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I propose, on the 15th of next month, to commence the collection of duties on imposts on such goods. In fact, the law enacted by the President has not been enforced up to the present time, and, to continue to ignore it is a responsibility I am not willing to assume, hence the action I now propose.

I have informed the collector of customs that he will be ready on that date to begin collecting duties on foreign merchandise entering the Zone. Up to the present time not a dollar of customs duties has been collected at all.

You are aware that at least one shipment of goods from the United States was made to a merchant in the Canal Zone, and the same, 50 barrels of beer, was passed into the Zone without payment of duty to the authorities of the Republic of Panama.

You are also aware that this act resulted in a protest lodged by the authorities of the Republic, which was brought before the minister of the United States resident in Panama, but which has received no other action that I am aware of than such that may have been taken by the diplomatic authorities.

Merchants of the Zone have brought to the attention of the collector of customs that goods ordered in the United States as stock for their own use at Gorgona, Empire, and other points are held at Colon for the reason that all such goods have been manifested to Colon. If the shipper asks for a bill of lading to Empire and offers the freight money the Panama Railroad Company refuses such bill of lading except to Colon, from whence he can forward the goods on another bill to other points in the Canal Zone if he desires. This brings the goods under the jurisdiction of the authorities of the Republic, who collect imposts, although the goods are intended exclusively for consumption in the Zone.

This matter has been brought to the attention of Colonel Shaler, and it has been pointed out to him that the course pursued by the officers of the company in New York is such that shippers are compelled to pay the taxes imposed by the authorities of the Republic upon all goods, even though they are intended for consumption in the Zone. In other words, they are goods which, under section 6 of the President's order, shall be entered free, and are goods which, according to our understanding of the treaty, are as much entitled to be shipped from New York on a through bill of lading as are goods consigned to Chile, Ecuador, or San Francisco. In a shipment of goods to Empire, for example, the consul of Panama in New York has nothing whatever to do with signing the manifest, and the authorities of the Republic have no more knowledge of the shipment of these goods than if it were going to South America.

I understand from Collector of Revenue Cooke that Colonel Shaler has promised to take this matter up with the New York office in the hopes that merchants desiring to ship goods to the Zone may have them shipped to their final destination, and so escape the payment of the duties imposed by the authorities of the Republic. Very respectfully,

Geo. W. Davis, Governor. Rear-Admiral Jno. G. WALKER,

Chairman Isthmian Canal Commission, Washington, D. C. P. S.-In the papers received to-day I note that the minister of Panama to the United States, Mr. Obaldia, and, I think, Mr. Morales, have both stated that by the action of the United States goods coming to Colon and Panama and to the Zone generally are being taxed and the amounts collected by the Zone authorities. I see that the newspapers are repeating this statement as a fact.

Of course, you are aware there is no truth in it, but I wish to emphasize, in an official way, the statement that up to the present time no duties on goods imported into the Zone have been collected by the Zone authorities.

The measure which I now propose will institute such a proceeding, and if the Commission or the War Department wish me to still further desist I should like to have instructions to that effect.

If the merchants in the United States will ship the goods through to the Zone destination and take bills of lading from the steamship company, I think there will be no difficulty whatever with the Panama officials, for they will have no power to intervene.

ANCON, October 25, 1904. Dear Sir: Since the Commission left the Isthmus, the first part of September, there has been no disposition shown by the authorities of the Republic to discuss the question of reciprocal trade relations or any other matter connected with the subject of custom-houses or ports, and I have not raised the question. I observe in a press dispatch a statement to the effect that Secretary Taft is coming here, under orders

from the President, for the purpose of adjusting these matters. I have no other information regarding it, but assume there is some probability that the report is correct. If it should prove that he is coming, and I presume I shall know of it officially before long, I am inclined to defer the action spoken of in my recent letter in respect to the matter of charging import taxes on goods brought into the Zone from the cities of Panama and Colon until Secretary Taft arrives, as it will be better to have the question freed from any new complication. Very respectfully,

GEO. W. DAVIS,

Governor. Rear-Admiral J. G. WALKER, L. S. Navy,

Chairman Isthmian Canal Commission.

EXHIBIT 5.— Minutes of conference of November 28, 1904, 10 a. m., at President Amador's

palace, Panama.

