Question 1. Does Treasury think, as the writer indicates, that the combined flow of dollars to Panama banks is actually double what is reported?

Answer. Published data on capital flows to Panama are presented in terms of net flows or in terms of changes in assets and liabilities. Data are not available on gross flows. Thus the Treasury is not in a position to evaluate the accuracy of the writer's statement. The most recent data on bank flows to Panama are contained in the answer to Representative Snyder's third question relating to the London Times article.

Question 2. The article indicates that seven (at that time) Colombian banks operate in Panama to aid Colombian businessmen who want to avoid red tape of their own country's government regulations on business. How does this serve the best interest of the Colombian government and the people as a whole? Question 3. What is the attitude of that government towards this practice? Answer. These questions were checked with the State Department and neither Treasury nor State has any information on the operation of Colombian banks in Panama. We are therefore not in a position to provide an informed answer to these questions.

Question 4. What other nations' banks have been set up in Panama for similar purposes and what is the attitude of those nations' governments?

Answer. The Treasury and State Departments do not have information on banks of third countries set up in Panama "to avoid red tape of their own country's government regulations on business," and cannot comment on the attitude of their governments.

Question 5. The article states "the borrowers... may be entrepreneurs buying goods here that they hope to smuggle into a Central or South American country." Is the U.S. another destination?

Question 6. Since, as Maidenberg states, "Panama's traditional wide-open business climate and her unusual geographic position have long made this nation of 1.5 million a major trading center for legitimate and contraband goods,"

(a) List the major items of contraband known over the years to have been smuggled in and out of Panama.

(b) Cite those, and their estimated annual amounts, destined for the U.S. Question 7. What role has the Panama Canal played in contraband traffic to the United States?

Answer. We will attempt to respond to these questions for the record as soon as possible.

[Subcommittee note: Answers to Question 5, 6 and 7 were not forthcoming. See Appendix D, cover letter.]

IX

Murray N. Rothbard, Professor of Economics at the Polytechnic Institute of New York, wrote an article in "Inquiry" dated December 5, 1977, entitled, "The Treaty that Wall Street Wrote".

THE TREATY THAT WALL STREET WROTE

(By Murray N. Rothbard)

IF YOU THINK THE NEW PANAMA CANAL TREATY MEANS AN END TO THE BIG STICK AND DOLLAR DIPLOMACY-THINK AGAIN

The Panama Canal question has already established itself as the hottest political issue for the coming year. Ronald Reagan, who almost rode to the Republican nomination last year on a promise to keep the canal, is back again, leading the powerful forces opposing the new Carter treaties with the government of Panama. Alert to the polls that show Americans overwhelmingly opposed to giving up the canal, the Republican National Committee and most Republicans across the country have gleefully seized upon this issue, thus going flatly against the counsel of former President Ford, who vigorously supports the treaty.

In the liberal and "moderate" press, the contending forces are lined up in an all-too-familiar morality play. Opposed to the treaty are reactionaries and jingoists, emotionally and irrationally devoted to the mystique of American "sovereignty" in a foreign land; in its favor are sensible and moderate internationalists, people who believe in friendly cooperation between the United States and Third World nations, and who wish to jettison the last remnants of a naive and outdated American imperialism left over from the innocent if clumsy swag. gering of Theodore Roosevelt. What could be a more clear-cut moral lineup: for

the treaty all the Good Guys, from Carter to Ford to the New York Times and the Washington Post; against, all the certified Bad Guys from Reagan to the American Conservative Union to the John Birch Society?

But you can't always tell all about the game from a list of the players; and there is more to be said than the standard account in the Establishment media. The Reaganite bluster about sovereignty can easily be dismissed; there is, however, a more important question about the new Panama treaty: Does it really abandon U.S. imperial domination of the canal and the Canal Zone? Does the treaty really turn this area of Panama back to the Panamanins? If we consider the treaty in the light of these questions rather than in relation to jingoist notions, we will come up with a very different view of the big political issue of the year.

Particularly revealing are the statements of high American officials and other advocates in assuring the American public of the fallacy of right-wing fears about the treaty. Thus, Henry Kissinger announced his "strong view" that the treaty "is in the national interest of the United States." Kissinger went on to explain that "the new treaty marks an improvement over the present situation in that it assures continuing, efficient, nondiscriminatory, and secure access to the Panama Canal with the support of the countries of the Western Hemisphere instead of against their opposition and eventually their harassment." (New York Times, August 18, 1977.) In short, it is better to stay in more subtly and induce Panama and the rest of the world to support our dominion, than to stay in nakedly and face the hostility of the Panamanians and most other nations.

