Part 1

Produced by Stephen Hope and the Online Distributed Proofreading Team at http://www.pgdp.net

THE PANAMA CANAL CONFLICT BETWEEN GREAT BRITAIN AND THE UNITED STATES OF AMERICA

CAMBRIDGE UNIVERSITY PRESS London: FETTER LANE, E. C. C. F. CLAY, Manager

Edinburgh: 100, PRINCES STREET London: STEVENS AND SONS, Ltd., 119 and 120, CHANCERY LANE Berlin: A. ASHER AND CO. Leipzig: F. A. BROCKHAUS New York: G. P. PUTNAM'S SONS Bombay and Calcutta: MACMILLAN AND CO., Ltd.

_All rights reserved_

THE PANAMA CANAL CONFLICT

BETWEEN GREAT BRITAIN AND

THE UNITED STATES OF AMERICA

A STUDY

BY

L. OPPENHEIM, M. A., LL. D.

Whewell Professor of International Law in the University of Cambridge Honorary Member of the Royal Academy of Jurisprudence at Madrid Member of the Institute of International Law

SECOND EDITION

Cambridge: at the University Press 1913

Cambridge:

PRINTED BY JOHN CLAY, M. A. AT THE UNIVERSITY PRESS

PREFACE TO THE SECOND EDITION

To my great surprise, the publishers inform me that the first edition of my modest study on the Panama Canal conflict between Great Britain and the United States is already out of print and that a second edition is at once required. As this study had been written before the diplomatic correspondence in the matter was available, the idea is tempting now to re-write the essay taking into account the arguments proffered in Sir Edward Grey's despatch to the British Ambassador at Washington of November 14, 1912--see Parliamentary Paper Cd. 6451--and, in answer thereto, in Mr Knox's despatch to the American Charge d'Affaires in London of January 17, 1913--see Parliamentary Paper Cd. 6585. But apart from the fact that the immediate need of a second edition does not permit me time to re-write the work, it seemed advisable to reprint the study in its original form, correcting only some misprints and leaving out the footnote on page 5. It had been written _sine ira et studio_ and without further information than that which could be gathered from the Clayton-Bulwer Treaty, the Hay-Pauncefote Treaty, the Hay-Varilla Treaty, the Panama Canal Act, and the Memorandum which President Taft left when signing that Act. Hence, the reader is presented with a study which is absolutely independent of the diplomatic correspondence, and he can exercise his own judgment in comparing my arguments with those set forth _pro et contra_ the British interpretation of the Hay-Pauncefote Treaty in the despatches of Sir Edward Grey and Mr Knox.

L. O.

Cambridge, _February 15, 1913_.

CONTENTS

I. Article III, No. 1 of the Hay-Pauncefote Treaty of 1901 and Section 5 of the American Panama Canal Act of 1912, pp. 5-6--The Memorandum of President Taft, pp. 7-9--The interpretation of Article III of the Hay-Pauncefote Treaty preferred by the United States, pp. 9-11.

II. The claim of the United States that she has granted the use of the Panama Canal under a conditional most-favoured-nation clause, pp. 11-14--The United States has never possessed the power of refusing to grant the use of the Panama Canal to vessels of foreign nations on terms of entire equality, p. 15--Such use is the condition under which Great Britain consented to the substitution of the Hay-Pauncefote Treaty for the Clayton-Bulwer Treaty, p. 16.

III. If the use of the Panama Canal by vessels of foreign nations were derived from most-favoured-nation treatment, the United States would not be bound to submit to the rules of Article III, Nos. 2-6, of the Hay-Pauncefote Treaty, p. 17--The Panama Canal would then lose its neutral character and would be in danger of eventually being made the theatre of war, p. 18--But it is the intention of the Hay-Pauncefote Treaty permanently to neutralise the Panama Canal, p. 18--The three objects of the neutralisation of an Inter Oceanic Canal, pp. 19-20--Is the United States, under the Hay-Pauncefote Treaty, subjected to more onerous conditions than Turkey and Egypt are under the Suez Canal Treaty?, pp. 20-22.

IV. Six reasons for the untenability of the American interpretation of Article III, No. 1, of the Hay-Pauncefote Treaty, p. 23--The stipulation of Article VIII of the Clayton-Bulwer Treaty, p. 23--The motive for, and the condition of, the substitution of the Hay-Pauncefote Treaty for the Clayton-Bulwer Treaty, p. 24--The rules of the Suez Canal Treaty which serve as the basis of the neutralisation of the Panama Canal, p. 25--Literal meaning of the words "all nations," p. 26--Importance of Article IV of the Hay-Pauncefote Treaty, p. 26--The various contingencies contemplated by Article II of the same treaty, p. 27.