The gentlemen present were: Dr. Manuel Amador Guerrero, President Republic of Panama; Hon. William H. Taft, Secretary of War United States; Santiago de la Guardia, secretary of government and foreign affairs; Don Tomas Arias.

President Amador states that he would like to have these conferences considered confidential, in order that they may not be made a matter of comment in the newspapers of either the United States or this country, and prevent discussions of any character.

Secretary Tart: I fully sympathize with President Amador in this matter-that we are here to reach a regular agreement which should not be affected by public glamour, or anything of that sort. The President, the Secretary of State, and myself thought it very wise to keep this meeting confidential, and that the presence of other gentlemen here whom I would propose as members of this Commission might interfere with the freedom of conversation I would like to have here.

President AMADOR. The points which are very prejudicial to us and not beneficial to the United States we wish to leave aside, believing as we do that we now enjoy a limited sovereignty-that is to say, a certain limited sovereignty will be deduced from the concessions which you may make us or we accept. The principal points are the questions affecting the revenues, the postal service, and commercial taxation in general.

There are some other minor points not so indispensable to our existence as these are. Any other questions which may arise will be presented in the regular course of events.

Don GUARDIA. We feel very grateful and consider it a high honor that Mr. Roosevelt should have had the tact to select a gentleman of such talent as yourself and of your high standing to come here on this mission.

The two principal motives which determined the independence of this country First. To assure perpetual peace, which we did not have with Colombia, and which we expect to obtain with American support.

Second. To construct the canal. We consider that the existence of the nation is dependent upon the canal, and that by its construction we were permitting a work of great benefit, not only for the entire world, but also for the great nation of whom we expected the support.

These are the motives which led us to secure our independence.

We placed our entire trust in the United States Government, and, as Mr. Roosevelt said, the question for us was that the canal should be constructed, and that we present no obstacles whatever. But the idea of sovereignty was never put in doubt by us. We always believed that this sovereignty was restricted by a servitude in favor of the United States for the construction, maintenance, and protection of the canal. But we never imagined that such an idea could lead to a commercial business of the canal or to any measures except such as were necessary for its construction, maintenance, and protection, because such commercial advantages as the Government of the United States might derive from the Zone by interpreting the treaty in the form later seen are very insignificant for a country so great, for a government so rich and so generous as that of the United States, while for us-a very small people, a very poor people, which is still to be created and organized into a nation-have an importance of life and death. Whether we are to be a nation or not depends upon whether we receive these advantages.

were:

We do not wish to present these matters in a controversial form, but simply as a statement of the idea as to sovereignty entertained by all Isthmanians, and of the interpretation which has been given to the question of ports, the question of customs, the question of postal affairs, and other general points, together with all the illusions of this country, illusions which were revived by the letter of Mr. Roosevelt and the presence of yourself here.

We realize that the government of the Zone requires a police under its exclusive orders, without our intervention. All measures possible to establish order firmly, in view of the adventurers who will come to the Zone, must be taken in order to render the construction of the canal easy; but the dominant idea throughout the treaty is that we are charged with a servitude in favor of the United States, which limits our sovereignty for the construction, maintenance, and protection of the canal.

We understand perfectly that the United States has great moral interests not only toward itself but to the entire world, but we also believe that in the shadow of its great interests our interests can run parallel and make of us a model nation.

Mr. Roosevelt's letter has given us a great deal of consolation because of one of its parts in which he declares that the intention of the American Government has not been to create a colony affecting not only our interests, but even our amour propre as a nation. We note also that the people of this nation, subject as they are to prejudices of race and the influence of Colombia, should be modified gently under the lawful influence of the United States, by means of education and prosperity, in order that it may reflect honor on the United States and serve as an object lesson to all the other Latin American countries of America; that the American ideas are not ideas of conquest, and that we are convinced that they have not that idea.

Secretary TAFT. I would be glad to take up the points as they occur. As the Secretary of State, Mr. Hay, in my presence explained to Señor Obaldia, before this letter was published after it had been written to me, after the conference between the President, the Secretary of State, and myself, the letter was not considered and was not to be considered as inconsistent with the position taken by Secretary Hay in in his answer to Señor Obaldia's note. It will be observed that the letter of Secretary Hay does not assert absolute sovereignty over the Zone, it only asserts the right on the part of the United States to exercise such powers as it might exercise if it were sovereign and the exclusion of the extent to which it might exercise those powers of the right of sovereignty of the Republic of Panama. But the very fact that the rights are conferred by the expression used implies that there is reserved to the Republic of Panama at least a titular sovereignty.

