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<Music> <Music> >> NARRATOR: Across a narrow stretch of land in Central America, the Panama Canal works its way through tropical rain forests rising and falling by steps through the high country of the Continental Divide. This engineering marvel is a 50-mile-long waterway linking the Atlantic and Pacific Oceans through the Republic of Panama. By navigating this route ships can avoid thousands of miles and weeks of travel from the long ocean voyage around South America. Since its completion by the United States over a hundred years ago, vessels of every type have made the crossing in more than a million transits between the seas. The Panama Canal became a symbol of American military strength as well as the national identity of Panama. It has been said that the canal is the reason for Panama's existence today. But the issue of who should own the canal turned into one of the most contested foreign policy debates in U.S. history. >> We bought it, we paid for it, it's ours and we're going to keep it. >> NARRATOR: And the emblem of Panama's struggle for sovereignty. >> We don't want another 100-year treaty. We want this solved now. >> NARRATOR: Testing both countries would be the growing pains of Panama's struggle for democracy. >> We didn't expect 28,000 troops to drop out of the sky. >> NARRATOR: And the resistance of Americans who argued that turning over the canal to Panama signaled the demise of U.S. power. >> In the United States it's still not a popular thing to have given our canal away. >> NARRATOR: In the midst of widespread dispute, why did the United States, one of the most powerful nations on earth, turn over to Panama, one of the smallest and least-developed countries, the most valuable waterway in the Western Hemisphere, and how did it happen? >> NARRATOR: The Panama Canal symbolized American ingenuity, determination and power. America had birthed a new nation in 1903 and a decade later completed an engineering feat that others could not. But as Americans celebrated, some Panamanians bristled against the treaty that created a country within their country. >> In the early 1900s under Theodore Roosevelt, the United States basically drafted a treaty on our own terms without consulting any Panamanian. So I saw that the Panamanians were cheated at the time. And they were threatened by Theodore Roosevelt that you have to approve this unfair treaty, otherwise we're going to let Colombia take over your sovereignty again. So it was forced on them. >> NARRATOR: Panama was caught in an impossible situation. It owed its freedom from Colombia to the United States but resisted being an American colony. In the ten-mile-wide Canal Zone running through the middle of Panama, Americans operated the canal, based military forces, and controlled the territory as part of the United States. Following World War II, tensions grew from complaints to protests. In 1954, riots erupted over the issue of flying the Panamanian flag. A decade later a student protest turned into violent riots. >> They wanted the canal to be successful. It was their biggest economic asset. So they weren't trying to throw the United States out of the canal or close the canal; they just wanted it to be run on a basis that respected their existence as a sovereign country. >> NARRATOR: Each administration from Eisenhower on understood that the original treaty of 1903 was unjust and the relationship with Panama was deteriorating. >> But all of them also understood that politically any step towards making anything that could be interpreted as a concession to little Panama might be interpreted as a sign of weakness. >> Panama and Latin American countries in general were sick and tired of U.S. interventions, and the fact that the U.S. could intervene and did intervene in various countries of the region on all manner of pretexts and reasons. So, in Panama that set off the alarm bells. >> NARRATOR: During the early 1970s, General Omar Torrijos, Panama's leader, was determined that his country would not become another star in the American flag. Rather than fight Washington head on, he took the case of Panama to the world. >> General Torrijos made a lot of noise at the United Nations and the non-allied countries that this was a colony and that when all the world was getting rid of colonies we still had a colony in the middle of Panama. And that Panama should have the right to unite the land and to recover the canal. >> NARRATOR: President Gerald Ford came the closest to resolving the situation in 1974. >> ...period of nearly 20 years... >> NARRATOR: Secretary of State Henry Kissinger reached a tentative agreement with Panama to return the canal. >> A change in the existing treaty relationship with respect to the Panama Canal is in the national interest of the United States. >> NARRATOR: But during his presidential campaign, Ford dropped the canal issue after it was made unpopular by his opponent, Ronald Reagan. >> When it comes to the canal, we bought it, we paid for it, it's ours and we should tell Torrijos and company that we're going to keep it. (applause) >> NARRATOR: Ford