is entirely wrong, and representations have been made to the railroad company, which, it is hoped, will result in a change, so that the goods coming to Empire, for example, from New York, will be passed in bond through the port of debarkation in Colon the same as is done at La Boca with respect to goods destined for the Panaman port of Panama.

There have not as yet been any importations of merchandise for private-i. e., nonofficial-use and consumption at Christobal or Ancon, but no doubt there soon will be some commercial business of this sort. The population of the Zone is so small and their wants so few that the business will continue to be insignificant for some time to come.

Mention has already been made of the. fact that Panama imposes an export tax of 1 cent per bunch on all bananas shipped from Colon, and this is applied rigorously to a production of the Canal Zone. The fruit is forwarded on through bills of lading from points of production in the Zone to New York, yet the authorities of the Republic impose the tax. This matter has just been made the subject of an official complaint by a producer and shipper and it will be brought to the attention of the Panama Government in the hope that the tax will be abated as soon as the facts are known.

The mail service of the Zone is satisfactory and very few complaints are heard. The home rate of 2 cents per ounce prevails within the Zone and between the Isthmus and the United States, but if a letter from the United States with such a stamp chances to reach a Panaman post-office, and quite a number do, the letter is stamped with short-paid postage at double the unpaid rate; while, on the other hand, any letters, evidently intended for the inhabitants of the cities of Panama and Colon, chance to be sent erroneously to the Zone post-office, all such letters, without any charge for short postage, are sent to the proper Panaman post-office. So far the Zone postal service has been self-sustaining, but no payment is made for ocean steamship or railway mail conveyance. The penalty envelope in use in the United States is also used by public officials of the United States in the Zone.

A considerable revenue has been derived by the national Government of the Republic from the use of stamped paper. The law requiring the use of such paper in many kinds of legal documents was in force in the Zone, and it became necessary for the authorities to provide the paper or the stamps. Resort was had to the Government of Panama, as in the case of the postage stamps, and the minister of foreign relations very kindly supplied the paper desired, the same being overprinted (surcharged) with the words "Canal Zone" so as to make the paper useless elsewhere.

In the administration of the territory within the United States' control on the Isthmus certain conditions are met with that are entirely different to any hitherto encountered in any possession which the United States has been called upon to govern, and these unusual conditions increase to a larger degree the difficulties or work of administration. In the Philippines, in Guam, in Cuba, and in Porto Rico there was no sovereign power claiming to exercise joint control with the United States in respect to any function of government.

The conditions here respecting administration that constantly confront the governor are such as to mulitply many times the burden

of labor and responsibility beyond what they should be for a population hundreds or even thousands of times greater than that occupying the Zone, and the reason is that this canal strip, with its bagatelle of natives and a negro population, occupies to-day a position of unique importance politically and industrially. Within the strip a government is being organized for the 10,000 natives and foreigners now here and for the expected accession thereto. This would be a very easy matter if it were not for the fact that the Government outside that narrow zone of land is one between which and our own there are and will be for a long time many differences, some friction, and much correspondence.

The people who live on the Isthmus, and many more adventurers to arrive, expect and intend to exploit the canal finances and workings, all in their own selfish interest. The owners of the gambling and lottery privileges, and this includes a very large part of the leading Panamans, are greatly displeased to find that the Americans are proceeding to spoil their plans, and we are accordingly disliked or hated.

The Government of the Republic claims that she continues to be the real, true sovereign in the Zone, and that the United States is a vicarious sovereign simply, and that only, as respects certain excavation and sanitation work involved in digging the canal.

This state of affairs has already produced friction, and more will probably result. It adds greatly to the burden of work thrown on the chief executive and his staff, for he has to deal with many perplexing and important questions for which there are no precedents and which require much careful thought and study.

But for the conflicting laws and customs of the two Governments the Canal Zone would be as easy to administer as Gaum, but under the present conditions it is not so.

If the position taken by the Government of Panama is to prevail, then there will be no place here for an official called a governor. The term commissioner or agent would be more appropriate if the United States has no other status than that of a lessee or concessionaire.