In his public statement announcing the agreement on the basic elements of the Panama treaty, President Carter stressed that he and the Joint Chiefs of Staff agreed that the pact will be "important to our long-term national interests." Specifically, the United States will formally continue in charge of the canal until the year 2000: "We will have operating control and the right to protect and defend the Panama Canal with our military forces until the end of the century." But even after that, "we will have the right to assure the maintenance of the permanent neutrality of the canal as we may determine necessary. Our warships are guaranteed the permanent right to expeditious passage without regard to propulsion or cargo." (New York Times, August 13, 1977.) Or, as the Carter administration's summary of the Panama agreement put it: "The U.S. will have the permanent right to defend the neutrality of the canal from any threat, for an indefinite period." President Carter himself has stated flatly, "If it is attacked by any means, I will defend it." He has assured the public that “if we ever have to go into Panama, there will be no legal question under these treaties." (Los Angeles Times, October 23, 1977.) In short, there are no limits in this treaty on the actions that the United States will be able to take, even after the year 2000, to preserve what it deems to be the "neutrality" of the canal.1

Thus, in exchange for the mystique of sovereignty and formal national ownership, the United States has acquired the agreement of the Panamanian government in its perpetual ultimate control of the canal. Or, as Ellsworth Bunker, one of the two American negotiators of the treaty-the other was Sol Linowitzadmonished the critics: "It is not ownership but use that is important." He could have added the fact that ability to use and control property is precisely the function of ownership.

When the new treaty was announced, Bunker and Linowitz spelled out one of its major advantages to U.S. dominion. As the August 13 New York Times phrased it, Bunker and Linowitz "said they thought that continued operation of the canal was threatened more by possible Panamanian sabotage or disorders that might follow a failure to carry out the agreement than by external threats that they asserted the United States would be free to curb."

But particularly fascinating is the argument on behalf of the Panama treaty by the most sophisticated of American conservative organs, National Review. National Review begins its editorial by assuaging the hurt to the "national pride"

1 For a confirming view, see the report on the broadcast by Sol Linowitz over the Voice of America, in Harry B. Ellis, "Carter Still Presses for Canal Treaty," Christian Science Monitor, August 31, 1977.

2 Actually, it is unclear that even our existing status in Panama is one of sovereignty and ownership over the Canal Zone. The 1903 treaty with Panama merely grants to the United States "in perpetuity the use, occupation, and control of a zone. "The Supreme

Court of the Canal Zone on May 6, 1907, in the case of Canal Zone v. Coulson, ruled, quite in the spirit of the treaty, that "the United States is not owner in fee of the Canal Zone; it has only the use and occupation as long as it complies with the terms of the treaty." It is true, however, that the U.S. Supreme Court chose to disregard such limits in the same year, asserting that "the title of the United States to the Canal Zone is not imperfect. (Wilson v. Shaw.)

of conservatives, and assuring their conservative followers that it understands their "soul-searing" pain. Then, NR proceeds to instruct its constituency in the realities of today's world. "Conservatives are realists, and here is a test of realism." Specifically, and echoing Kissinger, Linowitz, and Bunker, NR points out that "our own military men support the treaty on the ground that the canal can be better defended with the treaty than without." First of all, under the new treaty Panama agrees that the United States may continue to use its air and sea forces to defend the Panama Canal against an external attack. NR then turns to the "most realistic kind" of military threat to U.S. rule over the canal, namely "guerrilla warfare, and defense against that is very difficult under any circumstances." And then NR adds the clincher: "One thing is sure-it could be done far better together with Panama than without it; or worse, against it." In short, the Panamanian government would now be ranged against such guerilla warfare rather than overtly or covertly supporting it.

Addressing a common fear of the treaty critics, NR supposes that Panama violates the treaty. In that case, the magazine concludes, "we will still be in a position to act if and when necessary. And what is most important, we would almost surely be in a stronger position to act at some later time in response to an actual threat or violation of the treaty than we would be now in defense of our own refusal to ratify." ("The Proposed Treaty: Preliminary Thoughts." National Review, September 2, 1977.) In other words, far better for the United States to exercise its power in defense of a treaty-and therefore in command of wide international support-than in isolation after refusing to ratify.

In a similar vein, Carter's national security adviser, Zbigniew Brzezinski, told a White House meeting of prominent Georgians and Floridians that “if he were in the Kremlin and he could think of anything that . . . might alienate countries against the United States even further, it would be defeat of these treaties." (Don Irwin, "Rusk Sees Chance of War in Panama," Los Angeles Times, August 31, 1977.)