would defeat Reagan but for the rest of his presidency, the Panama Canal issue would remain unsettled. >> In the state of Hawaii with four electoral votes, those votes have gone to Carter and that does it. ABC now projects Carter is the winner with 272 electoral votes. >> NARRATOR: In the early hours of Wednesday, November 3, 1976, Jimmy Carter, a Washington outsider and political unknown, was declared the winner of the presidential general election. An evangelical Christian, Carter's religious faith instilled within him a strong commitment for protecting fundamental human rights. >> There can be no nobler, no more ambitious task... >> NARRATOR: And he sought to bring that commitment to reshaping American foreign policy. >> I felt that human rights didn't just apply to someone to have free speech and freedom of assembly and the right to vote and the right to worship, but I thought human rights meant that big and powerful countries needed to treat smaller countries with justice and fairness. >> So this is but one stage in the completion of our historic task... >> NARRATOR: Within days of taking office, President Carter appointed former ambassadors Ellsworth Bunker and Sol Linowitz to restart negotiations with Panama. Surprising General Torrijos and his team of negotiators, Linowitz and Bunker suggested that the negotiations pick up where the Ford administration had left them. >> First of all, we honored the contrary positions of the Panamanians. We didn't try to ordain this is America's position, take it or leave it. I tried to understand the legitimate request of the Panamanians through Torrijos and his representatives. >> What they did want was the end to the so-called Canal Zone, that's what they said was colonial territory, as soon as the treaty went into effect and the U.S. would have control over the lands and waters needed to run the canal but the Canal Zone as such as a governmental unit would disappear. >> NARRATOR: The negotiating teams finally agreed upon two treaties. One declared that the canal would be permanently neutral and gave the United States the right to take action to assure that the canal would remain open, secure and accessible. The other treaty required the United States to eliminate the Canal Zone and transfer the property and the responsibility for running the canal to Panama at the end of 1999. >> We needed Senate approval, 67 votes for each of those two. And without one the other one wouldn't have made any sense. >> NARRATOR: On September 7, 1977, President Carter and General Torrijos met in Washington to formally sign the treaties. In both the United States and Panama, the treaties were met with protests. Students in Panama burned a copy of the treaty, charging that General Torrijos had sold them out to the gringos and what angered them most was Torrijos' failure to end the presence of American military bases. >> We are here to participate in the signing of treaties... >> NARRATOR: At the formal signing ceremony at the Organization of American States, Carter again spoke about the issue of fairness to an audience of dignitaries from Latin America. >> But the treaties do more than that. They mark the commitment of the United States to the belief that fairness and not force should lie at the heart of our dealings with the nations of the world. >> Actually it was a unique moment when you think back because there was no president before him who had the guts to take it on and no president since him who had the guts to take it on. >> NARRATOR: The celebrations, handshakes, and diplomatic exchanges that day would quickly fade as Carter and his opponents began the battle for ratification. On September 26, 1977, the Senate Foreign Relations Committee opened hearings on the treaties. >> The Panamanian people want the right to call their country their own... >> Secretary of State Cyrus Vance kicked off the hearings warning senators that if the treaties failed, it would endanger relations not only with Panama but with all of Latin America and it could endanger the canal itself. Almost immediately after Vance's testimony, Panamanian Foreign Minister Romulo Escobar told a Panamanian audience that the United States was not granted any rights to intervene in Panama. Treaty opponents in the Senate exploded and the Carter team scrambled to contain the crisis. It took nearly a month to calm the waters. Carter and a reluctant Torrijos reached an understanding that the U.S. could defend the canal against threats but not interfere with Panama's internal affairs. >> And the way Torrijos sold it to the Panamanian public, because it had to be by constitution, approved by referendum by the Panamanian people, he said the good news for Panama is that, in the year 2000, the U.S. forces will all be gone, every last one of them, there will not be a single U.S. soldier left in Panama, they're all going to be out. And the even better news is that if we were attacked by an outside enemy, we get to call Washington and they have to come in to defend it. >> But the efforts to sell the treaties were proving more difficult than expected. >> Much of Latin America depends upon the knowledge