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Panama Canal Treaty of 1977. The American Economy: A Historical Encyclopedia

After 13 years of negotiations, the U.S. government, under the
administration of Jimmy Carter, concluded a treaty that
gradually shifted control of the Panama Canal to the
government of Panama. The United States, which had
constructed the canal and collected the tolls for decades, turned
over authority on December 31, 1999. The treaty signified the
end of an era. The economic ramifications of this agreement
included the loss of revenue and the end of yearly rent
payments to Panama. Many Americans argued against the
ratification of the treaty on the grounds that in time of war the
United States could not be guaranteed the right of passage
through the canal.

The United States of America and the Republic of Panama,
Acting in the spirit of the Joint Declaration of April 3, 1964, by
the Representatives of the Governments of the United States
of America and the Republic of Panama, and of the Joint
Statement of Principles of February 7, 1974, initialed by the
Secretary of State of the United States of America and the
Foreign Minister of the Republic of Panama, and Acknowledging the Republic of Panama’s sovereignty over its territory,
Have decided to terminate the prior Treaties pertaining to the
Panama Canal and to conclude a new Treaty to serve as the
basis for a new relationship between them and, accordingly,
have agreed upon the following:
Article I: Abrogation of Prior Treaties and Establishment of
a New Relationship
1. Upon its entry into force, this Treaty terminates and
supersedes:
(a) The Isthmian Canal Convention between the
United States of America and the Republic of Panama, signed at Washington, November 18, 1903;
(b) The Treaty of Friendship and Cooperation signed
at Washington, March 2, 1936, and the Treaty of
Mutual Understanding and Cooperation and the
related Memorandum of Understandings
Reached, signed at Panama, January 25, 1955,
between the United States of America and the
Republic of Panama;
(c) All other treaties, conventions, agreements, and
exchanges of notes between the United States of
America and the Republic of Panama concerning
the Panama Canal, which were in force prior to
the entry into force of this Treaty; and
(d) Provisions concerning the Panama Canal, which
appear in other treaties, conventions, agreements,
and exchanges of notes between the United States
of America and the Republic of Panama, which
were in force prior to the entry into force of this
Treaty.
2. In accordance with the terms of this Treaty and related agreements, the Republic of Panama, as territorial sovereign, grants to the United States of America,
for the duration of this Treaty, the rights necessary to
regulate the transit of ships through the Panama
Canal, and to manage, operate, maintain, improve,
protect and defend the Canal. The Republic of
Panama guarantees to the United States of America
the peaceful use of the land and water areas which it
has been granted the rights to use for such purposes
pursuant to this Treaty and related agreements.
3. The Republic of Panama shall participate increasingly
in the management and protection and defense of the
Canal, as provided in this Treaty.
4. In view of the special relationship established by this
Treaty, the United States of America and the Republic
of Panama shall cooperate to assure the uninterrupted and efficient operation of the Panama Canal.
Article II: Ratification, Entry into Force, and Termination
1. The Treaty shall be subject to ratification in accordance with the constitutional procedures of the two
Parties. The instruments of ratification of this Treaty
shall be exchanged at Panama at the same time as the
instruments of ratification of the Treaty Concerning
the Permanent Neutrality and Operation of the
Panama Canal, signed this date, are exchanged. This

Treaty shall enter into force, simultaneously with the
Treaty Concerning the Permanent Neutrality and
Operation of the Panama Canal, six calendar months
from the date of the exchange of the instruments of
ratification.
2. This Treaty shall terminate at noon, Panama time,
December 31, 1999.
Article III: Canal Operation and Management
1. The Republic of Panama, as territorial sovereign,
grants to the United States of America the rights to
manage, operate, and maintain the Panama Canal, its
complementary works, installations, and equipment
and to provide for the orderly transit of vessels
through the Panama Canal. The United States of
America accepts the grant of such rights and undertakes to exercise them in accordance with this Treaty
and related agreements.
2. In carrying out the foregoing responsibilities, the
United States of America may:
(a) Use for the aforementioned purposes, without
cost except as provided in this Treaty, the various
installations and areas (including the Panama
Canal) and waters, described in the Agreement in
Implementation of this Article, signed this date,
as well as such other areas and installations as are
made available to the United States of America
under this Treaty and related agreements, and
take the measures necessary to ensure sanitation
of such areas;
(b) Make such improvements and alterations to the
aforesaid installations and areas as it deems
appropriate, consistent with the terms of this
Treaty;
(c) Make and enforce all rules pertaining the passage
of vessels through the Canal and other rules with
respect to navigation and maritime matters, in
accordance with this Treaty and related agreements. The Republic of Panama will lend its
cooperation, when necessary, in the enforcement
of such rules;
(d) Establish, modify, collect and retain tolls for the
use of the Panama Canal, and other charges, and
establish and modify methods of their assessment;
(e) Regulate relations with employees of the United
States Government;
(f) Provide supporting services to facilitate the performance of its responsibilities under this Article;
(g) Issue and enforce regulations for the exercise of
the rights and responsibilities of the United States
of America under this Treaty and related agreements. The Republic of Panama will lend its
cooperation, when necessary, in the enforcement
of such rules; and
(h) Exercise any other right granted under this
Treaty, or otherwise agreed upon between the two
Parties.
3. Pursuant to the foregoing grant of rights, the United
States of America shall, in accordance with the terms
of this Treaty and the provisions of United States law,
carry out its responsibilities by means of a United
States Government agency called the Panama Canal
Commission, which shall be constituted by and in
conformity with the laws of the United States of
America.
(a) The Panama Canal Commission shall be supervised by a Board composed of nine members, five
of whom shall be nationals of the United States of
America, and four of whom shall be Panamanian
nationals proposed by the Republic of Panama
for appointment to such positions by the United
States of America in a timely manner.
(b) Should the Republic of Panama request the
United States of America to remove a Panamanian national from membership on the
Board, the United States of America shall agree
to such request. In that event, the Republic of
Panama shall propose another Panamanian
national for appointment by the United States of
America to such position in a timely manner. In
case of removal of a Panamanian member of the
Board on the initiative of the United States of
America, both Parties will consult in advance in
order to reach agreement concerning such
removal, and the Republic of Panama shall propose another Panamanian national for appointment by the United States of America in his
stead.
(c) The United States of America shall employ a
national of the United States of America as Administrator of the Panama Canal Commission,
and a Panamanian national as Deputy Administrator, through December 31, 1989. Beginning
January 1, 1990, a Panamanian national shall be
employed as the Administrator and a national of
the United States of America shall occupy the
position of Deputy Administrator. Such Panamanian nationals shall be proposed to the United
States of America by the Republic of Panama for
appointment to such positions by the United
States of America.
(d) Should the United States of America remove the
Panamanian national from his position as
Deputy Administrator, or Administrator, the
Republic of Panama shall propose another
Panamanian national for appointment to such
position by the United States of America.
4. An illustrative description of the activities the Panama
Canal Commission will perform in carrying out the
responsibilities and rights of the United States of
America under this Article is set forth at the Annex.
Also set forth in the Annex are procedures for the discontinuance or transfer of those activities performed
prior to the entry into force of this Treaty by the
Panama Canal Company or the Canal Zone Govern-

