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propriations. Total current housing guarantee authority is $1.055 billion. The proposed Panama program would conform to the statutory limitations of $25 million per year to any one country and an average annual face value of $15 million.

As for the Export-Import Bank component, Panama is expected to become an expanding market for U.S. exports after the canal issue is settled and investment in Panama accelerates. This projected market expansion is expected to give rise to more applications for Eximbank support, but at a minimum Eximbank has indicated that its business in Panama could well amount to the $200 million we have been discussing over the next 5-year period.

The portfolio risk to Eximbank as a result of this offer will be small. With an additional $200 million to Panama over 5 years, exposure in Panama will amount to less than 1.37 percent of Eximbank's total existing portfolio. Projected risk will be controlled in the usual manner, since each transaction will be subject to normal Eximbank financial, legal, and engineering criteria, including the Eximbank's statutory requirement to find a reasonable assurance of repayment.

Concerning the Overseas Private Investment Corporation guarantee, this will be the first instance in which OPIC has participated in financing the expansion of a government-owned development bank, although OPIC is permitted to do so by longstanding OPIC Board policy guidelines. The Panamanian Development Bank, COFINA, is engaged in supporting the development of private enterprises in Panama through project lending. The guarantee of borrowing by COFINA would therefore be wholly compatible with OPIC's mission and in accord with our view that OPIC should help strengthen the private sector of Panama's economy. The guarantee would raise OPIC's exposure in Panama to only 8.5 percent of its total existing portfolio, which we believe to be a reasonable risk. A Panamanian Government guarantee will further reduce OPIC's risk. OPEC has stipulated that its offer to Panama depends on terms being negotiated which are acceptable to OPIC's Board.

Finally, the military sales guarantees, like other components of the cooperation program, are not grants to be financed by the American taxpayer. The only appropriations required would be to cover 10 percent of the annual program in the form of deposits in a special reserve account.

These, then, are the components of the United States-Panamanian cooperation program which developed from the canal negotiations. They rely on existing programs which are proven tools for furthering U.S. interests abroad. All offers of assistance under this program are subject to compliance with legal and managerial requirements of the institutions involved and to the availability of funds. They are separate from the Panama Canal Treaty because they do not relate to our rights and obligations under that treaty. But we expect them to make a positive contribution to the successful implementation of the new United States-Panamanian partnership in the canal enterprise which will grow out of the new treaties.

Thank you, Mr. Chairman.
Senator ALLEN. Thank you, Secretary Cooper.

I believe it would be a more orderly procedure if we heard at this time from you, Mr. Hansell, so that then we might direct questions

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to both of you or either of you, as the case might be. Therefore, please proceed with your testimony.

TESTIMONY OF HERBERT J. HANSELL, LEGAL ADVISER OF THE

DEPARTMENT OF STATE

Mr. HANSELL. Thank you, Mr. Chairman.

It is a pleasure to appear before you this morning to discuss the legal status of the note regarding economic and military cooperation which was transmitted to the Ambassador of Panama by the Secretary of State on September 7 of this year.

I believe it is important to understand at the outset that this instrument does not constitute an agreement. It is in the form of a unilateral diplomatic communication from the Secretary of State to the Panamanian Ambassador. No response to the document was requested or received from the Panamanian Government. The penultimate paragraph of the document clearly states that "the undertakings of the United States provided for herein will enter into force upon an exchange of notes to that effect between our two Governments.” Therefore, the document will establish no obligation in a legal sense until such time as the United States and Panama enter into an agreement to bring it into effect. Rather, the document constitutes an assurance of intent to enter into a specific agreement at a future date.

I would now like to describe briefly the nature of the obligations the United States would assume once such an exchange of notes takes place. As the document clearly provides, the various undertakings set forth are to be within the limitations of U.S. law and subject to compliance of the contemplated programs with all applicable legal requirements. Thus, upon entry into force of the undertakings, the commitment would be that the United States would take the necessary measures within the authority conferred by law to bring into being the specified programs of economic and military cooperation. There would be no legal obligation to do anything not authorized by U.S. law. Moreover, each of the programs described is either made subject to applicable administrative and statutory criteria or is subject to terms to be approved by a U.S. Government agency responsible for the program. Each proposed project or transaction will be subject to review in the same manner as other similar proposed projects and transactions.

I now propose to take up a question in which I understand this committee has expressed particular interest : Why were these arrangements set forth in the form of a diplomatic note rather than as part of the Panama Canal Treaty!

In addressing this question, I believe it would be useful to recapitulate briefly a bit of the background of these arrangements about which Under Secretary Cooper has already testified in some detail.

During the negotiation of the treaties, the parties recognized their mutual interest in assuring the continued soundness and stability of Panama's economy, to enable it to carry out its new responsibilities in an effective manner. Understanding was reached that the United States would consider with Panama how it might cooperate in this regard under programs authorized by existing U.S. legislation. Arrangements were made for exploration of the possibilities for cooperation by officials of both governments other than the treaty negotiations. It was not considered appropriate or desirable to link these potential arrangements in any way with the rights and responsibilities of the parties under the new treaties. For the same reason—to avoid any implication of a legal linkage between the cooperative programs and the rights and obligations of the parties under the treaties—it was considered important that the treaties should not mention such programs and that the note describing the programs should not refer to the treaties.

The relevant documents reflect these considerations. The legal rights and obligations established by the treaties are not in any way dependent upon the fulfillment of the intentions of the parties reflected in the note. Irrespective of what may occur with respect to these cooperative arrangements, the Panama Canal treaties, once ratified, stand independently and cannot be affected.

The understandings of the parties with respect to the contemplated economic and military cooperation programs have been set forth in a form which is entirely appropriate and highly desirable from the standpoint of the United States. There is no question as to the authority of the executive branch under existing law to enter into such understandings.

