Papers Relating to the Foreign Relations of the United States, With the Annual Message of the President Transmitted to Congress December 3, 1912

Statement of the Secretary of State before the Senate Committee on Foreign Relations, May 24, 1911.

May 24, 1911

The committee met at 11 o’clock a. m. Present: The chairman (Mr. Cullom), Mr. Smith, Mr. Root, Mr. McCumber, Mr. Sutherland, Mr. Borah, Mr. Burton, Mr. Bacon, Mr. Shively, Mr. Rayner, and Mr. Hitchcock.

The Chairman. The Secretary of State is here by invitation. I asked him to come before the committee on the subject of the convention between the United States and the Republic of Honduras. As we have but an hour to work in before the Senate convenes, I will ask the Secretary to proceed.

Whereupon the Secretary made the following statement:

the situation.

The Central American Republic of Honduras, which in area is about the size of the State of Pennsylvania, contains about 500,000 inhabitants. Its public improvements consist of about 57 miles of railroad and inadequate docks at Puerto Cortes on the Atlantic, and still more inadequate clocks at Amapala on the Gulf of Fonseca on the Pacific side. The Gulf of Fonseca, by the way, is the best, if not the only, harbor of value on the Pacific coast between Panama and San Diego if, indeed, it is not the only one between Valparaiso and San Diego. The only other public improvement in the Republic worth noting is the Sierra Road, a highway constructed by President Sierra, but so inadequately maintained that the carrying power of a mule cart on this highway is now less than one-half of what it was 15 years ago.

Honduras is bankrupt, famished, and discouraged. The condition of her people is well illustrated by the fact that it is estimated by a reputable writer that the average annual expenditures of its peasantry for clothing amounts to less than $1.50 a year.

“Señor,” said an old Honduranean, “why should our people accumulate more than one shirt apiece, when a revolution may come along at any hour and rob them of everything?” (Central America and Its Problems—Palmer.)

A former President of Honduras, speaking of his country’s condition and of its dependence upon the United States, is quoted as saying:

Will you not use your strong arm to give us peace—peace long enough to learn that continual revolution is not the natural order of a nation’s existence? There is no act of yours guaranteeing good government which I would not welcome. How can we care for ourselves, how can we rule ourselves under such conditions? And you took away our principal source of income when you made Cuba so prosperous that she raises her own cattle and imports no more of ours.

Honduras has been the scene of seven bloody revolutions within the last 15 years. Within that time the United States has been compelled to intervene, in the interests of universal commerce and civilization, to close or to prevent sanguinary ruinous civil war within her borders.

The debt of Honduras with the interest thereon, which has not been paid for over 40 years, amounts now to about $125,000,000. Her revenue, according to the last available data, is a little more than $1,654,000 a year, of which $766,495 is customs receipts and $887,873 comes from liquor and other monopolies. Thirty-nine per cent of her revenue is absorbed by her military establishment.

In order to relieve the Republic from this crushing weight of debt, the burden of which has depressed her people to a pathetic helplessness, Honduras is endeavoring to borrow, upon the credit of her revenue, a sum of money that will enable her to compromise with her creditors and secure an amount adequate to undertake such internal improvements as will inspire her own people to new courage and establish such stability in her political and fiscal systems as will attract to her borders the enterprise and the capital of the type of immigration necessary to her regeneration.

the remedy.

Realizing the absolute inability to meet her obligations or even to pay the interest thereon, some of which runs at 10 per cent per annum, the Republic of Honduras has endeavored to reach some adjustment with her creditors, and in order to obtain reasonable terms sought the aid of the United States, and the convention which is now before the Senate has really been signed at the instance of Honduras. The reason why a convention has been entered into regarding this matter is that without materially upholding the now shattered public credit of Honduras it would be utterly impossible to obtain a loan sufficiently large to cancel outstanding obligations on terms anything like within the reach of Honduras. Honduras standing alone would have to borrow money at such exorbitant rates of interest, or obtain for its bonds such a low market price that a very much larger issue than that now proposed would have to be made.

The convention has been drawn for the purpose of giving security. That is, for the purpose of assuring the regular payment of interest and sinking fund upon the debt. Its provisions, briefly, are:

1. Honduras engages to place the loan in the United States.

2. Honduras pledges her customs receipts for the payment of the interest and sinking fund.

3. Honduras agrees to appoint a receiver from a list of names prepared by the fiscal agent and approved by the President of the United States.

4. Honduras agrees to afford protection to the receiver and that if necessary the United States may give such protection.

5. The receiver is under obligation to report to the fiscal agent of the loan and to either Government regarding the discharge of his duties.

6. Honduras further agrees not to alter the customs receipts during the existence of the loan.

The convention applies to no specified contract, but any contract, to come within the scope of the convention, must receive the scrutiny of this Government.

That the collection of the customs should be honestly carried on and their receipts properly administered is an obvious necessity, and the provision in the convention as to the appointment of the receiver makes possible the selection of a competent, honest, bonded person. In this regard it will be noted that the Honduras convention differs in this respect somewhat from the Santo Domingo convention in not going quite so far. Under the terms of the latter the receiver general of customs is appointed by the President of the United States direct. That the Government of Honduras should promise to give this receiver adequate protection, and in the absence of which this Government should have the right to protect him in the discharge of his duties, is equally an obvious necessity. It is self-evident that as the customs duties are pledged for the service of the loan, they must be adequate to meet the interest and sinking fund, and that to prevent their being in any wise altered and thereby rendered insufficient, or to allow substituting for them any new duties different in name or collected from a different viewpoint, is likewise self-evident.

That Honduras should agree to permit its customs to be collected in the manner indicated and should further stipulate that such customs duties will not be altered will, from experience, in no wise decrease or interfere with the administration of these funds. When the Government of the United States entered into the agreement with the Dominican Republic, and subsequent to the appointment by the President of a receiver general of customs, the revenues of that Republic increased from about $1,800,000 to the sum of $3,300,000. The cost of the service of the loan negotiated for the Dominican Republic, interest and sinking fund, is $1,200,000 per annum. It will thus be seen that the Dominican Republic is now promptly meeting the payment of its obligations and that it also has more money than heretofore for the maintenance and conduct of the Government. Not only has the Dominican Republic had no difficulty regarding the alteration of its tariff laws, but the duties on staple articles have in almost all cases been subjected to a scaling down, so that goods are now delivered into that Republic at less cost, than before the assistance of the United States was invoked. That this would be true in regard to Honduras may be confidently asserted.

Prior to the Dominican convention this Government was constantly having to interpose between clamorous foreign claimants and the Dominican Government and to use its naval forces for the protection of United States property. Since the Dominican convention no such necessity has arisen. The situation in the Dominican Republic prior to the convention is the situation in much of Central America and the Caribbean Republics of to-day.

Then several agreements between the Dominican Republic and foreign creditors existed which specifically pledged a portion of the customs duties of specified ports of the Republic. Some of these agreements, indeed, were protocols negotiated by the representatives of foreign governments with the Dominican Republic. Italy had several such protocols and the Spanish and German Governments also had a protocol assuring the payment of certain claims, of their subjects. The Dominican Government was in default and was continuing in default, until finally the Italian Government sent a war vessel to Dominican waters, and had it not been for the action of the United States in extending a helping hand the Dominican customhouses would have been taken possession of by the Italians and the administration of the revenues of that Republic would have fallen into the hands of a European power. I am satisfied that if the present arrangement can not be carried out a similar situation may confront the Republic of Honduras.

In fact, at the time when the negotiations were begun for the purpose of refunding the Honduranean finances a proposition had been made by the representative of Great Britain in Central America on behalf of the foreign bondholders, and was about to be consummated, which was highly objectionable. This plan contemplated the possible raising of the import duties in Honduras, and made absolutely no provision for the settlement of large American claims which were being asserted against the Government of Honduras and left the internal indebtedness of that Republic absolutely unsettled. It also contained provisions which might have placed the railroad running out of Puerto Cortes under the control of a foreign syndicate.