ment which are not to be carried out by the Panama
Canal Commission.
5. The Panama Canal Commission shall reimburse the
Republic of Panama for the costs incurred by the
Republic of Panama in providing the following public
services in the Canal operation areas and in housing
areas set forth in the Agreement in Implementation of
Article III of this Treaty and occupied by both United
States and Panamanian citizen employees of the
Panama Canal Commission: police, fire protection,
street maintenance, street lighting, street cleaning,
traffic management and garbage collection. The
Panama Canal Commission shall pay the Republic of
Panama the sum of ten million United States dollars
(US$10,000,000) per annum for the foregoing services. It is agreed that every three years from the date
that this Treaty enters into force, the costs involved in
furnishing said services shall be reexamined to determine whether adjustment of the annual payment
should be made because of inflation and other relevant factors affecting the cost of such services.
6. The Republic of Panama shall be responsible for providing, in all areas comprising the former Canal Zone,
services of a general jurisdictional nature such as customs and immigration, postal services, courts and
licensing, in accordance with this Treaty and related
agreements.
7. The United States of America and the Republic of
Panama shall establish a Panama Canal Consultative
Committee, composed of an equal number of highlevel representatives of the United States of America
and the Republic of Panama, and which may appoint
such subcommittees as it may deem appropriate. This
Committee shall advise the United States of America
and the Republic of Panama on matters of policy
affecting the Canal’s operation. In view of both
Parties’ special interest in the continuity and efficiency of the Canal operation in the future, the Committee shall advise on matters such as general tolls
policy, employment and training policies to increase
the participation of Panamanian nationals in the
operation of the Canal, and international policies on
matters concerning the Canal. The Committee’s recommendations shall be transmitted to the two
Governments, which shall give such recommendations full consideration in the formulation of such
policy decisions.
8. In addition to the participation of Panamanian
nationals at high management levels of the Panama
Canal Commission, as provided for in paragraph 3 of
this Article, there shall be growing participation of
Panamanian nationals at all other levels and areas of
employment in the aforesaid commission, with the
objective of preparing, in an orderly and efficient
fashion, for the assumption by the Republic of
Panama of full responsibility for the management,
operation and maintenance of the Canal upon the
termination of this Treaty.
9. The use of the areas, waters and installations with
respect to which the United States of America is
granted rights pursuant to this Article, and the rights
and legal status of United States Government agencies
and employees operating in the Republic of Panama
pursuant to this Article, shall be governed by
Agreement in Implementation of this Article, signed
this date.
10. Upon entry into force of this Treaty, the United States
Government agencies known as the Panama Canal
Company and the Canal Zone Government shall
cease to operate within the territory of the Republic of
Panama that formerly constituted the Canal Zone.
Article IV: Protection and Defense
1. The United States of America and the Republic of
Panama commit themselves to protect and defend the
Panama Canal. Each Party shall act, in accordance
with its constitutional processes, to meet the danger
resulting from an armed attack or other actions which
threaten the security of the Panama Canal or of ships
transiting it.
2. For the duration of this Treaty, the United States of
America shall have primary responsibility to protect
and defend the Canal. The rights of the United States
of America to station, train, and move military forces
within the Republic of Panama are described in the
Agreement in Implementation of this Article, signed
this date. The use of areas and installations and the
legal status of the armed forces of the United States of
America in the Republic of Panama shall be governed
by the aforesaid Agreement.
3. In order to facilitate the participation and cooperation of the armed forces of both Parties in the protection and defense of the Canal, the United States of
America and the Republic of Panama shall establish a
Combined Board comprised of an equal number of
senior military representatives of each Party. These
representatives shall be charged by their respective
governments with consulting and cooperating on all
matters pertaining to the protection and defense of
the Canal, and with planning for actions to be taken
in concert for that purpose. Such combined protection and defense arrangements shall not inhibit the
identity or lines of authority of the armed forces of
the United States of America or the Republic of
Panama. The Combined Board shall provide for
coordination and cooperation concerning such matters as:
(a) The preparation of contingency plans for the
protection and defense of the Canal based upon
the cooperative efforts of the armed forces of
both Parties;
(b) The planning and conduct of combined military
exercises; and
(c) The conduct of United States and Panamanian
military operations with respect to the protection
and defense of the Canal.

4. The Combined Board shall, at five-year intervals
throughout the duration of this Treaty, review the
resources being made available by the two Parties for
the protection and defense of the Canal. Also, the
Combined Board shall make appropriate recommendations to the two Governments respecting projected
requirements, the efficient utilization of available
resources of the two Parties, and other matters of
mutual interest with respect to the protection and
defense of the Canal.
5. To the extent possible consistent with its primary
responsibility for the protection and defense of the
Panama Canal, the United States of America will
endeavor to maintain its armed forces in the Republic
of Panama in normal times at a level not in excess of
that of the armed forces of the United States of
America in the territory of the former Canal Zone
immediately prior to the entry into force of this
Treaty.
Article V: Principle of Non-Intervention
Employees of the Panama Canal Commission, their
dependents and designated contractors of the Panama Canal
Commission, who are nationals of the United States of
America, shall respect the laws of the Republic of Panama
and shall abstain from any activity incompatible with the
spirit of this Treaty. Accordingly, they shall abstain from any
political activity in the Republic of Panama as well as from
any intervention in the internal affairs of the Republic of
Panama. The United States of America shall take all measures
within its authority to ensure that the provisions of this
Article are fulfilled.
Article VI: Protection of the Environment
1. The United States of America and the Republic of
Panama commit themselves to implement this Treaty
in a manner consistent with the protection of the natural environment of the Republic of Panama. To this
end, they shall consult and cooperate with each other
in all appropriate ways to ensure that they shall give
due regard to the protection and conservation of the
environment.
2. A Joint Commission on the Environment shall be
established with equal representation from the United
States and the Republic of Panama, which shall periodically review the implementation of this Treaty and
shall recommend as appropriate to the two Governments ways to avoid or, should this not be possible, to
mitigate the adverse environmental impacts which
might result from their respective actions pursuant to
the Treaty.
3. The United States of America and the Republic of
Panama shall furnish the Joint Commission on the
Environment complete information on any action
taken in accordance with this Treaty which, in the
judgment of both, might have a significant effect on
the environment. Such information shall be made
available to the Commission as far in advance of the
contemplated action as possible to facilitate the study
by the Commission of any potential environmental
problems and to allow for consideration of the recommendation of the Commission before the contemplated action is carried out.
Article VII: Flags
1. The entire territory of the Republic of Panama, including the areas the use of which the Republic of Panama
makes available to the United States of America pursuant to this Treaty and related agreements, shall be
under the flag of the Republic of Panama, and consequently such flag always shall occupy the position of
honor.
2. The flag of the United States of America may be displayed, together with the flag of the Republic of
Panama, at the headquarters of the Panama Canal
Commission, at the site of the Combined Board, and
as provided in the Agreement in Implementation of
Article IV of this Treaty.
3. The flag of the United States of America also may be
displayed at other places and on some occasions, as
agreed by both Parties.
Article VIII: Privileges and Immunities
1. The installations owned or used by the agencies or
instrumentalities of the United States of America
operating in the Republic of Panama pursuant to this
Treaty and related agreements, and their official
archives and documents, shall be inviolable. The two
Parties shall agree on procedures to be followed in the
conduct of any criminal investigation at such locations by the Republic of Panama.
2. Agencies and instrumentalities of the Government of
the United States of America operating in the
Republic of Panama pursuant to this Treaty and related agreements shall be immune from the jurisdiction of the Republic of Panama.
3. In addition to such other privileges and immunities as
are afforded to employees of the United States Government and their dependents pursuant to this
Treaty, the United States of America may designate up
to twenty officials of the Panama Canal Commission
who, along with their dependents, shall enjoy the
privileges and immunities accorded to diplomatic
agents and their dependents under international law
and practice. The United States of America shall furnish to the Republic of Panama a list of the names of
said officials and their dependents, identifying the
positions they occupy in the Government of the
United States of America, and shall keep such list current at all times.
Article IX: Applicable Laws and Law Enforcement
1. In accordance with the provisions of this Treaty and
related agreements, the law of the Republic of Panama
shall apply in the areas made available for the use of
the United States of America pursuant to this Treaty.

