Panama: Political and Economic Conditions and U.S. Relations
Panama: Political and Economic
Conditions and U.S. Relations
Updated October 14, 2008
Mark P. Sullivan
Specialist in Latin American Affairs
Foreign Affairs, Defense, and Trade Division
Panama: Political and Economic
Conditions and U.S. Relations
With four successive elected civilian governments, the Central American nation
of Panama has made notable political and economic progress since the 1989 U.S.
military intervention that ousted the regime of General Manuel Noriega from power.
The current President, Martín Torrijos of the Democratic Revolutionary Party (PRD),
was elected in May 2004 and inaugurated to a five-year term in September 2004.
Torrijos, the son of former populist leader General Omar Torrijos, won a decisive
electoral victory with almost 48% of the vote in a four-man race. Torrijos’ electoral
alliance also won a majority of seats in the unicameral Legislative Assembly.
The most significant challenges facing the Torrijos government have included
dealing with the funding deficits of the country’s social security fund; developing
plans for the expansion of the Panama Canal; and combating unemployment, poverty,
and crime. In 2006, the government unveiled its ambitious plans to build a third lane
and new set of locks that will double the Canal’s capacity, and the project began in
September 2007. Panama’s service-based economy has been booming in recent
years, but income distribution remains highly skewed, with large disparities between
the rich and poor.
The United States has close relations with Panama, stemming in large part from
the extensive linkages developed when the canal was under U.S. control and Panama
hosted major U.S. military installations. The current relationship is characterized by
extensive counternarcotics cooperation, assistance to help Panama assure the security
of the Canal, and negotiations for a bilateral free trade agreement (FTA). The United
States is providing an estimated $7.7 million in foreign aid FY2008, and Panama is
expected to receive at least $2.9 million in FY2008 supplemental assistance under
the Mérida Initiative. For FY2009, the Administration requested $11.6 million in
bilateral foreign aid, and Panama would also receive a portion of Mérida Initiative
for Central America in FY2009.
In June 2007, the United States and Panama signed a bilateral FTA, which
included enforceable labor and environmental provisions that had been agreed upon
in a bipartisan deal between U.S. congressional leaders and the Bush Administration
in May 2007. Panama’s Legislative Assembly overwhelmingly approved the
agreement in July 2007. The U.S. Congress had been likely to consider
implementing legislation in the fall of 2007, but the September 1, 2007 election of
Pedro Miguel González to head Panama’s legislature for one year delayed
consideration. González is wanted in the United States for his alleged role in the
murder of a U.S. serviceman in Panama in 1992. His term expired September 1,
2008, and González did not stand for re-election. The Bush Administration has
wanted Congress to consider FTAs in the order that they were negotiated, which puts
the controversial FTA with Colombia ahead of Panama. The Administration has not
submitted implementing legislation to Congress for the Panama FTA, and Congress
has not taken up implementing legislation on its own. For more, see CRS Report
RL32540, The Proposed U.S.-Panama Free Trade Agreement, by J.F. Hornbeck.
Most Recent Developments..........................................1
From the Endara to the Moscoso Administration.....................3
Endara Government (1989-1994).............................3
Pérez Balladares Government (1994-1999)......................4
Moscoso Government (1999-2004)............................4
Torrijos Government (2004-2009).................................5
May 2004 Elections........................................5
Challenges for the Torrijos Government........................6
May 2009 Elections............................................7
Human Rights ................................................8
Background on the 1989 U.S. Military Intervention..................11
Overview of Current U.S.-Panamanian Relations....................11
Status of Manuel Noriega..................................14
Drug Trafficking and Money Laundering..........................15
U.S. Trade Relations and a Potential Free Trade Agreement...........17
Operation and Security of the Panama Canal.......................19
Historical Background and the Panama Canal Treaties............19
Canal Transition and Current Status..........................20
Canal Expansion Project...................................21
Privatization of Two Panamanian Ports and the China Issue.......22
Contamination of Firing Ranges and San Jose Island ................24
Former U.S. Military Presence in Panama..........................25
Former Role and Presence of U.S. Troops......................26
U.S. Congressional Views on U.S. Military Presence.............28
Panamanian Views on U.S. Military Presence..................29
List of Figures
Figure 1. Map of Panama..........................................30
Panama: Political and Economic
Conditions and U.S. Relations
Most Recent Developments
On September 17, 2008, President Bush met with President Torrijos at the
White House, where talks included the status of the bilateral free trade agreement.
On September 7, 2008, former housing minister Balbina Herrera of the ruling
Democratic Revolutionary Party (PRD) won her party’s presidential primary for the
May 6, 2009 presidential election. In the primary, Balbina narrowly defeated Juan
Carlos Navarro, the mayor of Panama City. In the presidential election, Herrera will
compete against businessman and former government minister Ricardo Martinelli of
the Democratic Change (CD) party, businessman Juan Carlos Varela of the
Panameñista Party (PP), and former President Guillermo Endara running as the
candidate of the Fatherland’s Moral Vanguard Party.
On September 1, 2008, Pedro Miguel González, wanted in the United States for
his alleged role in the murder of a U.S. serviceman in Panama in 1992, ended his
one-year term as president of Panama’s Legislative Assembly, and a new Assembly
president was elected, Raúl Rodríguez of the ruling Democratic Revolutionary Party
(PRD). González’s tenure as president had resulted in the delay of U.S.
congressional consideration of implementing legislation for a free trade agreement
In August 2008, President Torrijos approved five decree laws reorganizing
Panama’s law enforcement and security services. This included the creation of a
National Border Service and a National Intelligence and Security Service (SENIS).
The decrees have been controversial, with critics fearing a re-militarization of the
country. Torrijos maintains that the new intelligence agency and border service are
needed to combat growing drug crimes.
On July 6, 2008, businessman Juan Carlos Varela easily won the presidential
primary election as a candidate for the opposition Panameñista Party.
On May 19, 2008, lawyers for former Panamanian leader Manuel Noriega asked
a U.S. appeals court to block his extradition to France on drug-money laundering
charges. In January, a U.S. federal judge denied a request to block his extradition.
Noriega was scheduled to be released on September 9, 2007, from federal prison in
Miami after being imprisoned for nearly 18 years on drug trafficking charges, but
will remain in U.S. custody until he exhausts his appeals. Noriega wants to be
returned to Panama, where he faces 20 years for conviction on a variety of charges.
On September 3, 2007, Panama officially launched its Canal expansion project,
with a ceremony led by former President Jimmy Carter, whose Administration
negotiated the Panama Canal Treaties.
On September 1, 2007, Panama’s Legislative Assembly elected Pedro Miguel
González of the ruling PRD as head of the legislature for a one-year term. The State
Department issued a statement expressing deep disappointment about the election of
González because of his indictment in the United States for the murder of U.S. Army
Sergeant Zak Hernández and the attempted murder of U.S. Army Sergeant Ronald
Marshall in June 1992. According to the State Department, there is an outstanding
U.S. warrant for his arrest. Although González was acquitted for the Hernández
murder in 1997, observers maintain that the trial was marred by jury rigging and
witness intimidation. The selection of González delayed U.S. congressional
consideration of the FTA with Panama.
On July 11, 2007, Panama’s unicameral Legislative Assembly overwhelmingly
approved the bilateral U.S.-Panama free trade agreement by a vote of 58 to 3, with
On June 28, 2007, Panama and the Unites States signed a bilateral free trade
agreement, which includes enforceable labor and environmental provisions pursuant
to the bipartisan trade deal negotiated between congressional leaders and the Bush
Administration in May 2007.
From June 3-5, 2007, the General Assembly of the Organization of American
States (OAS) held its 37th regular session in Panama City focused on the theme of
“Energy for Sustainable Development.”
On May 10, 2007, congressional leaders and the Bush Administration
announced a bipartisan trade deal whereby pending free trade agreements, including
the Panama free trade agreement, would include enforceable key labor and
On February 16, 2007, President George W. Bush met with President Torrijos
in Washington D.C., with talks focused on the pending free trade agreement and the
Canal expansion project.
On February 12, 2007, Panama and the United States signed a declaration of
principles intended to lead to Panama’s participation in the Container Security
Initiative (CSI), operated by the Department of Homeland Security, and the
Megaports Initiative, run by the Department of Energy.
On December 19, 2006, the United States and Panama announced the
conclusion of negotiations for a free trade agreement, but the United States Trade
Representative maintained that the agreement would still be subject to additional
discussions on labor in order to ensure bipartisan support in the 110th Congress.
On November 7, 2006, Panama was elected to hold a two-year rotating Latin
America seat on the U.N. Security Council. The country had emerged as a consensus
candidate on November 1, 2006, after 47 rounds of voting between Guatemala and
Venezuela. During those rounds, Guatemala, the U.S.-backed candidate, had
received about 25-30 votes more than Venezuela, but neither country received the
two-thirds vote needed for the seat. Many observers attribute Venezuela’s defeat, at
least in part, to President Hugo Chávez’s strong anti-American speech before the
U.N. General Assembly in September. In the context of Panama’s close relations
with the United States, the election of Panama to the seat bodes well for U.S.
interests at the United Nations compared to the potential of Venezuela winning the
On October 22, 2006, Panamanians approved the Torrijos government’s Canal
expansion project with over 78% support in a national referendum.
In mid-October 2006, the Centers for Disease Control and Prevention (CDC)
helped Panama solve the mystery of recent deaths ultimately traced to contaminated
cough syrup from China. At least 100 deaths were traced to the contaminant.
Panama has made notable political and economic progress since the December
1989 U.S. military intervention that ousted the military regime of General Manual
Antonio Noriega from power. The intervention was the culmination of two and a
half years of strong U.S. pressure against the de facto political rule of Noriega,
commander of the Panama Defense Forces. Since that time, the country has had four
successive civilian governments, with the current government of President Martín
Torrijos elected in May 2004 to a five-year term. Inaugurated on September 1, 2004,
Torrijos is the son of former populist leader General Omar Torrijos. His electoral
alliance, led by the Democratic Revolutionary Party (PRD), also won a majority of
seats in the unicameral Legislative Assembly. Jockeying has already begun for
Panama’s next presidential and legislative elections scheduled for May 2009.
