified in the treaty; modify existing laws that adversely affect the terms and conditions for operating business and nonprofit activities in the former Canal Zone; and develop procedures for verifying the costs incurred in providing treaty-specified public services.

    Agency Affected:


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