The law of the Republic of Panama shall be applied to
matters or events which occurred in the former Canal
Zone prior to the entry into force of this Treaty only
to the extent specifically provided in prior treaties and
agreements.
2. Natural or juridical persons who, on the date of entry
into force of this Treaty, are engaged in business or
non-profit activities at locations in the former Canal
Zone may continue such business or activities at those
locations under the same terms and conditions prevailing prior to the entry into force of this Treaty for a
thirty-month transition period from its entry into
force. The Republic of Panama shall maintain the
same operating conditions as those applicable to the
aforementioned enterprises prior to the entry into
force of this Treaty in order that they may receive
licenses to do business in the Republic of Panama
subject to their compliance with the requirements of
its law. Thereafter, such persons shall receive the same
treatment under the law of the Republic of Panama as
similar enterprises already established in the rest of
the territory of the Republic of Panama without discrimination.
3. The rights of ownership, as recognized by the United
States of America, enjoyed by natural or juridical private persons in buildings and other improvements to
real property located in the former Canal Zone shall
be recognized by the Republic of Panama in conformity with its laws.
4. With respect to buildings and other improvements to
real property located in the Canal operating areas,
housing areas or other areas subject to the licensing
procedure established in Article IV of the Agreement
in Implementation of Article III of this Treaty, the
owners shall be authorized to continue using the land
upon which their property is located in accordance
with the procedures established in that Article.
5. With respect to buildings and other improvements to
real property located in areas of the former Canal
Zone to which the aforesaid licensing procedure is not
applicable, or may cease to be applicable during the
lifetime or upon termination of this Treaty, the owners may continue to use the land upon which their
property is located, subject to the payment of a reasonable charge to the Republic of Panama. Should the
Republic of Panama decide to sell such land, the owners of the buildings or other improvements located
thereon shall be offered a first option to purchase such
land at a reasonable cost. In the case of non-profit
enterprises, such as churches and fraternal organizations, the cost of purchase will be nominal in accordance with the prevailing practice in the rest of the
territory of the Republic of Panama.
6. If any of the aforementioned persons are required by
the Republic of Panama to discontinue their activities
or vacate their property for public purposes, they shall
be compensated at fair market value by the Republic
of Panama.
7. The provisions of paragraphs 2–6 above shall apply to
natural or juridical persons who have been engaged in
business or non-profit activities at locations in the
former Canal Zone for at least six months prior to the
date of signature of this Treaty.
8. The Republic of Panama shall not issue, adopt or
enforce any law, decree, regulation, or international
agreement or take any other action which purports to
regulate or would otherwise interfere with the exercise
on the part of the United States of America of any
right granted under this Treaty or related agreements.
9. Vessels transiting the Canal, and cargo, passengers and
crews carried on such vessels shall be exempt from
any taxes, fees, or other charges by the Republic of
Panama. However, in the event such vessels call at a
Panamanian port, they may be assessed charges
thereto, such as charges for services provided to the
vessel. The Republic of Panama may also require the
passengers and crew disembarking from such vessels
to pay such taxes, fees and charges as are established
under Panamanian law for persons entering its territory. Such taxes, fees and charges shall be assessed on
a nondiscriminatory basis.
10. The United States of America and the Republic of
Panama will cooperate in taking such steps as may
from time to time be necessary to guarantee the security of the Panama Canal Commission, its property,
its employees and their dependents, and their property, the Forces of the United States of America and
the members thereof, the civilian component of the
United States Forces, the dependents of members of
the Forces and civilian component, and their property, and the contractors of the Panama Canal
Commission and of the United States Forces, their
dependents, and their property. The Republic of
Panama will seek from its Legislative Branch such legislation as may be needed to carry out the foregoing
purposes and to punish any offenders.
11. The Parties shall conclude an agreement whereby
nationals of either State, who are sentenced by the
courts of the other State, and who are not domiciled
therein, may elect to serve their sentences in their
State of nationality.
Article X: Employment with the Panama Canal
Commission
1. In exercising its rights and fulfilling its responsibilities
as the employer, the United States of America shall
establish employment and labor regulations which
shall contain the terms, conditions and prerequisites
for all categories of employees of the Panama Canal
Commission. These regulations shall be provided to
the Republic of Panama prior to their entry into force.
2. (a) The regulations shall establish a system of preference when hiring employees, for Panamanian
applicants possessing the skills and qualifications
required for employment by the Panama Canal
Commission. The United States of America shall

endeavor to ensure that the number of Panamanian nationals employed by the Panama Canal
Commission in relation to the total number of its
employees will conform to the proportion established for foreign enterprises under the law of the
Republic of Panama.
(b) The terms and conditions of employment to be
established will in general be no less favorable to
persons already employed by the Panama Canal
Company or Canal Zone Government prior to
the entry into force of this Treaty, than those in
effect immediately prior to that date.
3. (a) The United States of America shall establish an
employment policy for the Panama Canal Commission that shall generally limit the recruitment
of personnel outside the Republic of Panama to
persons possessing requisite skills and qualifications which are not available in the Republic of
Panama.
(b) The United States of America will establish training programs for Panamanian employees and
apprentices in order to increase the number of
Panamanian nationals qualified to assume positions with the Panama Canal Commission, as
positions become available.
(c) Within five years from the entry into force of this
Treaty, the number of United States nationals
employed by the Panama Canal Commission
who were previously employed by the Panama
Canal Company shall be at least twenty percent
less than the total number of United States
nationals working for the Panama Canal
Company immediately prior to the entry into
force of this Treaty.
(d) The United States of America shall periodically
inform the Republic of Panama, through the
Coordinating Committee, established pursuant
to the Agreement in Implementation of Article
III of this Treaty, of available positions within the
Panama Canal Commission. The Republic of
Panama shall similarly provide the United States
of America any information it may have as to the
availability of Panamanian nationals claiming to
have skills and qualifications that might be
required by the Panama Canal Commission, in
order that the United States of America may take
this information into account.
4. The United States of America will establish qualification standards for skills, training, and experience
required by the Panama Canal Commission. In establishing such standards, to the extent they include a
requirement for a professional license, the United
States of America, without prejudice to its right to
require additional professional skills and qualifications, shall recognize the professional licenses issued
by the Republic of Panama.
5. The United States of America shall establish a policy
for the periodic rotation, at a maximum of every five
years, of United States citizen employees and other
non-Panamanian employees, hired after the entry
into force of this Treaty. It is recognized that certain
exceptions to the said policy of rotation may be made
for sound administrative reasons, such as in the case
of employees holding positions requiring certain
non-transferable or non-recruitable skills.
6. With regard to wages and fringe benefits, there shall
be no discrimination on the basis of nationality, sex,
or race. Payments by the Panama Canal Commission
of additional remuneration, or the provision of other
benefits, such as home leave benefits, to United States
nationals employed prior to entry into force of this
Treaty, or to persons of any nationality, including
Panamanian nationals who are thereafter recruited
outside of the Republic of Panama and who change
their place of residence, shall not be considered to be
discrimination for the purpose of this paragraph.
7. Persons employed by the Panama Canal Commission
or Canal Zone Government prior to the entry into
force of this Treaty, who are displaced from their
employment as a result of the discontinuance by the
United States of America of certain activities pursuant
to this Treaty, will be placed by the United States of
America, to the maximum extent feasible, in other
appropriate jobs with the Government of the United
States in accordance with United States Civil Service
regulations. For such persons who are not United
States nationals, placement efforts will be confined to
United States Government activities located within
the Republic of Panama. Likewise, persons previously
employed in activities for which the Republic of
Panama assumes responsibility as a result of this
Treaty will be continued in their employment to the
maximum extent feasible by the Republic of Panama.
The Republic of Panama shall, to the maximum
extent feasible, ensure that the terms and conditions
of employment applicable to personnel employed in
the activities for which it assumed responsibility are
not less favorable than those in effect immediately
prior to the entry into force of this Treaty. Non–
United States nationals employed by the Panama
Canal Company or Canal Zone Government prior to
the entry into force of this Treaty who are involuntarily separated from their positions because of the discontinuance of an activity by reason of this Treaty,
who are not entitled to an immediate annuity under
the United States Civil Service Retirement System,
and for whom continued employment in the
Republic of Panama by the Government of the United
States of America is not practicable, will be provided
special job placement assistance by the Republic of
Panama for employment in positions for which they
may be qualified by experience and training.
8. The Parties agree to establish a system whereby the
Panama Canal Commission may, if deemed mutually
convenient or desirable by the two Parties, assign certain employees of the Panama Canal Commission, for