A common conservative charge is that the treaty will hand over the canal to a "Communist" Torrijos regime in Panama. Far from being a "Communist," however, General Torrijos is in hot water in his own country, especially among the antiimperialist critics on the Left."

Panamanian newspapers were highly reluctant to reveal to their readers the details of the agreement with the United States. The New York Times reported that "rather than expressing joy at the culmination of the long negotiations, most Panamanians appeared today to be uncertain and confused. . . Addressing a meeting of the Panamanian Student Federation, that country's chief negotiator of the agreement, Dr. Romulo Escobar Bethancourt, admitted that many aspects of the treaty were "bad" and even "ugly"; in defense, Escobar demagogically posed the only alternative to the treaty as a "confrontation" with the United States and the "massacre of the best of our youth."

The Panama government announced its intention to hold an early national plebiscite to decide on ratification of the treaty, but it is clear that the plebiscite, which endorsed the treaty by 2 to 1, was held in the midst of a propaganda campaign branding any criticism of the treaty as "treason against our fatherland." More important, it was held while many of the leading opponents of the treaty were languishing in exile. For, over the past three years, the Torrijos regime has systematically deported its most outspoken critics, including likely opponents of the new treaty, to Miami, Mexico, and Venezuela. (New York Times, August 11.)

Indeed, one of the major unsuccessful demands of the Panamanian Left was that Torrijos keep his promise to declare a general amnesty for political prisoners, and that he allow all the exiles to return to Panama and challenge the treaty. In the light of this situation, it must be considered a joke in questionable taste for Dr. Escobar to condemn the Panamanian exiles in Miami for urging U.S. senators vote against the treaty. Obviously, a simple way for Panama to put a stop to this activity would be to allow the exiles to return to their Panamanian homeland.

The other major charge by the Right is that Torrijos is a "dictator." This is true enough, but the charge comes with peculiar ill-grace from a movement that has expressed its devoted admiration for every dictatorial and fascist regime in the world, from South Africa to Chile, South Korea, and the Philippines.

Moreover, a full and fair debate over the plebiscite was precluded by the Torrijos regime's iron control of the media. Every one of the newspapers and television stations is owned or controlled by the government, and the radio stations are also effectively ruled by the regime.

Press censorship and restrictions on public assembly were officially lifted during the 40 days prior to the plebiscite, but Torrijos refused to grant any additional time for public debate. As Marlise Simons reported in the Washington Post of October 13, "Officials say that Panamanians know enough about the treaties and only troublemakers want more time."

Mounting criticism of the treaty has come from conservative as well as leftist critics of the Torrijos regime. The conservative Movement of Independent Lawyers of Panama has denounced the treaty for approving the "first American intervention in our country of the twenty-first century." The MILP went on to assert that "the ordinary Panamanian will easily understand that . . . there will be a new version-perhaps slightly less grotesque than before of the hated American perpetuity on the canal issue. Both the Christian Democratic and Social Democratic parties also came out against the treaties, "pointing out that in 1926 and again in 1947, Panama had rejected drafts attempting to legalize the U.S. military bases [there].” (Washington Post, October 13.) And Panama's Trotskyist Revolutionary Socialist League made the significant statement that the present would be a particularly auspicious time to confront American Imperialism: "Today we have the eyes of the world on us, today we have international support, today imperialism has been weakened by Watergate and Vietnam." (New York Times, August 11.)

On September 6, the Panamanian Left made known its displeasure with the treaty; 1500 students demonstrated in Panama City against the "dirty treaty" and its provisions for maintaining American military bases and perpetual rights of American intervention. The protest was stamped out by Torrijo's National Guard, which injured dozens of demonstrators and arrested over 30 students. If the Panama treaties merely provide a sophisticated fig-leaf for continued American domination of the canal, why then did the Torrijos regime sign the accord, in face of the domestic troubles that would predictably ensue? One answer to this question might be that venerable motive, money-a vital aspect of the treaty is U.S. agreement to sugarcoat the pill by multiplying many fold the annual revenues going into the coffers of the Panamanian treasury. Currently, the U. S. government pays $2.3 million a year to Panama for use of the canal. The treaty proposes to increase this amount by giving Panama $0.30 per ton out of the current canal toll of $1.29 per ton. With corrections for inflation, this share is expected to amount to a revenue of $40-$50 million per year. In addition, operational revenues will be paid for such services as ship repair and dockage; this is expected to amount to $20 million per year.

But this is far from all. The United States also pledges to undertake a five-year program of supplying financial goodies to Panama: $200 million of ExportImport Bank credits; $75 million in Agency for International Development housing credits; and $20 million in loan guarantees from the Overseas Private Investment Corporation. This amounts to a five-year boodle of nearly $300 million, which, added to $70 million per annum, makes a handsome subsidy package, and perhaps worth the risk of a few student demonstrations.