Now, as I have said already, it is not for me to enter into a discussion, because I have not the power to vary the position taken by Secretary Hay with reference to the extent of the powers which the United States might lawfully exercise in the Zone.

But my attitude must be this: Assuming the power to the extent declared in Secretary Hay's note, how far can I go in waiving the exercise of these powers and withholding the exercise of powers already exercised, so as to assure the Government of Panama that we wish to exercise no powers that we do not deem necessary in the construction, maintenance, and protection of the canal?

Now, I am not in a position to waive absolutely-I mean to give up the right to exercise—those powers, but I am given authority by the President to establish now, subject to action by Congress, a nonexercise of those powers, such as I hope will be satisfactory to the Government of the Republic, and will continue indefinitely until the construction of the canal shall so affect the relations and conditions existing as to require a new adjustment of the relations between the two Governments.

Now, that I may make myself plain: With the present Government, with President Amador and these gentlemen as his advisers, it might very well be that we should allow to lie dormant the exercise of powers that in case of the election of a Government whose personnel would not be so friendly to the United States we might have to use, and thus to protect our construction and maintenance and control of the canal by the exercise of greater powers than those we desire now to exercise.

I must make my position clear with respect to this, so that there will be no misconception of the extent of my powers. What I am here for is to see what now can be done in our actual conduct and by the issuing of an Executive order which shall repeal or effect or modify orders already issued, which shall suit your views with respect to the points you have mentioned.

I want to be as frank as possible in this matter, and I reiterate what I said beforethat the Government of the United States has no desire to exercise any power which shall not be necessary for that purpose, the purpose that influenced you to give us the rights that we now have, and which induced us to make promises of payment and actually to pay the money which we did pay. I concur, and the Government

of the United States concurs, in the construction that all these rights were given us solely for the purpose of enabling us to construct, maintain, and operate the canal. It is not the motive that governed the conferring of those rights, but the extent of the rights necessary to enable us to secure this common object, that has been in controversy

After this statement I shall be glad to confer with these gentlemen. I appreciate the honor of having this official communication with them, and I am glad to proceed with the consideration of the three points, or other points, that they have mentioned.

I wish to further emphasize that the last thing in the world that President Roosevelt and Secretary Hay have in mind is to injure the feelings of the people of the Republic of Panama by asserting a power which shall affect their national pride. Although we may desire to hold in reserve the right to exercise certain powers in the treaty, I wish these people to credit us with the greatest sincerity when we say that we are anxious not to exercise any power but that which we deem absolutely essential to the common object of both nations.

Upon completion of Secretary Taft's remarks, the meeting adjourned for submission of written memoranda by President Amador containing suggestions as to needed provisions on the three points named, to wit, the revenues, the posts, and the ports.

EXHIBIT 6.

[Confidential.]

PANAMA, December 2, 1904. SECRETARY OF STATE, Washington:

After much effort and discussion, can arrange matters satisfactorily by Executive order repealing Dingley tariff and directing no importations shall be permitted at terminal canal ports except articles under Section XIII of treaty, and articles in transit across Isthmus, and coal and fuel for seagoing vessels, Panama agreeing to reduce ad valorem rate of duty from 15 to 10 per cent and consular fees to 60 per cent of present rates, and both parties agreeing to complete free trade between Zone and Republic.

Postal differences can be arranged by use of Panama stamps properly crossed with Zone marks, authorities paying 40 per cent of face value stamps and Panama agree that rate between Panama and United States of America shall be reduced to 2 cents gold.

Separate ports to be maintained as at present, with entries and clearances by proper officials of the respective Governments, but reciprocal arrangement mutually benefiting to be permitted for use of facilities of one port by vessels cleared for the other under suitable regulations not affecting complete administrative, judicial, and police jurisdiction by each Government over maritime harbor of its respective ports.

Complete and immediate sanitary and quarantine jurisdiction is to be secured to Zone authorities over harbors of Panama and Colon.

Provisional geographical delimitation of cities and harbors Colon and Panama between Davis and Panama authorities to remain in force.

Coinage and currency agreement already signed to be immediately executed.