a limited period of time, to assist in the operation of
activities transferred to the responsibility of the
Republic of Panama as a result of this Treaty or related
agreements. The salaries and other costs of employment of any such persons assigned to provide such
assistance shall be reimbursed to the United States of
America by the Republic of Panama.
9. (a) The right of employees to negotiate collective
contracts with the Panama Canal Commission is
recognized. Labor relations with employees of the
Panama Canal Commission shall be conducted
in accordance with forms of collective bargaining
established by the United States of America after
consultation with employee unions. (b) Employee unions shall have the right to affiliate with
international labor organizations.
10. The United States of America will provide an appropriate early optional retirement program for all persons employed by the Panama Canal Company or
Canal Zone Government immediately prior to the
entry into force of this Treaty. In this regard, taking
into account the unique circumstances created by the
provisions of this Treaty, including its duration, and
their effect upon such employees, the United States of
America shall, with respect to them:
(a) determine that conditions exist which invoke
applicable United States law permitting early
retirement annuities and apply such law for a
substantial period of the duration of the treaty;
(b) seek special legislation to provide more liberal
entitlement to, and calculation of, retirement
annuities than is currently provided for by law.
Article XI: Provisions for the Transition Period
1. The Republic of Panama shall reassume plenary jurisdiction over the former Canal Zone upon entry into
force of this Treaty and in accordance with its terms.
In order to provide for an orderly transition to the full
application of the jurisdictional arrangements established by this Treaty and related agreements, the provisions of this Article shall become applicable upon
the date this Treaty enters into force, and shall remain
in effect for thirty calendar months. The authority
granted in this Article to the United States of America
for this transition period shall supplement, and is not
intended to limit, the full application and effect of the
rights and authority granted to the United States of
America elsewhere in this Treaty and in related agreements.
2. During this transition period, the criminal and civil
laws of the United States of America shall apply concurrently with those of the Republic of Panama in
certain of the areas and installations made available
for the use of the United States of America pursuant
to this Treaty, in accordance with the following provisions:
(a) The Republic Panama permits the authorities of
the United States of America to have the primary
right to exercise criminal jurisdiction over United
States citizen employees of the Panama Canal
Commission and their dependents, and members
of the United States Forces and civilian component and their dependents, in the following cases:
(i) for any offense committed during the transition period within such areas and installations, and
(ii) for any offense committed prior to that
period in the former Canal Zone.
The Republic of Panama shall have the primary
right to exercise jurisdiction over all other offenses committed by such persons, except as otherwise agreed.
(b) Either Party may waive its primary right to exercise jurisdiction in a specific case or category of
cases.
3. The United States of America shall retain the right to
exercise jurisdiction in criminal cases relating to
offenses committed prior to the entry into force of
this Treaty in violation of the laws applicable in the
former Canal Zone.
4. For the transition period, the United States of
America shall retain police authority and maintain a
police force in the aforementioned areas and installations. In such areas, the police authorities of the
United States of America may take into custody any
person not subject to their primary jurisdiction if
such person is believed to have committed or to be
committing an offense against applicable laws or regulations, and shall promptly transfer custody to the
police authorities of the Republic of Panama. The
United States of America and the Republic of Panama
shall establish joint police patrols in agreed areas. Any
arrests conducted by a joint patrol shall be the responsibility of the patrol member or members representing the Party having primary jurisdiction over the
person or persons arrested.
5. The courts of the United States of America and related personnel, functioning in the former Canal
Zone immediately prior to the entry into force of this
Treaty, may continue to function during the transition period for the judicial enforcement of the jurisdiction to be exercised by the United States of
America in accordance with this Article.
6. In civil cases, the civilian courts of the United States of
America in the Republic of Panama shall have no
jurisdiction over new cases of a private civil nature,
but shall retain full jurisdiction during the transition
period to dispose of any civil cases, including admiralty cases, already instituted and pending before the
courts prior to the entry into force of this Treaty.
7. The laws, regulations, and administrative authority of
the United States of America applicable in the former
Canal Zone immediately prior to the entry into force
of this Treaty shall, to the extent not inconsistent with
this Treaty and related agreements, continue in force
for the purpose of the exercise by the United States of

