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Panama Economic Implications of the 1977 Treaties
Sources: The Library of Congress Country Studies; CIA World Factbook
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    The 1977 treaties and the related documents, which became effective October 1, 1979, signaled important changes for the Panamanian economy. The most obvious benefit was in receipts from operation of the canal. Under the terms of the treaties, the government of Panama receives from the Panama Canal Commission: a fixed annuity of US$10 million; an annual payment of US$10 million for public services such as police and fire protection, garbage collection, and street maintenance, which Panama provides in the canal operating areas and housing areas covered by the treaties; a variable payment of US$0.30 per Panama Canal net ton (see Glossary) for each vessel transiting the canal (in 1986 this amounted to US$57.6 million); and an additional annuity, not to exceed US$10 million, to be paid only when canal operations produce a profit. In 1986, for example, US$1.1 million was paid; in 1984, on the other hand, canal operations registered a US$4.1-million loss, and no payment was made.

    The United States controls the tolls because of its majority (five members) on the nine-member Panama Canal Commission, which will operate the canal until December 31, 1999 (see The 1977 Treaties and Associated Agreements , ch. 1). In order to encourage use of the canal, tolls have remained relatively low, although high enough to cover costs. (Under the United States law that implemented the canal treaties, the canal must be operated on a self-sustaining basis.) Maximum use of the canal is in Panama's interest, because its annuity depends on transit tonnage. Tolls were raised by nearly 30 percent in October 1979 and by an additional 9.8 percent in March 1983.

    Under treaty provisions, the canal administrator is an American and his deputy is a Panamanian. In 1989, a Panamanian will become administrator and the deputy an American. In order to prepare Panama to assume operation of the canal in the year 2000, the Panama Canal Commission has encouraged the hiring and training of Panamanians for all types of canal-related work. The commission's work force was approximately 82 percent Panamanian in 1987.

    According to the treaty provisions, Panama also received substantial assets in the former Canal Zone, including three large ports (Colón, Cristóbal, and Balboa), the railroad across the isthmus, two airfields, 147,700 hectares of land (including housing, utility systems, and streets), a dry dock, large maintenance and repair shops, and service facilities formerly operated by the Panama Canal Company (see fig. 3). Ownership and operation of the canal ports of Balboa and Cristóbal were transferred to Panama in October 1979, but a portion of these port facilities will continue to be used by the Panama Canal Commission for canal operations until the year 2000. Panama also received housing that belonged to the former Panama Canal Company, but will continue to supply housing to the Panama Canal Commission and the United States Department of Defense in decreasing amounts until 2000. Some assets and functions of the government of the former Canal Zone, such as schools and hospitals, are maintained by the United States Department of Defense. The Panama Canal Commission continues to operate utilities in the zone areas that it received under the treaty.

    The 1977 treaties had important provisions concerning employment and wages. Panamanians would gradually replace United States citizens in the operation of the canal. Perhaps most important was the provision that former Canal Zone employees who became employees in Panama under the treaties were guaranteed wages and conditions similar to those that their position in the zone had commanded. In 1979 a zone employee received about twice the wages of someone employed in a similar position elsewhere in the economy. The canal areas will therefore continue to exert a pull on other domestic wages, making the country less competitive internationally.

    Data as of December 1987

    NOTE: The information regarding Panama on this page is re-published from The Library of Congress Country Studies and the CIA World Factbook. No claims are made regarding the accuracy of Panama Economic Implications of the 1977 Treaties information contained here. All suggestions for corrections of any errors about Panama Economic Implications of the 1977 Treaties should be addressed to the Library of Congress and the CIA.

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Revised 10-Nov-04
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