V. The American contention that the exemption of American coasting trade vessels from the payment of canal tolls does not discriminate against foreign vessels, p. 29--Every vessel shall bear a proportionate part of the cost of the Panama Canal, p. 30--Meaning of the term "coasting trade" as upheld by the United States, pp. 30-33--Coasting trade vessels of the United States can trade with Mexican and South American ports, p. 33--Any special favour to a particular nation involves discrimination against other nations, p. 34.

VI. Is the United States prevented from refunding to her vessels the tolls levied upon them for use in the Panama Canal?, pp. 34-35--Difference of such refunding from exempting the vessels concerned from the payment of tolls, p. 35.

VII. Prominent members of the Senate and many American newspapers condemn the special privileges granted to American vessels by the Panama Canal Act, p. 36--The defeated Bard Amendment of 1900, p. 37.

VIII. Two schools of thought concerning the relations between International and Municipal Law, p. 38--The maxim that International Law overrules Municipal Law, p. 39--The doctrine that International and Municipal Law are two essentially different bodies of law, p. 39--The two maxims of the practice of the American Courts, pp. 40-42--President Taft's message to Congress suggesting a resolution which would have empowered the American Courts to decide the question as to whether Section 5 of the Panama Canal Act violates Article III, No. 1, of the Hay-Pauncefote Treaty, pp. 42-44.

IX. The Panama Canal conflict and the British-American Arbitration Treaty, pp. 44-45--Does the term "interests" mean "advantages" or "rights"?, p. 46--_Pacta tertiis nec nocent nec prosunt_, p. 47--The exemption of the vessels of the Republic of Panama from payment of tolls, pp. 48-50.

X. Why it must be expected that the Panama Canal conflict will be settled by arbitration, pp. 51-52--Mr Thomas Willing Balch's letter to the _New York Sun_, pp. 53-57.

I.

The Panama Canal conflict is due to the fact that the Governments of Great Britain and the United States do not agree upon the interpretation of Article III, No. 1, of the Hay-Pauncefote Treaty of September 18, 1901, which stipulates as follows:--

"The Canal shall be free and open to the vessels of commerce and of war of all nations..., on terms of entire equality, so that there shall be no discrimination against any such nation, or its citizens or subjects, in respect of the conditions and charges of traffic, or otherwise. Such conditions and charges of traffic shall be just and equitable."

By Section 5 of the Panama Canal Act of August 24, 1912, the President of the United States is authorised to prescribe, and from time to time to change, the tolls to be levied upon vessels using the Panama Canal, but the section orders that _no tolls whatever shall be levied upon vessels engaged in the coasting trade of the United States_, and also that, if the tolls to be charged should be based upon net registered tonnage for ships of commerce, the tolls shall not exceed one dollar and twenty-five cents per net registered ton nor be less, _for other vessels than those of the United States or her citizens_, than the estimated proportionate cost of the actual maintenance and operation of the Canal[1].

[1] As regards the enactment of Section 5 of the Panama Canal Act that the vessels of the Republic of Panama shall be entirely exempt from the payment of tolls, see below IX, p. 48.

Now Great Britain asserts that since these enactments set forth in Section 5 of the Panama Canal Act are in favour of vessels of the United States, they comprise a violation of Article III, No. 1, of the Hay-Pauncefote Treaty which stipulates that the vessels of all nations shall be treated on terms of entire equality.

This assertion made by Great Britain is met by the Memorandum which, when signing the Panama Canal Act, President Taft left to accompany the Act. The President contends that, in view of the fact that the Panama Canal has been constructed by the United States wholly at her own cost, upon territory ceded to her by the Republic of Panama, the United States possesses the power to allow her own vessels to use the Canal upon _such terms as she sees fit_, and that she may, therefore, permit her vessels to pass through the Canal either without the payment of any tolls, or on payment of lower tolls than those levied upon foreign vessels, and that she may remit to her own vessels any tolls which may have been levied upon them for the use of the Canal. The President denies that Article III, No. 1, of the Hay-Pauncefote Treaty can be invoked against such power of the United States, and he contends that this Article III was adopted by the United States for a specific purpose, namely, as a basis of the neutralisation of the Canal, and for no other purpose. This article, the President says, is a declaration of policy by the United States that the Canal shall be neutral; that the attitude of the Government of the United States is that all nations will be treated alike and no discrimination is to be made against any one of them observing the five conditions enumerated in Article III, Nos. 2-6. The right to the use of the Canal and to equality of treatment in the use depends upon the observance of the conditions by the nations to whom the United States has extended that privilege. The privileges of all nations to which the use of the Canal has been granted subject to the observance of the conditions for its use, are to be equal to the privileges granted to any one of them which observes those conditions. In other words--so the President continues--the privilege to use the Canal is a conditional most-favoured-nation treatment, the measure of which, in the absence of an express stipulation to that effect, is not what the United States gives to her own subjects, but the treatment to which she submits other nations.