During the course of a year it is many times necessary for the United States to send forces to the ports of some of the Central American Republics in order to afford adequate protection to foreign life and property. This is done at an enormous expense, an informal estimate from some of the naval officers showing that the annual cost to this Government amounts to over $1,000,000. Twice in the past six months this Government has had to interfere in Honduras. Should the convention be put into operation, no such necessity will be likely to arise. The revolutions in Central America are in most instances unprincipled, the main—in fact, the only—object being to gain control of the collection of the customs duties. The removal of such a possibility from the revolutionary horizon would go far toward an effective dampening of the aspirations of adventurers.

The convention would have the effect of affording security to the bondholders; of assuring to Honduras the punctual and complete discharge of her obligations practically without cost to the Government; the enjoyment of continued peace, and the consequent internal development; and to the United States the saving in expense to this Government would alone seem to be a sufficient inducement.

Subsequently to the signing of the convention detailed negotiations were undertaken with a representative of four of the largest banking houses in this country, with a result that contracts, the text of which have already been submitted to the committee, have been drawn and signed. These contracts cover the details that have been worked out for the financial rehabilitation of Honduras. It may here be said that without such convention as has been negotiated none of the banking houses concerned would have been willing to loan Honduras money on anything like the same terms as have now been agreed to, if, indeed, they would have been willing to accept the obligations of that Republic at all. In this connection the benefit of the convention to Honduras is at once apparent. The details of the loan are, roughly, as follows:

The bankers have by previous agreement been able to obtain an option on about $20,000,000 principal of the outstanding foreign debt of Honduras and are confident that the balance will be surrendered upon terms as favorable as those offered to the bondholders now pledged.

Honduras agrees to issue $10,000,000 worth of bonds, $7,500,000 of which are to be issued now, the other $2,500,000 to be issued for the purpose of internal improvement and only when the revenues of the Republic justify it. These bonds the bankers agree to take at 88. The cash thus obtained will be sufficient to provide for the payment of all expenses, for the cancellation of the old outstanding bonds at the rate of 15 per cent of the principal and for the establishment of a cash fund of $2,100,000. This cash fund will be used for three purposes:

(a) Approximately $700,000 for the cancellation of the internal debt of Honduras, which amounts, roughly, to $1,700,000.

(b) To the provision for the payment, under direct settlement by approval of the State Department or impartial arbitration, of the claims of American citizens.

(c) The immediate investment of about $700,000 for the improvement of the Interoceanic Railway which runs from Puerto Cortes inland and which traverses one of the richest Central American banana zones.

Besides the customs revenues which are pledged for the payment of the interest and sinking fund of Honduras’s debt on the new bonds, the Government of Honduras has further agreed with the bankers that the railroad at Puerto Cortes shall be extended as stated above, operated under expert management, and that after the proper expenditure of funds for the further development of the road any sums remaining over shall be paid to the fiscal agent for the service of the loan and shall thus partially relieve the customs receipts. The revenues for the road for the last year are calculated to have been about $140,000, and it is believed that with the expenditure above provided they will easily amount to $300,000. The interest cost of service of a loan of $7,500,000 at 5 per cent interest and 1 per cent sinking fund per annum is $450,000. War expenses in Honduras annually average not less than $600,000, and it must be assumed that these will be reduced by at least one-half. In other words, aside from the increase of the customs receipts under an honest and competent administration, sufficient funds would result from the earnings of the railway and decrease of the war expense to service the loan without cost to Honduras.

The price to be paid for the bonds by the bankers, that is, 88, in comparison with the price paid for the Dominican bonds, 98.5, both at 5 per cent interest, may perhaps cause surprise. Bearing in mind, however, that when the Dominican loan was taken there was already on deposit in New York the large sum of $3,800,000 collected under the modus vivendi, and the success of the loan was assured, besides the fact that the Dominican bonds were used to the extent of 80 per cent for the extinguishment of the claims outstanding against the Republic; and considering the woeful condition of Honduras’s present financial status, her depleted credit, and the fact that the success of the loan has not yet been fiscally demonstrated, the price is not surprising. The price, comparatively speaking, is higher than any prices obtained for bonds by any Central American State. Salvador, which has the best credit of all, commands a price of 99 for 6 per cent bonds, thus paying $1 per annum for the use of $16.50. Nicaraguan bonds, also 6 per cent, have been quoted as high as 93. They were taken by the bankers at 75, so that Nicaragua paid $1 per annum for the use of $15.50. The Guatemalan 4 per cent bonds were sold in the neighborhood of 44, thus Guatemala pays $1 per annum for the use of $11. Costa Rican 5 per cent bonds have been averaging about 45, thus Costa Rica is paying $1 per annum for the use of $9. Honduras 5 per cent bonds will be taken at 88, thus Honduras will be compelled to pay $1 per annum for the use of $17.60.

From past experience of the United States in Central America it is manifest that either with or without a convention we must to some extent exert influence for peace and order. With the convention as it stands any intervention that may occur will be by virtue of a treaty right. Without the convention any intervention there may be must be of an armed and forcible character. Without the convention we must, when unfortunately necessary, intervene. With the convention intervention will probably be rendered unnecessary.

Whether rightfully or wrongfully, we are in the eyes of the world and because of the Monroe doctrine, held responsible for the order of Central America, and its proximity to the Canal Zone makes the preservation of peace in that neighborhood particularly necessary.

Aside from the purely altruistic motives which have been pointed out above, it must be borne in mind that there is another and a selfish motive which counsels the adoption of the present convention. The development and peace of all Central America must result in a direct and very substantial benefit to the southern ports of the United States—Galveston, New Orleans, Mobile, etc.—as they will all have more frequent intercourse and be able to cultivate a more extensive market for their products, while the Central American Republics, with their production increased, will find a ready market in these gateways of the United States. Railways leading to them must carry this freight for distribution throughout the Southern States.

For the fiscal year 1908–9 the total imports of the Republic of Honduras amounted to $2,581,553, of which the United States alone furnished $1,769,876, or over 68 per cent.

The amount of the export trade of Honduras for the same period was $1,990,601, of which the United States alone took $1,831,565, or more than 92 per cent.

As stated above, most of this trade is carried on with Honduras from the Gulf ports of the United States.

The principle involved, therefore, in this convention, which will enable the maintenance of peace in Central America, is in reality most important from a material standpoint to the South. In short, the matter may be summed up as follows:

Shall the Government of the United States make American capital an instrumentality to secure financial stability, and hence prosperity and peace, to the more backward Republics in the neighborhood of the Panama Canal? And in order to give that measure of security which alone would induce capital to be such instrumentality without imposing too great a burden upon the countries concerned, shall this Government assume toward the customs collections a relationship only great enough for this purpose—a relationship, however, the moral effect and potentialities of which result in preventing the customs revenues of such Republic from being seized as the means of carrying on devastating and unprincipled revolutions?

I here desire to invite the attention of the committee to this important feature of the policy so wisely adopted by the last administration, which it is now desired to extend to Honduras. This feature is that the more this plan of assistance to some of the more backward republics is extended, the less becomes the degree of intimacy established between the Government of the United States and that of the country to which the aid is given. I refer in particular to the fact that the provision in the Dominican convention made the general receiver of customs an appointee of the President of the United States, whereas the Honduras convention makes the collector of customs an appointee of the Government of the Republic of Honduras, the degree of intimacy in connection therefore being to that extent lessened. It may possibly be necessary to sign one more convention with provisions practically identical with this for the purpose of assisting the Government of Nicaragua, but in regard to the other Central American States it may be confidently stated that such a degree of intimacy will not be necessary. In the case of Costa Rica, which has just refunded its foreign debt, any possible relation on the part of this Government becomes effective only in case of default. In regard to Guatemala, which has recently indicated its desire to enlist the helpful support of this Government in rehabilitating its finances, the degree of intimacy will probably be even less. And in regard to Salvador no relation between this Government and the Government of that Republic concerning its foreign debt exists. In other words, the intimacy decreases in proportion as the ability and readiness of the country to meet its obligations increases. This, therefore, is not a policy of which the end can not be seen. The adoption of this convention is not setting such a precedent as might be desired to apply subsequently to all of the Caribbean Republics. This and the Nicaraguan convention will probably be the only two that it will be necessary for this Government to negotiate.