America of law enforcement and judicial jurisdiction
only during the transition period. The United States
of America may amend, repeal or otherwise change
such laws, regulations and administrative authority.
The two Parties shall consult concerning procedural
and substantive matters relative to the implementation of this Article, including the disposition of cases
pending at the end of the transition period and, in
this respect, may enter into appropriate agreements
by an exchange of notes or other instrument.
8. During this transition period, the United States of
America may continue to incarcerate individuals in
the areas and installations made available for the use
of the United States of America by the Republic of
Panama pursuant to this Treaty and related agreements, or to transfer them to penal facilities in the
United States of America to serve their sentences.
Article XII: A Sea-Level Canal or a Third Lane of Locks
1. The United States of America and the Republic of
Panama recognize that a sea-level canal may be
important for international navigation in the future.
Consequently, during the duration of this Treaty, both
Parties commit themselves to study jointly the feasibility of a sea-level canal in the Republic of Panama,
and in the event they determine that such a waterway
is necessary, they shall negotiate terms, agreeable to
both Parties, for its construction.
2. The United States of America and the Republic of
Panama agree on the following:
a) No new interoceanic canal shall be constructed in
the territory of the Republic of Panama during
the duration of this Treaty, except in accordance
with the provisions of this Treaty, or as the two
Parties may otherwise agree; and
(b) During the duration of this Treaty, the United
States of America shall not negotiate with third
States for the right to construct an interoceanic
canal on any other route in the Western
Hemisphere, except as the two Parties may otherwise agree.
3. The Republic of Panama grants to the United States of
America the right to add a third lane of locks to the
existing Panama Canal. This right may be exercised at
any time during the duration of this Treaty, provided
that the United States of America has delivered to the
Republic of Panama copies of the plans for such construction.
4. In the event the United States of America exercises the
right granted in paragraph 3 above, it may use for that
purpose, in addition to the areas otherwise made
available to the United States of America pursuant to
this Treaty, such other areas as the two Parties may
agree upon. The terms and conditions applicable to
Canal operating areas made available by the Republic
of Panama for the use of the United States of America
pursuant to Article III of this Treaty shall apply in a
similar manner to such additional areas.
5. In the construction of the aforesaid works, the United
States of America shall not use nuclear excavation
techniques without the previous consent of the
Republic of Panama.
Article XIII: Property Transfer and Economic Participation
by the Republic of Panama
1. Upon termination of this Treaty, the Republic of
Panama shall assume total responsibility for the management, operation, and maintenance of the Panama
Canal, which shall be turned over in operating condition and free of liens and debts, except as the two
Parties may otherwise agree.
2. The United States of America transfers, without
charge, to the Republic of Panama all right, title and
interest the United States of America may have with
respect to all real property, including non-removable
improvements thereon, as set forth below:
(a) Upon the entry into force of this Treaty, the
Panama Railroad and such property that was
located in the former Canal Zone but that is not
within the land and water areas the use of which
is made available to the United States of America
pursuant to this Treaty. However, it is agreed that
the transfer on such date shall not include buildings and other facilities, except housing, the use
of which is retained by the United States of
America pursuant to this Treaty and related
agreements, outside such areas;
(b) Such property located in an area or a portion
thereof at such time as the use by the United States
of America of such area or portion thereof ceases
pursuant to agreement between the two Parties.
(c) Housing units made available for occupancy by
members of the Armed Forces of the Republic of
Panama in accordance with paragraph 5(b) of
Annex B to the Agreement in Implementation of
Article IV of this Treaty at such time as such units
are made available to the Republic of Panama.
(d) Upon termination of this Treaty, all real property
and non-removable improvements that were
used by the United States of America for the purposes of this Treaty and related agreements and
equipment related to the management, operation
and maintenance of the Canal remaining in the
Republic of Panama.
3. The Republic of Panama agrees to hold the United
States of America harmless with respect to any claims
which may be made by third parties relating to rights,
title and interest in such property.
4. The Republic of Panama shall receive, in addition,
from the Panama Canal Commission a just and equitable return on the national resources which it has
dedicated to the efficient management, operation,
maintenance, protection and defense of the Panama
Canal, in accordance with the following:
(a) An annual amount to be paid out of Canal operating revenues computed at a rate of thirty hun-

dredths of a United States dollar (US$0.30) per
Panama Canal net ton, or its equivalency, for each
vessel transiting the Canal after the entry into
force of this Treaty, for which tolls are charged.
The rate of thirty hundredths of a United States
dollar (US$0.30) per Panama Canal net ton, or its
equivalency, will be adjusted to reflect changes in
the United States wholesale price index for total
manufactured goods during biennial periods.
The first adjustment shall take place five years
after entry into force of this Treaty, taking into
account the changes that occurred in such price
index during the preceding two years. Thereafter,
successive adjustments shall take place at the end
of each biennial period. If the United States of
America should decide that another indexing
method is preferable, such method shall be proposed to the Republic of Panama and applied if
mutually agreed.
(b) A fixed annuity of ten million United States dollars (US$10,000,000) to be paid out of Canal
operating revenues. This amount shall constitute
a fixed expense of the Panama Canal Commission.
(c) An annual amount of up to ten million United
States dollars (US$10,000,000) per year, to be
paid out of Canal operating revenues to the
extent that such revenues exceed expenditures of
the Panama Canal Commission including
amounts paid pursuant to this Treaty. In the
event Canal operating revenues in any year do
not produce a surplus sufficient to cover this payment, the unpaid balance shall be paid from
operating surpluses in future years in a manner to
be mutually agreed.
Article XIV: Settlement of Disputes
In the event that any question should arise between the
Parties concerning the interpretation of this Treaty or related
agreements, they shall make every effort to resolve the matter
through consultation in the appropriate committees established pursuant to this Treaty and related agreements, or, if
appropriate, through diplomatic channels. In the event the
Parties are unable to resolve a particular matter through such
means, they may, in appropriate cases, agree to submit the
matter to conciliation, mediation, arbitration, or such other
procedure for the peaceful settlement of the dispute as they
may mutually deem appropriate. DONE at Washington, this
7th day of September, 1977 in duplicate, in the English and
Spanish languages, both texts being equally authentic.
Annex: Procedures for the Cessation or Transfer of
Activities Carried Out by the Panama Canal Company
and the Canal Zone Government and Illustrative List of
the Functions That May Be Performed by the Panama
Canal Commission
1. The laws of the Republic of Panama shall regulate the
exercise of private economic activities within the areas
made available by the Republic of Panama for the use
of the United States of America pursuant to this
Treaty. Natural or juridical persons who, at least six
months prior to the date of signature of this Treaty,
were legally established and engaged in the exercise of
economic activities in accordance with the provisions
of paragraphs 2–7 of Article IX of this Treaty.
2. The Panama Canal Commission shall not perform
governmental or commercial functions as stipulated
in paragraph 4 of this Annex, provided, however, that
this shall not be deemed to limit in any way the right
of the United States of America to perform those
functions that may be necessary for the efficient management, operation and maintenance of the Canal.
3. It is understood that the Panama Canal Commission,
in the exercise of the rights of the United States of
America with respect to the management, operation
and maintenance of the Canal, may perform functions such as are set forth below by way of illustration:
a. Management of the Canal enterprise.
b. Aids to navigation in Canal waters and in proximity thereto.
c. Control of vessel movement.
d. Operation and maintenance of the locks.
e. Tug service for the transit of vessels and dredging
for the piers and docks of the Panama Canal
Commission.
f. Control of the water levels in Gatun, Alajuela
(Madden), and Miraflores Lakes.
g. Non-commercial transportation services in
Canal waters.
h. Meteorological and hydrographic services.
i. Admeasurement.
j. Non-commercial motor transport and maintenance.
k. Industrial security through the use of watchmen.
l. Procurement and warehousing.
m. Telecommunications.
n. Protection of the environment by preventing and
controlling the spillage of oil and substances
harmful to human or animal life and of the ecological equilibrium in areas used in operation of
the Canal and the anchorages.
o. Non-commercial vessel repair.
p. Air conditioning services in Canal installations.
q. Industrial sanitation and health services.
r. Engineering design, construction and maintenance of Panama Canal Commission installations.
s. Dredging of the Canal channel, terminal ports
and adjacent waters.
t. Control of the banks and stabilizing of the slopes
of the Canal.
u. Non-commercial handling of cargo on the piers
and docks of the Panama Canal Commission.
v. Maintenance of public areas of the Panama Canal
Commission, such as parks and gardens.
w. Generation of electric power.