From the Endara to the Moscoso Administration
Endara Government (1989-1994). Before the U.S. intervention, Panama
had held national elections in May 1989, and in the presence of a large number of
international observers, the anti-Noriega coalition, headed by Guillermo Endara,
prevailed by a three-to-one margin. The Noriega regime annulled the election,
however, and held on to power. By the fall, the military regime was losing political
power and relied increasingly on irregular paramilitary units, making the country
unsafe for U.S. forces and U.S. citizens. On December 20, 1989, President George
H.W. Bush ordered the U.S. military into Panama “to safeguard the lives of
Americans, to defend democracy in Panama, to combat drug trafficking, and to
protect the integrity of the Panama Canal Treaty.” Noriega was arrested on January
As a result of the intervention, the opposition coalition headed by Guillermo
Endara that had won the May 1989 election was sworn into office. During his term,
President Endara made great progress in restoring functioning political institutions
after 21 years of military-controlled government, and under his administration, a new
civilian Public Force replaced Noriega’s Panama Defense Forces. But Endara had
difficulties in meeting high public expectations, and the demilitarization process was
difficult, with some police and former military members at times plotting to
destabilize, if not overthrow, the government.
Pérez Balladares Government (1994-1999). In May 1994, Panamanians
went to the polls to vote in presidential and legislative elections that observers called
the freest in almost three decades. Ernesto Pérez Balladares, candidate of the former
pro-Noriega Democratic Revolutionary Party (PRD), who led a coalition known as
“United People,” won with 33% of the vote. Placing a surprisingly strong second,
with 29% of the vote, was the Arnulfista Party (PA) candidate, Mireya Moscoso de
Gruber, heading a coalition known as the “Democratic Alliance.”
In the electoral race, Pérez Balladares campaigned as a populist and advocated
greater social spending and attention to the poor. He stressed the need for addressing
unemployment, which he termed Panama’s fundamental problem. Pérez Balladares
severely criticized the Endara government for corruption, and he was able to
overcome attempts to portray him as someone closely associated with General
Noriega. (Pérez Balladares served as campaign manager during the 1989 elections
for candidate Carlos Duque, who the Noriega regime had tried to impose on the
electorate through fraud.) Instead, Pérez Balladares focused on the PRD’s ties to the
populist policies of General Omar Torrijos, whose twelve-year (1969-1981) military
rule of Panama ended when he died in a plane crash in 1981.
President Pérez Balladares implemented an economic reform program and
worked closely with the United States as the date of the Panama Canal turnover
approached. Under his government, Panama and the United States held talks on the
potential continuation of a U.S. military presence in Panama beyond the end of 1999
(the date Panama was to assume responsibility for defending the Canal). Ultimately
negotiations ended without such an agreement. (For more see “Former U.S. Military
Presence in Panama” below.)
Although Panama’s constitution does not allow for presidential reelection,
President Pérez Balladares actively sought a second term in 1999. In 1997, the PRD
had begun studying the possibility of amending the constitution to allow a second bid
for the presidency in the May 1999 elections. Ultimately, a referendum was held on
the issue in August 1998 but failed by a large margin.
Late in his administration, Pérez Balladares became embroiled in a scandal
involving the illegal sale of visas to Chinese immigrants attempting to enter the
United States via Panama. As a result, U.S. officials cancelled the former president’s1
U.S. tourist visa in November 1999.
Moscoso Government (1999-2004). In her second bid for the presidency,
Arnulfista Party (PA) candidate Mireya Moscoso was victorious in the May 1999
elections. Moscoso, who was inaugurated September 1, 1999, for a five-year term,
1 “Ex-Leader of Panama Linked to Visa Sales,” Washington Post, November 27, 1999;
Pablo Bachelet, “U.S. Uses Visas to Combat Corruption,” Miami Herald, February 21,
captured almost 45% of the vote and soundly defeated the ruling PRD’s candidate
Martin Torrijos (son of former populist leader Omar Torrijos), who received almost
38% of the vote. Until March 1999, Torrijos had been leading in opinion polls, but
as the election neared, the two candidates were in a dead heat. A third candidate,
Alberto Vallarino, heading a coalition known as Opposition Action, received about
President Moscoso, a coffee plantation owner and Panama’s first female
president, ran as a populist during the campaign, promising to end government
corruption, slow the privatization of state enterprises, and reduce poverty. She also
promised to ensure that politics and corruption did not interfere with the
administration of the Canal. The memory of her husband Arnulfo Arias, a nationalist
who was elected three times as president, but overthrown each time, was a factor in
the campaign, particularly since Arias was last overthrown in 1968 by General Omar
Torrijos, the father of the PRD’s 1999 and 2004 presidential candidate.
Although Moscoso took the presidency, the PRD-led New Nation coalition won
a majority of 41 seats in the 71-member unicameral Legislative Assembly. Just days
before her inauguration, however, Moscoso was able to build a coalition, with the
support of the Solidarity Party, the Christian Democratic Party (which later became
the Popular Party), and the National Liberal Party, that gave her government a one-
seat majority in the Assembly. In August 2000, the Christian Democrats deserted the
coalition and formed an alliance with the principal opposition, the PRD. However,
corruption scandals in 2002 led to five PRD legislators defecting to support the
Moscoso government, once again giving the President majority support in the
As noted above, Moscoso was elected as a populist, with pledges to end
government corruption and reduce poverty, but her campaign pledges proved difficult
to fulfill amid high-profile corruption scandals and poor economic performance. As
a result, the President’s popularity declined significantly from a 70% approval rating
when she first took office in 1999 to only 15% in 2004.2
Torrijos Government (2004-2009)
May 2004 Elections. On May 2, 2004, Panama held elections for president,
as well as for a 78-member Legislative Assembly. In the presidential race, Martín
Torrijos of the PRD won a decisive victory with 47.5% of the vote, defeating former
President Guillermo Endara, who received 30.6% of the vote, and former Foreign
Minister José Miguel Alemán, who received 16.4% of the vote. Torrijos’ electoral
alliance also won a majority of seats in the unicameral Legislative Assembly, 43 out
of 78 seats, which should provide him with enough legislative support to enact his
agenda. Elected at 40 years of age, Torrijos spent many years in the United States
and studied political science and economics at Texas A&M University. He served
four years under the Pérez Balladares government as deputy minister of interior and
2 “Toss Up Between Torrijos and Endara,” Caribbean and Central America Report,
February 17, 2004.
justice, and as noted above, became the PRD’s presidential candidate in the 1999
Leading up to the election, Torrijos had been topping public opinion polls, with
42%-49% support. In the campaign, he emphasized anti-corruption measures as well
as a national strategy to deal with poverty, unemployment, and underdevelopment.
He was popular among younger voters and had a base of support in rural areas.
Torrijos maintained that his first priority would be job creation.3 He called for the
widening of the Canal, a project that would cost several billion dollars, and would
seek a referendum on the issue. During the campaign, all three major candidates
supported negotiation of a free trade agreement with the United States, maintaining
that it would be advantageous for Panama. Endara and Alemán appeared to
emphasize the protection of some sensitive Panamanian sectors such as agriculture,
while Torrijos stressed that such an agreement would make Panama’s economy more
competitive and productive.4
Challenges for the Torrijos Government. The most significant
challenges facing the Torrijos government have included dealing with the funding
deficits of the country’s social security fund (Caja de Seguro Social, CSS);
developing plans for the expansion of the Panama Canal; and combating
unemployment, poverty, and increasing crime.
After protests and a protracted strike by construction workers, doctors, and
teachers in June 2005, the Torrijos government was forced to modify its plans for
reforming the social security fund. After a national dialogue on the issue, Panama’s
Legislative Assembly approved a watered-down version of the original plan in
December 2005. The enacted reform did not raise the retirement age but will
gradually increase required monthly payments into the system and introduces a dual5
pension system that combines aspects of privatization with the current system. In
mid- December 2007, an almost six-week strike by doctors in the public healthcare
system was resolved, with the government offering a 26.7% increase in salaries
equivalent and a commitment not to privatize the system.6
The government unveiled in April 2006 its ambitious plans to build a third set
of locks that will allow larger post-Panamax ships to transit the Canal. Panama’s
Cabinet approved the expansion plan on June 14, and the Legislative Assembly
approved it on July 10, 2006. A referendum on the expansion project took place on
October 22, 2006, with 78% supporting the project. The referendum was viewed as
a victory for the Torrijos government, which advanced the project as integral to
3 Frances Robles, “Ex-leader’s Son Wins Presidency in Panama,” Miami Herald, May 3,
4 “Panama: Presidential Candidates Remark on FTA with US,” La Prensa (Panama), January
5 Marion Barbel, “Panamanian Congress Approves Modified Social Security Reform,”
World Markets Research, December 22, 2005
6 “Panama: Country Report,” Economist Intelligence Unit, January 2008, p. 2.
Panama’s future economic development, and one that helped restore the President’s
The Torrijos government’s agenda also has included judicial, penal and anti-
corruption reforms, as well as an economic development strategy to target poverty
and unemployment. In May 2008, a new penal code went into effect that takes a
tougher stance on crime by increasing sentences on serious crimes and introducing
new categories of crimes, including environmental crimes and thefts of energy, water,
or telecommunications services.8
In early July 2008, Panama’s Legislative Assembly gave President Torrijos
powers to carry out security sector reforms over the next two months. Although there
was considerable opposition by civil society groups, President Torrijos ultimately
approved five decree laws in August reorganizing Panama’s law enforcement and
security services. The decrees reorganize the National Public Safety and Defense
Council, and establish three new agencies: a National Aeronaval Service (which
merges the existing National Air Service and the National Maritime Service), a
National Border Service, and a National Intelligence and Security Service (SENIS).
Although Torrijos initially stated that he would submit the more controversial
decrees to the Legislative Assembly for debate, especially the creation of SENIS, the
President subsequently moved ahead with the decrees. Critics fear a re-militarization
of Panama and that the establishment of SENIS is a recreation of a military
intelligence unit involved in human rights abuses during the Noriega dictatorship.