The above respecting customs tariff, ports, and revenues is submitted in the hope that it may have some value as a side light or perspective.

Attention is invited to the report of the collector of revenues herewith, wherein are given some statistics respecting the entries and clearances at the port of Ancon for the quarter ending September 30, 1904, Appendix I.

Respectfully submitted.

ANCON, CANAL ZONE, October 1, 1904.

[Translation.]

Letter from Señor Don J. Domingo de Obaldia to Hon. John Hay, Secretary of State.

LEGATION OF PANAMA, Washington, August 11, 1904. EXCELLENCY: I have received instructions from my Government to take before your excellency's illustrious Government steps looking toward the obtaining of a satisfactory settlement of the difficulties

which have unexpectedly arisen between the authorities of the Republic and the governor of the Canal Zone owing to the interpretation given by the latter to some of the clauses of the agreement concerning the isthmian canal concluded between the two countries on November 18 last.

There are several points on which a difference of opinion has arisen, and it is necessary, first of all, to make a general estimate of the treaty as a whole, in order to apply in each case the interpretation which is most in conformity with the harmony among its various clauses, most in concord with previous declarations made by your excellency's illustrious Government, and most suited for the maintenance of the cordiality which has existed between the two countries since my country became a part of the family of nations.

As an indispensable antecedent of the Hay-Varilla convention must be regarded the Hay-Herran treaty, concluded January 22, 1903, approved by the United States Senate, and rejected by the Republic of Colombia.

Both treaties were concluded with the same principal object, viz, to facilitate for the United States the construction of a ship canal between the Atlantic and Pacific oceans. In neither case was it the intention of the high contracting parties to conclude a treaty for the cession of territory or for the absolute renunciation of sovereignty on the part of either of them. Your excellency's illustrious Government, in order to make clear before the world, and especially before the nations of Central and South America, the real object of the negotiations which resulted in the conclusion of the Hay-Herran treaty, made in the latter the formal and categorical declaration contained in Article IV, which reads as follows:

"The rights and privileges conceded to the United States by the terms of this convention shall not affect the sovereignty of the Republic of Colombia over the territory within whose limits such rights and privileges are to be exercised. The Government of the United States fully recognizes this sovereignty and disclaims any intention to minimize it in any manner or to increase its own territory at the expense of Colombia or of any of the sister republics of Central and South America; it desires, on the contrary, to strengthen the power of the republics on this continent and to promote, develop, and preserve their prosperity and independence."

This solemn declaration, made in a public document of the most elevated character, as is a treaty among nations, involves, in the opinion of my Government, the perpetual promise of a generous and noble line of conduct on the part of the United States, a promise which has not been destroyed by the fact that the Hay-Herran treaty no longer exists, for the declaration in which it is embodied expresses the purpose of following a frank and honest policy, accepted and confirmed afterwards by the Senate of the United States, which is the highest legislative body in this country. This declaration, as your excellency knows, had for its object the removal of the fear existing in the American republics of a more or less remote absorption by this nation, which is so powerful in every respect; and it had a decisive influence on the Government of my country in causing it to approve unreservedly and without modification the Varilla-Hay convention.

As my Government considers that this solemn and spontaneous declaration has a perpetual and definitive character, it trusts that your

excellency's illustrious Government will interpret the agreement concerning the isthmian canal in the manner most harmonious and consistent therewith, and in this conviction I will now lay before your excellency some other more specific observations.

I.

The agreement concerning the isthmian canal does not imply cession of territory and absolute transfer of sovereignty.

The simple reading of Article IV of the Hay-Herran treaty, which is an antecedent of inappreciable value, inasmuch as therein is expressed the intention of the United States in negotiating with Colombia, is sufficient to establish the truth of the proposition which I have just set forth; but there are, besides, powerful reasons to sustain it, deduced from the Varilla-Hay treaty, which is identical in most of its clauses with the Hay-Herran treaty.

