Panama had no access to the Panama Canal Zone during construction (other than laborers) and no right to operate the canal when it opened in 1917. The US Army Corps of Engineers operated the Panama Canal while Panamanians were the day-laborers in support; Panamanians were unhappy about the arrangement from the start, but endured. In the mid-1970s, the conservative wing of the Republican Party became the firebrand to keep the Panama Canal in US hands as it had been since it opened. Ronald Reagan, the former two term governor of California, in pursuit of the Republican nomination for President in 1976, used the Canal as a political tool to try and wrest the nomination from President Gerald Ford.
Carter had sound reasons for doing so. The President wanted better relations between the US and the other nations in the Western Hemisphere, and there was also the real threat of violence/terrorism in the Canal Zone. Carter wanted to find a way to negotiate a new Canal Treaty without giving up operational control, but to Panama, the issue was simply that of national pride and sovereignty.
Surprisingly, support for a new Canal Treaty came from former President Ford and former Secretary of State/National Security Adviser Henry Kissinger. When Ford briefed Carter on foreign policy after the Election of 1976, Ford put the Canal ahead of the Middle East and the USSR. Another factor in play for Carter was that the USSR still had a strong influence in Cuba, and containment was still the watchword with the Soviets. As with all the problems that Carter tackled, he refused to put off the new Canal Treaty until his second term, which had been the norm for his predecessors in dealing the major problems/issues that in their view didn’t need immediate attention. Carter saw the new Canal Treaty as a way to win friends in the Western Hemisphere, which would be very useful in dealing with the USSR in the Cold War.
The biggest hurdle in negotiations with Panama had been, and still was, the US demand to unilaterally intervene if the Canal was threatened, and to have the power forever; that had been written into the 1903 treaty and was still in effect. So, one of Carter’s point men on the new Canal Treaty had the idea of two separate treaties, one for operating the Canal, and another for its defense. Wisely, Carter et al understood that security had to come first before dealing with who actually ran the Canal, so the first proposed treaty dealt with security, in that both the US and Panama would defend the Canal. The second proposed treaty would end US operational control of the Panama Canal on 31 December 1999.
It seemed that the only issue remaining concerning Panama was that of finances, and Panama wanted additional US funds. Panama’s mercurial dictator Omar Torrijos wanted $1 billion in a lump sum and $300 million a year in addition to the Canal tolls that Panama would collect. Panama started to back away from the agreement that the US could defend the Canal from external threats in perpetuity, which in effect meant that Panama had reneged on the agreement-in-principle. But Carter’s senior negotiator in Panama played hardball with Torrijos, and he immediately withdrew his concerns, which can often occur in a dictatorship.
The easy part, as it turned out, was reaching the stage of signing the two treaties with Panama; the much more difficult part lay ahead with not only ratification in the Senate but also the financial aspects with the House. It didn’t matter to conservatives that it was far better to turn over operational control to Panama rather than face the great possibility of guerilla warfare or terrorism in the Canal Zone. The debate over turning operational control of the Canal to Panama did much to strengthen the conservative wing of the Republican Party, and the two Canal Treaties became a tool that Reagan used in his ascendancy within the GOP in the late-1970s. Ironically, the very conservative iconic actor John Wayne had an estate in Panama and was also personal friends with Torrijos, so “The Duke” was in favor of the transfer of operational control.
On 14 October 1977, Carter met w/ Torrijos in the White House which led to a Joint Statement of Understanding that same day which further clarified US intervention. But for Carter, that wasn’t enough, in that he an an opportunity to push Torrijos on human rights, and Torrijos basically promised to enact reforms, but he would die in a plane crash before he could follow through on what most likely were empty promises.
Carter discovered that an effective way to sway undecided Senators was to fly them to Panama to meet Torrijos, who always made a positive impression despite being a dictator. Almost half the Senate went to Panama in stages, and Carter had to repeatedly keep Torrijos calm since almost every Senator made demands that made the Panamanian dictator uncomfortable and/or frustrated.