The contracts negotiated between the bankers and the Government of Honduras, in order to insure their fairness with regard to that Republic, have been subjected to the careful scrutiny of the Department of State, and have, further, been submitted to be examined from the standpoint of Honduras by financial and legal experts in New York, who have passed them as fair and equitable and probably the best that can be procured for Honduras under all the circumstances.

objections to the treaty.

Objection has been raised to this treaty because Honduras “agrees not to alter the import or export customs duties or other charges affecting the entry, exit, or transit of goods during the existence of the loan under the said contract without consultation and agreement with the Government of the United States.”

This is not an unusual provision. I beg to file with the committee a memorandum which I have had prepared, showing numerous instances in which Governments have obligated themselves by treaty to other Governments not to change their customs tariffs. As stated in this memorandum, these instances may be classified under three heads:

1. Cases where favored treaty rates that are set forth in a schedule annexed to the treaty have been granted by countries without reciprocal obligation on the part of the other party to the treaty. The United States has three treaties in force of this nature binding China, Korea, and Siam, respectively, to accord to it favored rates without any reciprocal obligation on its part.

2. Cases where one Government agrees that its tariff legislation shall be subject to the approval of one or more foreign Governments. A most striking instance of this kind is the relation between the Ottoman Empire and the Powers. Another case is the relation between the United States and Santo Domingo under the convention of February 8, 1907.

Under Article III of this convention, which is substantially similar in effect to Article II of the Honduras convention, the Dominican Government covenants that an agreement between itself and the United States shall be necessary in order to enable it to modify the import duties.

3. Tariff concessions exchanged between governments in reciprocity treaties or agreements.

Morocco also belongs among the countries mentioned under the first head, since it is bound in its treaties to impose only certain specific duties mentioned therein on exports and imports for no reciprocal consideration. The whole of these customs duties have now been pledged to the payment of interest under two loans made in 1904 and 1910 under the auspices of the French Government between Morocco and certain bankers. The collection of these customs revenues is “controlled” by agents of the loan.

Persia also comes under this head, as I believe that that Government also grants in its treaties specific customs duties for no reciprocal consideration. These customs revenues have also been pledged to pay the interest on certain loans.

In addition to these three classes, an instance of quasi-restraint in respect to tariff legislation on the part of one government over another government is afforded by the tariff relations between the Isthmian Canal Zone and the Republic of Panama. The order of the Secretary of War of the United States (Circular No. 45 of Jan. 9, 1911) establishes free entry for goods imported from Panama into the Canal Zone, “provided, however, that this order shall cease to be operative” if Panama should increase the rates of duty on certain imported articles or should alter certain other legislation.

Somewhat analogous to the preceding instances is the provision in Article II of our treaty with Cuba of 1903, known as the Platt amendment, by which Cuba obligates herself to the United States that she will “not assume or contract any public debt to pay the interest upon which and to make reasonable sinking-fund provision for the ultimate discharge of which the ordinary revenues of the island after defraying the current expenses of the Government shall be inadequate.”

Also analogous is the protocol of agreements of 1903 between Venezuela, Great Britain, Germany, and Italy, to which the United States and other powers are parties, by which Venezuela agrees to set aside 30 per cent of the customs revenues of La Guaira and Puerto Cabello for the payment of the claims of all nations against Venezuela.

There also existed in Greece, at all events up to quite recently, a certain international control over the Hellenic finances, which was granted by Greece in view of the pressure of the powers on account of her then practically insolvent condition.

The above are instances of obligations taken by one government to one or more others in regard to their customs tariffs. The cases where governments have pledged their customs revenues or a certain percentage of such revenues to foreign banks or corporations especially to secure loans are extremely numerous. It may indeed be said that except in the case of governments whose credit is of high standing it is practically the usual course in making loans for them to pledge specific revenues for their payment.

As the loan which Honduras undertakes to make by Article I of the convention is stated in Article II to be secured by the customs of the country, it seems clear that some covenant of the nature of that in Article II of the convention is absolutely necessary in order to insure that the interest on the loan shall be fully paid; otherwise, by altering these duties or placing other charges affecting the entry, exit, or transit of goods, the Government of Honduras would be able to reduce these revenues so that they would no longer suffice for the purpose intended by the convention. There is certainly no inequity in the lender requiring that the security of his loan shall be properly protected and that it shall be sufficient. Moreover, if Americans are not able to obtain this proper security in order to enable them to take this loan, foreign bankers will do so with a customs guarantee which might later involve the Monroe doctrine.

You will observe that the contract between Honduras and the fiscal agent of the loan contains, in Article III, a somewhat similar covenant, providing substantially that unless and until the customs revenues have exceeded a certain amount they can not be changed without the written consent of the fiscal agent. The reason why, in addition to this covenant, the somewhat similar covenant was introduced into the convention was chiefly in the interest of Honduras. It is believed that the fiscal agent in considering whether he will agree to any alteration of the duties which might be desired by Honduras will be actuated solely by considerations affecting the security of the bondholders’ interest, while by adding this covenant to the United States in the convention an opportunity will be afforded to Honduras to have any such request on her part considered upon broader ground, involving not only the bondholders’ interest but those of Honduras as well.

It may be noted in this connection that the provision substantially similar in effect in Article III of our treaty with Santo Domingo in 1907 already mentioned has operated satisfactorily in the interests of Santo Domingo in this respect, the United States having consented, subsequent to its becoming effective, to a number of reductions in tariff dues, including one entire downward revision of the tariff, after convincing itself that such was for the benefit of Santo Domingo and not injurious to the proper security of the bondholders.

Nor does it seem that the execution of such a provision is likely to cause difficulty, for upon a request to alter any duty made by Honduras it will readily be possible for this Government, through its Legation in Honduras and the fiscal agent of the loan, to ascertain what effect this alteration will presumably have upon the revenues of the country, and thereupon to assist in an agreement equitable alike to Honduras and the bondholders. It would not seem that such a provision, which in effect merely enables this Government under these circumstances to use its good offices in favor of both parties, could relate this Government too intimately with the Government of Honduras.

It thus results that the provision of the convention necessitating the advice and consent of this Government to the change in customs duties by Honduras is a help rather than a hindrance to that Republic, and is largely designed to safeguard its interests and to enable it to effect changes in its customs tariff when it otherwise might be unable to persuade the fiscal agent, whose interests are somewhat opposed, as to the advisability of any alteration.

It is also objected that we should not interfere with the internal affairs of Honduras.

Are such limited good offices and protection that Honduras invites us to lend her in this case such an interference with her internal affairs that they should be denied under the general policy of this Government to keep aloof from the internal affairs of other countries, and is it not true that for many years past, sometimes with and frequently without, the invitation of the Central American Republics, we have been compelled to interfere with their affairs, in order to keep the peace in the Western Hemisphere?

Another objection arises out of the character of the indebtedness of Honduras. It is alleged that she is neither morally nor legally bound for the enormous sums represented by her outstanding obligations.

It is probably true that Honduras never received anything like a fair share of the face of her bonds and that an equitable adjustment of her debt is a necessity.

Well, that is just the matter in hand, and in such a matter some one must decide what is fair and right under all the circumstances, and the obvious parties to do that are the debtor and creditor. Who else can do it, and if this proposition fails how can the United States prevent Honduras from making a similar or some other arrangement with her foreign creditors without such an interference in her affairs and the affairs of the nationals of other governments of a nature far more serious in its possibilities than the contemplated supervision of her customs collections by her invitation? Moreover, what steps will the United States take to prevent the seizure of Honduran customhouses if she makes no settlement with her creditors?

I suppose it is no exaggeration to say that fraud and usury are common incidents to Central American public debts.

The San Domingo treaty recites that her debt was partly fraudulent and this is probably why her creditors stood the reduction demanded. If it is conceded that 75 per cent of the Honduras debt should not be paid, it is answered that broadly speaking it is proposed to reduce it over 90 per cent.