In effect, as I have had the honor to observe to your excellency before in this same note, both treaties relate to the concession to the United States of the use, occupation, and control of certain lands and waters in order to facilitate the construction, preservation, exploitation, sanitation, and protection of a maritime canal between the Atlantic and the Pacific. This is the principal and dominant idea in both documents. In neither of them was there used any expression implying transfer of the absolute domain over the territory, much less the transfer of sovereignty.

This concession might have been made by Colombia before November 3, 1903, and by the Republic of Panama after that date to any legal company or association without its being possible, by reason of the grant, that a right should be claimed to the dominion over the strip of land in which the work was to be executed, or much less the exercise of absolute sovereignty.

The legal relation in this supposed case, just as in the present case, would be that which exists between a lessor and a lessee. Owing solely to the fact that the lessee is another republic, there may be confusion respecting the character and the essence of the contractual relations created by the agreement.

If the intention of the high contracting parties in either of the two cases to which I have just referred had been the absolute cession of the dominion and sovereignty of the territory, both treaties might have been reduced to two articles, one specifying the thing and the other expressing the price of sale; but both parties understanding that this was not the case, and satisfied that the intention was otherwise, they found themselves obliged to fix, as far as possible, the relations between the lessor and the lessee, taking into account the peculiar circumstances of that highly important negotiation and the necessities that might arise owing to the very nature of the work which was about to be undertaken.

Thus, for example, inasmuch as the enterprise was to be one of indisputable utility, in which were to be invested considerable sums from the Federal Treasury of the United States, and in connection with which daily controversies might arise with regard to the work, would it have been wise on the part of Colombia first and Panama afterwards to demand absolute jurisdiction over all these questions

and to claim the exclusive power to settle and decide them when one of the parties was a foreign nation?

It was natural that some provision should be made in this regard, and hence certainly arose the idea of conferring on the United States the authority of establishing a restricted judicial power in this Zone. In the Varilla-Hay treaty this concession was broader than in the Hav-Herran treaty, but still it was not absolute.

Article III of the Varilla-Hay treaty, the only one treating of the rights of sovereignty, stipulates that the United States should (shall?) possess and exercise the rights, power, and authority which the Republic of Panama conceded it over the Zone, as if it were sovereign in the territory; but this expression implicitly conveys the idea that it is not sovereign, and although in the final part of the article is added "to the entire exclusion of the exercise by the RepubJie of Panama of such sovereign rights, power, and authority," these words, which are in obvious contradiction to those which precede, must be interpreted in accordance with other subsequent articles of the agreement which demonstrate the real intention of the contracting parties.

In Article VI, for instance, the property rights of private persons in the Zone are treated of, and it was agreed that all damages caused by reason of the concessions made to the United States or of the construction, preservation, exploitation, sanitation, and protection of the canal and its auxiliary works should be investigated, appraised, and decided upon by a mixed commission appointed by the two countries and whose decisions should be final. If the United States possessed the sovereignty over the Zone to the absolute exclusion of the Republic of Panama, this clause would be inexplicable.

By Article X the Republic of Panama obligates itself not to levy or to allow to be levied contributions or taxes of any kind, either national, departmental, or municipal on the canal itself or on the railroad and auxiliary works or on its tugs and vessels, nor on the employees, workmen, and other persons in the service of the canal, of the railroad, and of the auxiliary works; but from this stipulation it is deduced that it does preserve the right to levy these contributions on property and persons not comprised in the exception.

According to Article XII the Republic of Panama is obliged to permit the immigration and free access to the lands and workshops of the canal and of its auxiliary works of all employees and workmen of whatever nationality who may arrive, either already contracted for or in search of work, and it obligates itself to consider them as exempt from military service.

In conformity with Article XIII the United States may import into the Zone and the auxiliary lands of the canal free of duty on the part of the Republic of Panama, all kinds of ships, dredges, machines, etc., necessary and suitable for the construction, exploitation, sanitation, and protection of the canal, as well as everything necessary for the laborers, employees, and their families. The same observation should be made regarding this article as I made with regard to Article X.

Finally it was agreed between the parties, according to Article XIII, that the United States should enjoy the right to employ its own land and naval forces for the protection of the railroad, the canal,