Panama Canal Zone

Panama Canal Zone (1904-1979), former territory in Central Panama governed by the United States for the operation of the Panama Canal. Stretching across the Republic of Panama, from the Caribbean Sea to the Pacific Ocean, the Panama Canal Zone covered 1,430 sq km (550 sq mi) and was about 16 km (10 mi) wide, 8 km (5 mi) on either side of the canal. It served as an important U.S. commercial and military base in Central America until it was abolished in 1979. Most of the area was turned over to Panama at that time, and the remainder of the land, called the Canal Area, reverted to Panama in 1999, when Panama assumed full control of the canal.

The Canal Zone was created under the Hay—Bunau-Varilla Treaty, signed in 1903 by the newly independent nation of Panama and the United States. The treaty gave the United States the right to build and operate the Panama Canal, to control the Canal Zone as if it were U.S. territory, and to annex more land if necessary for canal operations and defense. Because the agreement barred Panama from controlling a major section of its land and economy, it created tensions between the two countries for most of the 20th century.

The population of the Canal Zone varied, from a high of about 88,000 in 1945 to a low of 42,000 in 1959. Residents included U.S. civilian employees of the canal and U.S. military personnel and their families, stationed at the 14 U.S. military bases built in the zone. The rest of the population was composed mainly of black people of West Indian descent, whose families had come to work on canal construction in the early 1900s, and Panamanians of both Hispanic and West Indian background. The U.S. residents lived in relative luxury, receiving high pay and generous benefits, in prosperous, well-kept communities. In contrast, the Panamanians and West Indians held the most menial jobs, were paid only a fraction of what U.S. workers received, and lived in separate, inferior-quality communities.

The Canal Zone cut through the most populous and active region of Panama, making travel between the two halves difficult. It encompassed lands where Panama City and the port city of Colón would have expanded. Virtually self-contained, the zone contributed little to Panama’s economy except for wages paid to Panamanian workers and annual canal payments. In addition, many businesses operated within the zone, taking customers from Panamanian businesses. The zone had its own governor, appointed by the head of the U.S. Army, and U.S. laws applied there, including racial segregation laws in effect until the 1960s.

Panamanians came to resent U.S. control over the zone, seeing it as an obstacle to the development of their nation. It also stood as a symbol of their poverty and lack of power compared to the United States. Panama sought a greater share of the economic benefits from the canal, and tensions grew in the mid-20th century. In 1964 fighting broke out between U.S. and Panamanian students over the right to fly the Panamanian flag in the zone as a gesture recognizing Panama’s sovereignty. More than 20 people, most of them Panamanians, died in the riots that followed. The two countries then agreed to negotiate new treaties concerning the canal and the Canal Zone, a process that lasted more than 12 years.

In 1977 U.S. and Panamanian officials signed new treaties that abolished the Canal Zone and arranged for the canal itself to be turned over to Panama on December 31, 1999. More than 60 percent of the Canal Zone was returned to Panama when the treaties went into effect in 1979, becoming part of Panama and Colón provinces. The rest of the land was renamed the Panama Canal Area, which was to remain in U.S. hands until 2000 but came under the jurisdiction of Panama’s police and court system. U.S. employees were gradually replaced by Panamanians through a variety of training and apprenticeship programs. All U.S. military bases in Panama were closed by 2000.

Lands and facilities that came under Panama’s control after 1979 included ports, the Panama Railroad, vacant areas, and many residences. They have been used for commercial purposes, low-cost housing, and forest reserves.