Apparently, the Carter administration feels that it can sell this package to the American public with the argument that none of this money will come directly out of taxes; the annual sum will initially come out of the toll revenues of the U.S.-government-owned Panama Canal Company, and later out of the budget of the new, frankly governmental American agency which is scheduled to replace the Panama Canal Company in running the canal. The five-year plan, too, consists of loans and loan guarantees. While all this is ultimately guaranteed by the U.S. taxpayer, the subsidy package, being long-run and indirect, might be slipped by the American taxpayer without causing an outcry.

Focusing on the money enables us to ponder the seemingly curious phenomenon that American big business, unlike our conservative ideologues, is overwhelmingly in favor of the Panama treaty. The advocates include such influential business leaders as Irving S. Shapiro of du Pont, head of the Business Roundtable, and such groups as the National Association of Manufacturers. One general reason for this support is that these sophisticated business groups understand and welcome the treaty as a more subtle and acceptable form of American

imperialism. A more specific reason is the effect the treaty will have for those firms with trade and investment in Latin America. Rejection of the treaty might mean anti-U.S. unrest throughout the region and might have a "destabilizing" effect on American investments there. Private U.S. investment in Latin America is estimated at $24 billion, while total two-way U.S. trade there amounted to $34 billion in 1976. As John M. Goshko reported in the August 22 Washington Post:

"These economic factors could produce some startling surprises about where different interest groups line up in the battle.

"There is the strong likelihood that the normally conservative, Republicanleaning business establishment will be solidly on the side of a Democratic president...

"Where the business community is concerned, Carter administration strategists contend, the case for supporting the treaties seems ironclad. In fact, the administration privately is counting on big business to provide some potentially crucial help in getting the treaties past the hurdle of Senate ratification."

Already, Henry R. Geyelin, president of the Council of the Americas, a nonprofit business association comprising every major U.S. firm doing business in Latin America, has testified in behalf of such a treaty before the House Panama Canal Subcommittee.

But explanations in terms of groups or classes are never as rewarding as the concrete unveiling of specific monetary interests. Thus, there needs to be further investigation of which U.S. business or financial groups might be benefiting specifically from the hundreds of millions of dollars that the U.S. government will be pouring into Panama. One clear group of beneficiaries is the American exporters who will receive orders from the $300-million package. U.S. foreign aid is a clever mechanism by which American taxpayers and the U.S. government subsidize American export firms: The dollars are extracted from the taxpayer and are then funneled by the U.S. government to the foreign recipients, who in turn spend the dollars on American exporters. In this case the process is clear: The Panama treaty explicitly applies "Buy American" provisions to the aid, making sure that the American exporters receive the dollars as rapidly as possible.

But there is another use that the Panamanian government will have for the U.S. aid, one that may prove to be a more intimate lead to the underlying reason for concluding this treaty. Panama is heavily in debt to U.S. banks, and the influx of hundreds of millions of dollars will certainly ease its burden in paying the interest and principal on the debt; it may even save Panama from bankruptcy and the American banks from severe embarrassment. We must therefore contemplate the possibility that the nub of the Panama treaty is a covert bail-out operation, by which the American taxpayer is being gulled into subsidizing, and even salvaging, a handful of U.S. banks.

This suggestion does not seem very outrageous if we consider the history of how the United States got involved with the Panama Canal in the first place. It's not just, as Senator Hayakawa (R.-Cal.) said, that "we stole it [the canal] fair and square." Or that President Theodore Roosevelt engineered a phony "revolution" in 1903, by which employees of the American-owned railroad declared the Panama section of Colombia independent and American ships prevented Colombia from putting down the rebellion. The similarity with the present theme comes from the hidden motive behind Teddy Roosevelt's flamboyant actions.

In order to build the canal, the United States felt that it had to purchase the right to do so from the bankrupt French-owned company that had failed in its attempt to dig the canal. Teddy Roosevelt explained that he acted out of indignation at the Colombian government's insisting on a $10-million "holdup" of American taxpayers for the right to build a canal in Panama. Actually, the U.S. government was perfectly willing to pay $40 million to the French Panama Canal Company. The $10 million to Colombia would have come, not from the taxpayers, but out of the $40-million cut going to the French company.

Why, then, did Teddy Roosevelt swing the big stick and foment a phony revolution in Colombia, in order to save $10 million for the coffers of a bankrupt French-owned company? The answer, which came out years later, is that the "French" company was French no longer; its shares had been secretly bought up shortly before by a syndicate of Wall Street bankers, headed by J. P.