Torrijos maintains that the new intelligence agency and border service are needed to
combat growing drug crimes.9
In terms of tackling poverty, in June 2008, the government Torrijos extended
its “Red de Oportunidades” social support program to include the elderly living in
extreme poverty, and in July 2008, the government announced that monthly cash
payments under the program would increase.10 Rising inflation, however, has made
efforts to combat poverty more difficult. Consumer price inflation is forecast to
average over 10% in 2008.11
May 2009 Elections
Panama is scheduled to hold legislative and presidential elections on May 6,
2009. Since the Constitution does not allow for re-election, President Torrijos cannot
be a candidate. As a result, jockeying began in early 2008 among presidential
7 Richard Lapper, “Good Luck, Good Timing,” Financial Times, July 24, 2007.
8 “Panama Unveils New Penal Code,” Latin American Weekly Report, May 29, 2008.
9 “Panama: Torrijos to Undertake Security Reform by Decree,” Latin American Weekly
Report, July 3, 2008; “Torrijos Forges Ahead with Security Decrees,” Latin American
Regional Report, Caribbean and Central America, September 2008.
10 “Panama: Country Report,” Economist Intelligence Unit, July 2008, p. 11.
11 “Panama: Country Report,” Economist Intelligence Unit, September 2008, p. 7.
For the presidential race, there are four major candidates. Businessman Juan
Carlos Varela of the opposition Panameñista Party (PP, formerly the Arnulfista Party)
easily won his party’s primary on July 6, 2008. Former housing minister Balbina
Herrera of the ruling Democratic Revolutionary Party (PRD) narrowly won her
party’s presidential primary on September 7, 2008, defeating the mayor of Panama
City, Juan Carlos Navarro by 5%. Business and former government minister Ricardo
Martinelli is running as the candidate of the opposition Democratic Change (CD)
party. Finally, former President Guillermo Endara will run as the candidate of the
Fatherland’s Moral Vanguard Party.
In polls before the PRD primary, Herrera and Martinelli were tied with almost
Analysts maintain that a divided opposition could make it difficult to defeat the
ruling PRD at the polls, especially since the PRD is by far the largest single party in
the country. A unified opposition ticket appears unlikely at this juncture. Some
analysts maintain that since Herrera represents the left-wing of the PRD, she faces
the challenge of reassuring more moderate or conservative members of the PRD who
supported Panama City Mayor Navarro during the primary.13
The Panamanian government generally respects human rights, but, as noted by
the State Department in its 2007 human rights report (issued in March 2008), serious
human rights problems continue in a number of areas. Prison conditions overall
remain harsh, with reported abuse by prison guards, and prolonged pretrial detentions
remained a problem. According to the report, the judiciary is marred by corruption
and ineffectiveness, and is subject to political manipulation. Other serious problems
include discrimination and violence against women, trafficking in persons,
discrimination against indigenous people and other ethnic minorities, and child labor.
Panama had been criticized by the State Department and international human
rights groups for vestiges of “gag laws” used by the government to silence those
criticizing policies or officials, but the legislature repealed these laws in May 2005.
Nevertheless, as noted in the State Department human rights report, the legislature
approved penal code amendments in May 2007 that establish fines or arrests of
journalists who violate the privacy of public officials, recognize criminal libel against
journalists, and allow the government to prosecute journalists for publishing
classified information. The new penal code went into effect in May 2008. The State
Department’s human rights report maintains that 15 past libel cases against
journalists remain pending. It also cites concerns of journalists and human rights
organizations that the government attempts to manipulate the free flow of
information by using advertising funding to reward news organizations that carry
stories favorable to the government.
12 “Herrera Picked as PRD Presidential Candidate,” Latin American Regional Report,
Caribbean and Central America, September 2008.
13 “Panama: Ruling PRD Makes Presidential Pick,” Economist Intelligence Unit, Business
Latin America, October 6, 2008.
In an attempt to redress human rights abuses that occurred under military rule
and to prevent their reoccurrence, the Moscoso government established a Truth
Commission in 2001 to investigate violations under the military regime. The
Commission recommended that the government investigate 33 cases of killings or
disappearances committed during the 1968-1989 period of military rule, some of
which were under review by the end of 2007, however little progress has been made.
In July 2006, just as one of the first human rights trials was approaching an end, a
former military officer implicated in the 1970 killing of activist Heliodoro Portugal
died from an apparent heart attack. There are reportedly 110 human rights cases
involving the torture, incarceration, murder, or disappearance of political activists
under the period of military-dominated government.14
In recent years, violence from the civil conflict in neighboring Colombia has
resulted in hundreds of displaced persons seeking refuge in the neighboring Darién
province of Panama. The Office of the U.N. High Commission for Refugees
(UNHCR) reports that there are some 900 displaced Colombians in Panama under
temporary humanitarian protection. Their presence is restricted to a small area in the
Darién. According to the State Department’s human rights report, many of the
Colombians have lived in Panama for years, have given birth to children in Panama,
and do not want to return to Colombia because of family and cultural ties to local
Panamanian communities. While many of the displaced are Afro-Colombians, there
have also been indigenous people from Colombia who have fled to Panama because
of the violence. In December 2006, Panama recognized 42 members of Colombia’s
Wounaan indigenous group as refugees.15
According to UNHCR, there are almost 1,000 recognized refugees in the
country. In April 2008, UNHCR lauded Panama for the approval of a new law that
will allow long-standing refugees (those residing 10 years or more) the opportunity
to apply for permanent residency. According to UNHCR, the new law will largely
affect refugees from Nicaragua and El Salvador who arrived in Panama during the
Central American conflicts of the 1980s, and will not affect the more recent refugees
With regard to worker rights in Panama, the State Department’s 2007 human
rights report noted that unions and collective bargaining are permitted in export
processing zones (EPZs), but that the International Labor Organization’s Committee
of Experts questioned the government as to whether these workers have the right to
strike. Panama’s law regulating the EPZs does not include arbitration or specify
procedures to resolve labor disputes in the courts. The State Department report also
noted that child labor was a problem, with violations occurring most frequently in
rural areas at harvest time and in the informal sector.
14 Steven Dudley, “Justice Elusive for Victims of Panama’s Ex-Dictators,” Miami Herald,
September 29, 2006.
15 “Panama: First Indigenous Colombians Get Refuge,” UNHCR Briefing Notes, December
16 “UNHCR Welcomes New Panama Law,” UNHCR Briefing Notes, April 1, 2008.
Panama’s service-based economy has performed well in the last several years,
with economic growth rates of 7.2% in 2005, 8.7% in 2006, and 11.5% in 2007.
Continuing to be one of the fastest growing economies in Latin America, the estimate17
for 2008 is 8.4% growth. With a per capita income level of $4,890 in 2006,
Panama is classified by the World Bank as an upper-middle-income developing
country. Yet income distribution remains highly skewed with large disparities
between rich and poor, with about one third of the population living in poverty.18 In
October 2005, the Torrijos government launched an anti-hunger and anti-poverty
program targeting the rural population and an indigenous community in a central
rural province. The government has also begun providing direct monthly subsidies
to poor families that can demonstrate that their children attend school regularly.19 As
noted above, the government announced earlier this year that the monthly subsides
would be extended to elderly living in extreme poverty. Unemployment fell from20
The administration of President Pérez Balladares (1994-1999) implemented an
economic reform program that included liberalization of the trade regime,
privatization of state-owned enterprises, the institution of fiscal reform, and labor
code reform. Tariffs were reduced to an average of 8%. The Moscoso government
partially reversed the trade liberalization process by raising tariffs on some
agricultural products, some of which reached the maximum rate allowed under21
Panama’s World Trade Organization obligations.
Although Panama has traditionally eschewed economic linkages and integration
schemes with its Central American neighbors (largely because of its privileged
relationship with the United States), it has joined with Mexico and Central American
states in a regional economic project known as the Puebla-Panama plan. The plan,
which has the goal of spurring development in the region, will improve highways,
standardize customs procedures, and join power grids to improve the quality of life
in the region.
As part of its strategy of increasing its global trade and investment links, and
accentuating its role as a global transportation hub, Panama has pursued free trade
agreements (FTAs) with several countries, including the United States (see “U.S.
Trade Relations and a Potential Free Trade Agreement” section below). In June
2003, an FTA with El Salvador entered into force, and more recently signed
agreements with Costa Rica, Honduras, Nicaragua, and Guatemala. In June 2006,
17 “Panama: Country Report,” Economist Intelligence Unit, September 2008, p. 7.
18 Ibid, p. 3.
19 Adam Thomson, “Excessive Wealth Fails to Filter Down to the Poor,” Financial Times,
July 24, 2007.
20 “Panama: Country Report,” Economist Intelligence Unit, September 2008, p. 7.
21 United States Trade Representative, 2006 National Trade Estimate Report on Foreign
Trade Barriers, p. 501.
Panama signed an FTA with Chile. Beyond the Western Hemisphere, Panama
negotiated an FTA with Taiwan that entered into force in January 2004, and in April
2005, Panama and Singapore announced the conclusion of talks for a free trade
agreement that was ratified in June 2006.
Background on the 1989 U.S. Military Intervention
The December 20, 1989, U.S. military intervention in Panama, known as
Operation Just Cause, was the culmination of almost two and a half years of strong
U.S. pressure, including economic sanctions, against the de facto political rule of
General Noriega, Panama’s military commander. Political unrest had erupted in mid-
1987 when a high-ranking Panamanian military official alleged that Noriega was
involved in murder, electoral fraud, and corruption, which prompted the formation
of an opposition coalition that challenged his rule. The regime nullified the results
of May 1989 national elections, which international observers maintain were won by
the opposition by a 3-1 margin. It also harassed U.S. citizens in Panama, including
the killing of a U.S. Marine lieutenant. President George H. W. Bush ultimately
ordered U.S. forces into combat to safeguard the lives of Americans in Panama, to
defend democracy, to combat drug trafficking, and to protect the operation of the
In early January 1990, with the restoration of democracy and Noriega’s arrest
to face trial in the United States on drug charges, President Bush announced that the
objectives of the U.S. intervention had been achieved. In terms of casualties, 23 U.S.
soldiers and three U.S. civilians were killed, while on the Panamanian side, some 200
civilians and 300 Panamanian military were killed. While Congress was not in
session during the intervention, in general, Members were strongly supportive of the
action. In February 1990, the House overwhelmingly approved a resolution,
H.Con.Res. 262, stating the President acted appropriately to intervene in Panama
after substantial efforts to resolve the crisis by political, economic, and diplomatic
Overview of Current U.S.-Panamanian Relations
Since the 1989 U.S. military intervention, the United States has had close
relations with Panama, stemming in large part from the extensive history of linkages
developed when the Panama Canal was under U.S. control and Panama hosted major
U.S. military installations. Today, about 25,000 U.S. citizens reside in Panama,
many retirees of the former Panama Canal Commission, and there are growing
numbers of other American retirees in the western part of the country.22
The current U.S. relationship with Panama is characterized by extensive
cooperation on counternarcotics efforts, U.S. assistance to help Panama assure the
22 U.S. Department of State, Background Note: Panama, September 2008.
security of the Canal, and efforts to complete a bilateral free trade agreement (FTA).
