Crisis Over the Canal

On a sunny day last week, a group of American teen-agers marched up and raised a U.S. flag over their high school at Balboa in the Panama Canal Zone.

It seemed an everyday thing to do. But in the Canal Zone, what flag to fly where is a passionate issue--and a symbol of a bitter dispute between the U.S. and the tiny Republic of Panama. So high is the feeling between Panamanians and the Zone's 36,000 U.S. residents that Canal Zone Governor Major General Robert J. Fleming Jr. decided to fly both Panamanian and U.S. flags at 17 carefully selected locations. Elsewhere--including the schools --no flags at all would fly.

But now the Stars and Stripes were unfurled at Balboa (see map). Before long, a crowd of 150 Panamanian high school students appeared carrying Panama's national emblem. At that point, say U.S. officials, "there was no more trouble than you'd expect at a Yale-Princeton football game." The students were told to go home and headed peacefully back across the line. But there a mob was ready and waiting --older men, this time, including Castroites and ultranationalists, and armed with guns and Molotov cocktails. A cry went up that the Panamanian flag had been trampled by Americans--and the U.S. was plunged into the gravest crisis in Latin American relations since the Bay of Pigs invasion.

Viva Fidel! Led by men wearing red T shirts and howling Viva Fidel!, raging mobs set fire to the Braniff and Pan American Airways buildings, the Sears Roebuck store and a Goodyear Rubber plant. The USIS office was destroyed. In the city of Colon, 38 miles away, another well-coordinated riot erupted. Along the border, Zone police tried to disperse the crowds with tear gas, fired in the air, at last lowered their aim. General Andrew P. O'Meara, commander of the U.S. Southern Command, sent Army troops to the border. Snipers from the Panamanian side started picking off the G.I.s. Six soldiers near the Tivoli Guest House were seriously wounded before U.S. sharpshooters silenced the snipers. At no time, said the Army, did U.S. troops move into Panama territory.

An immediate appeal for order by President Roberto F. Chiari, 58, Panama's usually sensible businessman-President, might have helped the situation. But Panama's national election is May 10, and though Chiari cannot run again, anything temperate regarding the Canal would ruin his party's chances. In his presidential palace, Chiari fired off angry cables. He charged the U.S. with "unprovoked armed attack." In a wire to the Organization of American States, he announced that he was breaking diplomatic relations with the U.S., demanded an emergency session of the U.N. Security Council, where Panama's representative accused the U.S. of "bloody aggression."

No Ambassador. Washington was caught unprepared. Five months ago, Joseph S. Farland had resigned with tart words about U.S. foreign aid and cheers from Panamanians for his own efforts on their behalf. Washington had not yet bothered to replace him. Now, at the White House, President Johnson called an emergency early morning conference of top State Department, defense and intelligence advisers. While it was going on, a frantic telephone call from the U.S. charge in Panama informed him that the embassy might be overrun; Johnson personally ordered all secret papers burned. He then sent a seven-man mission, headed by Thomas C. Mann, Assistant Secretary of State for Latin American Affairs, and Cyrus Vance, the new Deputy Secretary of Defense, racing down to Panama by jet. Finally, he put in a personal call to President Chiari, urging calm and arguing that "there had to be a stop to the violence" before any canal dispute could be discussed.

At last, Chiari took to the radio pleading for order and telling Panamanians not to listen "to demagogic incitement by certain agitators." He contacted General O'Meara, asking him to suspend the U.S. anti-sniper fire, promising that Panamanian troops would deal with the snipers. Three U.S. G.I.s had already been killed, 85 wounded; the Panamanians claimed about 300 casualties, including 20 dead--and blamed the U.S. for them all.

The U.S. Army vehemently denied that its bullets had caused anything like 300 casualties. Many of the injured seemed victims of their own rioting. Of 13 confirmed Panamanian dead, five died in a burning building; two were killed by Molotov cocktails. Zone police had engaged in a blazing gunfight--to prevent mobs from overrunning a U.S. housing project inside the Zone. But the Army insisted that only nine rounds in all had been fired by regular troops at snipers during the first night--and the G.I.s were now using blanks, hoping to scare them off.

"Just Indemnification." When the U.S. mission headed by Tom Mann arrived in Panama, along with an O.A.S. mediation commission, Chiari was demanding "just indemnification" for damages and assurances that the U.S. "will never again unloose similar actions of aggression against a weak and innocent people." He denounced the 1903 treaty and all subsequent pacts under which the U.S. has "perpetual" rights to the Canal Zone. Nothing less than "complete revision" of the entire operation would lead Panama to resume diplomatic relations.

The U.S. was willing to negotiate, but how far it would go on the treaties was open to question. Panama owes its existence as a nation (before 1903 it was a part of Colombia) to Teddy Roosevelt's diplomacy and determination to build the waterway linking the Atlantic and Pacific. But the present canal is rapidly growing obsolete. The U.S. no longer considers it vital to defense in these days of missiles and two-ocean navies, is seriously considering a second canal to handle growing commercial traffic. Yet 5,600,000 tons of shipping still pass through the old locks each month. And Panama has long complained that it gets only $1,900,000 of the revenues, while the U.S. nets $2,300,000 annual profit.

Twice in 1959, fierce riots broke out over Panama's demands for greater benefits. Since then, the U.S. has offered higher wages for Panamanian workers and half a dozen other concessions--along with twin flags as evidence of Panama's "titular sovereignty" over the Zone. But that satisfied neither Panama nor oldline U.S. residents, who feared that it would undercut their privileged position. Chiari has not yet spelled out his precise demands. But he surely will ask for greater control over the Zone and a vastly increased share of the revenues--he once mentioned $10 million a year.

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