that the canal will be run impartially and efficiently by the United States. A few Latin American voices have championed Torrijos' position but most remain silent possibly because of concerns about the United States' withdrawal from the canal. I do not believe we should ratify this treaty. >> The demagogic argument, which Ronald Reagan was so good at, is overwhelmingly persuasive. It's very hard to counter that argument because ultimately the counterargument is if you don't that little country could do you damage. >> NARRATOR: Opponents in the Senate waged a determined campaign. They charged Panama was incapable of running the canal. >> Here we were not only relinquishing control over it but giving control over to what they described as a tin-horn dictator. Somebody that the far right said is sympathetic to communism, is going to be colleagues with Castro and Cuba and so on. So, you know, there's a lot more to the issue than a ditch. >> NARRATOR: A delegation led by Senator Robert Byrd found Torrijos a far different man than how he was painted in American media. He was open, engaging, and a brilliant politician. >> He told them the truth, he showed them the canal, he showed them what the plans were for Panama to operate it, he showed them the justification for the transfer of the canal to the Panamanians, and I would say that that was a major positive factor in convincing doubtful senators to vote for the treaties. >> NARRATOR: Senate leaders planned to hold separate votes on the two treaties: the Neutrality Treaty in March of 1978, and the Panama Canal Treaty in April. But by late-February support for the treaties was short of the required two-thirds. >> 48 senators introduced a resolution as sponsors declaring that they would never give up the Panama Canal. I had to induce 16 of those plus all the rest of them to change their mind. >> NARRATOR: As the March vote on the Neutrality Treaty approached, the freshman senator from Arizona, Dennis DeConcini, used this moment to demand an amendment to the treaty in return for his support. >> He introduced an amendment which totally contradicted the essence of the treaties. It basically gave the United States the right to intervene in Panama if there were any danger to the canal. Well, the whole point of the canal treaties was to get U.S. intervention out of Panama and out of the Panama Canal. As soon as he introduced this amendment, Torrijos and the Panamanians went wild and they threatened to pull the plug completely. But Warren Christopher, who was managing the treaty on the Hill, concluded that if we didn't accept the amendment we wouldn't have enough votes to win. DeConcini at least had marshaled about three or four Senate votes which we needed in order to get it approved. So we had to accept it in the treaty. And then the hard part was, how do you keep the Panamanians onboard? >> Torrijos would tell Carter, they spoke frequently, "Mr. President, you tell them whatever you have to tell them, and we'll tell our people whatever we have to tell them," especially with the DeConcini, for instance, amendment, those issues that really, almost derailed the approval of the treaty by the U.S. Senate. >> NARRATOR: On March 16, 1978, the Senate held the first crucial vote. If the Neutrality Treaty failed, the entire effort by Carter and Torrijos would end in defeat. >> Mr. Schmidt? Mr. Schmidt, no. Mr. Schweiker? Mr. Schweiker, no. Mr. Scott? Mr. Scott, no. >> The vote was never clear. I remember Howard Baker coming into that office, I think it was the day before the vote, and he said, "I'm not sure this is going to pass." He said, "We're still short a few votes." And I said, "You know, I think it will pass, but we're ready for that vote." Right up to the end there was anxiety. >> Mr. Byrd of West Virginia, aye. >> NARRATOR: That anxiety was released when the Senate passed the Neutrality Treaty with a vote of 68 to 32. One month later, on April 18, the Senate passed the second treaty, also by a vote of 68 to 32. >> My most difficult political job of my life, even more difficult than being elected president, was getting two-thirds of the senators to vote for it because it was very unpopular. >> NARRATOR: The battle in Congress was not over and some conservatives were not ready to give up the fight. The House of Representatives still had to pass the treaty implementing legislation. >> There were elements built into the implementation that were frankly not consistent with the spirit of the original treaties. That is to say that gave us greater powers than we had originally negotiated but that was part of the compromises that were necessary to get it through. >> The worst part of it was the implementation. The law that implemented the canal because all the things that the congressmen opposed in the Panama Canal treaties, they tried to solve it in a federal law and it was quite a nightmare for us at the time because we believed, and still believe, that that law, Public Law 96-70, was in clear violation of the Panama Canal treaties and not only the spirit of the Panama Canal, but the whole text of the Panama Canal. >> We argued the Panamanians