x. Purification and supply of water.
y. Marine salvage in Canal waters.
z. Such other functions as may be necessary or
appropriate to carry out, in conformity with this
Treaty and related agreements, the rights and
responsibilities of the United States of America
with respect to the management, operation and
maintenance of the Panama Canal.
4. The following activities and operations carried out by
the Panama Canal Company and the Canal Zone
Government shall not be carried out by the Panama
Canal Commission, effective upon the dates indicated
herein:
(a) Upon the date of entry into force of this Treaty:
(i) Wholesale and retail sales, including those
through commissaries, food stores, department stores, optical shops and pastry
shops;
(ii) The production of food and drink, including milk products and bakery products;
(iii) The operation of public restaurants and
cafeterias and the sale of articles through
vending machines;
(iv) The operation of movie theaters, bowling
alleys, pool rooms and other recreational
and amusement facilities for the use of
which a charge is payable;
(v) The operation of laundry and dry cleaning
plants other than those operated for official
use;
(vi) The repair and service of privately owned
automobiles or the sale of petroleum or
lubricants thereto, including the operation
of gasoline stations, repair garages and tire
repair and recapping facilities, and the
repair and service of other privately owned
property, including appliances, electronic
devices, boats, motors, and furniture;
(vii) The operation of cold storage and freezer
plants other than those operated for official
use;
(viii) The operation of freight houses other than
those operated for official use;
(ix) The operation of commercial services to
and supply of privately owned and operated vessels, including the constitution of
vessels, the sale of petroleum and lubricants
and the provision of water, tug services not
related to the Canal or other United States
Government operations, and repair of such
vessels, except in situations where repairs
may be necessary to remove disabled vessels
from the Canal;
(x) Printing services other than for official use;
(xi) Maritime transportation for the use of the
general public;
(xii) Health and medical services provided to
individuals, including hospitals, leprosariums, veterinary, mortuary and cemetery
services;
(xiii) Educational services not for professional
training, including schools and libraries;
(xiv) Postal services;
(xv) Immigration, customs and quarantine controls, except those measures necessary to
ensure the sanitation of the Canal;
(xvi) Commercial pier and dock services, such as
the handling of cargo and passengers; and
(xvii) Any other commercial activity of a similar
nature, not related to the management,
operation or maintenance of the Canal.
(b) Within thirty calendar months from the date of
entry into force of this Treaty, governmental services such as:
(i) Police;
(ii) Courts; and
(iii) Prison system.
5. (a) With respect to those activities or functions
described in paragraph 4 above, or otherwise
agreed upon by the two Parties, which are to be
assumed by the Government of the Republic of
Panama or by private persons subject to its
authority, the two Parties shall consult prior to the
discontinuance of such activities or functions by
the Panama Canal Commission to develop appropriate arrangements for the orderly transfer and
continued efficient operation or conduct thereof.
(b) In the event that appropriate arrangements cannot be arrived at to ensure the continued performance of a particular activity or function
described in paragraph 4 above which is necessary to the efficient management, operation or
maintenance of the Canal, the Panama Canal
Commission may, to the extent consistent with
the other provisions of this Treaty and related
agreements, continue to perform such activity or
function until such arrangements can be made.
United States Senate Modifications (Incorporated Into the
June 1978 Instruments of Ratification)
(a) RESERVATIONS:
(1) Pursuant to its adherence to the principle of nonintervention, any action taken by the United States of
America in the exercise of its rights to assure that the
Panama Canal shall remain open, neutral, secure, and
accessible, pursuant to the provisions of the Panama
Canal Treaty, the Treaty Concerning the Permanent
Neutrality and Operation of the Panama Canal, and
the resolutions of ratification thereto, shall be only for
the purpose of assuring that the Canal shall remain
open, neutral, secure, and accessible, and shall not
have as its purpose or be interpreted as a right of
intervention in the internal affairs of the Republic of
Panama or interference with its political independence or sovereign integrity.

(2) The instruments of ratification of the Panama Canal
Treaty to be exchanged by the United States of
America and the Republic of Panama shall each
include provisions whereby each Party agrees to waive
its rights and release the other Party from its obligations under paragraph 2 of Article XII of the Treaty.
(3) Notwithstanding any provision of the Treaty, no
funds may be drawn from the Treasury of the United
States of America for payments under paragraph 4 of
Article XIII without statutory authorization.
(4) Any accumulated unpaid balance under paragraph
4(c) of Article XIII of the Treaty at the date of termination of the Treaty shall be payable only to the extent
of any operating surplus in the last year of the duration of the Treaty, and nothing in such paragraph may
be constructed as obligating the United States of
America to pay, after the date of the termination of
the Treaty, any such unpaid balance which shall have
accrued before such date.
(5) Exchange of the instruments of ratification of the
Panama Canal Treaty and of the Treaty Concerning
the Permanent Neutrality and Operation of the
Panama Canal shall not be effective earlier than
March 31, 1979, and such Treaties shall not enter into
force prior to October 1, 1979, unless legislation necessary to implement the provisions of the Panama
Canal Treaty shall have been enacted by the Congress
of the United States of America before March 31,
1979.
(6) After the date of entry into force of the Treaty, the
Panama Canal Commission shall, unless otherwise
provided by legislation enacted by the Congress of the
United States of America, be obligated to reimburse
the Treasury of the United States of America, as nearly
as possible, for the interest cost of the funds or other
assets directly invested in the Commission by the
Government of the United States of America and for
the interest cost of the funds or other assets directly
invested in the predecessor Panama Canal Company
by the Government of the United States of America
and not reimbursed before the date of entry into force
of the Treaty. Such reimbursement for such interest
costs shall be made at a rate determined by the
Secretary of the Treasury of the United States of
America and at annual intervals to the extent earned,
and if not earned, shall be made from subsequent
earnings. For purposes of this reservation, the phrase
“funds or other assets directly invested” shall have the
same meaning as the phrase “net direct investment”
has under section 62 of title 2 of the Canal Zone
Code.
(b) UNDERSTANDINGS:
(1) Before the first day of the three-year period beginning
on the date of entry into force of the Treaty and before
each three-year period following thereafter, the two
Parties shall agree upon the specific levels and quality
of services, as are referred to in paragraph 5 of Article
III of the Treaty, to be provided during the following
three-year period and, except for the first three-year
period, on the reimbursement to be made for the
costs of such services, such services to be limited to
such as are essential to the effective functioning of the
Canal operating areas and the housing areas referred
to in paragraph 5 of Article III. If payments made
under paragraph 5 of Article III for the preceding
three-year period, including the initial three-year
period, exceed or are less than the actual costs to the
Republic of Panama for supplying, during such period, the specific levels and quality of services agreed
upon, then the Panama Canal Commission shall
deduct from or add to the payment required to be
made to the Republic of Panama for each of the following three years one-third of such excess or deficit,
as the case may be. There shall be an independent and
binding audit, conducted by an auditor mutually
selected by both Parties, of any costs of services disputed by the two Parties pursuant to the reexamination of such costs provided for in this understanding.
(2) Nothing in paragraph 3, 4, or 5 of Article IV of the
Treaty may be construed to limit either the provisions
of the first paragraph of Article IV providing that each
Party shall act, in accordance with its constitutional
processes, to meet danger threatening the security of
the Panama Canal, or the provisions of paragraph 2 of
Article IV providing that the United States of America
shall have primary responsibility to protect and
defend the Canal for the duration of the Treaty.
(3) Nothing in paragraph 4(c) of Article XIII of the
Treaty shall be construed to limit the authority of the
United States of America, through the United States
Government agency called the Panama Canal
Commission, to make such financial decisions and
incur such expenses as are reasonable and necessary
for the management, operation, and maintenance of
the Panama Canal. In addition, toll rates established
pursuant to paragraph 2(d) of Article III need not be
set at levels designed to produce revenues to cover the
payment to the Republic of Panama described in
paragraph 4(c) of Article XIII.
(4) Any agreement concluded pursuant to paragraph II of
Article IX of the Treaty with respect to the transfer of
prisoners shall be concluded in accordance with the
constitutional processes of both Parties.
(5) Nothing in the Treaty, in the Annex or Agreed Minute
relating to the Treaty, or in any other agreement relating to the Treaty obligates the United States of
America to provide any economic assistance, military
grant assistance, security supporting assistance, foreign military sales credits, or international military
education and training to the Republic of Panama.
(6) The President shall include all reservations and
understandings incorporated by the Senate in this resolution of ratification in the instrument of ratification to be exchanged with the Government of the
Republic of Panama.