Panama is seeking an FTA as a means of increasing U.S. investment in the country,
while the Bush Administration has stressed that an FTA with Panama, in addition to
enhancing trade, would further U.S. efforts to strengthen support for democracy and
the rule of law.
U.S.-Panamanian negotiations for a bilateral FTA began in April 2004, and were
completed in December 2006, although at the time U.S. officials stated the agreement
was subject to additional discussions on labor and that the Administration would
work with Congress to ensure strong bipartisan support. Subsequently, congressional
leaders and the Bush Administration announced a bipartisan deal on May 10, 2007,
whereby pending FTAs, including that with Panama, would include enforceable key
labor and environmental standards. The United States and Panama ultimately signed
the FTA on June 28, 2007, which included the enforceable labor and environmental
provisions. Panama’s Legislative Assembly overwhelmingly approved the agreement
on July 11, 2007, by vote of 58 to 3, with 1 abstention.
The U.S. Congress had been likely to consider implementing legislation for the
agreement in the fall of 2007, but the September 1, 2007, election of Pedro Miguel
González to head Panama’s legislature for one year delayed consideration of the
FTA. González is wanted in the United States for his alleged role in the murder of
a U.S. serviceman in Panama, U.S. Army Sergeant Zak Hernández, in June 1992.
González did not stand for re-election when his term expired September 1, 2008, and
was replaced by another PRD official, Raúl Rodríguez, as Assembly president. The
Bush Administration has wanted Congress to consider FTAs in the order that they
were negotiated, which puts the controversial FTA with Colombia ahead of Panama.
The Administration has not submitted implementing legislation to Congress on the
Panama FTA, and Congress has not taken up implementing legislation on its own.
The United States turned over control of the Canal to Panama at the end of
1999, according to the terms of the 1977 Panama Canal Treaty, at which point
Panama assumed responsibility for operating and defending the Canal. All U.S.
troops were withdrawn from Panama at that time and all U.S. military installations
reverted to Panamanian control. However, under the terms of the Treaty on the
Permanent Neutrality and Operation of the Panama Canal, or simply the Neutrality
Treaty, the United States retains the right to use military force if necessary to reopen
the Canal or restore its operations. U.S. officials congratulated Panama on the
success of the October 2006 Canal expansion referendum, but also asserted that the
challenge for the government is to ensure that the expansion project is conducted
with transparency and without any hint of corruption.23
In recent years, U.S. foreign assistance amounted to $19 million in FY2005,
$10.5 million in FY2006, and $12.2 million in FY2007. For FY2008, about $7.7
million will be provided through the regular foreign aid funding measure, while
Panama is slated to receive at least $2.9 million in FY2008 supplemental
23 U.S. Department of State, U.S. Embassy Panama, “Principal Deputy Assistant Secretary
Charles S. Shapiro at Panama Week,” and “Ambassador Eaton’s Remarks at the Panama
Week Power Breakfast,” October 2006.
appropriations assistance under the Mérida Initiative (P.L. 110-252). That program
provides assistance to Mexico and Central to combat drug trafficking, gangs, and
organized crime. For FY2009, the Administration’s FY2009 foreign aid request for
Panama was for $11.6 million, with $4 million for development assistance, $2.6
million in military assistance, $1 million for assistance under the Andean
Counterdrug Program (ACP), and $3.4 million for a Peace Corps program. In
addition, Panama could receive a portion of the $100 million requested for Central
America in FY2009 for the Mérida Initiative under the Western Hemisphere
Regional program. (For additional information, see CRS Report RS22837, Mérida
Initiative: Proposed U.S. Anticrime and Counterdrug Assistance for Mexico and
A number of U.S. agencies provide support to Panama. The State Department,
the Drug Enforcement Administration, the U.S. Coast Guard, and the Department of
Homeland Security are involved in providing counternarcotics support to Panama.
In October 2006, the Centers for Disease Control and Prevention (CDC) helped
Panama solve the mystery of deaths ultimately traced to contaminated cough syrup
from China (at least 100 deaths have been traced to the contaminant). The
Department of Health and Human Services is providing support for a Regional
Training Center for health-care workers in Panama City that will train students from
throughout Central America. The U.S. Southern Command also provides support to
Panama through military exercises providing humanitarian and medical assistance,
and at times provides emergency assistance in the case of natural disasters such as
floods or droughts. The U.S. Southern Command also has sponsored annual multi-
national training exercises since 2003 focused on the defense of the Panama Canal.
In February 2007, Panama and the United States signed a declaration of
principles intended to lead to Panama’s participation in the Container Security
Initiative (CSI) operated by the U.S. Customs and Border Protection (CBP) of the
Department of Homeland Security, and the Megaports Initiative run by the National
Nuclear Security Administration of the Department of Energy. Panama’s port of
Balboa became operational under the CSI in August 2007, while the ports of Colón
and Manzanillo became operational in September 2007. CSI uses a security regime
to ensure that containers that pose a potential risk for terrorism are identified and
inspected at foreign ports before they are placed on vessels destined for the United
States. The Megaports Initiative has the goal of deploying radiation detection
equipment to ports in order to detect nuclear or radioactive materials.
A sensitive issue in U.S.-Panamanian relations has been Panama’s desire to
have the United States clean up three contaminated firing ranges in Panama as well
as San Jose Island, which was contaminated with chemical weapons used in training
exercises during World War II. With regard to the firing ranges, U.S. officials
maintain that the United States has already met its treaty obligations to clean up the
ranges. With regard to the cleanup of San Jose Island, Panama rejected a U.S. offer
in September 2003 that would have provided equipment and training so that Panama
could clean up the island; the Panamanian government maintains that it did not want
to sign any agreement releasing the United States from liabilities.
President Bush visited Panama in November 2005, on his way back from the
fourth Summit of the Americas held in Argentina. During the visit, he endorsed the
concept of widening the Canal and indicated that the two countries were close to
completing negotiations for a free trade agreement. While in Panama, the President
also rejected Panama’s calls to remove unexploded ordnance from former U.S. firing
ranges that were returned to Panama in 1999. According to the President, “we had
obligations under the treaty, and we felt like we met those obligations.” Despite the
disagreement, President Bush indicated that Panama and the United States could
discuss the issue in a constructive way since the two countries have friendly
In February 2007 and again in May 2008, President Torrijos met with President
Torrijos in Washington D.C., with talks focused on the free trade agreement and the
Canal expansion project. President Torrijos again visited Washington in mid-
September 2008 meeting with President Bush and several Members of Congress to
promote the approval of the FTA.25
Status of Manuel Noriega. In the aftermath of the 1989 U.S. military
intervention, General Manuel Noriega was arrested in January 1990 and brought to
the United States to stand trial on drug charges. After a seven-month trial, Noriega
was convicted on eight out of ten drug trafficking charges in U.S. federal court in
Miami in 1992, and sentenced to 40 years in prison. That sentence was subsequently
reduced to 30 years, and then to 20 years. With time off for “good behavior,”
Noriega was scheduled to be released from jail on September 9, 2007, but has
remained in U.S. custody pending appeals of his extradition to France.
France is seeking Noriega’s extradition, where he faces a 10-year prison
sentence for his conviction in absentia in 1999 on money laundering charges, but
would be eligible for a new trial. Despite having lost all previous appeals, on May
19, 2008, Noriega’s defense filed an appeal on the grounds that the French
government would not respect special protections that were granted to him in a 1992
ruling as a “prisoner of war” under the Geneva Conventions. On January 9, 2008,
a U.S. federal judge in Miami denied a previous request to block the extradition of26
Noriega to France.
Noriega wants to return to Panama in order to appeal his convictions in absentia,
including for two murders: the brutal killing of vocal critic Hugo Spadafora in 1985;
and the killing of Major Moisés Giroldi, the leader of a failed 1989 coup attempt.
Panamanian courts sentenced Noriega to at least 60 years in prison, but the law only
allows him to serve a maximum sentence of 20 years, and according to some reports,
24 White House, Office of the Press Secretary, “President Bush Meets with President
Torrijos of Panama,” November 7, 2005; Edwin Chen, “Bush’s Trip Ends with Discord,”
Los Angeles Times, November 8, 2005; William Douglas, “Bush’s Last Stop: Panama,”
Miami Herald, November 8, 2005.
25 “Remarks by President Bush and President Torrijos of Panama After Meeting,” Business
Wire, September 17, 2008.