The situation in Honduras is not to be cleared up by railing at the methods which brought it about. It is no excuse for refusing to pull an injured man out of a pit that his unfortunate position is the result of his own misconduct. Surely we are there confronted with a most deplorable condition.

We can not blink the fact that there is no hope for peace and prosperity for Honduras except through the United States. All she now asks is, Will you assist us to make the security good which we offer for the debt we are incurring, at a reasonable rate of interest, by helping us to secure an honest collection of our revenues, or will you, by withholding that assistance, drive us back upon the usurers and plunderers who have brought us to our present stagnation?

It is well here to recall again that the debt of Honduras falls under two classifications: The foreign debt, which can be liquidated, for about $4,050,000, and the internal debt, which it is estimated will be liquidated for about $700,000. But the validity and the amounts of this internal debt are to be determined either by agreement, approved by an assessor appointed by the Secretary of State, or by three arbitrators, one to be appointed by the Republic of Honduras, one by the claimants, and one by the Secretary of State. This insures the closest scrutiny of that part of the debt in which American citizens are interested. Indeed, how could the equity of the amounts to be paid by Honduras to meet these debts be more circumspectly safeguarded?

The Minister of Salvador, who has recently returned from his country, a few days ago informed me that the result of the signing of this convention, even before its ratification, had already been felt in Central America, and that the Republic of Salvador, in view of the prospect that a stable government was about to be maintained in Honduras, had been able to reduce its military expenses by 75 per cent, and to devote the money thus saved to the extension of public improvements. The decision of the Senate as to its consent to this convention with Honduras involves the parting of the ways in the policy of the United States in Central America and the zone of the Caribbean. This is especially true because however good conditions might become in the northern and southern Republics of Central America, there can be no general stability unless the countries of Honduras and Nicaragua, which form a wide belt across Central America, are placed upon a firm basis. It will be recalled that this principle was unanimously recognized by all of the representatives of the five Central American Republics at the peace conference held in Washington during the months of November and December, 1907, when a convention was adopted which included the following language:

article iii.

Taking into account the central geographical position of Honduras and the facilities which, owing to this circumstance, have made its territory most often the theater of Central American conflicts, Honduras declares from now on its absolute neutrality in event of any conflict between the other Republics; and the latter, in their turn, provided such neutrality be observed, bind themselves to respect it and in no case to violate the Honduranean territory.

It carries with it the question of the ability of the Executive of this Government properly to protect and to safeguard and promote not the troublesome and meddling adventurers who go to those countries for unworthy motives, but our citizens who are engaged in the laudable and deserving enterprise of endeavoring legitimately to expand American interests and enterprise in that region; to destroy the industry of the soldier of fortune and convert into a field for commerce and economic development what has been the happy limiting ground of the American adventurer.

In response to the invitation of the Government of Nicaragua, which, after 17 years of disorder and rapine in that country, now seeks to put its house in order, I am now prepared to sign with the Nicaraguan plenipotentiary a similar convention between the United States and that country. Nothing definite has been done, I believe, as to a contract between Nicaragua and American bankers. The idea of the Department of State is that when, with the assistance of the Americans who have been employed by Nicaragua as claims commissioners and financial adviser, the financial strength of the country and the sum of its needs have been calculated, such contract will be drawn up, then the contract would naturally be given to whatever responsible bankers would take the bonds at the most favorable price, other advantages being equal. As in the case of the present convention, no contract would come under the shelter of the protection of the proposed convention with Nicaragua unless it had been sanctioned as the best obtainable both by the Department of State and by the Government of Nicaragua.

Before signing this convention with Nicaragua, I desire to give this information to the committee as still further emphasizing the importance of the convention now before the Senate.

The Executive being charged with the conduct of our foreign relations and the protection of our citizens’ interests abroad, and having, after years of study, become convinced that the policy now recommended to the Senate is the way adequately to meet his heavy responsibilities, I can only say, in closing, that in laying this whole situation before the committee I feel that the responsibility of the Executive has been shifted to the Senate, and that if the policy advocated by the Executive be rejected, then, however unsatisfactory the situation of those Republics, their relations to our own national interests, and the condition of the interests of American citizens may hereafter become in the regions referred to, if the Executive finds himself deprived of the best means to cope with the situation thus brought about it will be a deplorable fact, but it will not be due to a failure to study out and to recommend a mode of forestalling such results.

[Appendix to the Secretary’s statement]

memorandum of cases where the customs tariff of one country can not be changed without the consent of one or more foreign governments; in other words, cases where tariff concessions granted by one country to foreign countries tie the hands of the legislative body of the country making the concessions during a certain period provided for in the convention.

These cases may be classified under three heads:

(1) Cases where favored treaty rates that are set forth in a schedule annexed to the treaty have been granted by countries without reciprocal obligation on the part of the other party to the treaty. The following examples may be cited among the treaties in force of the United States, viz:

China.—Treaty as to commercial relations signed October 8, 1903; proclaimed January 13, 1904. Lengthy import tariff of Chinese duties annexed, applicable to imports into China from the United States. Article V provides that the tariff duties to be paid by citizens of the United States on goods imported into China shall be as set forth in the schedule annexed thereto and made a part of the treaty, subject only to such amendments and changes as are authorized by Article IV of the treaty or as may thereafter be agreed upon by the parties. Article XVII provides that the treaties shall remain in force for a period of 10 years beginning with the date of the exchange of ratifications (Jan. 13, 1904) until a revision is effected at the end of 10 years. If no revision is demanded before the end of the first term of 10 years, then the treaty remains in force unchanged for a further term of 10 years and so on for successive periods of 10 years. In this way the Chinese tariff rates are bound during a long period of years.

Korea.—Treaty of peace, amity, commerce and navigation, signed May 22, 1882; proclaimed June 4, 1883. This treaty provides, in Article V, that the tariff duties upon such imports into Korea from the United States as are articles of daily use shall not exceed 10 per cent ad valorem; those upon luxuries shall not exceed 30 per cent ad valorem; and those upon native produce exported shall not exceed 5 per cent ad valorem. The tonnage duties on United States merchant vessels are also limited. Provision is made in the treaty for its revision after an interval of five years. This treaty was in effect when Japan took over the complete administration of Korea, and, while Japan has notified the United States of its termination, the treaty features continue in force for a period of 10 years from August 29, 1910, the date of Japan’s formal declaration on the subject.

Siam.—Treaty of amity and commerce, signed May 29, 1856; proclaimed August 16, 1858. There is annexed to this treaty the general regulations under which American trade is to be conducted in Siam, including the tariff of export and inland duties to be levied by Siam on articles of trade. This treaty is still in force. Article X provides that after the lapse of 10 years from the date of ratification of the treaty upon the desire of either Government, and on 12 months prior notice, there may be a revision. No revision seems to have been made.

Morocco.—Treaty of peace and friendship, signed September 16, 1836; proclaimed January 3, 1837. Article 14 of this treaty provides that “the commerce of the United States shall be on the same footing as is the commerce of Spain or as that of the most favored nation, for the time being.” Other treaties between Morocco and foreign powers bind Morocco to impose only certain specific duties mentioned therein on imports and exports for no specific consideration. The benefit of these duties accrues to the United States through article 14 of the treaty of 1836. Article 25 of this treaty, which is still in force, provides that it shall continue in force for 50 years.

Persia.—Treaty of friendship and commerce, signed December 13, 1856; proclaimed August 18, 1857. Article 4 provides that merchandise imported or exported by citizens or subjects of each country shall not pay other duties than those charged to the citizens of the most favored nations. Until 1903, other treaties between Persia and foreign powers bound Persia to impose only certain specific duties mentioned therein on imports and exports for no specific consideration. The benefit of these treaties up to 1903 when they were denounced and a regular tariff law was put in force by Persia, accrued to the United States through article 4 of this treaty. Article 8 of this treaty provides that it shall continue in force for 10 years or until within one year after denunciation.

Practically all the European powers have unilateral tariff treaties of this kind with China, Korea, and Siam.