don't have the capacity as a people to manage this canal. These people, they don't have the background, the professionalism, they'll make a mess of it. Well, the first time I went down there I was escorted through the locks and they showed me all the operations and so on and I said, "How many employees do you have here?" And they said about 15,000, I think was the number. And I said, "How many of those are Panamanians?" And they said about 14,000. And I'm thinking, if they can't run it, who is running it? They're already running it. The treaties would have ceded the canal to Panama at the end of the century but there were a great many aspects of what do you do with the existing facilities, what do you do with the various airports and U.S. Air Force facilities? How do you deal with that? >> Three days before the Panama Canal treaties would take effect, the House finally passed a bill that President Carter was willing to sign. The Panama Canal Act, Public Law 96-70, was a narrow victory by a vote of 224 to 202. >> Even after we passed it, even as we had the victory celebrations and so on, the American people have never said by a majority vote that they think it's a good idea. >> A lot of the Senators sacrificed their political life for a correct vote. They were put out of office by the folks back home. >> NARRATOR: By 1980, American voters had lost confidence in President Carter and he too was turned out of office in favor of Ronald Reagan. >> The symbol of a lot of things that Reagan had used to get elected president was encapsulated in the Panama Canal treaties. That here was this great and powerful nation being brought to its knees by a Third World country and being forced to give up one of the great technological advances in engineering of that century. >> NARRATOR: The Panama Canal Treaties took effect on October 1, 1979, beginning a 20-year implementation calling for the cooperation of both countries to achieve a seamless transfer of the canal from the United States to Panama at the end of 1999. The canal's administrative organization, the Panama Canal Company, would be replaced by the Panama Canal Commission, a new agency in the Pentagon with a governing board to oversee treaty implementation and guarantee American control during the transition period. >> But now the challenge is, okay, we've got to run the Panama Canal. How do we prepare for it? So a bi-national board was created at that point in time, which had as one target is to make sure that by 1999 Panama could run the canal. >> We need to move now from this model of operation, which was actually break even, into one that was actually saying we need to manage the resources, we have to be profitable, we have to be efficient, and we need to be, in fact, very creative. >> NARRATOR: For Panamanians, the early years of the transition were uncertain times. Would the United States follow through with its promise to transfer the canal? And some Panamanians still doubted that they could handle the responsibility of operating the canal. >> There were many misgivings in a lot of people in Panama, many misgivings, not to mention the misgivings that the American personnel had here that we would be able to manage the canal well. >> NARRATOR: Nearly 600 square miles of Canal Zone territory were turned over to the Republic of Panama along with a vast number of U.S. assets, including the ports and the railroad. Fourteen U.S. military bases were transferred, more than 7,000 structures including residences, warehouses and office buildings. Thousands of pieces of equipment and vehicles were handed over under the terms of the treaty. >> And all that occurred almost immediately with October 1, 1979. All the planning for that was accomplished before the treaty was implemented, obviously, we were ready to go, ready to transfer massive amounts of property and infrastructure. >> NARRATOR: It would take another two decades to carry out every detail of treaty implementation and prepare Panamanians to take over the canal. But for U.S. citizens born in the Canal Zone and the Americans who had created families here, the treaty marked an abrupt end to an established American way of life. Jobs and futures would suddenly change. >> In the Canal Zone we had our own government. We had our own police, our own fire, our own schools, hospitals, mortuaries, cemeteries, commissaries. Every service was provided by the government. So when the treaty came into effect on October 1, 1979, the Canal Zone government was disestablished. The disestablishment of a U.S. government agency is difficult in its own right-- employees lose their jobs, new relationships have to be formed. Instead of living in the Canal Zone like we were in September 30, the next day we were living in Panama under Panamanian police jurisdiction, Panamanian courts, Panamanian documentation. We had to get Panamanian license plates, we had to get Panamanian residence permits. >> There was a lot of resistance, particularly by what we call the "Zonians", the Americans who used to live in the Panama Canal Zone. They were losing a lot of privileges, they were seeing that the end of their paradise