From these arguments of the President it becomes apparent that the United States interprets Article III, No. 1, of the Hay-Pauncefote Treaty as stipulating no discrimination against _foreign_ nations, but as leaving it open to her to grant any privilege she likes to her own vessels. According to this interpretation, the rules for the use of the Canal are merely a basis of the neutrality which the United States was willing should be characteristic of the Canal, and are not intended to limit or hamper the United States in the exercise of her sovereign power in dealing with her own commerce or in using her own Canal in whatever manner she sees fit. The President specifically claims the right of the United States eventually to allow her own vessels to use the Canal without the payment of any tolls whatever, for the reason that foreign States could not be prevented from refunding to their vessels tolls levied upon them for the use of the Canal. If foreign States, but not the United States, had a right to do this--so the President argues--the irresistible conclusion would be that the United States, although she owns, controls, and has paid for the construction of the Canal, is restricted by the Hay-Pauncefote Treaty from aiding her own commerce in a way open to all other nations. Since the rules of the Hay-Pauncefote Treaty did not provide, as a condition for the privilege of the use of the Canal upon equal terms with other nations, that other nations desiring to build up a particular trade, involving the use of the Canal, should neither directly agree to pay the tolls nor refund to their vessels tolls levied, it is evident that the Hay-Pauncefote Treaty does not affect the right of the United States to refund tolls to her vessels, unless it is claimed that rules ensuring all nations against discrimination would authorise the United States to require that no foreign nation should grant to its shipping larger subsidies or more liberal inducements to use the Canal than were granted by any other nation.

II.

It cannot be denied that at the first glance the arguments of the United States appear to be somewhat convincing. On further consideration, however, one is struck by the fact that the whole argumentation starts from, and is based upon, an absolutely wrong presupposition, namely, that the United States is not in any way restricted by the Hay-Pauncefote Treaty with regard to the Panama Canal, but has granted to foreign nations the use of the Canal under a conditional most-favoured-nation clause.

This presupposition in no way agrees with the historical facts. When the conclusion of the Hay-Pauncefote Treaty was under consideration, in 1901, the United States had not made the Canal, indeed did not own the territory through which the Canal has now been made; nor was the United States at that time absolutely unfettered with regard to the projected Canal, for she was bound by the stipulations of the Clayton-Bulwer Treaty of 1850. Under this treaty she was bound by more onerous conditions with regard to a future Panama Canal than she is now under the Hay-Pauncefote Treaty. Since she did not own the Canal territory and had not made the Canal at the time when she agreed with Great Britain upon the Hay-Pauncefote Treaty, she ought not to maintain that she granted to foreign nations the privilege of using _her_ Canal under a conditional most-favoured-nation clause, she herself remaining unfettered with regard to the conditions under which she could allow her own vessels the use of the Canal. The historical facts are five in number:--

Firstly, in 1850, Great Britain and the United States, by the Clayton-Bulwer Treaty, agreed that neither of them would ever obtain or maintain for herself any exclusive control over a future Panama Canal, or fortify it, or occupy or colonise any part of Central America; that the Canal should be neutralised, should be open to the vessels of all nations under conditions of equality; and so forth.

Secondly, in 1901, the two parties to the Clayton-Bulwer Treaty agreed to substitute for it the Hay-Pauncefote Treaty, Article II of which expressly stipulates _inter alia_ that the Canal may be constructed under the auspices of the Government of the United States and that the said Government, _subject to the provisions of Articles III and IV_, shall have the exclusive right of providing for the regulation and management of the Canal.

Thirdly, the parties agreed--see the preamble of the Hay-Pauncefote Treaty--that the general principle of the neutralisation of the Canal as established by the Clayton-Bulwer Treaty should not be impaired, and that, therefore, the United States--see Article III of the Hay-Pauncefote Treaty--agrees to adopt as the basis of the neutralisation of the Canal certain rules, substantially the same as those embodied in the Suez Canal Convention of 1888, and amongst these a rule concerning the use of the Canal by vessels of all nations on terms of entire equality without discrimination against any such nation, or their citizens or subjects, in respect of the conditions or charges of traffic, or otherwise, such conditions and charges to be just and equitable.

Fourthly, the parties agreed--see Article IV of the Hay-Pauncefote Treaty--that no change of the territorial sovereignty or of the international relations of the country or countries traversed by the future Canal should affect the general principle of the neutralisation or the obligation of the parties under the Hay-Pauncefote Treaty.