(2) Cases where one government agrees that its tariff legislation shall be subject to the approval of one or more foreign governments. The most striking instance of this kind is the relation between the Ottoman Empire and the powers. No change in the import tariff of Turkey may be made without the consent of the powers first secured. For many years the uniform import duty was 8 per cent ad valorem. The consent of the powers was obtained by Turkey and she raised the rate to 11 per cent, at which rate it now remains. She is now in process of obtaining the consent of the powers to a further increase in the rate to 15 per cent ad valorem.

Another case is the relation between the United States and the Dominican Republic, in virtue of the convention of February 8, 1907, between the two countries. Under Article III of this convention the Dominican Government agrees not to change its import duties, before obtaining the consent of the United States Government, this consent being an indispensable condition for the modification of such import duties.

(3) Tariff concessions exchanged between Governments in reciprocity treaties or agreements. These are either (a) preferential tariff reductions reserved exclusively for the products of the contracting countries, or (b) conventional tariff rates that are given wide application through the operation of the most-favored-nation clause in pursuance of the European construction of that clause.

At the present time the United States has in force only one reciprocity treaty and no reciprocity agreement. Our reciprocity treaty with Cuba, signed December 11, 1902, proclaimed December 17, 1903, illustrates very well the cases in this category. In this treaty the two contracting parties mutually bind in favor of each other their respective free lists. The United States agrees to admit all dutiable imports from Cuba at a flat preferential tariff reduction of 20 per cent below the regular rates, while Cuba reciprocates by preferential tariff reductions ranging from 20 per cent to 40 per cent according to the classes of American products.

This treaty was made for a period of five years, and continues in force from year to year thereafter until the expiration of one year from the date of notice of termination on the part of either party. It contains a provision, however, that it may be terminated on six months’ prior notice by either party in the event of adverse tariff legislation on the part of the other. The restraining effect of the treaty on our legislation might be illustrated by assuming that Congress were to transfer from the free list to the dutiable list some article that was on our free list at the time the treaty was signed; for example, bananas. The United States, in order to avoid violating the treaty, would be obliged to admit Cuban bananas free of duty, while those from the rest of the world would be subject to duty. According to our jurisprudence, however, neither a commercial treaty nor the enabling legislation based upon it and duly enacted stands upon a higher plane than any other tariff legislation. Hence, strictly speaking, Congress may, at any time, and without notice, pass legislation which will abrogate the provisions of a reciprocity treaty. While this is the strict legal point of view it is not the equitable international viewpoint, and Congress recognized it by making a special reservation in favor of the Cuban treaty in the Payne-Aldrich law (sec. 3). Notwithstanding the legal point mentioned it can not be denied that the preferential tariff concessions made by the United States in the Cuban treaty or any similar treaty impose the strongest kind of a moral restraint upon the freedom of action of Congress to the extent of constraining it to enact no legislation that will prevent complete observance of the treaty on the part of the United States so long as it shall remain in force in conformity with its provisions for termination.

The second class of reciprocity concessions is by far the more numerous. The following countries employ the general and conventional tariff system, using a dual tariff, consisting of the general tariff adopted by the legislative body and a lower scale of duties representing the aggregate reductions of duty made in a series of reciprocity treaties with other members of the group—viz, Germany, Austria-Hungary, Russia, Italy, Switzerland, Servia, Roumania, Bulgaria, and Japan. To this list might be added Belgium, which enters freely into tariff treaties of this kind, but follows the practice of immediately generalizing the treaty reductions of duty by act of Parliament, thereby leaving the country with a single tariff system at all times. Greece also follows the general and conventional tariff system to a limited extent. The unconditional interpretation of the most-favored-nation clause is an essential feature of this tariff system. The treaties which create the conventional tariffs are accompanied by schedules of reductions of duty below the regular rates on imports into one contracting country from the other contracting party; but by the operation of the most-favored-nation clause, following the European interpretation of the same, the benefit of one and all tariff concessions is extended to all members of the group and to countries outside the group which have treaty relations containing the most-favored-nation clause with the contracting parties to the reciprocity series. Thus the benefits of reciprocity are extended beyond the immediate contractors.

All the existing German reciprocity treaties, and most of the like treaties between other European countries, are made for a period of at least 12 years, and will terminate on December 81, 1917, provided a year’s prior notice shall be given by either contracting party; if no notice of termination shall be given the treaties will continue indefinitely from year to year until the expiration of one year after notice of denunciation by either party. During this long period of 12 years the legislative bodies of the respective countries are restrained very effectively against increasing the tariff rates above the treaty rates on goods imported from the contracting countries; but not, of course, on goods imported from nontreaty countries—that is, those that do not have even most-favored-nation guaranties. To show the wide application of this system it may be mentioned that there are about 40 different countries in the world whose imports enjoy the benefit of the complete conventional tariff of Germany on their importation into that country by virtue of treaty stipulation, although there are only about eight or nine countries with which Germany has made reciprocity treaties that remain in force.

The following list shows the existing reciprocity treaties of European States—that is, treaties with tariffs annexed where restraint is imposed on the legislative bodies in respect of tariff legislation during the conventional terms:

germany.

The new general tariff, although adopted December 25, 1902, did not come into effect until March 1, 1906. The present conventional tariff, created by the following treaties, came into force on the same date, the interval being employed in the treaty negotiations:

• Austria-Hungary, January 25, 1905.
• Belgium, June 22, 1904.
• Italy, December 3, 1904.
• Roumania, October 9–21, 1904.
• Russia, July 28, 1904.
• Sweden, May 8, 1906.
• Switzerland, November 12, 1904.
• Servia, November 16–29, 1904.
• Bulgaria, August 1, 1905.

austria-hungary.

The new general tariff came into effect March 1, 1906. The present conventional tariff was created by the following reciprocity treaties:

• Germany, January 25, 1905.
• Belgium, February 12, 1906.
• Italy, February 11, 1906.
• Russia, February 15, 1906.
• Switzerland, March 9. 1903.
• Servia, July 14–27, 1910.
• Roumania, April 23, 1909.

russia.

The present autonomous tariff for the European trade entered into operation March 1, 1906, by imperial decree. The present conventional tariff has been fixed by the following reciprocity treaties:

• Austria-Hungary, February 15, 1906.
• Germany, July 28, 1904.
• Italy, June 28, 1907.

Italy.

The present general tariff of Italy entered into effect on March 1, 1906. The present conventional tariff has been established by the following reciprocity treaties:

• Austria-Hungary, February 11, 1906.
• Bulgaria, January 13, 1906.
• Germany, December 3, 1904.
• Roumania, December 5, 1906.
• Russia, June 28, 1907.
• Servia, January 14, 1907.
• Switzerland, July 13, 1904.

switzerland.

The present general tariff of Switzerland went into effect January 1, 1906. The present conventional tariff is based on the following reciprocity treaties:

• Austria-Hungary, March 9, 1906.
• France, October 20, 1906.
• Germany, November 12, 1904.
• Italy, July 13, 1904.
• Servia, February 28, 1907.
• Spain, September 1, 1906.

belgium.

(For explanation of the Belgium tariff system see supra.)

• Austria-Hungary, February 12, 1906.
• Germany, June 22, 1904.
• Roumania, June 5–23, 1906.
• Servia, April 11–24, 1907.

servia.

The present general tariff of Servia is the law of 1899 as amended in 1900 and 1902. The present conventional tariff is based on the following reciprocity treaties: Belgium, Germany, France, Italy, Switzerland, and Austria-Hungary.

roumania.

The present general tariff of Roumania went into effect March 1, 1906. The present conventional tariff is based on reciprocity treaties with Austria-Hungary, Belgium, France, Germany, Great Britain, Italy, and Turkey.

bulgaria.

Bulgaria even before independence enjoyed tariff autonomy. The present tariff as modified by convention went into effect January 14, 1906. Reciprocity treaties have been concluded with the following countries: France, Germany, Great Britain, Italy, and Turkey.