26 Kirk Simple, “Noriega Loses Another Round,” New York Times, January 10, 2008.
sentence in Panama.27 Nevertheless, according to Panama’s attorney general, there
are an additional 15 outstanding cases against Noriega, including his responsibility
for the deaths of several members of the Panamanian Defense Forces for their
involvement in the failed 1989 coup.28
Noriega’s attorneys argue that since Noriega has been recognized as a prisoner
of war in the U.S. courts, the United States should repatriate him to his native
Panama, insisting that this complies with the Geneva Conventions. U.S. officials
have argued that France’s extradition should be honored because Panama by law does
not extradite its nationals.29 Panama had filed an extradition request for Noriega in
While Panamanian officials have called for Noriega’s extradition to Panama,
they have not opposed the possibility of Noriega being extradited to France and have
stated that the government would respect the decision of the U.S. courts on this
matter. Some observers maintain that the Panamanian government is reluctant to
have Noriega extradited to Panama, since some members of the ruling Democratic
Revolutionary Party worked with Noriega when he controlled the government and
are now reluctant to have Noriega return and revisit cases from the past. Other
observers contend that Panamanian officials are reluctant to have Noriega return
because of recent changes to the penal code that could allow Noriega to serve little,
if any, of his sentence.30
Drug Trafficking and Money Laundering
An important concern for U.S. policymakers over the years has been securing
Panamanian cooperation to combat drug-trafficking and money-laundering. Panama
is a major transit country for illicit drugs from South America to the U.S. market
because of its geographic location and its large maritime industry and containerized
seaports. Moreover, the country’s service-based economy, with a large banking
sector and trading center (Colón Free Zone), makes Panama a significant drug money
Drug traffickers use fishing vessels, cargo ships, small aircraft, and go-fast boats
to move illicit drugs — primarily cocaine, but also heroin and Ecstasy — through
Panama. Some of the drugs are transferred to trucks for northbound travel or are
placed in sea-freight containers for transport on cargo vessels. Traffickers also utilize
hundreds of abandoned or unmonitored airstrips as well as couriers who transit
Panama by commercial air flights. There also has been increasing domestic drug
27 Kathia Martinez, “A Homecoming for Noriega after Miami Release? Many Hope Not,”
Associated Press Newswires, August 12, 2007.
28 “Torrijos on Edge over Noriega Release,” Latin American Regional Report, Carribean
and Central America, August 2007.
29 Carmen Gentile, “Noriega Court Bid Called a Charade; Aims to Avoid Extradition,”
Washington Times, August 14, 2007.
30 Marc Lacey, “An Ambivalent Panama Weights Noriega’s Debt and Threat,” New York
Times, July 29, 2007.
abuse, particularly among youth. Addiction has also increased significantly among
Panama’s Kuna indigenous population, whose lands lie just south of a transit zone
for Colombian cocaine.31 The country is also a small-scale producer of coca leaf in
the remote Darien province that borders Colombia. According to the Department of
State, security in Darien has improved in recent years, although the smuggling of
weapons and drugs across the border continues.
The State Department’s March 2008 International Narcotics Control Strategy
Report (INCSR) states that the Torrijos administration has been “dynamic” in
cooperating with the United States on joint counternarcotics efforts, but maintains
that it has been less rigorous in cooperating with neighboring countries. The United
States has provided equipment, training, and information to enhance Panama’s
interdiction and eradication capabilities, and is supporting the restructuring of
Panama’s law enforcement agencies to enhance their abilities. Looking ahead, the
INCSR report encourages Panama to devote sufficient resources to patrol its land
borders with Colombia and Costa Rica and its coastline, and to increase the number
of arrests and prosecutions in the areas of corruption and money laundering. It also
states that the United States will provide expertise and resources to assist Panama
develop a new Coast Guard and a border control unit.
Over the past three years, Panamanian cooperation with U.S. law enforcement
led to several major successful anti-drug operations. In January 2006, more than 20
people were arrested in New York and Panama in a heroin smuggling operation
involving dozens of “swallowers” who transported the drug. In May 2006, law
enforcement authorities from the United States, Panama, and several other countries
broke up a cocaine smuggling operation that used three islands on Panama’s
Caribbean coast to refuel fast boats and fishing trawlers carrying drugs. According
to the State Department’s 2008 INCSR report, in 2007 a record 60 metric tons of
cocaine were seized. In March 2007, U.S. and Panamanian authorities cooperated in
the interdiction of more than 21 tons of cocaine off the coast of Panama, valued at
nearly $300 million, the largest seizure in U.S. history.
Panama has made significant progress in strengthening its anti-money
laundering regime since June 2000 when it was cited as a non-cooperative country
in the fight against money laundering by the Financial Action Task Force (FATF),
a multilateral anti-money laundering body. Subsequently, the government undertook
a comprehensive effort to improve its anti-money laundering regime by enacting two
laws and issuing two decrees in 2000. As a result of these efforts, the FATF removed
Panama from its non-cooperative country list in June 2001.
Nevertheless, the State Department’s March 2008 INCSR maintains that
Panama “remains vulnerable to money laundering because of its lack of adequate
enforcement, personnel, and resources, the sheer volume of economic transactions,
its location as a major drug transit country, and corruption.” As such, Panama
continues to be categorized by the Department of State as a country of primary
31 Chris Kaul, “A New Foe Threatens Tribe’s Independent Spirit,” Los Angeles Times,
January 3, 2006; “Panama Tribe Faces Threat as Cocaine Comes Ashore,” Reuters, February
concern for money laundering. The INCSR report notes that Panama has continued
to make progress in strengthening its anti-money laundering regime, and has
cooperated with the United States and other countries in investigating money
laundering cases involving Panama. Looking ahead, the report called on Panama to
consider adopting legislation to allow for civil forfeiture and the freezing of terrorist
assets, and to enhance law enforcement actions that address smuggling, abuse of the
real estate sector, trade-based money laundering, and the proliferation of
nontransparent offshore companies.
U.S. Trade Relations and a Potential Free Trade Agreement
Panama has largely a service-based economy, which historically has run a
merchandise trade deficit with the United States. In 2007, the United States had a
$3.4 billion trade surplus with Panama, exporting $366 million in goods and
importing $3.7 billion. Panama was the 42nd largest U.S. export market in 2007.32
Panama’s major exports include fish and seafood (accounting for one-third of its
exports to the United States), sugar, coffee, and other agricultural products. Major
imports include oil, consumer goods, foodstuffs, and capital goods. Almost half of
Panama’s exports are destined for the United States, while almost one-third of its
imports are from the United States. The stock of U.S. foreign investment in Panama
was estimated at $5.7 billion in 2006, largely concentrated in the financial and
wholesale sectors. This surpassed the combined U.S. foreign investment in the five
other Central American nations.33
With the exception of two years (1988-1989), when the United States was
applying economic sanctions on Panama under General Noriega’s rule, Panama has
been a beneficiary of the U.S. preferential import program known as the Caribbean
Basin Initiative (CBI) begun in 1984. The program was amended several times and
made permanent in 1990. CBI benefits were expanded in 2000 with the enactment
of the Caribbean Basin Trade Partnership Act (CBTPA) (Title II, P.L. 106-200),
which provided NAFTA-equivalent trade benefits, including tariff preferences for
textile and apparel goods, to certain CBI countries, including Panama, until
September 30, 2008.
Panama and the United States began negotiations for a free trade agreement in
April 2004. There had been expectations that the negotiations would be completed
in early 2005, but continued contention over several issues and a lengthy hiatus
prolonged the negotiations until December 2006. These included market access for
agricultural products, considered sensitive by Panama; procurement provisions for
the Panama Canal Authority regarding expansion activities; and sanitary control
systems governing the entry of U.S. products and animals to enter the Panamanian
market. Negotiations were suspended for some time in 2006 until after Panama held
its Canal expansion referendum in October, but a tenth round led to the conclusion
of negotiations on December 19, 2006.
32 United States Trade Representative, 2008 National Trade Estimate Report on Foreign
33 U.S. Department of Commerce, Bureau of Economic Analysis, “Survey of Current
Business,” September 2007, p. 93.
Under the agreement, over 88% of U.S. exports of consumer and industrial
goods would become duty-free immediately, while remaining tariffs would be phased
out over 10 years. Over 50% of U.S. agricultural exports to Panama would become
duty-free immediately, while tariffs on most remaining farm products would be
phased out within 15 years. In December 2006, Panama and the United States also
signed a bilateral agreement on sanitary and phytosanitary measures in which Panama
will recognize the equivalence of the U.S. food safety inspection to those of Panama
and will no longer require individual plant inspections. Under the FTA, U.S.
companies would be guaranteed a fair and transparent process to sell goods and
services to Panamanian government entities, including the Panama Canal Authority.34
When the negotiations were concluded, U.S. Trade Representative Susan
Schwab stated that the agreement would be subject to additional discussions on labor,
and that the Administration would work with both sides of the aisle in Congress to
ensure strong bipartisan support before submitting it to Congress.35 On May 10,
2007, congressional leaders and the Bush Administration announced a bipartisan
trade deal whereby pending free trade agreements would include enforceable key
labor and environmental standards. This would include an obligation to adopt and
maintain in practice five basic internationally recognized labor principles: freedom
of association; recognition of the right to collective bargaining; elimination of forced
or compulsory labor; abolition of child labor; and elimination of discrimination in
respect of employment and occupation.
The United States and Panama ultimately signed the FTA on June 28, 2007,
with the enforceable labor and environmental standards outlined in the bipartisan
trade deal. Panama’s Legislative Assembly ratified the agreement on July 11, 2007,
by a vote of 58 to 3, with 1 abstention.
The U.S. Congress had been likely to consider implementing legislation for the
agreement in the fall of 2007, but the September 1, 2007, election of Pedro Miguel
González of the ruling PRD to head Panama’s legislature for one year delayed
consideration of the FTA. González is wanted in the United States for his alleged
role in the murder of U.S. Army Sergeant Zak Hernández and the attempted murder
of U.S. Army Sergeant Ronald Marshall in June 1992. The State Department issued
a statement expressing deep disappointment about the election of González because
of his October 1992 indictment in the United States for the murder of Sergeant
Hernández. Although González was acquitted in Panama in 1997 for the Hernández
murder, observers maintain that the trial was marred by jury rigging and witness
intimidation. González denies his involvement, and his lawyer asserts that ballistic
tests in the murder were inconclusive. While polls in Panama in 2007 showed that
Panamanians believed that González should step down, the case also energized the
populist anti-American wing of the ruling PRD.36
34 Office of the United States Trade Representative, “Free Trade with Panama, Brief
Summary of the Agreement,” December 19, 2006.
35 Rosella Brevetti, “Panama, United States Conclude Negotiations on Free Trade Pact,” but
Labor Issues Remain,” International Trade Daily, December 20, 2006.