was coming. Of course, they tried to stop things, to derail them, to get them slowed down. >> If you look at the maps of 1960, you see U.S. territory, Panama Canal Zone. Many of them were born here and for them this was their country, but not Panama, the Panama Canal territory. For them to give up, that was like now you left me without a country. >> Take it out of the context of a political event or a Panama Canal Treaty, and just put it in the context of a very large company. If there was going to be major change to that company that would impact the employees in myriad ways and impact their livelihood, their future, their families, obviously they would be concerned and they would not be happy with those circumstances. >> They were doing everything that could be done in order to comply as little as possible with the canal treaties. They would not go in violation of the Panama Canal Treaty, but they wouldn't do anything to help. >> I guess in the first ten years people thought, you know, we still have a long time to go. Let's see what happens. Let's get this thing going, slowly. >> NARRATOR: But relations between the U.S. government and the Republic of Panama would begin to taper off, straining the spirit of cooperation between both countries. >> General Torrijos was gradually moving forward to a full democratic process and to retire the armed forces from any role in government. Unfortunately, he passed away, and then we got Mr. Noriega. And there were major disagreements as we moved forward. >> It was not the best atmosphere, okay? Noriega was in power, there was a lot of fighting between Noriega's regime and the U.S., and different U.S. agencies. And... that's the time, when people even thought, perhaps, if Noriega stays on, we won't get the canal back. And it was something that was in some ways put to circulate, you know what I mean. No official word on that, but it was an idea that was running at the time. Obviously, that created some tensions, some additional tensions inside the commission. >> We got this awkward situation during these years that, for example, the board members of the Panama Canal Commission, the Panamanian board members, were not allowed into the United States. They would not issue a visa for them, so when the Panama Canal Commission was meeting in the United States, then we would have a one-nation board and not a bi-national one, because the Panamanians couldn't travel to the United States. >> NARRATOR: From the perspective of canal management both the U.S. and Panamanian employees were operating in an increasingly difficult environment. In June of 1987, Roberto Diaz Herrera, second-in-command of Noriega's army, declared that Noriega had been dealing with drug lords, had murdered some of his opponents, and had murdered General Torrijos to gain power. The accusations stirred the people of Panama into public protests against Noriega. Noriega would break up these demonstrations using groups of people called "Dignity Battalions." >> They were civilians thugs, that's the only way to describe them, and they would brutally beat up and harass all the people who were doing peaceful demonstrations. >> NARRATOR: By the late 1980s, civil unrest, tense diplomatic relations, and threats to American interests in Panama led the United States to impose economic sanctions on the Noriega government. >> Well that hurt Noriega terribly. In fact, money dried up in Panama. I'd never seen this before. All the banks ran out of money. Noriega couldn't pay his government employees, and our employees couldn't cash their checks. >> We had to pay all our employees, our thousands of Panamanian employees were paid in cash every two weeks. So we would have to arrange to get $6 or $7 million available every two weeks and we would set up dozens of cashiers in different locations around the canal area. >> As a result of the economic sanctions, and us not paying Noriega, he decided to tell all of his employees... excuse me, all the canal employees and the military employees who were Panamanian, that they could not receive any services from the Panamanian government. Not only could they not cash a check, but they couldn't get a license plate, they couldn't drive their cars, because after the year ended, their license plates had expired. So we had to import buses, 100 buses or so, to allow for the pick up and delivery of employees to their work sites from remote locations in Panama. >> NARRATOR: The headquarters building for the Panama Canal Commission was located in Balboa not far from Panama City. Many of the canal employees lived in housing close to the port of Balboa. >> The port workers went on strike because they weren't getting paid by the Noriega government. So they took a lot of containers from the ships on the pier and they blocked every access into and out of Balboa. Our residents and our employees were trapped and there was gun fighting. >> The Americans working at the Panama Canal lived in Panama Canal communities that were not fenced off from Panama. We relied, in fact, on the Noriega government to provide us with security, which is ironic. I lived in Panama Canal housing up on