An instance of quasi restraint in respect of tariff legislation on the part of one government over another government is perhaps afforded by the tariff relations between the United States and Panama. The nature of this restraint exercised by the United States is disclosed in the appended circulars issued by the Isthmian Canal Commission on the following dates: June 25, 1904; December 30, 1904; January 10, 1905; and January 9, 1911. The last-mentioned circular will explain the situation. The order of the Secretary of War of the United States, dated at Panama December 3, 1904, and promulgated by the Isthmian Canal Commission in Circular No. 4, December 30, 1904, defined the tariff, relations between the Canal Zone and the Republic of Panama, establishing free entry for goods imported from that Republic into the zone, subject to an important condition that the Government of Panama should make reductions in her tariff on certain goods and not increase the rates on other schedules. This proviso has been modified by Circular No. 4, of January 9, 1911, so far as relates to the tariff feature, as follows:

Provided, however, that this order shall cease to be operative:

First, If the Republic of Panama should at any time increase the rate of duty on imported articles described in class 2 of the act of the National Convention of Panama passed July 5, 1904, and effective October 12, 1904, above 15 per cent ad valorem, provided for in said act; or if the said Republic should increase at any time the rates of duty on the imported articles described in the other schedules of said act, except on all forms of imported wines, liquors, alcohols, and opium, upon which the Republic may fix higher rates.

Copies of the circulars to which I have referred are annexed hereto.

Another instance of quasi restraint existed in Greece up to quite recently, where, on account of the practically insolvent condition of the Hellenic finances, the great European powers intervened to assist Greece to settle her debt in return for a certain international control of her finances.

In the foregoing memorandum I have made no reference to reciprocity arrangements entered into by double-tariff countries like France and Spain, which employ the maximum and minimum tariff system. These need not be considered in this connection for the reason that both the maximum tariff and the minimum tariff are enacted simultaneously by the legislative body, so that the system permits, at all times, complete national autonomy in the evolution of the dutiable schedules and eliminates the question of diplomatic interposition on the part of foreign Governments in the construction of conventional tariffs. France may, and sometimes does, enter into reciprocity treaties with foreign Governments, engaging to grant her minimum tariff in whole, or in part, in return for reduced tariff rates on the part of the other contracting party. France, however, does not engage not to increase the minimum tariff, but merely to grant minimum tariff treatment, without discrimination.

[Inclosure 1]

[Untitled]

Office of the Isthmian Canal Commission,
Washington, D. C., June 25, 1904.

Circular No. 1,
Isthmian Canal Commission.

The following order of the Secretary of War is published for the information and guidance of all concerned:

War Department,
Washington, June 24, 1904.

To the Chairman of the Isthmian Canal Commission.

Sir: The necessities of the inhabitants and the due administration of the affairs of government in the Canal Zone at Panama require the establishment of post offices and postal service in that territory.

It is therefore ordered that a post office be established in each of the following-named towns of the Canal Zone, to wit: Cristobal, Gatun, Bohio, Gorgona, Bas Obispo, Empire, Culebra, La Boca, and Ancon.

The post offices at Cristobal and Ancon shall be money-order offices.

The Governor of the Canal Zone is hereby authorized to appoint postmasters for the post offices herein established and fix the compensation therefor, subject to the approval of the Isthmian Canal Commission.

The Governor of the Canal Zone is directed to formulate a plan for a practical and efficient postal service in said Canal Zone, and including such measures and provisions of the postal service of the United States as are not inapplicable to the conditions of law and fact existing in the Canal Zone, and to report said plan to the chairman of the Isthmian Canal Commission for such action as the discretion of the commission shall approve.

Pending the establishment of the postal service by act of the commission or other competent authority, the Governor of the Canal Zone is hereby authorized to establish post offices at such additional places in the Canal Zone as in his judgment the interests of the public require, and to appoint postmasters therefor and fix their compensation, subject to the approval or other action thereon by the Isthmian Canal Commission.

The Governor of the Canal Zone is also authorized to adopt and enforce such temporary rules, regulations, provisions, and requirements as may be necessary to secure a practical and efficient postal service in said Canal Zone; and to employ such temporary assistants and employees as the exigencies of the service require.

By direction of the President:

Wm. H. Taft,
Secretary of War.

This order will be duly published and enforced.

J. G. Walker,
Chairman Isthmian Canal Commission.

[Inclosure 2]

[Untitled]

Office of the Isthmian Canal Commission,
Washington, D. C., December 30, 1904.

Circular No. 4,
Isthmian Canal Commission.

The following order of the Secretary of War is published for the information and guidance of all concerned:

Panama, December 3, 1904.

By direction of the President it is ordered that, subject to the action of the Fifty-eighth Congress as contemplated by the act of Congress approved April 28, 1904:

Section 1. No importation of goods, wares, and merchandise shall be entered at Ancon or Cristobal, the terminal ports of the canal, except such goods, wares, and merchandise as are described in Article XIII of the treaty between the Republic of Panama and the United States, the ratifications of which were exchanged on the 26th day of February, 1904, and except goods, wares, and merchandise in transit across the Isthmus for a destination without the limits of said Isthmus, and except coal and crude mineral oil for fuel purposes to be sold at Ancon or Cristobal to seagoing vessels, said coal and oil to be admitted to those ports free of duties for said purposes:

Provided, however, that this order shall be inoperative, first, unless the Republic of Panama shall reduce the ad valorem duty on imported articles described in class 2 of the act of the National Convention of Panama passed July 5, 1904, and taking effect October 12, 1904, from 15 per cent to 10 per cent and shall not increase the rates of duty on the imported articles described in the other schedules of said act except on all forms of imported wines, liquors, alcohol, and opium, on which the Republic may fix higher rates; second, unless article 38 of the constitution of the Republic of Panama as modified by article 146 thereof shall remain in full force and unchanged so far as the importation and sale of all kinds of merchandise are concerned; third, unless the consular fees and charges of the Republic of Panama in respect to entry of all vessels and importations into said ports of Panama and Colon shall be reduced to 60 per cent of the rates now in force; and, fourth, unless goods imported into the ports of Panama and Colon consigned to or destined for any part of the Canal Zone shall not be subjected in the Republic of Panama to any other direct or indirect impost or tax whatever.

Sec. 2. In view of the proximity of the port of Ancon to the port of Panama, and the port of Cristobal to the port of Colon, the proper customs or port official of the Canal Zone shall, when not inconsistent with the interests of the United States, at the instance of the proper authority of the Republic of Panama, permit any vessel, entered at or cleared from the ports of Panama and Colon, together with its cargo and passengers, under suitable regulations for the transit of the imported merchandise and passengers to and from the territory of the Republic of Panama, to use and enjoy the dockage and other facilities of the ports of Ancon and Cristobal, respectively, upon payment of proper dockage dues to the owners of said docks:

Provided, however, that reciprocal privileges as to dockage and other facilities at Panama and Colon, together with suitable arrangement for transit of imported merchandise and passengers to and from the territory of the Canal Zone, shall be granted by the authorities of the Republic of Panama, when not inconsistent with its interests, to any vessel, together with its cargo and passengers, entered at or cleared from the ports of Ancon and Cristobal: Provided, however, that nothing herein contained shall affect the complete administrative, police, and judicial jurisdiction of the two Governments over their respective ports and harbors, except as hereinafter provided in section 6:

Provided, also, that vessels entering or clearing at the port of Panama shall have the absolute right freely to anchor and lade and discharge their cargoes by lighter age from and to Panama at the usual anchorage in the neighborhood of the islands of Perico, Flamenco, Naos, and Culebra though included in the harbor of Ancon under the provisional delimitation as amended under section 5 hereafter, and to use the said waters of said harbor for all lawful commercial purposes.

Sec. 3. All manifests and invoices and other documents in respect to vessels or cargoes cleared or consigned for or from the ports of Panama and Colon shall, as heretofore, be made by the officials of the Republic of Panama. All manifests, invoices, and other documents in respect to the vessels and cargoes cleared or consigned for or from the ports of Ancon or Cristobal shall be made by officials of the United States.