36 Marc Lacey, “Fugitive from U.S. Justice Leads Panama’s Assembly,” New York Times,
González did not seek a second term as president of the Legislative Assembly
when his term expired on September 1, 2008, and another PRD official, Raúl
Rodríguez, was elected Assembly president. This could increase chances that in the
future Congress will consider implementing legislation for the FTA, although the
Bush Administration has not yet submitted such legislation to the 110th Congress and
Congress has not taken up implementing legislation on its own.
For more details on the bilateral FTA, see CRS Report RL32540, The Proposed
U.S.-Panama Free Trade Agreement, by J.F. Hornbeck.
Operation and Security of the Panama Canal
Historical Background and the Panama Canal Treaties. When Panama
proclaimed its independence from Colombia in 1903, it concluded a treaty with the
United States for U.S. rights to build, administer, and defend a canal cutting across
the country and linking the Pacific and Atlantic oceans. (See Figure 1, Map of
Panama, at the end of this report.) The treaty gave the United States rights in the so-
called Canal Zone (about 10 miles wide and 50 miles long) “as if it were sovereign”
and “in perpetuity.” Construction of the canal was completed in 1914. In the 1960s,
growing resentment in Panama over the extent of U.S. rights in the country led to
pressure to negotiate a new treaty arrangement for the operation of the Canal. Draft
treaties were completed in 1967 but ultimately rejected by Panama in 1970.
New negotiations ultimately led to the September 1977 signing of the two
Panama Canal Treaties by President Jimmy Carter and Panamanian head of
government General Omar Torrijos. Under the Panama Canal Treaty, the United
States was given primary responsibility for operating and defending the Canal until
December 31, 1999. (Subsequent U.S. implementing legislation established the
Panama Canal Commission to operate the Canal until the end of 1999.) Under the
Treaty on the Permanent Neutrality and Operation of the Panama Canal, or simply
the Neutrality Treaty, the two countries agreed to maintain a regime of neutrality,
whereby the Canal would be open to ships of all nations. The U.S. Senate gave its
advice and consent to the Neutrality Treaty on March 16, 1978, and to the Panama
Canal Treaty on April 18, 1978, both by a vote of 68-32, with various amendments,
conditions, understandings, and reservations. Panama and the United States
exchanged instruments of ratification for the two treaties on June 16, 1978, and the
two treaties entered into force on October 1, 1979.
Some treaty critics have argued that Panama did not accept the amendments,
conditions, reservations, and understandings of the U.S. Senate, including the
DeConcini condition to the Neutrality Treaty. That condition states: “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.” However, others argued that Panama,
November 28, 2007.
in fact, had accepted all U.S. Senate amendments. The State Department asserted
that Panama expressly accepted all amendments, conditions, and understandings to
the two treaties, including the DeConcini condition. The United States and Panama
signed the instruments of ratification for both treaties, which incorporated all the
Senate provisions. The two countries cooperated throughout the years on matters
related to the canal and established five binational bodies to handle these issues.
Two of the bodies were set up to address defense affairs and conducted at least
sixteen joint military exercises between 1979 and 1985 involving Panamanian and
Canal Transition and Current Status. Over the years, U.S. officials
consistently affirmed a commitment to follow through with the Panama Canal Treaty
and turn the Canal over to Panama at the end of 1999. That transition occurred
smoothly on December 31, 1999. The Panama Canal Treaty terminated on that date,
and the Panama Canal Commission (PCC), the U.S. agency operating the Canal, was
succeeded by the Panama Canal Authority (ACP), a Panamanian government agency
established in 1997.
Under the terms of the Neutrality Treaty, which has no termination date, Panama
has had responsibility for operating and defending the Canal since the end of 1999.
As noted above, both Panama and the United States, however, in exercising their
responsibilities to maintain the regime of neutrality (keeping the Canal secure and
open to all nations on equal terms) independently have the right to use military force
to reopen the Canal or restore its operations. This is delineated in the first condition
of the Neutrality Treaty.
The secure operation of the Panama Canal remains a U.S. interest since about
13%-14% of U.S. ocean-borne cargo transits through the Canal. The United States
provides assistance to Panama to improve its ability to provide security for the Canal
and to enhance port and maritime security. U.S. officials have consistently expressed
satisfaction that Panama is running the Canal efficiently, and since 2003, the U.S.
military has conducted exercises with Panama and other countries to protect the
Canal in case of attack.37
Headed by Alberto Alemán Zubieta, the Panama Canal Authority has run the
Canal for more than seven years and has been lauded for increasing Canal safety and
efficiency. In January 2006, the Martín Torrijos government established a social
investment fund backed by Panama Canal revenues that will invest in schools,
hospitals, bridges, roads, and other social projects. The initiative, according to the
government, would show Panamanians that the Canal is contributing to economic
development and improving the quality of life for Panamanians.38
37 Senate Committee on Armed Services, Hearing, “Testimony on United States Southern
Command, United States Northern Command, and United States Joint Forces Command in
Review of the Defense Authorization Request for Fiscal Year 2008 and the Future Years
Defense Program,” March 22, 2007, Federal News Service.
38 Rainbow Nelson, “Canal Cash to Pay for Social Development,” Lloyd’s List, January 18,
Canal Expansion Project. On April 24, 2006, the Panama Canal Authority
presented to President Torrijos its recommendation to build a third channel and new
set of locks (one on the Atlantic and one on the Pacific) that will double the capacity
of the Canal and allow it to accommodate giant container cargo ships known as post-
Panamax ships. The proposal would also widen and deepen existing channels and
elevate Gatun Lake’s maximum operating level. According to the proposed plan, the
overall project would begin in 2007 and take from seven to eight years to complete.
The estimated cost of the project is $5.25 billion, to be self-financed by the ACP
through graduated toll increases and external bridge financing of about $2.3 billion
that would be paid off in about 10 years. The Panamanian government would not
incur any sovereign debt as a result of the project. According to the ACP, the overall
objectives of the expansion project are to (1) achieve long-term sustainability and
growth for the Canal’s financial contributions to the Panamanian national treasury;
(2) maintain the Canal’s competitiveness; (3) increase the Canal’s capacity to capture
the growing world tonnage demand; and (4) make the Canal more productive, safe,39
President Torrijos and his Cabinet approved the expansion project on June 14,
with 72 out of 78 deputies voting for the project. Pursuant to Panama’s Constitution
(Article 319), the project had to be submitted to a national referendum no sooner than
90 days from the date of approval by the Assembly. The Torrijos government chose
to hold the referendum on October 22, 2006, close to the anniversary of October 23,
1977, the date when Panamanians approved the two Panama Canal treaties in a
national plebiscite by a two-to-one margin. A poll from early September 2006
showed almost 64% public support for the Canal expansion project, but on election
day the expansion project received 78% of the vote.
The referendum in part can also be viewed as support for the Torrijos
government, which advanced the project as integral to Panama’s future economic
development. The government maintains that some 7,000 direct jobs will be created
by the project, as well as some 35,000 indirect jobs. President Torrijos asserts that
increased revenue from the Canal arising from the expansion project will allow the
government to launch social development programs and improve living conditions
in the country.40
There had been some vocal opposition to the Canal expansion project. The
organization known as the Peasant Coordinator Against the Dams (CCCE,
Coordinadora Campesina Contra los Embalses), consisting of agricultural, civil, and
environmental organizations, asserts that the expansion project will lead to flooding
and will drive people from their homes. An umbrella protest group known as the
National Front for the Defense of Economic and Social Rights (Frenadeso), which
was formed in 2005 during protests against social security reforms, called for a “no”
39 Autoridad del Canal de Panama (ACP), “Proposal for the Expansion of the Panama Canal,
Third Set of Locks Project,” April 24, 2006.
40 “Panama: Torrijos Wins Backing to Expand Canal,” Latin American Weekly Report,
October 24, 2006; “Panama’s Torrijos on Referendum Results: ‘Opportunity to Materialize
Our Hopes,” Open Source Center (Panama City TVN), October 23, 2006.
vote.41 Former Presidents Jorge Illueca and Guillermo Endara, as well as former
Panama Canal administrator Fernando Manfredo, also opposed the expansion project,
maintaining that the price is too high and too much of a gamble. Critics fear that the
total price tag could rise considerably and are concerned that toll increases could
make alternative routes more economically attractive.42
The ACP is moving ahead with the Canal expansion project. In April 2007,
Panama announced plans for new toll fees to be implemented gradually beginning in
July 2007. In early May, the ACP offered its first construction tender for the project.
The Panamanian government officially launched the Canal expansion project on
September 3, 2007, with a ceremony led by former President Jimmy Carter whose
Administration negotiated the Panama Canal Treaties.
Privatization of Two Panamanian Ports and the China Issue. A
controversy that arose in U.S.- Panamanian relations in 1996 and continued through
1999 relates to the privatization of two Panamanian ports at either end of the Panama
Canal, Balboa on the Pacific and Cristobal on the Atlantic. In July 1996, the
Panamanian government awarded the concession to operate the ports to a Hong Kong
company, Hutchison International Port Holdings, one of the world’s largest container
port operators and a subsidiary of the Hutchison Whampoa Limited Group. The
company operates the concession in Panama as the Panama Ports Company, S.A.
Then U.S. Ambassador to Panama William Hughes complained about the lack
of transparency in the bidding process in which several U.S. companies competed.
The Panamanian government responded with a communique describing the process
by which Hutchison was awarded the 25-year concession. Panamanian officials
maintain that Hutchison had the highest bid, agreeing to pay Panama $22.2 million
annually over the life of the concession. In May 1997, six U.S. Senators charged in
a letter to the Federal Maritime Commission that irregularities in the bidding process
denied U.S. companies an equal right to develop and operate terminals in Panama.
After a review of the issue, the Commission responded that while the port award
processes were unorthodox and irregular by U.S. standards, it saw no evidence that
U.S. companies were subjected to discriminatory treatment. A May 1997 Senate
Foreign Relations Committee staff report on the issue also concluded that while the
bidding process was unorthodox, U.S. officials found no evidence of illegality.43
In addition to the privatization process, some press reports in March 1997 raised
the issue of Hutchison’s relationship with the Chinese government and the China
Ocean Shipping Company (COSCO) and suggested that China would gain control
of the Panama Canal or threaten the operation of the Canal. Over the years, U.S.