the side of Ancon Hill near where the administration building, the headquarters of the Panama Canal is. And literally every morning when I'd step out of my house to walk down the hill to work I would see a brown Panamanian police vehicle. Said "Policia Nacional" on the side of it and they would be sitting on the cul-de-sac with two soldiers heavily armed with AK-47s. I mean and that, the idea that they're providing us security but they look very obviously very hostile and very intimidating. And you had to deal with that. >> Noriega's people came into the Canal Zone on a couple of occasions, and went into the home of an employee-- a Panamanian employee who was married to an American citizen, and they lived in the Canal Zone-- took that employee and put him in jail and tortured him for several weeks. The wife didn't know where he was, hadn't heard from him. Again, it's the type of thing Noriega was trying to do to put pressure on the U.S. to lift the sanctions. >> NARRATOR: As tensions intensified for canal employees and their families, they continued to operate the waterway, but the more the U.S. sanctions took effect the more desperate General Noriega became. Panama Canal management advised Washington through the ambassador that canal operations and treaty implementation could be at risk. >> A member of the Panamanian Defense Forces came into my office with a list of 20 canal officials who would be kidnapped along with their families and taken to a remote location in the interior of Panama, in the event that Noriega would be captured himself, and we would be used as hostages to gain his release. >> The bottom line was that he had to go, and democracy had to be restored in Panama to allow the Panama Canal Commission and the Panamanians to work together to fulfill the treaty obligations. >> NARRATOR: In early December of 1989, the Noriega government declared that Panama was in a state of war with the United States. On December 16, a U.S. military officer was shot and killed by Noriega's Panama Defense Forces. Other confrontations would follow, and by December 19, the U.S. military was positioned for action. >> We had calls from the states around 11:00 saying, "Do you know that there are hundreds of airplanes "leaving Ft. Bragg and other air force bases "being shown on national TV and they say they think they are headed to Panama?" >> The command is currently at PML Echo. All personnel should stay in place. Because of recent actions by the Noriega regime, the president of the United States has ordered military action against the Panama Defense Forces. >> And so we turn on the TV and we saw that the Southern Command Television Network, which was an armed forces affiliate, indicated that we were in PML, personnel movement limitation ECHO. And it's a range from "A" to "E"-- ALPHA means you are safe, walk around, don't worry about a thing and it progressively gets worse. When it hits ECHO you better hide under the bed. >> My beeper went off. My phone rang. I picked it up and the code word was used, "hammer blow". And at that point I said, "Should I relocate?" And the voice said no. Turn off your lights, close your drapes, keep your head down, we've got you covered. And they hung up. It was immediately after that that the explosions, automatic weapons fire, helicopters, everything started to be heard in the area. >> An 18 wheeler pulled up in front of my house, the back end of the container opened up and troops filed out, and I didn't know if they were Panamanian or American, I didn't know if I was going to be kidnapped or saved. And my neighbor called me, he said, "You know your house is surrounded by troops?" And I said, "I do, but I don't know who they are." And he said, "I can't tell either." About an hour then, not moving, I opened the door just a crack and I heard, "Get back in your house, sir," which was a relief to me and we knew then that we were safe. >> NARRATOR: The United States launched Operation Just Cause, the invasion of Panama, on December 20, 1989, to secure the canal, to protect American lives, and to bring General Noriega to the United States to face drug trafficking charges. >> We didn't expect 28,000 or so, troops to drop out of the sky and to have something on that scale but the removal of Noriega was something that we felt was needed and would eventually occur. >> The invasion started at midnight and the employees who were on the shift running the ships through the canal were there until they left, or, they finished their shift in the morning, 8:00, and there was nobody to replace them. Everybody was hunkered down. They didn't know what was next. There was still sporadic gunfire in the canal area. The military had put up concertina wire barricades all over the canal area. The reason the canal stopped operating for about 12 hours was because the people couldn't get to work. >> NARRATOR: An emergency meeting of the Organization of American States took place in Washington, D.C. within a day of the invasion. >> The chair recognizes the distinguished representative of Panama. >> NARRATOR: Operation Just Cause was denounced by representatives from Panama and Latin