Order contains clause reciting that its provisions and fulfillment of its conditions shall not be regarded as restrictive construction of rights of either Government under treaty: This order will secure all the duties for the Republic and will give it also some income from post. The duties might be secured to the Republic not by restriction of character of importations at terminal canal ports, as above, but by imposing a higher duty in canal ports than in Panama ports on all but excepted articles—say a 50 per cent increase; but whichever be the method, the prohibition of certain importations in the one case or the imposition of higher duty the other must, in order to effect purpose, apply to importations from United States of America into Zone, and the question is, Which is preferable? I prefer the former.

Please submit matters to President of the United States and advise me of your conclusion on this and other points as soon as practicable.

Exceptions as to coal and fuel importations made for the benefit of shipping and because it is impracticable to have coal pockets anywhere except at canal ports.

The order is of course revocable at will, and its operations can be suspended by Panama by refusal to continue compliance with any of its conditions, but I believe from conference that, adopted, it will continue satisfactory basis of relations between parties until opening of canal. Presume objection will be made that American

manufacturing interests are not protected by this order from competition with world on material and machinery for canal. If Congress wishes to secure that business solely to American merchants and manufacturers, it should do it by direct limitation on purchases and contracts of the Canal Commission and not by indirect method of duties, which can not but work inconvenience and hardship to Republic—to Panama and its merchants, as well as to Zone and its inhabitants.

TAFT.

STATE DEPARTMENT, December 3, 1904. Taft, Panama:

Have received your telegram of the 2d, and it has been submitted to the President of the United States. Your action and suggestion cordially approved.

HAY.

EXHIBIT 7.

NOTES OF A MEETING HELD IN THE OFFICE OF THE SECRETARY OF WAR, JUNE 11, 1904.

Secretary Taft. Have you any idea of the amount of silver that is now in circulation there?

Mr. ARIAS. About two and a half millions.
Secretary Taft. Of gold?
Mr. Arras. No, of pesos.
Secretary Taft. How many people are there on the Isthmus?
Mr. ARIAS. About 350,000 in the Republic.
Secretary Taft. You think there are about 5 pesos a head?
Mr. ARIAS. About 8 pesos per capita.

Secretary Taft. That would be about 3,000,000 pesos. Admiral Walker, how much do you suppose your going in there would add to the demand for the peso?

Admiral WALKER. Well, it would add considerably. We should use it. We would pay our men with it.

Secretary TAFT. Would you pay every week or every month?
Admiral WALKER. Probably twice a month.
Secretary Taft. Would you pay all your men in the peso?

Admiral WALKER. Yes; we should pay in that way probably all the people we employed down there. The people sent down from here we should pay once a month in gold or in United States currency, but the laborers and the people of the Isthmus would go on the silver roll and be paid every two weeks.

Secretary Taft. Of course it is impossible to say what that roll would amount to?

Admiral WALKER. We could count on having in our employ down there somewhere from 12,000 to 20,000 men.

Mr. BARRETT. Camp followers would add 5,000 more, probably.
Secretary TAFT. The number of people would be a great deal in excess of the labor-

It would take about 20 pesos per capita every half month-about 400,000 pesos would be disbursed every half month?

Admiral WALKER. Yes.
Secretary TAFT. That would about double the circulation down there?
Admiral WALKER. Yes; fully.
Mr. BARRETT. The increase of the population generally would be very marked.
Secretary Taft. Your idea, is it not, is simply to recoin the existing silver?
Mr. CROMWELL. Yes, sir; and to limit it.

Secretary Taft. Don't you think you might have a provision that you could double it? You might safely do that if you retain what is there. You could retain a good deal more than that on a million and a half deposits, but what I am afraid of is that it would double the demand for silver, possibly treble it, because it will be very active.

Mr. ARIAS. We can not afford to have a deposit of one and a half millions. We need every cent of the money in the country at present. By the constitution, out of the $10,000,000 we have to set apart six million, to be placed in securities giving annual fixed interest, so it can not be diverted to other purposes. With this balance we have to do everything.

Secretary Taft. How much would be made from seigniorage?
Mr. Conant. It would raise the value of the peso from 42 to 50 cents.

Secretary Taft. Then they would make no money unless they increased their circulation on bullion. In that case they would make from 10 to 12 per cent on the silver bought.

ers.

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