Sec. 4. No import duties, tolls, or charges of any kind whatsoever shall be imposed by the authorities of the Canal Zone upon goods, wares, and merchandise imported, or upon persons passing from the territory of the Republic of Panama into the Canal Zone, and section 5 of the executive order of June 24, 1904, providing that duties on importations into the Canal Zone are to be levied in conformity with such duties as Congress has imposed upon foreign merchandise imported into ports of the United States is hereby revoked, but this order shall be inoperative unless the authorities of the Republic of Panama shall grant by proper order reciprocal free importation of goods, wares, and merchandise and free passage of persons from the territory of the Canal Zone into that of the Republic of Panama.

Sec. 5. The provisions of this order also shall not be operative except upon the condition that the delimitation of the cities and harbors of Colon and Panama, signed on the 15th day of June, 1904, by the proper representatives of the Governments of the Republic of Panama and of the Canal Zone, shall be provisionally enforced, and while the same shall remain in force with the consent of both parties thereto the provisional delimitation shall include not only the terms set forth in the writing thereof, but also the following, viz: That the harbor of Panama shall include the maritime waters in front of said city to the south and east thereof, extending 3 marine miles from mean low-water mark, except the maritime waters lying westerly of a line drawn from a stake or post set; on Punta Mala through the middle island of the three islands known as Las Tres Hermanas, and extending 3 marine miles from mean low-water mark on Punta Mala, which waters shall be considered in the harbor of Ancon.

Sec. 6. This order also shall be inoperative unless the proper governmental authorities of the Republic of Panama shall grant power to the authorities of the Canal Zone to exercise immediate and complete jurisdiction in matters of sanitation and quarantine in the maritime waters of the ports of Panama and Colon.

Sec. 7. The executive order of June 24, 1904, concerning the establishment of post offices and postal service in the Canal Zone is modified and supplemented by the following provisions:

All mail matter carried in the territory of the Canal Zone to or through the Republic of Panama to the United States and to foreign countries shall bear the stamps of the Republic of Panama properly crossed by a printed mark of the Canal Zone Government, and at rates the same as those imposed by the Government of the United States upon its domestic and foreign mail matter, exactly as if the United States and the Republic of Panama for this purpose were common territory. The authorities of the Canal Zone shall purchase from the Republic of Panama such stamps as the authorities of the Canal Zone desire to use in the Canal Zone at 40 per cent of their face value; but this order shall be inoperative unless the proper authorities of the Republic of Panama shall by suitable arrangement with the postal authorities of the United States provide for the transportation of mail matter between post offices on the Isthmus of Panama and post offices in the United States at the same rates as are now charged for domestic postage in the United States, except all mail matter lawfully franked and inclosed in the so-called penalty envelopes of the United States Government concerning the public business of the United States, which shall be carried free, both by the Governments of Panama and of the Canal Zone; provided, however, that the zone authorities may, for the purpose of facilitating the transportation of through mail between the zone and the United States in either direction, inclose such through mail properly stamped or lawfully franked in sealed mail pouches, which shall not be opened by the authorities of the Republic of Panama in transit, on condition that the cost of transportation of such mail pouches shall be paid by the Zone Government.

Sec. 8. This order also shall not be operative unless the currency agreement made at Washington June 20, 1904, by the representatives of the Republic of Panama and the Secretary of War of the United States, acting with the approval of the President of the United States, for the establishment of a gold standard of value in the Republic of Panama, and proper coinage shall be approved and put into execution by the President of the Republic of Panama, pursuant to the authority conferred upon him by law of the Republic of Panama, No. 84, approved June 20, 1904, and unless the President of the Republic of Panama, in order that the operation of the said currency agreement in securing and maintaining a gold standard of value in the Republic of Panama may not be obstructed thereby, shall by virtue of his authority conferred by law No. 65, enacted by the National Assembly of Panama on June 6, 1904, abolish the tax of 1 per cent on gold coin exported from the Republic of Panama.

Sec. 9. Citizens of the Republic of Panama at any time residing in the Canal Zone shall have, so far as concerns the United States, entire freedom of voting at elections held in the Republic of Panama and its provinces or municipalities at such places outside of the Canal Zone as may be fixed by the Republic and under such conditions as the Republic may determine, but nothing herein is to be construed as intending to limit the power of the Republic to exclude or restrict the right of such citizens to vote as it may be deemed judicious.

Sec. 10. The highway extending from the eastern limits of the city of Panama, as fixed in the above-mentioned provisional delimitation agreement of June 10 1910, to the point farther to the eastward where the road to the “Savannas” crosses the zone line (which is 5 miles to eastward of the center axis of the canal) shall be repaired and maintained in a serviceable condition at the cost and expense of the authorities of the Canal Zone, and also in like manner the said road from the said eastern limits of the city of Panama to the railroad bridge in the city of Panama shall be repaired at the cost of the authorities of the Canal Zone, but this order shall not be operative unless the Republic of Panama shall waive its claim for compensation for the use in perpetuity of the municipal buildings located in the Canal Zone.

Sec. 11. The United States will construct, maintain, and conduct a hospital or hospitals either in the Canal Zone or in the territory of the Republic, at its option, for the treatment of persons insane or afflicted with the disease of leprosy, and indigent sick, and the United States will accept for treatment therein such persons of said classes as the Republic may request, but this order shall not be operative unless, first, the Republic of Panama shall furnish without cost the requisite lands for said purposes if the United States shall locate such hospital or hospitals in the territory of the Republic, and, second, unless the Republic shall contribute and pay to the United States a reasonable daily per capita charge in respect of each patient entering upon the request of the Republic, to be fixed by the Secretary of War of the United States.

Sec. 12. The operation of this executive order and its enforcement by officials of the United States on the one hand, or a compliance with and performance of the conditions of its operation by the Republic of Panama and its officials on the other, shall not be taken as a delimitation, definition, restriction, or restrictive construction of the rights of either party under the treaty between the United States and the Republic of Panama.

This order is to take effect on the 12th day of December, 1904.

Wm. H. Taft, Secretary of War.

This order will be duly published and enforced.

J. G. Walker,
Chairman Isthmian Canal Commission.

[Untitled]

Washington, D. C., December 30, 1904.

Circular No. 5,
Isthmian Canal Commission.

The following order of the Secretary of War is published for the information and guidance of all concerned:

Panama, December 6, 1904.

Executive order of December 6, 1904, explanatory of executive order of December 3, 1904.

Section. 1. Consignments of goods, wares, and merchandise which by virtue of section 1 of the above-mentioned order of December 3, 1904, can not be entered for importation at the ports of Ancon or Cristobal may, nevertheless, at the option of the consignor, if accompanied by the proper consular invoices of the consul of the Republic of Panama at the port of consignment, be landed at Ancon or Cristobal, respectively, in transit to any part of the Canal Zone or the Republic upon payment of the proper duties to the Republic of Panama, under suitable arrangements similar to those provided for by section 2 of said order of December 3, 1904.

But such goods, wares, and merchandise not accompanied by consular invoice of the consul of the Republic shall not be permitted to land at Ancon or Cristobal.

Sec. 2. The order of December 3, 1904, shall be construed to permit free exportation and consignment of goods, wares, and merchandise and free transit of persons and vehicles from the Republic through the Canal Zone and from the terminal ports thereof.

By direction of the President.

Wm. H. Taft,
Secretary of War.

This order will be duly published and enforced.

J. G. Walker,
Chairman Isthmian Canal Commission.

[Untitled]

Washington, D. C, December 30, 1904.

Circular No. 6,
Isthmian Canal Commission.

The following order of the Secretary of War is published for the information and guidance of all concerned:

War Department,
Washington, December 16, 1904.

To the Chairman of the Isthmian Canal Commission:

By direction of the President, the order of June 24, 1904, relating to the establishment and administration of the customs service in the Canal Zone of the Isthmus of Panama, is hereby revoked.

Wm. H. Taft,
Secretary of War.

This order will be duly published and enforced.

J. G. Walker,
Chairman Isthmian Canal Commission.

[Untitled]

Washington, D. C., December 30, 1904.

