Panama Canal’s Role Part Two

The 1977 treaties had important provisions concerning employment and wages. Panamanians would gradually replace United States citizens in the operation of the canal. Perhaps most important was the provision that former Canal Zone employees who became employees in Panama under the treaties were guaranteed wages and conditions similar to those that their position in the zone had commanded. In 1979 a zone employee received about twice the wages of someone employed in a similar position elsewhere in the economy. The canal areas will therefore continue to exert a pull on other domestic wages, making the country less competitive internationally.

Current Use and Future of the Canal

In both the short and the long term, the impact of the 1977 treaties on the economy will depend to a large extent on canal traffic. Since 1979, when the treaties went into effect, the amount of canal traffic has stagnated. In 1979 the canal was transited by 13,056 ships; by 1984 that number had fallen to 11,230--the lowest number in 2 decades. Cargo tonnage also dropped during the same period, from about 154 million to about 140 million tons. Despite the decline in the number of ships and cargo tonnage, toll revenues expanded over the period from US$208 million to US$298 million, because of the toll increase in March 1983.

The decline in canal traffic was in large measure a result of the opening of the trans-isthmian oil pipeline, which carries Alaskan North Slope oil. In 1983 the pipeline diverted 30 million tons of oil from the canal. In terms of Panama's economy, the diversion of oil from the canal to the pipeline did not cause alarm as it was little more than a transfer of services.

Some observers expressed concern that the canal had seen its best days and that it would decline in importance over the long run. Latin American trade, much of which passes through the canal, has stagnated because of prolonged regional recession and balance of payments constraints resulting from the regional debt crisis. Many supertankers and bulk cargo carriers are too big for the canal. Even some smaller vessels sought to avoid the delays associated with transiting the canal. Increased tolls also lowered the demand for canal usage. Many coal and banana producers shunned the canal and shipped to Europe from the Caribbean Basin and to the Pacific Basin from the west coast of Latin America. In addition, the canal faced competition from Mexican and United States land bridges (roads or railroads linking Atlantic and Pacific ports). Standardized cargo containers have made land bridges an increasingly attractive option, even though the distances involved are much greater (the United States land bridge is over 5,600 kilometers long) than across the canal. The concern over the future of the canal was partially allayed by the increase in total canal traffic between 1984 and 1986. In 1986 11,925 ships transited the canal, carrying 139 million long tons of cargo and generating US$321 million in tolls and revenues. In 1987 canal tolls and revenues totaled US$330. The increase in 1986 was due in large measure to increased automobile trade.