41 “Torrijos Appeals for Approval of Canal Expansion,” Latinnews Daily, September 1,
42 “Panama: Torrijos Reveals Plans to Expand Canal,” Latinnews Daily, April 25, 2006;
Chris Kraul and Ronald D.White, “Panama is Preparing to Beef up the Canal,” Los Angeles
Times, April 24, 2006; John Lyons, “Panama Takes Step Toward Expanding the Canal,”
Wall Street Journal, April 24, 2006.
43 Senate Committee on Foreign Relations. Staff Report on the Privatization of Panamanian
Ports. May 1997.
officials, however, have consistently confirmed that Hutchison’s operations of the
ports does not constitute a threat to the Canal. The same May 1997 Senate Foreign
Relations Committee staff report mentioned above concluded that legal safeguards
in the Panama Canal Treaties and Panamanian law guarantee the continued operation
of the Canal and ensures its access to all nations. (Also see CRS Report 97-476,
Long Beach: Proposed Lease by China Ocean Shipping Company (COSCO) at
Former Naval Base by Shirley Kan.)
In early August 1999, Senator Trent Lott raised questions about Chinese
influence over the Canal in a letter to Defense Secretary William Cohen.
Subsequently, both the State Department and the Department of Defense made
statements responding to the concerns raised about potential Chinese influence in
Panama. In an August 12, 1999, press briefing, the Department of Defense noted that
it does not consider Hutchison’s ownership of two port facilities as a threat to U.S.
security. DOD asserted that “the company does not have any ability to stop or
impede traffic through the Canal” and noted that under the Neutrality Treaty, “the
United States has a unilateral right to maintain the neutrality of the Canal and reopen
it if there should be any military threat.” The State Department, in an August 12,
1999, press briefing, noted that it has seen “no capability or interest on the part of the
People’s Republic of China, a major user of the Canal, to disrupt its operations.”
According to September 29, 1999, congressional testimony by Peter Romero, then
Acting Assistant Secretary of State for Western Hemisphere Affairs (before the House
International Relations Committee, Subcommittee on the Western Hemisphere), the U.S.
intelligence community also studied the question of the influence of China in Panama
as a result of the concession. Romero testified that, after reviewing the study, the State
Department concluded that the Hutchison concession “does not represent a threat to
canal operations or other U.S. interests in Panama.”
On October 22, 1999, the Senate Armed Services Committee held a hearing on
Canal security. Officials from the Department of Defense, the Panama Canal
Commission, the SOUTHCOM, and the Department of State testified, and all
concluded that the Hutchison’s port operations did not constitute a threat to the
Canal. Ambassador Lino Gutierrez, Principal Deputy Assistant Secretary of State for
Western Hemisphere Affairs, stated that the Department found no information to
substantiate the allegation that Hutchison is a front for the People’s Republic of
China. He noted that Panama’s contract with Hutchison (Law 5) does not give China
any role in determining which ships will pass through the Canal or in which order
they will travel, and it does not give Hutchison any control over Canal pilots.
Alberto Aleman Zubieta, Administrator of the Panama Canal Commission, stated
that “Hutchison has no authority whatsoever to interfere with, dictate or influence the
operation of the Canal, nor will it ever be allowed to do so.” Gen. Charles Wilhelm,
SOUTHCOM Commander in Chief, stated: “We are not aware of any current
internal or external threats to the Panama Canal, and we have no evidence that it has
been targeted by terrorists or foreign governments.”
In April 2004, the issue of Hutchison’s operations of the ports was raised during
a hearing of the Senate Armed Services Committee. In response to a question,
General James T. Hill, Commander of SOUTHCOM, asserted that Hutchison’s
operations of the ports in Panama have not had a negative impact on the security of
Contamination of Firing Ranges and San Jose Island
Another issue in relations has been Panama’s desire to have the United States
clean up three former firing ranges (Empire, Piña, Balboa West) used by the U.S.
military for live-fire exercises and testing of ground explosives during its tenure in
the country. The Piña range was turned over to Panama in June 1999, while the
Empire and Balboa West ranges were turned over in July 1999. Some 60,000
Panamanians live in areas surrounding the ranges, and reportedly at least 24
Panamanians have been killed in the last two decades by coming into contact with
the explosives.45 Estimates of the cost to clean up the unexploded bombs and other
contaminants range from $400 million to $1 billion.46
U.S. officials maintain that it is not possible to remove the unexploded
ordinance without tearing down the rain forest and threatening the Canal’s watershed.
They also point to a Canal treaty provision which states that the United States is
obligated to take all measures “insofar as may be practicable” in order to ensure that
hazards to human life, health and safety were removed from the defense sites
reverting to Panama. In response to a press question while attending Panama’s
centennial celebration in November 2003, Secretary of State Colin Powell maintained
that the United States had already met its obligations to clean up the ranges.47
The controversy over the U.S. cleanup of the ranges at times has been an irritant
in the bilateral relationship, but at this juncture appears to be somewhat of a dormant
issue. Officials of the Pérez Balladares government (1994-1999) believed that the
United States was reneging on its treaty commitment and wanted to press the United
States to clean up the firing ranges regardless of economic cost. The Moscoso
government raised the issue during her October 19, 1999, meeting with then
President Clinton in Washington. At the time, President Clinton stated that the
United States had met its treaty obligations to clean up the ranges to the extent
practicable, but did say that the United States wanted to stay engaged and work with
Panama on the issue. The issue also came up during then Secretary of State
Albright’s visit to Panama on January 15, 2000. In a December 2001 letter to
Secretary of State Colin Powell, Panama’s Foreign Minister reiterated his county’s
44 Hearing of the Senate Armed Services Committee, “Defense Authorization Request for
Fiscal Year 2005,” April 1, 2004, Federal News Service.
45 “No Home on Panama’s Range, U.S. Munitions Scattered Over Canal Training Zones,”
Washington Post, January 10, 2000; Vanessa Hua, “U.S. Weapons, U.S. Mess? Panama,”
Bulletin of the Atomic Scientists, July 1, 2002.
46 “An Expensive Farewell to Arms: The U.S. Has Abandoned 51 Military Sites in Canada.”
The Gazette (Montreal), April 28, 2001.
47 U.S. Department of State. International Information Programs. Washington File. “Colin
Powell Hails Panama’s 100 Years of Independence,” November 3, 2004.
call to clean up the three firing ranges.48 In April 2003, Panamanian Foreign Minister
Harmodio Arias asserted that the issue of clearing the firing ranges was not dead.49
As noted above, during a November 2005 visit to Panama, President Bush reiterated
the view that the United States had met its obligations under the treaty.
On another sensitive issue, U.S. Embassy officials in Panama announced in May
2002 that a plan was being prepared to clean up Panama’s San Jose Island, which
was contaminated with chemical weapons used in training exercises during World
War II.50 The Organization for the Prohibition of Chemical Weapon (OPCW) had
confirmed in July 2001 that there were several live chemical bombs on the island,
and Panama evacuated residents of the island.51 In September 2003, however,
Panama rejected a U.S. offer for the environmental cleanup of the island that would
have reportedly offered more than $2 million in equipment and training so that
Panama could clean up the island. According to Foreign Minister Harmodio Arias,
Panama rejected the offer because it did not want to sign a document releasing the
United States from all liabilities.52 A provision in the FY2004 Foreign Operations
appropriations measure (P.L. 108-199, Division D) would have permitted Foreign
Military Financing for the San Jose Island cleanup.
During a November 2004 visit to Panama, Secretary of Defense Donald
Rumsfeld indicated that issues involving both the firing ranges and San José Island
were considered closed.53 At the time, Panamanian officials, however, maintained
that both were pending bilateral issues.54
Former U.S. Military Presence in Panama
Under the terms of the Panama Canal Treaty, all U.S. military forces withdrew
from Panama by December 31, 1999, since no mutual agreement was reached to
continue their presence. At that time, Panama assumed responsibility for defending
as well as operating the Canal. Nevertheless, under the terms of the Treaty on the
Permanent Neutrality and Operation of the Canal, often referred to as the Neutrality
48 “Panama Asks U.S. Military to Clean Up Former Bases,” Agence France Presse,
December 27, 2001.
49 Foreign Broadcast Information Service, Highlights: Central America Press, April 8, 2003
(“Panamanian Foreign Minister Says Firing Range Cleanup Not Dead Issue,” La Prensa)
50 “U.S. Creates Chemical Weapon Clean-up Plan on Panamanian Island.” EFE News
Service, May 27, 2002.
51 “Panama-U.S. Panama Clears Isle After Finding World War II Chemical Weapons.” EFE
News Services, September 6, 2001.
52 Victor Torres, “Foreign Minister Explains Why Panama Rejected U.S. San Jose Island
Cleanup Offer,” La Prensa (Panama), October 12, 2003 (as translated by Foreign Broadcast
53 “Donald H. Rumsfeld Holds Joint News Conference with the Panamanian Minister of
Government & Justice,” FDCH Political Transcripts, November 13, 2004.
54 “Donald Rumsfeld in Panama Says Contaminated Firing Ranges ‘Closed Case,’” BBC
Monitoring International Reports, November 14, 2004.
Treaty, the United States will have the right to use military force to reopen the canal
or restore its operations.
Former Role and Presence of U.S. Troops. Over the years, U.S. military
forces in Panama had several functions. The primary purpose of the troops was to
provide for the defense of the Panama Canal, as set forth in the Panama Canal
Treaties, until December 31, 1999. Another function served by the presence of the
U.S. military in Panama stemmed from its activities throughout Latin America. Until
late September 1997, Panama served as the headquarters of the U.S. Southern
Command (SOUTHCOM), a unified command responsible for all U.S. military
operations south of Mexico. In March 1995, President Clinton announced that
SOUTHCOM headquarters, located at Quarry Heights in Panama, would be moved
to Miami. The move began in June 1997 and was completed by the end of
September 1997. U.S. bases in Panama provided assistance to Latin American
nations combating drug trafficking with aerial reconnaissance and counter-narcotics
training. Howard Air Force Base in Panama provided secure staging for detection,
monitoring, and intelligence collecting assets. Panama also provided unique
opportunities and facilities for military training, including the Jungle Operations
Training Center (which was deactivated on April 1, 1999) at Fort Sherman, Panama.