Fifthly, when, in 1903, the United States by the Hay-Varilla Treaty, acquired from the Republic of Panama the strip of territory necessary for the construction, administration, and protection of the Canal, she acquired sovereign rights over this territory and the future Canal _subject to the antecedent restrictions imposed upon her by the Hay-Pauncefote Treaty_, for Article IV of the latter stipulates expressly that _no_ change of territorial sovereignty over the territory concerned shall affect the neutralisation or obligation of the parties _under the treaty_.

These are the unshakable historical facts. The United States did not _first_ become the sovereign of the Canal territory and make the Canal, and _afterwards_ grant to foreign nations the privilege of using the Canal under certain conditions. No, she has never possessed the power of refusing to grant the use of the Canal to vessels of foreign nations on terms of entire equality, should she ever make the Canal. Free navigation through the Canal for vessels of all nations on terms of entire equality, provided these nations were ready to recognise the neutrality of the Canal, was stipulated by the Clayton-Bulwer Treaty, and this stipulation was essentially upheld by the Hay-Pauncefote Treaty, and it was not until two years after the conclusion of the Hay-Pauncefote Treaty that the United States acquired sovereign rights over the Canal territory and made preparations for the construction of the Canal. For this reason the contention of the United States that she has granted to foreign nations the use of the Canal under certain conditions and that such grant includes a conditional most-favoured-nation treatment, is absolutely baseless and out of place. She has not granted anything, the free use of the Canal by vessels of all nations having been the condition under which Great Britain consented to the abrogation of the Clayton-Bulwer Treaty and to the stipulation of Article II of the Hay-Pauncefote Treaty according to which--in contradistinction to Article I of the Clayton-Bulwer Treaty--the United States is allowed to have a canal constructed under her auspices.

III.

If the assertion of the United States that she herself is entirely unfettered in the use of the Canal, and that the conditions imposed upon foreign vessels in return for the privilege of using the Canal involve a most-favoured-nation treatment, were correct, the United States would not be bound to submit to the rules laid down by Article III, Nos. 2-6, of the Hay-Pauncefote Treaty. She could, therefore, if she were a belligerent, commit acts of hostility in the Canal against vessels of her opponent; could let her own men-of-war revictual or take in stores within the Canal even if there were no strict necessity for doing so; could embark and disembark troops, munitions of war, or warlike materials in the Canal, although all these were destined to be made use of during the war generally, and not only for the defence of the Canal against a possible attack. There ought, however, to be no doubt that the United States is as much bound to obey the rules of Article III of the Hay-Pauncefote Treaty as Great Britain or any other foreign State. These rules are intended to invest the Canal with the character of neutrality. If the United States were not bound to obey them, the Canal would lose its neutral character, and, in case she were a belligerent, her opponent would be justified in considering the Canal a part of the region of war and could, therefore, make it the theatre of war. The mere fact that Article III of the Hay-Pauncefote Treaty refers to the rules in existence concerning the neutralisation of the Suez Canal, and that Article IV of the Suez Canal Treaty of 1888 expressly stipulates the neutralisation of the Canal even should Turkey be a belligerent, ought to be sufficient to prove that the neutralisation of the Panama Canal is stipulated by the Hay-Pauncefote Treaty even should the United States be a belligerent.

Furthermore, one must come to the same conclusion if one takes into consideration the objects, which are three in number, of the neutralisation of an inter-oceanic canal.

The first object is that a canal shall be open in time of war as well as in time of peace, so that navigation through the canal may be unhampered by the fact that war is being waged. If the canal were not neutralised, the territorial sovereign would be compelled, if he were neutral in a war, to prevent the passing through the canal of men-of-war of either belligerent, because such passage would be equivalent to the passage of belligerent troops through neutral land territory.

The second object is that the territorial sovereign shall be prevented from closing a canal or interfering with the free use of it by vessels of all nations in case he himself is a party to a war. If the canal were not neutralised, the belligerent territorial sovereign could, during the war, close the canal or interfere with its free use by neutral vessels.

The third object is that a canal shall not be damaged, nor navigation thereon be prevented or hampered by the opponent in case the territorial sovereign is himself a belligerent. If the canal were not neutralised, it could be blockaded, militarily occupied, and hostilities could be committed there.

With these points in mind one may well ask whether it was worth while to agree at all upon the five rules of Article III, Nos. 2-6, of the Hay-Pauncefote Treaty if the United States were not to be considered bound by these rules. That two years after the conclusion of the Hay-Pauncefote Treaty the United States acquired sovereign rights over the Canal territory and that she is at present the owner of the Canal has not, essentially at any rate, altered the case, for Article IV of the Hay-Pauncefote Treaty stipulates that a change of territorial sovereignty over the Canal territory should not affect the obligation of the contracting parties under that treaty.