Treaty Concerning the Permanent Neutrality and Operation
of the Panama Canal
The United States of America and the Republic of Panama
have agreed upon the following:
Article I
The Republic of Panama declares that the Canal, as an
international transit waterway, shall be permanently neutral
in accordance with the regime established in this Treaty. The
same regime of neutrality shall apply to any other international waterway that may be built either partially or wholly in
the territory of the Republic of Panama.
Article II
The Republic of Panama declares the neutrality of the
Canal in order that both in time of peace and in time of war
it shall remain secure and open to peaceful transit by the vessels of all nations on terms of entire equality, so that there will
be no discrimination against any nation, or its citizens or
subjects, concerning the conditions or charges of transit, or
for any other reason, and so that the Canal, and therefore the
Isthmus of Panama, shall not be the target of reprisals in any
armed conflict between other nations of the world. The foregoing shall be subject to the following requirements:
(a) Payment of tolls and other charges for transit and
ancillary services, provided they have been fixed
in conformity with the provisions of Article III
(c);
(b) Compliance with applicable rules and regulations, provided such rules and regulations are
applied in conformity with the provisions of
Article III;
(c) The requirement that transiting vessels commit
no acts of hostility while in the Canal; and
(d) Such other conditions and restrictions as are
established by this Treaty.
Article III
1. For purposes of the security, efficiency and proper
maintenance of the Canal the following rules shall
apply:
(a) The Canal shall be operated efficiently in accordance with conditions of transit through the
Canal, and rules and regulations that shall be just,
equitable and reasonable, and limited to those
necessary for safe navigation and efficient, sanitary operation of the Canal;
(b) Ancillary services necessary for transit through
the Canal shall be provided;
(c) Tolls and other charges for transit and ancillary
services shall be just, reasonable, equitable and
consistent with the principles of international
law;
(d) As a pre-condition of transit, vessels may be
required to establish clearly the financial responsibility and guarantees for payment of reasonable and adequate indemnification, consistent
with international practice and standards, for
damages resulting from acts or omissions of
such vessels when passing through the Canal. In
the case of vessels owned or operated by a State
or for which it has acknowledged responsibility,
a certification by that State that it shall observe
its obligations under international law to pay for
damages resulting from the act or omission of
such vessels when passing through the Canal
shall be deemed sufficient to establish such
financial responsibility;
(e) Vessels of war and auxiliary vessels of all nations
shall at all times be entitled to transit the Canal,
irrespective of their internal operation, means of
propulsion, origin, destination or armament,
without being subjected, as a condition of transit,
to inspection, search or surveillance. However,
such vessels may be required to certify that they
have complied with all applicable health, sanitation and quarantine regulations. In addition,
such vessels shall be entitled to refuse to disclose
their internal operation, origin, armament, cargo
or destination. However, auxiliary vessels may be
required to present written assurances, certified
by an official at a high level of the government of
the State requesting the exemption, that they are
owned or operated by that government and in
this case are being used only on government noncommercial service.
2. For the purposes of this Treaty, the terms “Canal,”
“vessel of war,”“auxiliary vessel,”“internal operation,”
“armament” and “inspection” shall have the meanings
assigned them in Annex A to this Treaty.
Article IV
The United States of America and the Republic of Panama
agree to maintain the regime of neutrality established in this
Treaty, which shall be maintained in order that the Canal
shall remain permanently neutral, notwithstanding the termination of any other treaties entered into by the two
Contracting Parties.
Article V
After the termination of the Panama Canal Treaty, only the
Republic of Panama shall operate the Canal and maintain
military forces, defense sites and military installations within
its national territory.
Article VI
1. In recognition of the important contributions of the
United States of America and of the Republic of
Panama to the construction, operation, maintenance,
and protection and defense of the Canal, vessels of
war and auxiliary vessels of those nations shall,
notwithstanding any other provisions of this Treaty,
be entitled to transit the Canal irrespective of their
internal operation, means of propulsion, origin, destination, armament or cargo carried. Such vessels of
war and auxiliary vessels will be entitled to transit the
Canal expeditiously.

2. The United States of America, so long as it has
responsibility for the operation of the Canal, may
continue to provide the Republic of Colombia tollfree transit through the Canal for its troops, vessels
and materials of war. Thereafter, the Republic of
Panama may provide the Republic of Colombia and
the Republic of Costa Rica with the right of toll-free
transit.
Article VII
1. The United States of America and the Republic of
Panama shall jointly sponsor a resolution in the
Organization of American States opening to accession
by all nations of the world the Protocol to this Treaty
whereby all the signatories will adhere to the objective
of this Treaty, agreeing to respect the regime of neutrality set forth herein.
2. The Organization of American States shall act as the
depositary for this Treaty and related instruments.
Article VIII
This Treaty shall be subject to ratification in accordance
with the constitutional procedures of the two Parties. The
instruments of ratification of this Treaty shall be exchanged
at Panama at the same time as the instruments of ratification
of the Panama Canal Treaty, signed this date, are exchanged.
This Treaty shall enter into force, simultaneously with the
Panama Canal Treaty, six calendar months from the date of
the exchange of the instruments of ratification.
DONE at Washington, this 7th day of September, 1977, in
the English and Spanish languages, both texts being equally
authentic.
Annex A
1. “Canal” includes the existing Panama Canal, the
entrances thereto and the territorial seas of the
Republic of Panama adjacent thereto, as defined on
the map annexed hereto (Annex B), and any other
interoceanic waterway in which the United States of
America is a participant or in which the United States
of America has participated in connection with the
construction or financing, that may be operated
wholly or partially within the territory of the Republic
of Panama, the entrances thereto and the territorial
seas adjacent thereto.
2. “Vessel of war” means a ship belonging to the naval
forces of a State, and bearing the external marks distinguishing warships of its nationality, under the
command of an officer duly commissioned by the
government and whose name appears in the Navy
List, and manned by a crew which is under regular
naval discipline.
3. “Auxiliary vessel” means any ship, not a vessel of war,
that is owned or operated by a State and used, for the
time being, exclusively on government non-commercial service.
4. “Internal operation” encompasses all machinery and
propulsion systems, as well as the management and
control of the vessel, including its crew. It does not
include the measures necessary to transit vessels
under the control of pilots while such vessels are in
the Canal.
5. “Armament” means arms, ammunition, implements
of war and other equipment of a vessel which possesses characteristics appropriate for use for warlike
purposes.
6. “Inspection” includes on-board examination of vessel
structure, cargo, armament and internal operation. It
does not include those measures strictly necessary for
admeasurement, nor those measures strictly necessary to assure safe, sanitary transit and navigation,
including examination of deck and visual navigation
equipment, nor in the case of live cargoes, such as cattle or other livestock, that may carry communicable
diseases, those measures necessary to assure that
health and sanitation requirements are satisfied.
United States Senate Modifications (Incorporated
Into the June 1978 Instruments of Ratification)
(a) AMENDMENTS
(1) At the end of Article IV, insert the following:
“A correct and authoritative statement of certain
rights and duties of the Parties under the foregoing is
contained in the Statement of Understanding issued
by the Government of the United States of America
on October 14, 1977, and by the Government of the
Republic of Panama on October 18, 1977, which is
hereby incorporated as an integral part of this Treaty,
as follows:
“‘Under the Treaty Concerning the Permanent
Neutrality and Operation of the Panama Canal (the
Neutrality Treaty), Panama and the United States have
the responsibility to assure that the Panama Canal will
remain open and secure to ships of all nations. The
correct interpretation of this principle is that each of
the two countries shall, in accordance with their
respective constitutional processes, defend the Canal
against any threat to the regime of neutrality, and
consequently shall have the right to act against any
aggression or threat directed against the Canal or
against the peaceful transit of vessels through the
Canal.
“‘This does not mean, nor shall it be interpreted as,
a right of intervention of the United States in the
internal affairs of Panama. Any United States action
will be directed at insuring that the Canal will remain
open, secure, and accessible, and it shall never be
directed against the territorial integrity or political
independence of Panama.’’’
(2) At the end of the first paragraph of Article VI, insert
the following:
“In accordance with the Statement of Understanding
mentioned in Article IV above: ‘The Neutrality Treaty
provides that the vessels of war and auxiliary vessels of
the United States and Panama will be entitled to transit the Canal expeditiously. This is intended, and it