Circular No. 7.
Isthmian Canal Commission.

The following order of the Secretary of War is published for the information and guidance of all concerned:

War Department, December 28, 1904.

Sir: By direction of the President, it is ordered that there shall be substituted for the order of June 24, 1904, relating to the establishment and administration of the customs service in the Canal Zone of the Isthmus of Panama, which was revoked by the order of December 16, 1904, the following:

• Section 1. For the purpose of customs administration in the Canal Zone there is hereby established a customs district, which comprises all the lands and waters within the control and jurisdiction of the United States on the Isthmus of Panama and the maritime waters contiguous to the shores of the said Canal Zone extending to the distance of 3 marine miles from mean low-water mark, but not including any maritime waters that pertain to the harbors of the cities of Panama and Colon in the Republic of Panama, the harbors of which are sufficiently defined under the provisional agreement of delimitation signed by the proper representatives of the Governments of Panama and of the Canal Zone on the 15th day of June, as modified by the consent of the parties in accordance with the description contained in section 5 of the executive order of December 3, 1904.
• Sec. 2. There shall be two ports of entry in the Canal Zone, to wit: Ancon, at the Pacific terminus of the canal, and Cristobal, at the Atlantic terminus, at which goods, wares, and merchandise may be imported or exported and vessels may be entered or cleared in accordance with the Executive Orders of December 3, 1904, and December 6, 1904.
• Sec. 3. The subdivision of the executive branch of the Government of the Canal Zone, known as the department of revenues, shall include the administration of the customs laws and tariff regulations in force in the said zone. The collector of revenues, who by act of the Isthmian Canal Commission is ex officio the collector of customs, shall receive the salary which may be allowed by law, and shall perform the duties of collector of customs as required by the laws, now in force in the Canal Zone or that may hereafter be enacted.
• Sec. 4. The deputy collectors and inspectors of customs, the health officers, and port captains at the ports of Ancon and Cristobal shall receive such compensation as may be allowed by law, and will perform their duties at said ports as required by the laws and regulations in force in the zone.
• Sec. 5. The order of December 16, 1904, revoking the order of June 24, 1904, together with this order, shall be proclaimed in the Canal Zone, Isthmus of Panama, and shall be in force from the date of the promulgation.

Very respectfully,

Wm. H. Taft,
Secretary of War.

The Chairman of the Isthmian Canal Commission,
Washington, D. C.

This order will be duly published and enforced.

J. G. Walker,
Chairman Isthmian Canal Commission.

[Inclosure 3]

[Untitled]

Office of the Isthmian Canal Commission,
Washington, D. C., January 10, 1905.

Circular No. 8,
Isthmian Canal Commission.

The following order of the Secretary of War is published for the information and guidance of all concerned:

War Department,
Washington, D. C, January 7, 1905.

executive order.

By direction of the President, it is hereby ordered that—

1. To entitle goods, wares, and merchandise to entry at Ancon and Cristobal, the terminal ports of the Isthmian Canal, Canal Zone, Isthmus of Panama, it is necessary that it be established by the certificate of a member of the Isthmian Canal Commission, or of the chief engineer of the Isthmian Canal Commission, or of the chief of the department of material and supplies, that said goods, wares, and merchandise are necessary and convenient for the construction of the Isthmian Canal, or for the use and consumption of certain officers and employees in the service of the United States and of the Government of the Canal Zone and their families stationed on the Isthmus of Panama, and are to be devoted to that purpose exclusively.

2. The certificates above required shall be granted only when the goods, wares, and merchandise to be certified are (1) the property, including live stock and forage, of or under contract of purchase by the United States and intended for use in the work of constructing the canal or the sanitation of the Isthmus, or for the service of the Government of the Canal Zone; (2) the property, including live stock and forage, of or under contract of purchase by a contractor with the United States or the Government of the Canal Zone for work on the construction of the Isthmian Canal, the sanitation of the Isthmus of Panama, provided that any goods, wares, or merchandise that are to be offered for sale by any contractor to his employees or otherwise shall not be entitled to such entry; (3) the property of the Government of the Canal Zone or of any municipality of said zone; (4) property and provisions intended for sale in commissaries established and operated by the Isthmian Canal Commission to officers, employees, and contractors of the Isthmian Canal Commission, of the Panama Railroad Co., or of any contractor with the Isthmian Canal Commission for work on the Isthmus (together with the families of such persons), who are citizens of the United States or who received compensation on what is known as the gold pay roll of the commission, of the railroad company, or such contractor; (5) household furniture of such officers and employees of the Isthmian Canal Commission stationed in the Canal Zone, or Republic of Panama, including such articles, effects, and furnishings as pictures, books, musical instruments, chinaware, bed and table linen, and kitchen utensils; also wearing apparel, toilet objects, and articles for personal use; books, portable tools, and instruments; jewelry and table services, in quantities and of the class suitable to the rank and position of such officers and employees and intended for their own use and benefit and not for barter or sale, imported from the United States.

3. This order contemplates the exclusion from benefits of the commissaries established and maintained by the commission of all employees and workmen who are natives of tropical countries wherein prevail climatic conditions similar to those prevailing on the Isthmus of Panama, and who therefore may be presumed to be able to secure the articles of food, clothing, household goods and furnishings, of the kind and character to which they fire accustomed, from the merchants of Panama, Colon, and the towns of the Canal Zone, and whose ordinary needs may be supplied without recourse to the Government commissaries. Should it develop hereafter that said merchants charge prices in excess of legitimate profit, or practice other extortion, the United States, for the protection and assistance of all is employees, whether from the Tropical or Temperate Zone, will supply its commissaries with such staple articles as are required and desired by the inhabitants of tropical countries, and permit all its employees and workmen and those of its contractors to avail themselves of the benefits and privileges afforded by said Government commissaries.

This order is to take effect on the 7th day of January, 1905.

Wm. H. Taft, Secretary of War.

The Chairman of the Isthmian Canal Commission,
Washington, D. C.

This order will be duly published and enforced.

J. G. Walker,
Chairman Isthmian Canal Commission.

[Inclosure 4]

The Isthmian Canal Commission,
Washington, D. C., January 9, 1911.

Circular No. 45.

The following order of the Secretary of War is published for the information of all concerned:

War Department,
Washington, January 5, 1911.

orders.

1. By direction of the President, it is ordered that the first proviso of section 1 of the order issued by the Secretary of War, by direction of the President, on December 3, 1904, which was promulgated in Circular No. 4, Isthmian Canal Commission, December 30, 1904, be amended to read as follows:

“Provided, however, That this order shall cease to be operative—

• “First. If the Republic of Panama should at any time increase the rate of duty on imported articles described in class 2 of the act of the National Convention of Panama passed July 5, 1904, and effective October 12, 1904, above 15 per cent ad valorem, provided for in said act; or if the said Republic should increase at any time the rates of duty on the imported articles described in the other schedules of said act, except on all forms of imported wines, liquors, alcohols, and opium, upon which the Republic may fix higher rates.
• “Second. If article 38 of the constitution of the Republic of Panama, as modified by article 146 thereof, is repealed or modified at any time in so far the importation and sale of all kinds of merchandise are concerned.
• “Third. If the consular fees and charges of the Republic of Panama, in respect to the entry of all vessels and importations into the said ports of Colon and Panama, are increased beyond the rates now in force, which rates are understood to be 60 per cent of the rates in force prior to the promulgation of said order of December 3, 1904; or,
• “Fourth. If goods imported into the ports of Colon and Panama consigned to or designated for any port in the Canal Zone are at any time subjected in the Republic of Panama to any other direct or indirect impost or tax whatever.”

2. Paragraph 3 of the order issued by the Secretary of War, by direction of the President, on January 7, 1905, which contemplates the exclusion from the benefits of the commissaries established and maintained by the Canal Commission of all employees and workmen who are natives of tropical countries is hereby revoked.

• J. M. Dickinson,
  Secretary of War.
• F. C. Boggs,
  Captain, Corps of Engineers, U. S. Army, Chief of Office.