American countries as a violation of the Panama Canal Treaty and an illegal intrusion by the United States into the internal affairs of Panama. Some questioned the need for a large-scale U.S. military action to defend the canal and the use of deadly force to settle Panama's domestic problems. >> Nobody is going to be proud of an invasion, nobody, not me nor anybody, but if you have to put a cost on what was happening, that was the cost. It had to be done for whatever reason but it was not part of the agenda. It was too costly in human life, in trauma... Look, Panama was full of soldiers for the invasion. It was not logical to find 30,000 soldiers to take care of the canal. It was a presumption to defend the canal, but it's not so. I really don't have any perfect answer, nobody has a perfect answer. Luckily everything turned out for the best. Luckily. >> For several days we ran daylight operations only but within a week we were pretty much back to normal. But we were operating within one day. One day after the invasion we were putting ships through the canal. >> We kept ships going and the world was secure in the knowledge that we would continue to put ships through the canal. There never was an inclination of not transferring the canal to Panama. It was going to happen, the treaty said it was going to happen and the U.S. was going to make it happen, but not with Noriega there. >> NARRATOR: As Panama resumed its quest for democracy, the Panama Canal Commission continued to fulfill the terms of the treaty, and on January 1, 1990, Fernando Manfredo, a Panamanian treaty negotiator, was appointed as interim administrator of the commission. Nine months later Gilberto Guardia would become the first full-time Panamanian administrator. Panama and the United States would continue to work together for the safe and efficient operation of the waterway, but now with the clear understanding that the canal organization could only succeed if it remained autonomous, free from government intervention, and operated with its own revenues in a profitable manner. Key to this success would be the bi-national board whose members would create new labor laws and regulations. >> The tradition had always been to have the Panamanians meet separately, the Panamanian members of the board, there were four, meet separately with the Panamanian ambassador and the five U.S. to meet with the U.S. ambassador. I said we're not going to have any separate meetings anymore. This is one team, one mission, we're going to do this together. This is our job, running the canal, it's not running the canal the American way, the Panamanian way, it's running the canal the best way. >> He, in fact, ended that period that Panamanians and Americans sat on opposite sides of the table as if we were negotiating instead of doing one team, one mission. And sometimes the vote came five to four, or five to three on the Panamanian side because we were able to convince an American board member. And even though Joe was not... did not agree with it, he kept his promise and he said, "I will never divert the vote." So this is one team, one mission, we have nine votes, we'll take it by majority. >> As board chairman, Joe Reeder led the nine-man team in establishing rules and regulations. But unlike the existing U.S. system of break-even canal operation, the board was determined to build a successful business that would generate revenue for the canal and for Panama well into the future. >> When I factored in that this was Panama, it was the Panama Canal and the Panamanians were going to inherit this and the Panamanians wanting to do it another way, that on some occasions on some decisions prevailed and the Panamanians respected that. It's the same thing we do with junior executives or families or anything else. You're passing the baton. When you get done with that baton, you're running as hard as you can, you can keep screaming but the next guy's got the baton, and the next guy here were the Panamanians. >> NARRATOR: But canal management had to keep up a steady pace to provide Panamanians with the best possible skills to take over the organization and operations in a seamless transfer at the end of the century. Career internships and apprentice programs created the training opportunities. >> We very quickly brought in young Panamanians, trained them and they started rising right through the ranks. Almost every management position and almost every skill position was filled by a Panamanian. >> A lot of training had to take place and I was a part of that process. I started as a young engineer. I was working maintenance out there, scheduling maintenance making sure the budgets were there for proper maintenance for a canal that would be there for another 50 years at least. >> We were young in those days, just appointed as managers in a transition period where we were actually switching even from language, from regulations. If you look at the present managerial group of the canal you will find that a lot of the managers started in the apprentice program. >> From 1979 at the start of the treaty to 1999, all the people who were here working would have