Mr. Chairman, that concludes my presentation. I will be pleased to join Under Secretary Cooper in responding to any questions the committee may have.

Thank you, Mr. Chairman.
Senator ALLEN. Thank you very much, Mr. Hansell.

Secretary Cooper, would you describe briefly your present duties for the Department of State and tell how long you have been in your present job?

Secretary COOPER. Yes; I went to work for the Department of State in my current job in practice in January but, in fact, I was not finally confirmed until sometime in April of this year, 1977.

As my title suggests, I have overall responsibility for foreign economic policy of the United States insofar as that is lodged in the State Department. There are parts of foreign economic policy for which other departments of the Government have the principal responsibility. In those instances I act as a liaison between the State Department and those other departments.

I have no formal line responsibility.

Senator ALLEN. Were you with the Department of State prior to your appointment as Under Secretary of Economic Affairs? Secretary COOPER. About 12 years ago I spent 1 year at the Depart

1 ment of State.

Senator ALLEN. There was a hiatus of some 12 years?
Secretary COOPER. Yes, that is right.

INFORMAL MEETINGS WITH BARLETTA

Senator ALLEN. You did participate in certain of the negotiations here in Washington with Minister Nicholas Barletta of the Republic of Panama, the Minister for Economic Planning and Development there, did you not?

Secretary COOPER. I participated in three meetings with Minister Barletta. We made clear to the Panamanians that we did not regard those meetings as negotiations.

One was a rather formal meeting in which we heard an elaborate statement of the Panamanian case for an economic component of these negotiations. Our role during that meeting—and I chaired the American side—was primarily to listen to that case and to ask a number of questions.

Subsequent to that I met in a small group in formally with Minister Barletta along the Under Secretary Solomon of our Treasury Department. We had discussions concerning the Panamanian request and the basic principle of the desirability of some kind of economic assistance for Panama, the extent to which we Americans had a stake in the viability of the Panamanian economy and policy. We had two sets of informal discussions and talked about the things that might be done and about the things that could not be done in the context of Panamanian economic development.

Senator ALLEN. You had two meetings in all ?
Secretary COOPER. That is correct.

Senator ALLEN. It seems from what you say that they were all merely preliminary discussions. When did you reach the agreement that was finally reached !

SEVERAL OPTIONS CONSIDERED

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Secretary COOPER. I was not present when the final agreement was reached. On the basis of these discussions we in the U.S. Government put together a series of options, as they are called, or various ways in which we could assist the Panamanian economy. There was a discussion in the Policy Review Committee, which is a Cabinet-level committee that looks at such matters of foreign policy across the board. As a result of those discussions, a paper was put to the President containing recommendations very much along the lines of what came out. There were some changes in detail. The President approved those discussions.

Senator Allen. You came to the Department in April?

Secretary COOPER. I came formally into my job in April; that is correct.

Senator ALLEN. You did not participate in any of the meetings and conferences until you were named to your present position; is that correct?

Secretary COOPER. That is correct.

Senator ALLEN. What was the status of the negotiations at the time you came to the negotiating table ?

Secretary COOPER. I am not quite sure how to answer that.

Senator ALLEN. At what stage did you find the negotiations when you started ?

Secretary COOPER. The negotiations were in an intense phase of discussion. As you know, Ambassador Linowitz was asked to join Ambassador Bunker in these negotiations early on in the new administration. During the course of the spring there had been intense discussions between the American negotiators and the Panamanians. They had reached a wide measure of agreement on some issues. This was in June. They were still some distance apart on other issues. I would describe the status of the negotiations as still constructive. They had not reached an impasse but neither had they reached final agreement as yet.

SUBSTANTIAL CASH PAYMENT

Senator Allen. Were they not demanding a cash payment of several hundred million dollars at the time you entered into the negotiations?

Secretary COOPER. I would not describe what I heard as a demand on the Panamanian side. They did put forward a case for a very substantial economic payment running well beyond a few million dollars. It was a rather, I would say, carefully, skillfully-worked-out case based on historical analysis going right back to the early part of the century.

As I indicated a moment ago, we listened to that case with interest. We asked a number of questions but we indicated in our discussions with Minister Barletta and others that we felt that while that was an interesting historical analysis we should look forward rather than backward, and that our mutual interest in this domain was in the future prospects and prosperity of the Panamanian economy.

Essentially we set to one side the Panamanian case.

Senator ALLEN. Their attitude, then, was not of a demanding nature?

Secretary COOPER. I would not so describe it, no. They were, however, insistent that Panama should receive greater economic benefits from the location of the Panama Canal and so forth than they had historically. They were quite emphatic on that point.

Senator ALLEN. Following the conference in which you participated, by whom were the final touches put on the unilateral statement, as I believe it has been called ?

Secretary CooPER. Are you referring to the economic cooperation statement?

Senator ALLEN. Yes.

Secretary COOPER. On the strength of the President's decision, our negotiators discussed with the Panamanians what we were willing to do in the economic area.

Senator ALLEN. In other words, the President decided what the United States would give Panama; is that correct?

Secretary COOPER. The President decided what elements of economic cooperation the United States would engage in with Panama; yes.

Senator ALLEN. What options did you submit to the President, or did you submit to the President through an intermediary, in addition to the option that was finally agreed upon? Did you submit options calling for payments of sums of money to Panama direct by the U.S. Government.

Secretary COOPER. No; we did not. That was not among the options. I would have to look at the paper again to remind myself what exactly went forward.

There was only one option, speaking in gross terms, that did not go into the final package which was discussed extensively at that stage. It was a rather complicated arrangement for financial support of Panamanian development but it would not have involved direct pay

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