By the end of December 1999, all U.S. forces had withdrawn from Panama, and
all of the U.S. bases and facilities had reverted to Panamanian control. Ten major
installations were returned to Panama over a four-year period: Fort Davis and Fort
Espinar in early September 1995; Fort Amador, at the Pacific entrance to the Canal,
on October 1, 1996; Albrook Air Force Station on October 1, 1997; Galeta Island (a
former U.S. Naval Security Group Activity that passed to Army control in 1995) on
March 1, 1999; Rodman Naval Station on March 11, 1999; Fort Sherman, on the
Atlantic side, on June 30, 1999; and Howard Air Force Base, which ceased air
operations in May 1999, was officially turned over to Panama on November 1, 1999,
along with Fort Kobbe. Finally, Fort Clayton and was turned over on November 30,
Failed Negotiations. In September 1995, President Clinton and President
Pérez Balladares met in Washington and announced that the two countries would
begin informal discussions to determine if there was mutual interest in the United
States maintaining a military presence in Panama beyond the end of 1999. Those
talks never materialized, but instead there were a series of bilateral talks regarding
a U.S. contribution to a Multinational Counternarcotics Center (MCC). President
Pérez Balladares had announced in July 1996 that Panama would be willing to allow
the United States to use Howard Air Force Base, at no cost, as an international drug
interdiction center. He stated that Panama would “provide the facility free of charge
as part of our contribution to the drug war.”
Talks on a potential MCC began in late November 1996 and ultimately led to
a tentative agreement, announced December 24, 1997, on the establishment of a
MCC with the United States contributing troops for the center. Despite the tentative
accord, progress on a final agreement was stymied during 1998, and on September
25, 1998, both countries announced that they were ending the MCC talks without a
As described in the press, the MCC would have involved about 2,000 U.S.
troops operating at Howard Air Force Base, Rodman Naval Station, and Fort Kobbe
on the Pacific side of the Canal. Other facilities reportedly to be utilized would have
been communication facilities at Galeta Island and Corozal. Panama would have
provided free use of the bases, while the United States would have been expected to
pay for such facilities as housing. The MCC reportedly would have been established
for a 12-year period, renewable for additional five-year periods, with the potential
participation of other Latin American nations. Reportedly the MCC would have had
a Directors’ Council made up of the foreign ministers of participating countries and
presided over by Panama’s foreign minister. If the United States and Panama had
agreed on the MCC, the next step would have been for Panama’s Legislative
Assembly to approve the agreement, which then would have been subject to a
national referendum in Panama.
As early as April 1998, the Clinton Administration had expressed concern that
negotiations would have to be concluded soon, or the United States would be forced
to locate the U.S. anti-drug operations elsewhere. Although the text of the draft
MCC accord was not made public, press reports indicated that one problem in the
negotiations was a provision that would permit U.S. soldiers to engage in other
missions beyond counter-narcotics. Panama and several Latin American nations
expected to join the MCC expressed reservations about this aspect of the accord, with
concerns centered on the potential for U.S. military intervention in the region. U.S.
officials, however, maintained that U.S. military activities beyond anti-narcotics
work would consist of such benign activities as search and rescue and disaster relief.
Another reported problem in the negotiations was the U.S. rejection of Panama’s call
to allow a change in the agreement, whereby the center could be dissolved after three
years if the drug trafficking problem diminished.
Some participants, including former Ambassador Thomas McNamara, the lead
negotiator in the talks with Panama, believe that the main reason that an agreement
was not reached was Panama’s internal politics. While Panamanian opinion polls
overwhelmingly favored a continued U.S. military presence, the President appeared
concerned about vocal opposition, even from within his own party, to the proposed
center. Moreover, President Pérez Balladares was actively seeking a constitutional
change for a second term of office, and this appeared to have influenced the MCC
In early December 1998, U.S. officials announced that they had begun talks with
several Latin American countries to find new bases of operation in Central and South
America for the anti-drug missions formerly undertaken in Panama. Short-term
interim agreements were concluded in April 1999 to have Forward Operating
Locations (FOLs) in Ecuador, Aruba, and Curaçao for U.S. aerial counternarcotics
missions. Subsequently, the United States concluded longer-term 10-year agreements
with Ecuador and with the Netherlands (for Aruba and Curaçao) for the anti-drug
FOLs. An additional FOL site also was being sought in Central America, and on
March 31, 2000, a 10-year agreement was signed with El Salvador.
In 1999, some Members of the U.S. Congress and politicians in Panama
suggested that there was still an opportunity for the United States to negotiate the use
of facilities in Panama for U.S. anti-drug flights, similar to the FOLs negotiated with
Ecuador, Aruba, and Curacao. Press reports suggested that President-elect Moscoso
was interested in allowing the U.S. military to use Panama as a staging area for anti-
drug flights. In 2000, however, President Moscoso turned down a request from the
United States for a visiting military forces agreement. On September 26, 2000, she
announced that Panama would not participate in a visiting forces agreement with the
U.S. Congressional Views on U.S. Military Presence. Before
December 1999, Congress had twice gone on record favoring negotiations to considerth
a continued U.S. presence in Panama beyond the end of 1999, and in the 104
Congress the Senate approved a non-binding resolution on the issue. In 1991,
Congress enacted legislation (P.L. 102-190, Section 3505) expressing the sense of
Congress that the President should begin negotiations with Panama to consider
whether the two nations should allow the permanent stationing of U.S. forces in
Panama past 1999. Twelve years earlier, Congress had approved the Panama Canal
Act of 1979 (P.L. 96-70, Section 1111) which states that “it is the sense of the
Congress that the best interests of the United States require that the President enter
into negotiations” with Panama “for the purpose of arranging for the stationing of
United States military forces after the termination of the Panama Canal Treaty.” And
on September 5, 1996, the Senate approved S.Con.Res. 14, expressing the sense of
Congress that the President should negotiate a new base rights agreement with
Panama, while consulting with Congress regarding any bilateral negotiations that
In the 106th Congress, numerous measures were introduced relating to a
continued U.S. military presence in Panama as the Canal turnover approached, but
no legislative action was taken on these measures. The measures would have urged
the President to negotiate a new base rights agreement with Panama to permit U.S.
troops beyond December 31, 1999 (S.Con.Res. 59, S.J.Res. 37, H.Con.Res. 233);
expressed the sense of the Congress that the United States should negotiate security
arrangements with Panama to protect the Canal and to ensure Panama’s territorial
integrity (H.Con.Res. 186/S.Con.Res. 61); authorized and directed the President to
renegotiate the Panama Canal Treaties to provide for the security of the Canal (H.R.
2244); and expressed the sense of the Senate that the President should negotiate
security arrangements with Panama regarding the protection of the Canal and that any
attack on or against the Canal would be considered an act of war against the United
States (S.Res. 257). One measure (H.R. 3452) would have provided that unpaid
balances of the Panama Canal Commission be payable to Panama only upon
completion of an agreement that leases half of Howard Air Force Base to the United
In the second session of the 106th Congress, H.R. 3673, introduced by
Representative Benjamin Gilman, and reported by the House International Relations
Committee (H.Rept. 106-803, Part I), would have provided Panama with certain
benefits if Panama agreed to permit the United States to maintain a presence there
sufficient to carry out counternarcotics and related missions from Panama. The
benefits would have been preferential trade access to the U.S. market; a scholarship
program for Panamanians to study in the United States; and assistance for
infrastructure construction. Supporters argued that the bill offered an opportunity for
the United States to regain its traditional military presence in Panama and restore full
U.S. military capability to perform anti-narcotics missions in the region. Opponents
argued that Panama had not expressed interest in regaining a U.S. military presence
in the country and believed that it could jeopardize talks underway with Panama for
a “visiting forces” agreement. The State Department expressed opposition to the bill
for several reasons. It maintained that there was a lack of credible support in Panama
for any agreement to re-establish a U.S. military presence there; that the quid pro quo
nature of the offer to Panama would give the appearance of the United States paying
rent for the right to establish a military presence, and U.S. policy was not to pay rent
for foreign bases or base rights; and that the trade benefits offered for Panama could
violate the most-favored-nation obligation of the World Trade Organization. State
Department officials also pointed out that trade benefits for Panama and other
Caribbean Basin countries had been enacted into law in May 2000 as part of the U.S.-
Caribbean Basin Trade Partnership Act (Title II of P.L. 106-200).
In the 107th Congress, just a single resolution was introduced related to the
stationing of U.S. troops in Panama, but no legislative action was taken on the
measure. H.Con.Res. 296, introduced by Representative Bob Barr on December 20,
2001, would have urged the President to negotiate a new base rights agreement with
Panama in order for U.S. Armed Forces to be stationed there for purposes of
defending the Canal.
In the 108th Congress, H.Con.Res. 9, introduced by Representative Virgil
Goode, is identical to H.Con.Res. 296 introduced in the 107th Congress described
above. The resolution would urge the President to negotiate a new base rights
agreement with Panama for the purposes of defending the Panama Canal.
Panamanian Views on U.S. Military Presence. Prior to the departure of
U.S. troops at the end of 1999, public opinion polls in Panama cited overwhelming
support for a continued U.S. military presence. Some Panamanians focused on the
importance of continuing a U.S. military presence to help conduct counternarcotics
operations in Panama and in the region. They pointed with concern to incursions of
Colombian narco-traffickers into the Darien jungle region of Panama. Despite the
polls, Panamanian opponents to the MCC were vocal and staged protests at various
times. In 1997, there were several protests by student, human rights, and labor
groups who opposed a continued U.S. presence. An umbrella organization was
formed known as the Organizations Against Military Bases, which included some 30
labor, peasant, and student groups. In early 1998 another umbrella organization
against U.S. military presence was formed, the National Movement for the Defense
of Sovereignty, consisting of labor, student, and professional organizations. These
groups argued for the need to break what they regarded as Panama’s dependent
relationship with the United States and recover its own national identity.
Figure 1. Map of Panama
ce: Map Resources. Adapted by CRS.