a chance to retire in a 20-year period. So from 1989 to 1999 you had a lot of people retiring and a lot of people coming in. So little by little the canal became Panamanian. >> We had to put in place a new set of rules, a complete set of rules, labor regulations just for the Panama Canal employees. That was absolutely gigantic, the effort that had to go into it. >> NARRATOR: A new agency, the Panama Canal Authority, would replace the Panama Canal Commission at the end of the century. The organization was established in Panama's national constitution by the Organic Law of 1997, which specified the rules and regulations for the canal's management and operations. By the late 1990s, the board of directors faced concerns over the state of the aging waterway and its systems. An audit was called for to determine the condition in which it would be transferred to Panama. >> We put the Panamanian engineers in teamwork with the United States Army Corps of Engineers to do that audit to make sure that we were open and transparent with regard to the status and the quality because this is an 85-year-old structure. >> We visited every nook and cranny of the canal. We went everywhere, checked all the systems-- not only physical systems, hydraulic systems, of course computer systems. >> NARRATOR: The engineering audit revealed that the waterway would not be successful into the 21st century unless it received significant upgrades... like new tugboats, new towing locomotives, computerized locks control systems, hydraulic systems replacing mechanical systems, and a widened navigation channel at Gaillard Cut. It would take a billion dollar makeover to modernize the Panama Canal. >> We were receiving an asset that was getting to maximum capacity. We needed to bring more life into that. We were basically getting, maybe, a secondary road and we wanted it to be a highway. >> When you see the pieces they had to cut from the rail beds, you cannot believe that. This is iron, iron that was made a hundred years ago and it has normal wear and tear. We were not going to fix it, we had to change it. In order to change it we had to cut huge blocks of concrete with the rails. They're imbedded. They did, I would say, an excellent job. Excellent. >> In fact, they went many steps on top of that to not only handing over the Panama Canal in very good operating conditions into the 21st century, but allowing a lot of little details that had to be dealt with in Congress to do it so seamlessly that, in fact, nobody noticed. As much as we complained during the first years, we must be very grateful for what happened in the last years. >> We ended up with practically a 100% Panamanian work force and a 100% Panamanian board, so I think it was a very successful transition. I think it's an example for how to solve big world conflicts. This was a very tough issue. >> NARRATOR: And by late December of 1999, it was still an unpopular matter. Neither the president of the United States nor his Secretary of State would visit Panama to participate in the transfer ceremony. >> President Clinton finally asked me if I would represent the United States. I did it with great pride. But the fact is in the United States it's still not a popular thing to have given our canal away. If you can express it by that brief phrase "Jimmy Carter gave away the canal to Panama," I would say I'm proud I gave away the canal to Panama. It was the right thing to do. # # >> NARRATOR: On December 30, Panama's flag stood alone. The American flag had been lowered for the last time, ending the nearly century-long U.S. ownership of the Panama Canal. >> This was a very emotional day not only for us Panamanians, it was very emotional also for the Americans that had been managing the canal. All our American friends were there and I remember a lot of them were weeping. It was an accomplishment but, you know, it was like a bittersweet moment. >> NARRATOR: The next day, December 31, 1999, a large crowd gathered on the hillside of the canal administration building in Balboa for the long-awaited transfer of the canal from the United States to the Republic of Panama. >> I would say that was probably one of the most emotional moments of my life and of everybody's life here. We had been working for many years to accomplish this. I think a lot of people reflected on this specific moment because the canal history and the history of Panama are intimately interwoven. >> It was a history-setting event. Nothing like it was ever done in the past-- a massive country, the largest and most powerful on earth, turning over billions of dollars in assets and a Panama Canal that was of tremendous importance to the world, turning that over to a very tiny country and working with them side by side for 25 years, basically, to accomplish that transition. >> NARRATOR: It rained that day in Balboa, but it was a joyful time. The Panama Canal changed ownership in a seamless transition. Panamanians celebrated a new era on the eve of a new millennium, and the Panama Canal Authority looked ahead to the emerging challenges of the 21st century while the ships continued to pass as they had always done.