shall so be interpreted, to assure the transit of such vessels through the Canal as quickly as possible, without
any impediment, with expedited treatment, and in
case of need or emergency, to go to the head of the line
of vessels in order to transit the Canal rapidly.’’’
(b) CONDITIONS:
(1) Notwithstanding the provisions of Article V or any
other provision of the Treaty, if the Canal is closed, or
its operations are interfered with, the United States of
America and the Republic of Panama shall each independently have the right to take such steps as each
deems necessary, in accordance with its constitutional
processes, including the use of military force in the
Republic of Panama, to reopen the Canal or restore
the operations of the Canal, as the case may be.
(2) The instruments of ratification of the Treaty shall be
exchanged only upon the conclusion of a Protocol of
Exchange, to be signed by authorized representatives
of both Governments, which shall constitute an integral part of the Treaty documents and which shall
include the following:
“Nothing in the Treaty shall preclude the Republic of
Panama and the United States of America from making, in accordance with their respective constitutional
processes, any agreement or arrangement between the
two countries to facilitate performance at any time
after December 31, 1999, of their responsibilities to
maintain the regime of neutrality established in the
Treaty, including 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.”
(c) RESERVATIONS:
1) Before the date of entry into force of the Treaty, the
two Parties shall begin to negotiate for an agreement
under which the American Battle Monuments
Commission would, upon the date of entry into force
of such agreement and thereafter, administer, free of
all taxes and other charges and without compensation
to the Republic of Panama and in accordance with the
practices, privileges, and immunities associated with
the administration of cemeteries outside the United
States of America by the American Battle Monuments
Commission, including the display of the flag of the
United States of America, such part of Corozal
Cemetery in the former Canal Zone as encompasses
the remains of citizens of the United States of
America.
(2) The flag of the United States of America may be displayed, pursuant to the provisions of paragraph 3 of
Article VII of the Panama Canal Treaty, at such part of
Corozal Cemetery in the former Canal Zone as
encompasses the remains of citizens of the United
States of America.
(3) The President—
(A) shall have announced, before the date of entry
into force of the Treaty, his intention to transfer,
consistent with an agreement with the Republic
of Panama, and before the date of termination of
the Panama Canal Treaty, to the American Battle
Monuments Commission the administration of
such part of Corozal Cemetery as encompasses
the remains of citizens of the United States of
America; and
(B) shall have announced, immediately after the date
of exchange of instruments of ratification, plans,
to be carried out at the expense of the Government of the United States of America, for
(i) removing, before the date of entry into force
of the Treaty, the remains of citizens of the
United States of America from Mount Hope
Cemetery to such part of Corozal Cemetery
as encompasses such remains, except that
the remains of any citizen whose next of kin
objects in writing to the Secretary of the
Army not later than three months after the
date of exchange of the instruments of ratification of the Treaty shall not be removed;
and
(ii) transporting to the United States of America for reinterment, if the next of kin so requests, not later than thirty months after
the date of entry into force of the Treaty,
any such remains encompassed by Corozal
Cemetery and, before the date of entry into
force of the Treaty, any remains removed
from Mount Hope Cemetery pursuant to
subclause (i); and
(C) shall have fully advised, before the date of entry
into force of the Treaty, the next of kin objecting
under clause (B) (i) of all available options and
their implications.
(4) To carry out the purposes of Article III of the Treaty
of assuring the security, efficiency, and proper maintenance of the Panama Canal, the United States of
America and the Republic of Panama, during their
respective periods of responsibility for Canal operation and maintenance, shall, unless the amount of the
operating revenues of the Canal exceeds the amount
needed to carry out the purposes of such Article, use
such revenues of the Canal only for purposes consistent with the purposes of Article III.
(d) UNDERSTANDING:
(1) Paragraph 1 (c) of Article III of the Treaty shall be
construed as requiring, before any adjustment in tolls
for use of the Canal, that the effects of any such toll
adjustment on the trade patterns of the two Parties
shall be given full consideration, including consideration of the following factors in a manner consistent
with the regime of neutrality:

(A) the costs of operating and maintaining the
Panama Canal;
(B) the competitive position of the use of the Canal
in relation to other means of transportation;
(C) the interests of both Parties in maintaining their
domestic fleets;
(D) the impact of such an adjustment on the various
geographic areas of each of the two Parties; and
(E) the interests of both Parties in maximizing their
international commerce. The United States of
America and the Republic of Panama shall cooperate in exchanging information necessary for the
consideration of such factors.
(2) The agreement “to maintain the regime of neutrality
established in this Treaty” in Article IV of the Treaty
means that either of the two Parties to the Treaty may,
in accordance with its constitutional processes, take
unilateral action to defend the Panama Canal against
any threat, as determined by the Party taking such
action.
(3) The determination of “need or emergency” for the
purpose of any vessel of war or auxiliary vessel of the
United States of America or the Republic of Panama
going to the head of the line of vessels in order to
transit the Panama Canal rapidly shall be made by the
nation operating such vessel.
(4) Nothing in the Treaty, in Annex A or B thereto, in the
Protocol relating to the Treaty, or in any other agreement relating to the Treaty, obligates the United States
of America to provide any economic assistance, military grant assistance, security supporting assistance,
foreign military sales credits, or international military
education and training to the Republic of Panama.
(5) The President shall include all amendments, conditions, reservations, and understandings incorporated
by the Senate in this resolution of ratification in the
instrument of ratification to be exchanged with the
Government of the Republic of Panama.

Oleg: