Appendix — Coplin v. United States, 107 S. Ct. 394 (1986) (No. 85-559)
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IN THE
Supreme Court of the Gnited Batty Court, U.S,
7
OCTOBER TERM, 1985 SEP SO i908
ROBERT E. O’CONNOR and GLapys E. O'CqNNOR, — JR.
; mee,
UNITED STATES OF AMERICA,
Respondent.
PAUL H. and PATRICIA COPLIN,
Petitioners
V.
UNITED STATES OF AMERICA,
Respondent.
JACK R. and MARIA R. MATTOX,
Petitioners,
4
UNITED STATES OF AMERICA,
Respondent.
PETITIONS FOR WRITS OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
PETITIONERS’ APPENDIX
ANDREW C. BARNARD ALLAN I. MENDELSOHN
BARNARD, P.A. MARVIN L. SZYMKOWICZ
9769 South Dixie Highway WARD & MENDELSOHN, P.C.
Suite 201 1100 17th Street, N.W.
Miami Florida 33156 Suite 900
(305) 665-0000 Washington, D.C. 20036
(202) 785-0200
Counsel for Petitioners Coplin Counsel for Petitioners O’Connor
JOHN C. MORRISON
KIEFFER & MORRISON
200 North Fairfax Street
Alexandria, Virginia 22314
(703) 549-8844
Counsel for Petitioners Mattox Ar
PP ESS ( RO) ’ 3. WASHINGTON, D
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APPENDIX TABLE OF CONTENTS
APPENDIX Page
A.
B.
C.
Coplin v. United States, 761 F.2d 588 (Fed. Cir.
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Coplin v. United States, 6 Cl.Ct. 115 (1984) .. 9a
Judgment, United States Court of Appeals for
the Federal Circuit, in Coplin v. United States et
al., issued as a mandate July 12, 1985 ....... Ta
Harris v. United States, 768 F.2d 1240 (11th Cir.
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APPENDIX A
UNITED STATES COURT OF APPEALS,
FEDERAL CIRCUIT.
May 10, 1985.
Appeal Nos. 85-504 to 85-507.
PAUL H. AND PATRICIA COPLIN,
Appellees,
V.
THE UNITED STATES,
Appellant.
ROBERT E. O’CONNOR, et ux., GLADYS E. O’CONNOR,
Appellees,
V.
THE UNITED STATES,
Appellant.
JON D. COFFIN,
Appellee,
V.
THE UNITED STATES,
Appellant.
JACK R. AND MARIA R. MATTOX,
Appellees,
V.
THE UNITED STATES,
Appellant.
Taxpayers employed by the Panama Canal Commission filed
suits for refund of federal income taxes. The Claims Court,
2a
Alex Kozinski, Chief Judge, 6 Cl.Ct. 115, held that United
States citizens employed by the Panama Canal Commission are
exempt from United States income tax. Government appealed.
The Court of Appeals, Bissell, Circuit Judge, held that the
taxpayers were not exempt from United States domestic taxa-
tion in that the Panama Canal Treaty only exempted income
earned by United States citizens from taxation by Panama.
Reversed.
Bissell, Circuit Judge, filed an opinion stating additional
views in which Edward S. Smith, Circuit Judge, joined.
Nies, Circuit Judge, with whom Rich and Baldwin, Circuit
Judges, joined, concurred with opinion.
Before RICH, BALDWIN, SMITH, NIES and BISSELL,
Circuit Judges.
BISSELL, Circuit Judge.
The government appeals from a decision of the United States
Claims Court holding that United States citizens employed by
the Panama Canal Commission are exempt from United States
income tax. We reverse.
BACKGROUND
These appeals were consolidated by order of this court dated
October 22, 1984, and involve suits for the refund of federal
income taxes. Paul Coplin, Robert O’Connor, Jon Coffin, and
Jack Mattox are United States citizens and during the respec-
tive relevant tax years were employees of the Panama Canal
Commission (Commission), an agency of the United States
government. The wages they received from the Commission
were included in computing their federal income tax for the
years 1979 (Coplin and Coffin), 1980 (Mattox), and 1981 (O’Con-
nor and Mattox). Based on their understanding of an interna-
tional agreement, the taxpayers filed claims for refund for the
amount of tax paid with respect to income received from the
Commission. The Internal Revenue Service denied each of
their claims and these suits followed.
3a
On September 7, 1977, after years of negotiation, the United
States and the Republic of Panama signed the Panama Canal
Treaty, T.I.A.S. No. 10030. The Senate approved the treaty
and it entered into force on October 1, 1979, restoring to
Panama territorial sovereignty over the Canal Zone. Panama
granted to the United States the right to manage, operate, and
maintain the canal until the year 2000. During this period the
canal is to be operated by the Commission. The treaty provides
for increasing participation by the Republic of Panama in the
management of the canal, in preparation for its assumption of
full responsibility for the canal’s operation when the treaty
expires.
Because the Canal Zone would no longer be subject to Unit-
ed States territorial sovereignty, it was necessary to define the
rights and legal status of the Commission and its employees
vis-a-vis each country. These matters were to be governed by
the Agreement Implementing Article III of the Panama Canal
Treaty, Sept. 7, 1977, United States-Panama, T.1L.A.S. No.
10031 (Implementation Agreement). The Implementation
Agreement contains twenty-one articles governing such sub-
jects as registration of vehicles, exemption from import duties,
and criminal jurisdiction. Article XV thereof deals with taxa-
tion of the Commission and its United States citizen employees:
ARTICLE XV
TAXATION
1. By virtue of this Agreement, the Commission, its
contractors and subcontractors are exempt from payment
in the Republic of Panama of all taxes, fees or other
charges on their activities or property.
2. United States citizen employees and dependents
shall be exempt from any taxes, fees, or other charges on
income received as a result of their work for the Commis-
sion. Similarly, they shall be exempt from payment of
4a
taxes, fees or other charges on income derived from
sources outside the Republic of Panama.
3. United States citizen employees and dependents
shall be exempt from taxes, fees or other charges on gifts
or inheritance or on personal property, the presence of
which within the territory of the Republic of Panama is
due solely to the stay therein of such persons on account of
their or their sponsor’s work with the Commission.
4. The Coordinating Committee may establish such
regulations as may be appropriate for the implementation
of this Article.
The dispute centers on the correct interpretation of the first
sentence in paragraph two. The taxpayers claimed that, ac-
cording to a literal interpretation, income earned by all United
States citizens from the Commission was exempt from United
States income taxation. The government contended that the
provision was intended to bar only Panama, and not the United
States, from taxing Commission employees. The court entered
an order stating that all parties would be bound by relevant
rulings in the Coplins’ case. On cross-motions for summary
judgment the Claims Court granted the Coplins’ motion and
denied the government's motion. Coplin v. United States, 6
Cl.Ct. 115 (1984). On the basis of Coplin, the court entered
judgment for the taxpayers in all four cases on J uly 31, 1984.
OPINION
This court has jurisdiction pursuant to 28 U.S.C.
§ 1295(a)(3). In reviewing a grant of summary judgment we
determine whether there is no genuine issue of material fact
and whether the movant is entitled to judgment as a matter of
law. D.M.I., Inc. v. Deere & Co., 755 F.2d 1570, 1573
(Fed. Cir. 1985).
In the Claims Court the government argued that the treaty
language should not be construed literally because to do so
would do violence to the intention of the signatories. The court
recognized that it should not give literal effect to treaty lan-
ee et ee
5a
guage if it was persuaded that such language did not reflect the
intention of the parties. Coplin, 6 Cl.Ct. at 127. The court
observed that “the record is devoid of any statement of the
official Panamanian position.” Jd. at 146. Despite government
arguments that the literal language did not reflect the intention
of the United States, the court construed the language literally
because the government presented “no evidence whatsoever as
to the interpretation given this language by Panama.” /d. at
128, 145-47, 149 (emphasis in original).
On the morning of March 4, 1985, the day we heard oral
argument in this case, the government's reply brief was deliv-
ered to the chambers of the panel members. In that brief the
government informed the court that “[o]n February 25, 1985,
the United States received a diplomatic note from the Panama-
nian Foreign Minister in which he confirmed that the Panama-
nian Foreign Ministry shared the United States’ view that the
Implementing Agreement was not intended to affect United
States taxation of Commission employees.” Reply Br. at 6. The
Foreign Minister enclosed letters from the Panamanian team
that negotiated the Implementation Agreement. In those let-
ters the Panamanian negotiators confirmed that Paragraph 2 of
Article XV was “discussed, negotiated and drafted exclusively
with respect to the tax exemption that the Republic of Panama
would grant to United States-citizen employees of the Commis-
sion and their dependents” and that the “provisions resulted
from negotiations that did not deal with the United States[’]
authority to tax the individuals mentioned therein.” J d. In an
appendix to the brief the government included the cable from
the United States embassy in Panama transmitting the diplo-
matic note and the accompanying letters to the State
Department.
I. Motions to Strike
Later that morning the appellees filed motions to strike all of
the documents in the appendix to the reply brief as well as all
references to them in the text of the reply brief.
The general rule on supplementing the record with new
evidence is that “appellate courts . . . can act on no evidence
6a
which was not before the court below, nor receive any paper
that was not used at the hearing.” Boone v. Chiles, 35 U.S. (10
Pet.) 177, 208, 9 L.Ed. 388 (1836); cf United States v. Miller, 80
U.S. (13 Wall.) 568, 576, 577, 20 L.Ed. 705 (1872) (evidence
cannot be received in Supreme Court to contradict a finding of
Court of Claims).
Nevertheless, the Supreme Court has recognized a ae
established exception when construing the meaning of
treaties. Reversing the judgment of a lower court on the ques-
tion whether the validity of a grant of land was protected by
certain treaties, the Supreme Court examined diplomatic rec-
ords outside the record and held that “the public acts and
proclamations of (foreign) governments, and those of their
publicly recognized agents, in carrying into effect those
treaties, though not made exhibits in this cause, are historical
and notorious facts, of which the court can take regular judicial
notice.” United States v. Reynes, 50 U.S. (9 How.) 127, 147-48,
13 L.Ed. 74 (1850); see generally Jones v. United States, 137
U.S. 202, 214-16, 11 S.Ct. 80, 84-85, 34 L.Ed. 691 (1890). In
construing an extradition treaty the Court directed counsel’s
attention to matter outside the record and invited counsel to
conduct a further search through “available diplomatic records
and correspondence” ir. preparation for reargument of the
case. Factor v. Laubenheimer, 290 U.S. 276, 295, 54 S.Ct. 191,
196, 78 L.Ed. 315 (1933). Nor is our consideration of the cable
barred because it was not “available” when the record closed in
the lower court. In determining the proper interpretation of a
treaty provision, the Supreme Court relied on expressions of
intent in diplomatic correspondence dated more than a year
after the appellate court decision and within a few days of
argument before the Court itself. Sumitomo Shoji America,
Inc. v. Avagliano, 457 U.S. 176, 184 n. 9, 102 S.Ct. 2374, 2379
n. 9, 72 L.Ed.2d 765 (1982). Therefore, we deny the motions to
strike.
Il. The Merits
The court’s “role is limited to giving effect to the intent of the
Treaty parties.” Sumitomo, 457 U.S. at 185, 102 S.Ct. at 2380;
a ed
ek Sean,
7a
accord Great-Western Life Assurance Co. v. United States, 678
F.2d 180, 183, 230 Ct.Cl. 477 (1982) (treaties must be construed
to enforce intent of contracting parties). Because we deny the
motions to strike, the record now reveals the intent of each
government. Since both treaty parties agree that paragraph 2
was not intended to create an exemption from United States
domestic taxation, the trial court’s decision cannot be upheld.
It is the government, not the taxpayers, which is entitled to
judgment as a matter of law. Therefore, we reverse the decision
of the Claims Court and direct that summary judgment be
granted in favor of the appellant.
III. Costs
The government is denied its costs.
REVERSED
BISSELL, Circuit Judge, Additional Views, in which
SMITH, Circuit Judge, joins.
While it is proper for this court to take judicial notice of the
new evidence, introducing it hours before oral argument is
certainly not something I want to encourage. The government
has been on notice since the Coplins’ case was filed in August
1981 that there would be judicial review of its interpretation of
the Implementation Agreement’s paragraph 2. During the
more than four years that have elapsed there was ample oppor-
tunity to obtain the Panamanian interpretation of that provi-
sion. Indeed, the Claims Court repeatedly offered the govern-
ment the opportunity to supplement the record with evidence
of the official Panamanian position; the government “stead-
fastly refused.” Coplin, 6 Cl.Ct. at 147. Moreover, as late as
November 30, 1984, the government gave no hint it was about
to introduce new evidence. To the contrary, commenting on its
“refusal in this case to approach the government of Panama,”
the government reconfirmed its position: “The United States
has consistently believed that there is no need to request that
the Government of Panama supply its interpretation of Article
XV, paragraph 2. . . .” Brief for Appellant at 46. Then, without
8a
notice and only one working day before oral argument, the
government suddenly revealed the diplomatic note to the tax-
payers. Under these circumstances, to require the taxpayers
to bear even their own costs borders on the unconscionable.
Therefore, I would have the government pay the taxpayers’
costs.
NIES, Circuit Judge, with whom RICH and BALDWIN,
Circuit Judges, join, concurring.
I concur in the result of the majority decision that United
States citizens employed by the Panama Canal Commission are
not exempt from United States income taxes by Article XV of
the Agreement in Implementation of Article III of the Panama
Canal Treaty. A complete reading of the record, the treaty and
the Implementation Agreement leads me to conclude that Ar-
ticle XV had no relevance to taxation by the U: ‘ted States of its
own citizens. As held in Corliss v. United States, 567 F. Supp.
162, 164 (W.D. Ark. 1983):
When taken as a whole, the Court believes the import of
Article XV is that the United States seeks to protect its
agency, the Canal Commission, and its employees who
work for that agency, from taxation by Panama on proper-
ty or work activities other than private business activities
in Panama unrelated to the Commission and property
used in these activities.
Accord, Highley v. United States, 574 F.Supp. 715
(M.D.Tenn. 1983).
With this understanding of the import of the entire Article,
there is no need to construe the words “any taxes” in paragraph
2 other than literally. One need simply identify the Article by
the title, “Taxation by the Republic of Panama,’ rather than
“Taxation” simpiiciter.
With respect to the late filed concurrence by the Panamanian
government with the interpretation by the U.S. State Depart-
ment, that evidence was not necessary to the above decisions
and is not necessary here. It merely confirms the most reason-
able interpretation of the Article.
Mme 2S 8
a ae re dban Wahn ~Oe.
9a
APPENDIX B
UNITED STATES CLAIMS COURT
JULY 30, 1984
No. 517-81T.
PAUL H. COPLIN, et ux.,
Plaintiffs,
V.
THE UNITED STATES,
Defendant.
United States citizen employed by Panama Canal Commissio.\
claimed a re’.nd of all United States taxes paid on income
derived from his employmeni with the commission. Cross mo-
tions for summary judgment were filed. The Claims Court,
Kozinski, C.J., held that: (1) the President was acting within
scope of his authority when he signed implementation agree-
ment governing taxation of the Commission, its contractors
and employees, and (2) there was no showing that provision
that United States citizen employees are exempt from “any
taxes” on income received as a result of their work for the
Commission did not mean what it says.
Plaintiffs motion granted; defendant’s motion denied.
See also 1 Cl.Ct. 144.
OPINION
KOZINSKI, Chief Judge.
Paul H. Coplin' is a United States citizen employed by the
Panama Canal Commission. He claims a refund of all United
'Patricia Coplin is named as a plaintiff because she signed a joint income
tax return with her husband.
10a
States taxes paid on income derived from his employment with
the Commission during 1979. Plaintiff bases his claim on Arti-
cle XV of the Agreement in Implementation of Article III of
the Panama Canal Treaty. He claims that this provision ex-
empts all U.S. citizens from taxation of income derived by
virtue of their employment with the Commission. The parties
have submitted the case for decision on cross-motions for sum-
mary judgment.
FACTS?
Cn September 7, 1977, after many years of negotiation, the
United States and the Republic of Panama signed the Panama
Canal Treaty, T.I.A.S. No. 10030 [hereinafter cited as Panama
Canal Treaty], and the Treaty Concerning the Permanent Neu-
trality and Operatiun of the Panama Canal, T.I.A.S. No.
10029.* The Panama Canal Treaty superseded certain existing
treaties between the United States and the Republic of Pan-
ama, particularly the Isthmian Canal Convention of November
18, 1903. 33 Stat. 2234, T.S. No. 431. Under the terms of the
1903 Convention, Panama had granted to the United States, in
perpetuity, not only the right to build the canal, but exclusive
sovereign rights over the ten-mile-wide zone traversed by the
canal.
The Panama Canal Treaty restored to Paname territorial
sovereignty over the Canal Zone. Panama, in turn, granted to
the United States the right to manage, operate and maintain
the canal until the year 2000. Operation of the canal during this
period is entrusted to the Panama Canal Commission, an agen-
cy of the United States. The treaty provides for increasing
participation by the Republic of Panama in the management
and defense of the canal, in preparation for its assumption of
*The background facts, which are not in dispute, are elegantly summarized
in a portion of derendant’s brief that the court has adopted with only minor
revisions.
*The Neutrality Treaty provides for both parties to defend the canal and to
keep it open to the ships of all nations.
ee es
lla
full responsibility for the canal’s operation upon expiration of
the treaty.
Because the Canal Zone would no longer be subject to Unit-
ed States territorial sovereignty, it was necessary to define the
rights and legal status of the Commission and its employees
vis-a-vis zach country. These matters were to be governed by
the Agreement in Implementation of Article III of the treaty.
Agreement in Implementation of Article III of the Panama
Canal Treaty, Sept. 7, 1977, United States-Panama, T.I.A.S.
No. 10031 [hereinafter cited as Implementation Agreement).
The Implementation Agreement contains 21 articles governing
such subjects as use of land and water areas, use of housing
areas, telecommunicat’ ons, entry and departure, registration
of vehicles, exemptica from import duties and criminal juris-
diction.‘ Article XV of the agreement deals with taxation of the
Commission, its contractors and sub- contractors, and its Unit-
ed States citizen employees and their dependents:
ARTICLE XV
TAXATION
1. By virtue of this Agreement, the Commission, its con-
tractors and subcontractors, are exempt from payment in the
Republic uf Panama of all taxes, fees or other charges on their
activities or property.
2. United States citizen employees and dependents shall ve
exempt from any taxes, fees, or other charges on income re-
ceived as a result of their work for the Commission. Similarly,
they shall be exempt from payment of taxes, fees or other
charges on income derived from sourzes outside the Republic of
Panama.
3. United States citizen employees and dependents shall be
exempt from taxes, fees or other charges on gifts or inheri-
‘The legal status of United States armed forces in the Republic of Panama
is governed by the Agreement in Implementation of Article IV of the Panama
Canal Treaty. See p. 137 & n. 22 infra.
12a
tance or on personal property, the presence of which within the
territory of the Republic of Panama is due solely to the stay
therein of such persons on account of their or their sponsor's
work with the Commission.
4. The Coordinating Committee may establish such regula-
tions as may be appropriate for the implementation of this
Article. [Emphasis added. ]
On September 16, 1977, President Carter transmitted the
two treaties to the Senate for its advice and consent. The
Agreements in Implementation of Articles III and IV of the
Panama Canal Treaty were not formally referred to the Senate,
although they were transmitted and considered during the
ratification hearings. The treaties were approved by the Senate
subject to a variety of amendments, conditions, reservations
and understandings. Staff of Senate Comm. on Foreign Rela-
tions, 96th Cong., lst Sess., Senate Debate on the Panama
Canal Treaties: A Compendium of Major Statements, Docu-
ments, Record Votes and Relevant Events 410-14, 493-96
(Comm. Print 1979) [hereinafter cited as Senate Debate on the
Panama Canal Treaties}. Panama assented to each of these, id.
at 549-52, 556-60, and the treaties went into effect on October
1, 1979.
ISSUES PRESENTED
Plaintiff reads paragraph 2 of Article XV of the Implementa-
tion Agreement as exempting him from U.S. taxation of in-
come he earned as an employee of the Panama Canal
Commission. Defendant argues that the Implementation
Agreement cannot exempt plaintiff from U.S. taxation be-
cause the President is without power to create exemptions to
the tax laws by means of an executive agreement not subject to
the advice and consent of the Senate. Defendant also argues
that even if Article XV could exempt plaintiff from income tax
it does not in fact do so because it was intended to bar only
Panama, and not the United States, from taxing Commission
employees.
13a
DISCUSSION
I.
Nature and Effect of the Implementation Agreement
A.
It is a rare case indeed where the United States takes the
position that the President has exceeded his authority in the
area of foreign relations. The implications of this argument,
where it casts doubt on the validity of an agreement between
our government and that of another country, are potentially
quite serious. An examination of the Panama Canal Treaty and
related documents reveals that the Implementation Agree-
ment formed an integral aspect of the deal we struck with
Panama. Article 111(9) of the treaty provides:
The use of the areas, waters and installations with
respect to which the United States of America is granted
rights pursuant to this Article, and the rights and legal
status of United States Government agencies and em-
ployees operating in the Republic of Panama pursuant to
this Article, shall be governed by the [Implementation
Agreement] signed this date.
The Implementation Agreement thus plays a key role in defi-
ning the mutual rights and obligations of the United States and
Panama with respect to the operation of the canal. Nev-
ertheless, defendant appears to argue that the Implementa-
tion Agreement is void to the extent that it provides what
plaintiff says it does.
It is difficult to find a more eloquent description of the
calamitous foreign policy implications of defendant's position
than defendant’s own brief in Weinberger v. Rossi, 456 U.S. 25,
102 S.Ct. 1510, 71 L.Ed.2d 715 (1982). Weinberger considered
the validity of a Base Labor Agreement (BLA) signed by the
President with the government of the Philippines. The agree-
ment, which was not ratified by the Senate, gave Filipino
citizens preferential consideration for civilian positions on U.S.
military bases in the Philippines. The D.C. Circuit had held
l4a
that the BLA was repealed by a subsequent Act of Congress.
In arguing for reversal, the government noted that the ruling
below
would impliedly “repeal” this Nation’s commitment to the
Philippines—given in exchange for that country’s grant-
ing the United States the right to use military facilities
located in the Philippines. . . . Such an implied “repeal,”
however, notwithstanding whatever effect it may have for
domestic purposes, would have no effect upon the United
States’ binding international obligation under the BLA to
prefer Filipino citizens for civilian employment on the
bases. See L. Henkin, [Foreign Affairs and the Constitu-
tion 164 (1972)}; [2] C. Hyde, [International Law Chiefly
as Interpreted and Applied by the United States 1465 (2d
rev. ed. 1945)]; Restatement (Second) of the Foreign Rela-
tions Law of the United States . . . § 145(2).
. . . Affirmance of the decision below thus would re-
quire the United States to preach what the Philippines
views as a key provision of the BLA, with unpredictable
consequences for our relations with that country and for
the United States’ continued use of military facilities lo-
cated there.
. . . Itis even more difficult to predict the consequences
that a breach of the BLA by the United States would have
on its relations with . . . other countries and on the con-
tinued availability to the United States of the military
facilities located there. One fair assumption, however, is
that the court of appeals’ decision, unless reversed, un-
doubtedly will hamper the United States’ ability to negoti-
ate for and maintain base rights and other military advan-
tages in the Philippines and elsewhere.
Brief for the Petitioners at 29-31, Weinberger v. Rossi, 456 U.S.
25, 102 S.Ct. 1510, 71 L.Ed.2d 715 (1982) (emphasis original;
footnotes omitted) [hereinafter cited as Weinberger Brief]. The
Supreme Court found these arguments persuasive.
15a
In light of these weighty considerations, it is at the very least
surprising for the United States now to take the position that
the court ought to ignore the terms of the Implementation
Agreement because, if it means what plaintiff suggests, the
President was acting ultra vires in agreeing to it. Defendant
can, of course, argue that plaintiffs interpretation of the agree-
ment is incorrect. That argument is addressed at length below.
See pp. 125-149 infra. That is quite different, however, from
suggesting that the court need not even bother construing the
disputed paragraph because the President lacked the authority
to bind the United States to its terms.
Were the court to accept defendant’s argument, the con-
sequences would be no less “unpredictable” than those cata-
logued so persuasively by the United States in Weinberger. The
Implementation Agreement is an integral part of a very com-
plex series of arrangements defining the relationship between
our country and another; it concerns the Panama Canal, a
waterway crucial to trade in peacetime and defense in case of
war. See S.Exec. Rep. No. 12, 95th Cong., 2d Sess. 77-79, 91,
178-80 (1978) [hereinafter cited as S.Exec.Rep. No. 12]. A
ruling that the President lacked authority to bind the United
States to a portion of the Implementation Agreement would
not, as the government pointed out in Weinberger, relieve the
United States of its international obligation to comply with its
terms. See 2 C. Hyde, International Law Chiefly as Inter-
preted and Applied by the United States 1465 (2d rev. ed. 1945)
(hereinafter cited as Hyde, International Law); Vienna Con-
vention on the Law of Treaties, art. 27, U.N. Doc. A/CONF.
39/27 (1969), reprinted in 63 Am.J.Int’l L. 875, 884 (1969)
(hereinafter cited as Vienna Convention].° If Panama were to
consider its interests impaired by such a ruling, it could take
5As defendant has noted, “[a]lthough the Vienna Convention is not yet in
force for the United States, it has been recognized as an authoritative source
of international treaty law by the courts . . . and the executive branch.”
Weinberger Brief at 16 n. 9 (citations omitted).
l6a
steps that would adversely affect our interests.® Similarly, our
relationship with other countries could suffer. In the words of
the Weinberger Brief, “[o)ne fair assumption. . .isthat. . . [it]
will hamper the United States’ ability to negotiate” future
international agreements.
B.
Fortunately, the court need not confront these unsettling
issues because the President had ample authority to bind the
‘While the Weinberger Brief left somewhat vague the potential con-
sequences of a breach of an executive agreement, the Department of State
has been more explicit, recognizing that the other signatory might be en-
titled to repudiate the agreement, depriving the United States of its benefits
thereunder. For example, in 1957 the Department of State commented on
H.R. 8704 (the Kilday resolution), which would have prohibited the President
from delivering U.S. soldiers who had committed crimes abroad for trial by
the host country. The Kilday resolution would have super ed certain Sta-
tus of Forces Agreements that had been negotiated by the President without
the advice and consent of the Senate. The Department of State argued
against the Kilday resolution, noting as follows:
But the greater danger is that our Allies might consider our actions
pursuant to H.R. 8704 as in direct violation of our treaties and agree-
ments and consider themselves no longer bound by their provisions. In
that case not only would the foreign government have full jurisdiction
over our servicemen for all offenses, but we would not have the benefit
of any of the other provisions of our agreements which provide for
special privileges with respect to such matters as drivers’ licenses,
exemption from taxation, postal services, procurement of supplies,
visas, and the adjudication of civil claims against our forces.
. . . This effect would be magnified if the foreign nations regarded
our failure to abide by our agreement as a repudiation of the criminal
jurisdiction provisions of the Status cf Forces Treaty and similar agree-
ments. In such an eventuality, the foreign state would be fully entitled
under international law to try in their own courts all criminal offenses
committed by the members of our armed forces within their territorial
limits and we would have no legal right to prevent them from so doing.
Murphy, Views of Department of State on House Resolution 8704, 37 Dep't
St.Bull. 317, 319-21 (1957) (emphasis original).
17a
United States to all terms of the Implementation Agreement.
Dames & Moore v. Regan, 453 U.S. 654, 101 S.Ct. 2972, 69
L.Ed.2d 918 (1981), established—-if doubt existed before—that
the President has significant powers to bind the United States
to international agreements without the advice and consent of
the Senate. Such agreements supersede prior Unite’ ~*~ -s
law to the extent it is inconsistent. In Dames & Moore, for
example, the President had signed executive agreements
known as the Algiers Accords abrogating the rights of United
States nationals to sue the government of Iran in our courts.
The Supreme Court ruled that the President’s action “effected
a change in the substantive law.” Jd. at 685, 101 S.Ct. at 2989.
While the Court noted that the abrogation of existing rights
might constitute a taking, id. at 688-90, 101 S.Ct. at 2991-92, it
upheld the President's authority to unilaterally change domes-
tic law by executive agreement with a foreign state, see id. at
685-86, 101 S.Ct. at 2989-90; accord United States v. Pink, 315
U.S. 203, 230, 62 S.Ct. 552, 565, 86 L. Ed. 796 (1942) (interna-
tional compacts and agreements are the “ ‘Law of the Land’
under the supremacy clause”); United States v. Belmont, 301
U.S. 324, 330-31, 57 S.Ct. 758, 760-61, 81 L.Ed. 1134 (1937)
(same).
Of course, the President's power to unilaterally dislocate
domestic law is not without bounds. In Dames & Moore, the
Court carefully reviewed the validity of the President’s action
by applying the classic analysis of Mr. Justice Jackson's con-
currence in Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S.
579, 634, 72 S.Ct. 863, 888, 96 L.Ed. 1153 (1952). It noted that
the President signed the Algiers Accords with the knowledge
and approval of Congress. “In such a case,” the Court held,
“the executive action ‘would be supported by the strongest of
presumptions and the widest latitude of judicial interpretation,
and the burden of persua: ‘on would rest heavily upon any who
might attack it.” Dames & Moore, 453 U.S. at 668, 101S.Ct. at
2981 (quoting Youngstown Sheet & Tube, 343 U.S. at 637, 72
S.Ct. at 871 (Jackson, J., concurring)). The Court therefore
upheld the President's action even though the Algiers Accords
18a
were not formally approved by the Senate pursuant to article
II, section 2 of the Constitution.
It is difficult to imagine a case where the President's power to
bind the United States by executive agreement would be less
subject to challenge. Article III of the treaty refers to the
Implementation Agreement, providing that it “shall govern
the rights and legal status of United States Government agen-
cies and employees operating in . . . Panama.” The Foreign
Relations Committee specifically noted that the Implementa-
tion Agreement “will be entered into pursuant to the authority
of [the] treaty.” S.Exec.Rep. No. 12, at 75.’ The text of the
agreement was submitted to the Senate for its review and the
Senate in fact gave it careful consideration. See, e.g., Panama
Canal Treaties: Hearings Before the Senate Comm. on Foreign
Relations, 95th Cong., Ist Sess. Part 1, at 268-69 (1977); Part
3, at 702-11 (1977); Part 5, at 117-21 (1978) [hereinafter cited as
Treaty Hearings]. The Report of the Foreign Relations Com-
mittee recommending ratification of the treaties summarized
and discussed the Implementation Agreement and other re-
lated documents. S.Exec.Rep. No. 12, at 34-35. There is no
doubt that, in. consenting to the ratification of the Panama
Canal Treaty, the Senate considered and approved the Imple-
mentation Agreement and intended that it go into effect under
the authority of the treaty.
The principles governing this issue are so well established
that citation of further authority would be superfluous were
there not a Supreme Court case squarely on point. Wilson v.
Girard, 354 U.S. 524, 77 S.Ct. 1409, 1 L.Ed. 1544 (1957),
considered whether “an Administrative Agreement covering,
"Treaties, like other laws, can form the basis of the President's authority to
enter into executive agreements with other states. Wilson v. Girard, 354
U.S. 524, 526-29, 77 S.Ct. 1409, 1410-12, 1 L.Ed. 1544 (1957); see also Dole v.
Carter, 444 F.Supp. 1065, 1068 (D.Kan.), motion for injunction denied, 569
F.2d 1109 (10th Cir.1977); Restatement (Second) of the Foreign Relations
Law of the United States § 119 (1965); Cong. Research Serv., The Constitu-
tion of the United States of America—Analysis and Interpretation, S.Doc.
No. 82, 92d Cong., 2d Sess. 509-11 (1973).
19a
among other matters, the jurisdiction of the United States over
offenses committed in Japan by members of the United States
armed forces” was valid. Jd. at 527, 77 S.Ct. at 1410. The
agreement was authorized by a provision in a treaty with Japan
that was almost identical to the relevant language of Article III
of the Panama Canal Treaty. Security Treaty, Sept. 8, 1951,
United States-Japan, art. III, 3 U.S.T. 3329, T.1.A.S. No.
2491. As in this case, the agreement was signed and submitted
to the Senate for its review during the ratification process. The
Court heid:
In the light of the Senate’s ratification of the Security
Treaty after consideration of the Administrative Agree-
ment, which had already been signed, and its subsequent
ratification of the NATO Agreement, with knowledge of
the commitment to Japan under the Administrative
Agreement, we are satisfied that the approval of Article
III of the Security Treaty authorized the making of the
Administrative Agreement and the subsequent Protocol
embodying the NATO Agreement provisions governing
jurisdiction to try criminal offenses.
Wilson v. Girard, 354 U.S. at 528-29, 77 S.Ct. at 1411-12.
The position urged by defendant appears to be squarely in
conflict with this established body of Supreme Court caselaw."
The only authority defendant cites in support of its position is
Security Pacific National Bank v. Iran, 513 F.Supp. 864, 872
(C.D.Cal.1981). Security Pacific addressed the issue that was
eventually presented to the Supreme Court in Dames & Moore
and appears to have reached the same conclusion. Of course, if
there were an inconsistency between Security Pacific and
Dames & Moore, there can be no doubt as to which case
controls. If defendant knows how its position here can be
squared with the Supreme Court's rulings in cases such as
*Defendant’s position also appears to be contrary to the position it has
taken in other cases. See, e.y., Brief for the Federal Respondents at 41-43,
50-53, Dames & Moore v. Regan, 453 U.S. 654, 101 S.Ct. 2972, 69 L.Ed.2d
918 (1981).
20a
Dames & Moore and Wilson v. Girard, it has failed to articulate
its rationale to this court or to other courts, some of which have
accepted defendant’s argument. See Hollowell v. United
States, No. 82-713-ORL-CIV-EK, slip op. at 4 (M.D.Fla. Nov.
21, 1983); Swearingen v. United States, 565 F.Supp. 1019, 1021
(D.Colo. 1983); see also Long v. United States, No. 83-158, slip
op. at 4-5 (D.Or.July 22, 1983) (relying in part on Swearingen).°
*Litigants have an obligation to research the law and to base their argu-
ments on existing precedent or to suggest reasonable departures from prece-
dent. See St. Paul Fire & Marine Insurance Co. v. United States, 4 C1.Ct.
762, 770 (1984); Model Rules of Professional Conduct Rule 3.1 (1983). A party
may not ignore apparently controlling authority while urging a court to rule
in a manner inconsistent therewith. The court is therefore troubled by
defendant's failure to discuss—or even cite—Dames & Moore and other
relevant cases in its presentation to this court and to other courts that have
considered this issue. See Memorandum of Law in Support of Defendant's
Motion for Summary Judgment and in Opposition to Plaintiffs Motion for
Summary Judgment at 11-15, Rego v. United States, 591 F.Supp. 123
(W.D.Tenn. 1984); Memorandum of Law in Support of Defendant's Motion for
Summary Judgment at 11-15, Harris v. United States, 585 F.Supp. 862
(S.D.Ga.1984); Memorandum of Law in Support of Defendant's Motion for
Summary Judgment and in Opposition to Plaintiffs’ Motion for Summary
Judgment at 11-15, Stabler v. United States, No. CA3-83-0166-R (N.D.Tex.
Nov. 30, 1983); Memorandum of Law in Support of Defendant's Motion for
Summary Judgment at 11-15, Hollowell v. United States, No. 82- 713-ORL-
CIV-EK (M.D.Fla. Nov. 21, 1983); Memorandum of Law in Support of
Defendant's Motion for Summary Judgment and in Opposition to Plaintiffs
Motion for Summary Judgment at 11-15, Pierpoint v. United States, No. 83-
0354-2 (D.S.C. Oct. 3, 1983); Opposition to Plaintiffs’ Cross-Motion for Sum-
mary Judgment at 11-15, Snider v. United States, No. C83-632V (W.D. Wash.
Sept. 23, 1983); Memorandum of the United States in Support of its Motion
for Summary Judgment and in Opposition to Plaintiffs’ Motion for Summary
Judgment at 12-15, Long v. United States, No. 83-158 (D.Or. July 22, 1983);
Memorandum in Support of Defendant's Motion for Summary Judgment at
7-8 & Defendant's Reply to Plaintiffs’ Opposition Memorandum at 3-4,
Swearingen v. United States, 565 F.Supp. 1019 (D.Colo. 1983); Memorandum
of the United States in Support of its Motion for Summary Judgment at 11-14,
Watson v. United States, No. C82-319T (W.D. Wash. June 21, 1983); Pre-Trial
Brief for the United States at 11-14 & Memorandum of the United States in
Opposition to Plaintiffs’ Motion for Summary Judgment and in Support of its
Cross-Motion for Summary Judgment at 11-14, Stokes v. United States, No.
C82-1609T (W.D.Wash. June 21, 1983); Defendant’s Memorandum in Opposi-
2la
The Implementation Agreement is the paradigm of presi-
dential action in the area of foreign relations supported by
specific congressionz authorization. It is therefore entitled to
“the strongest of presumptions and the widest latitude of judi-
cial interpretation.” Youngstown Sheet & Tube, 343 U.S. at
637, 72 S.Ct. at 871 (Jackson, J., concurring). It has the force
and effect of law. Accord Watson v. United States, 592 F.Supp.
701, 705 (W.D.Wash. 1983).
Since the Implementation Agreement has the force of law, it
implicitly repeals prior conflicting laws. See, e.g., Dames &
Moore, 453 U.S. at 685, 101 S.Ct. at 2989; Tennessee Vaiiey
Authority v. Hill, 487 U.S. 153, 190, 98 S.Ct. 2279, 2299, 57
L.Ed.2d 117 (1978); Polos v. United States, 621 F.2d 385, 223
Ct.Cl. 547, 560-61 (1980); Nebraska Public Power District v.
100.95 Acres of Land, 719 F.2d 956, 958 (8th Cir.1983). In the
area of income taxation, however, there is a statutory mecha-
nism that makes it unnecessary to rely merely upon repeal by
implication. See 26 U.S.C. § 894(a) (1982). This section
provides that “gross income” shall not include any income
excluded “by any treaty obligation of the United States.” The
term “treaty obligation” in section 894 is broad enough to
include executive agreements that are signed by the President
pursuant to constitutional or statutory authority.
As the Supreme Court recognized in Weinberger v. Rossi,
“(t]he word ‘treaty’ has more than one meaning.” 456 U.S. at 29,
102 S.Ct. at 1514. Under certain circumstances it may refer
only to those international agreements formally entered into
by the President and approved by the Senate pursuant to
article II, section 2 of the Constitution. Jd. at 30-31 & nn. 7 & 8,
102 S.Ct. at 1514-1515 & nn. 7 & 8. Frequently, however, when
tion to Plaintiffs’ Motion for Summary Judgment and Reply Memorandum in
Support of Defendant’s Motion for Summary Judgment at 8-12, Corliss v.
United States, 567 F.Supp. 162 (W.D.Ark.1983); Memorandum of Law in
Support of Defendant's Motion for Summary Judgment at 11-15, Highley v.
United States, 574 F.Supp. 715 (M.D.Tenn.1983); Memorandum Brief for
Respondent at 10-11, McCain v. Commissioner, 81 T.C. 918 (1983).
22a
Congress uses the word “treaty” it is also referring to executive
agreements that are not formally approved by the Senate and
are therefore not article II treaties. Jd. at 30-31, 102 S.Ct. at
1514-1515; B. Altman & Co. v. United States, 224 U.S. 583,
601, 32 S.Ct. 593, 597, 56 L.Ed. 894 (1912) (“a compact . . .
negotiated and proclaimed under the authority of [the] Presi-
dent .. . is a treaty”).
In Weinberger v. Rossi, the court determined that the word
“treaty,” as used in section 106 of Pub.L. No. 92-129, 85 Stat.
348, 355 (1971), was meant to include executive agreements.
One basis for the Supreme Court's conclusion was that the
statute in question did not affect the foreign policy of the
United States. 456 U.S. at 31, 102 S.Ct. at 1515. In such
circumstances, Congress is less likely to use the term “treaty”
in a technical, restricted sense and “there is even more reason
to construe Congress’ use of ‘treaty’ to include internatioral
agreements as well as Art. II treaties.” Jd. Like the statutes in
Weinberger and Altman, section 894 does not directly concern
foreign policy and therefor2 the term “treaty” is likely to have
been used in its broader, less technical sense.
Moreover, at the time section 894 was first enacted" there
were a number of international agreements pertaining to taxa-
tion that had been negotiated by the President pursuant to
statvtory authorization but without Senate approval. See, e.g.,
Agreement Providing for Relief from Double Income Tux on
Shipping Profits, Aug. 24, 1933-Jan. 9, 1934, United States-
Ireland, 48 Stat. 1842, E.A.S. No. 56; Agreement Providing
for Relief from Double Income Tax on Shipping Profits, Mar.
31-June 8, 1926, United States-Japan, 47 Stat. 2578, E.A.S.
No. 3. The practice has continued over the years with the
apparent approval of Congress. See, e.g., Agreement Regard-
ing Double Taxation of Aircraft Earnings, Dec. 29-Dec. 31,
‘Section 894 was originally enacted as section 22(b)(7) of the Revenue Act
of 1936. Pub.L. No. 74-740, 49 Stat. 1648, 1658 (1936). It was recodified as
section 894 at the time of the 1954 revision of the Income Tax Code. The
section was amended in 1966 in a manner not relevant to the point here in
issue.
—_" — aathen SecGen hed
23a
1975, United States-Chile, 27 U.S.T. 1371, T.1.A.S. No. 8252;
Agreenent Regarding Relief from Double Taxation on Earn-
ings from Operation of Ships and Aircraft, Dec. 21-Dec. 27,
1962, United States- Iceland, 13 U.S.T. 3827, T.1.A.S. No.
5255. In Weinberger, the Court noted the existence of such
international agreements and concluded that Congress would
not have intended to repeal them by implication in passing the
legislation there in question. It therefore read the term
“treaty” broadly. Similarly, section 894 ought to be read broad-
ly to avoid conflict between the income tax laws and these
otherwise valid executive agreements.
Given that the legislative history of section 894 and its pre-
decessor shed absolutely no light on the subject, these consid-
erations lead to the conclusion that the term “treaty” in section
894 ought to be read to include executive agreements such as
the Implementation Agreement here in issue.
INTERPRETATION OF ARTICLE XV OF THE
IMPLEMENTATION AGREEMENT
A.
The Language and Its Plain Meaning
i. Treaties and other international agreements are contracts
between sovereign states. Santovincenzo v. Egan, 284 U.S. 30,
40, 52 S.Ct. 81, 84, 76 L.Ed. 151 (1931); Geofroy v. Riggs, 133
U.S. 258, 271, 10 S.Ct. 295, 298, 33 L.Ed. 642 (1890). In
interpreting such documents, t'ie court must divine and give
effect to “the intention of the two governments.” United States
v. Texas, 162 U.S. 1, 36, 16S.Ct. 725, 732, 40 L. Ed. 867 (1896).
Therefore, while internationa] agreements have the force and
effect of law, they must be construed more like contracts than
like statutes," for the court must consider the interests and
“'\As noted by Chanceilor Kent over a century ago:
Treaties of every kind, when made by the competent authority, are
as obligatory upon nations as private contracts are binding upon indi-
24a
intentions of both parties “to secure equality and reciprocity
between them.” Jordan v. Tashiro, 278 U.S. 123, 127, 49 S.Ct.
47, 48, 73 L.Ed. 214 (1928); Geofroy v. Riggs, 133 U.S. at 271,
10 S.Ct. at 298. See The Amiable Isabella, 19 U.S. (6 Wheat.)
1, 32-33, 5 L.Ed. 191 (1821). Professor Bishop has noted as
follows:
Even though we may come to speak of multilateral
treaties as “international legislation”, and they do have
many characteristics of legislation in that such treaties
make law for those states which become parties to them,
we must never forget that international agreements re-
main basically and fundamentally just that: agreements,
or contracts between two or more states.
Bishop, Reservations to Treaties, 103 Recueil des Cours 245,
255 (1962) (emphasis original) [hereinafter cited as Bishop].
“Interpretation of [a treaty] must, of course, begin with the
language of the Treaty itselt.” Sumitomo Shoji America, Inc. v.
Avagliano, 457 U.S. 176, 180, 102 S.Ct. 2374, 2377, 72 L.Ed.2d
765 (1982). Indeed, “[tjhe clear import of treaty language con-
trols unless ‘application of the words of the treaty according to
their obvious meaning effects a result inconsistent with the
intent or expectations of its signatories.’ ” Jd. (quoting Max-
imov v. United States, 373 U.S. 49, 54, 82 S.Ct. 1054, 1057, 10
L.Ed.2d 184 (1963))."* In construing treaties, words “are to be
viduals; and they are to receive a fair and liberal interpretation, accord-
ing to the intention of the contracting parties, and to be kept with tne
most scrupulous good faith. Their meaning is to be ascertained by the
same rules of construction and course of reasuning which we apply to
the interpretation of private contracts.
1 J. Kent, Commentaries on American ",aw * 174, cited with approval in
Tucker v. Alexandroff, 183 U.S. 424, 437, 22 S.Ct. 195, 200, 46 L.Ed. 264
(1902); accord Sullivan v. Kudd, 254 U.S. 433, 439, 41 S.Ct. 158, 160, 65
L.Ed. 344 (1921).
“The International Court of Justice has taken the same view:
The Court considers it necessary to say that the first duty of a tribunal
which is called upon to interpret and apply the provisions of a treaty, is
25a
taken in their ordinary meaning. . . and not in any artificial or
special sense impressed upon them by local law.” Geofroy v.
Riggs, 133 U.S. at 271, 19S.Ct. at 298; accord Santovincenzo,
284 U.S. at 40, 52S.Ct. at 84; see Vienna Convention art. 31, 63
Am.J.Int’l L. 885.
Perhaps the simplest and most direct guidance as to how a
treaty must be construed comes from Mr. Chief Justice
Hughes, who noted as follows:
[I]t is our duty to interpret [a treaty] according to its
terms. These must be fairly construed, but we cannot add
to or detract from them.
Valentine v. United States ex rel. Neidecker, 299 U.S. 5, 11, 57
S.Ct. 100, 103, 81 L.Ed. 5 (1936).
2. Paragraph 2 of Article XV of the Implementation Agree-
ment speaks in clear and sweeping terms. It provides that
“United States citizen employees [of the Panama Canal Com-
mission] . . . shall be exempt from any taxes . . . on income
received as a result of their work for the Commission.” This
language stands in sharp contrast with that of paragraph 1 of
the same article which provides that the Commission itself
shall be “exempt from payment in the Republic of Panama of
all taxes.” (Emphasis added.) Paragraph 3 of the same articie,
dealing with personal property, gift and inheritance taxes of
U.S. citizen employees, displays a similar contrast, providing
that their “presence . . . within the territory of the Republic of
Panama ... due solely ... [to] their ... work with the
Commission” shall not serve as a basis for the exercise of taxing
jurisdiction. (Emphasis added.) Finally, Article XV is titled
to endeavor to give effect to them in their natural and ordinary mean-
ing in the context in which they oceur. If the relevant words in their
natural and ordinary meaning make sense in their context, that is an
end of the matter.
Competence of the General Assembly for the ..dmission of a State to the
United Nations, 1950 I.C.J. 4, 8 (Advisory Opinion of Mar. 3) (emphasis
added).
26a
simply “Taxation” and not “Panamanian Taxation” as one would
expect if its subject were limited as defendant suggests. By
contrast, Article IX, which provides that the Commission shall
give preference to supplies and services obtainable in Panama,
is titled “Acquisition of Panamanian Supplies and Services.”
(Emphasis added.) When defining rights and responsibilities of
onl one of the signatory states, the drafters apparently knew
how to so provide.
It is also instructive that when addressing the subject of
taxation elsewhere in the treaty documents, the parties were
careful to specify which country’s taxes were meant. For exam-
ple, paragraph 9 of Article IX of the treaty provides that
vessels passing through the canal “shall be exempt from: any
taxes . . . by the Republic of Panama.” Similarly, paragraph
2(e) of Article XI of the Implementation Agreement, dealing
with United States contractors of the Commission, provides
that such contractors “shall not be obliged to pay any tax. . . to
the Republic of Panama” so long as they are taxed in the United
States at a substantially equivalent rate. This is an agreement
drafted by sophisticated parties, obviously capable of using
precise language.
The Supreme Court has held that “general principles ap-
plicable to the :onscruction of written instruments” apply to
the construction of treaties. Tucker v. Alexandroff, 183 U.S.
424, 436, 22 S.Ct. 195, 200, 46 L.Ed. 264 (1902). Specifically,
“the enumeration of certain powers with respect to a particular
subject matter is a negation of all other analogous powers with
respect to the same subject matter. ... The rule is curtly
stated in the familiar legal maxim, expressio unius est exclusio
alterius.” Id. The fact that Article XV, according to its head-
ing, purports to deal with the general subject of taxation, that
two of its paragraphs specifically refer to the imposition of
taxes by Panama only, and that the parties were careful
elsewhere in the treaty to specify the taxing authority being
addressed, all support plaintiffs interpretation of paragraph 2.
Indeed, a fair reading of the language in question leads to the
conclusion that it unambiguously exempts U.S. citizens who
27a
are Commission employees from taxation by Panama as well as
the United States. Accord Harris v. United States, No. CV
183-077, slip op. at 3 (S.D.Ga. Mar. 21, 1984), appeal docreied,
No. 84-8424 (11th Cir. May 18, 1984); Swearingen, 565 F.Supp.
at 1020."
B.
The Position of the United States
Defendant argues that the treaty language should not be
construed in accordance with its plain meaning because to do so
would do violence to the intention of the signatories. A court
ought not, of course, give literal effect to treaty language if it is
persuaded that such language does not reflect the intention of
the high contracting parties. See, e.g., Sumitomo Shoji, 457
US. at 180, 102 S.Ct. at 2377; Great-West Life Assurance Co.
v. United States, 678 F.2d 180, 230 Ct.Cl. 477, 481 (1982);
Vienna Convention art. 32, 63 Am.J.Int’l L. 885. On the other
hand, the court me not simply rewrite the contract to achieve
anenditdeer ~ . 2. Choctaw Nation of Indians v. Unit-
ed States, 318 | uw’ = 482, 63 S.Ct. 672, 678, 87 L.Ed. 877
(1943). Where the :auguage is reasonably clear, the party pro-
ffering a contrary interpretation must persuade the court that
its construction comports with the view of both parties. See
United States v. Texas, 162 U.S. at 36, 16 S.Ct. at 732; see also
Sumitomo Shoji, 457 U.S. at 180, 102 8.Ct. at 2377 (plain
meaning of the treaty controls unless it is inconsistent “with
the intent. . . of its signatories”). If the court has doubt about
the intention of one of the signatories, it cannot ignore the
language of the instrument. Absent convincing evidence to the
contrary, the court will presume that a party—particularly one
'83Defendant's position that the language of Article XV is ambiguous is not
entirely unlike that adopted by one of Lewis Carroll's characters: “ ‘When /
use a word’, Humpty Dumpty said, in a rather scornful tone, ‘it means just
what I choose it to mean—neither more nor less. ” Through the Looking
Glass, in The Complete Works of Lewis Carroll 121, 196 (1939), quoted with
approval in Tennessee Valley Authority v. Hill, 437 U.S. at 173 n. 18, 98
S.Ct. at 2291 n. 18.
28a
of some sophistication like a sovereign state— understood and
agreed to the language as written.
Defendant raises three arguments in support of its conten-
tion that Article XV was meant to bar only Panama and not the
United States from taxing Commission employees. First, it
asserts that Panama could have no interest in whether the
United States taxes its citizens who work for the Panama Canal
Commission. To support this contention, it relies on the nego-
tiating history of Article XV and on the “common sense” nution
that the United States would not bargain with other countries
as to when and how it will tax its own citizens.
Next, defendant argues that its interpretation is entitled to
significant, perhaps controlling, weight. It supports this argu-
ment by reference to a number of Supreme Court opinions
that, indeed, stand for the proposition that courts ought to
afford substantial deference to interpretations of treaties by
agencies of the Executive Branch.
Finally, defendant argues that the United States Senate
intended Article XV to operate only against Panama and not
the United States. It points to the legislative history of the
ratification proceedings and suggests that Article XV ought to
be interpreted so as to reflect the intention of Congress as
expressed during its deliberations.
The court considers each of these arguments in turn.
1. The Negotiating History
a. Before delving into the negotiating history, the court
notes that the record presented poses considerable obstacles to
a determination of what the parties intended when they agreed
to Article XV of the Implementation Agreement. Defendant
has produced parts of 18 documents (apparently all previously
classified) consisting of telegrams, speech outlines, transcripts
of negotiating sessions and State Department memoranda, all
concerning negotiations between the United States and Pan-
ama on the subject of taxation of United States citizens em-
ployed by the Panama Canal Commission. The documents
29a
cover the period from June 30 to August 12, 1977, the latter
date being marked by correspondence from President Carter
to Congress advising that our negotiators had tentatively
reached agreement with Panama on all terms of the treaties
and related documents. Defendant informs the court that these
are all of its contemporaneous negotiating records pertaining
to what eventually became Article XV of the Implementation
Agreement. In addition, plaintiff has provided an affidavit
from a Panamanian negotiator relating evenis at a negotiating
session not mentioned in defendant's documents.
The materials presented leave many questions unanswered.
For example, there is no contemporaneous evidence as to the
meaning either party placed on the language of Article XV that
is the subject of this controversy. Moreover, there is no evi-
dence whatsoever as to the interpretation given this language
by Panama. But see n. 16 infra. While the record provides
valuable insights as to the interests and motivations of the
parties, the court is left largely to surmise and conjecture as to
how they resolved their differences and what might have moti-
vated each side to agree to the language finally adopted.
This is far from an ideal basis on which to resolve such a
difficult and sensitive issue. The court therefore suggested that
the record be supplemented at trial or through additional docu-
mentation. As is more fully discussed below, this suggestion
was rejected. See pp. 42-44 infra. With some reluctance, there-
fore, the court examines the evidence presented to determine
whether it supports defendant's assertion that the negotiating
history is consistent with its interpretation of Article XV.
b. The record presented—sketchy though it be—paints a far
more complex picture of what happened at the negotiating
table than defendant's argument would suggest. It is clear that
the United States and Panama held widely divergent views on
the subject of taxation of Commission employees. Surprisingly,
however, this was not principally a quibble over tax revenues.
The dispute centered largely on a fundamental disagreement
as to the nature and status of the Panama Canal Commission.
30a
The United States viewed the Commission as an agency of
the U.S. Government, much like other government agencies
conducting U.S. Government business abroad. Our nego-
tiators were concerned that acquiescing to demands that Pan-
ama be allowed to tax Commission employees would be tanta-
mount to permitting taxation of the U.S. Government. They
also feared that yielding on this issue could expose the United
States to the demands of other governments that might wish to
tax employees of U.S. agencies operating on their soil. This
theme, which was echoed again and again, is perhaps best
summarized by an excerpt from the statement of U.S. Amhas-
sador Sol M. Linowitz during the June 30, 1977, negotiating
session held in Washington, D.C.:
[O]n the Income Tax question which you raised with us
.. . I can tell you this: We have explored this carefully
with the Treasury Department and with the legal people
involved with the Internal Revenue Service—and it does
pose a very great problem.
This is not done anywhere in the world. No employee of
a government, of the United States Government or of a
government agency, is now subject to taxes in a foreign
country; and it would therefore, call for a wholly new
approach to this rroblem—which is being very strongly
resisted.
Motion of the United States for Summary Judgment and Brief
in Support Thereof at 48 (filed Nov. 22, 1983) [hereinafter cited
as Defendant's Brief].
The Panamanians viewed the matter quite differently. To
them, the Panama Canal Commission was not merely a United
States agency conducting U.S. Government operations in Pan-
ama. They viewed the Commission as a commercial enterprise
operated jointly by the two governments, fundamentally dif-
ferent from agencies performing purely governmental func-
tions on behalf of the United States alone. This view was
summarized by Ambassador Romulo Escobar Betancourt of
Panama at the July 12, 1977, negotiating session:
3la
Nov’. I understand the view that you put forward here
yesterday . . . that in your case there’s no precedent any-
where in the world for this. But if I understood the argu-
ment advanced, there haven’t been any cases either in
which you’ve had an operat’ 1 like this—a joint operation
between two countries.
We’re not talking about income tax to be paid by the
military assigned to Panama; we’re talking about income
tax to be paid by citizens whose wages would be derived
from the Panama Canal. In other words, the salaries to be
paid by the U.S. nationals don’t come from the United
States but, rather, they would be derived from the opera-
tion of the Canal. So maybe they could be allowed to pay
taxes in Panama since from here on they’ll be working
under Panamanian jurisdiction and using Panamanian
services.
Defendant’s Brief at 73-74.'*
“The Panamanian position was not without support. While the Panama
Canal! Treaty and the Implementation Agreement refer to the Commission as
an agency of the United States, Panama Canal Treaty art. III (3); Implemen-
tation Agreement art. I (1), its structure and operation differ in fundamental
respects from the typical U.S. Government agency. For example, the Com-
mission is supervised by a board composed of nine members, four of whom
must be Panamanian nationals proposed by Panama. Panama Canal Treaty
art. III(3)(a). The United States may not unilaterally remove any of the
Panamanian members, but must reach agreement with Panama on any
proposed removal. /d. art. III (3)(b). Upon removal of a Panamanian member,
Panama may propose a replacement. Jd. Until 1990, the Administrator of the
Commission shall be an American and the Deputy Administrator a Panama-
nian. Jd. art. III (3)(¢). Starting in 1990 and until the treaty expires in the
year 2000, the Administrator shall be Panamanian and the Deputy, Amer-
ican. Jd. The treaty also provides for the appointment of a Panama Canal
Consultative Committee, composed of an equal number of Americans and
Panamanians, to advise the two governments on matters of policy affecting
the canal. Jd. art. III(7). In addition, the treaty calls for the employment of
increasing numbers of Panamanian employees at all levels, “with the objec-
tive of preparing, in an orderly and efficient fashion, for the assumption by
the Republic of Panama of full responsibility for the management, operation
and maintenance of the Canal upon the termination of this Treaty.” /d. art.
III(8).
32a
An exchange from the July 14, 1977, negotiating session
reveals that the Panamanian negotiators were uncomfortable
with the U.S. view that operation of the canal would continue
to be an exercise of U.S. sovereign authority within their
territory:
(Mr. Rodrigo] Gonzales [of Panama]: .. . [I]f the
National Bank of Panama, an agency of the government,
established a branch in the US, its Panamanian employees
would be liable to pay American income tax. The same
thing applies to foreign workers in Panama. . . . Another
example is Volvo, a government-owned company, which
has set up assembly plants in the US. Both its American
and Swedish workers pay US income tax.
[Ambassador Ellsworth] Bunker [of the United
States]: US government employees do not pay income tax
anywhere in the world.
(Minister Aristides] Royo [of Panama]: We must recog-
nize the changing situation, that this Zone will no longer
be a place where American workers are subjected to US
jurisdiction, laws, police and courts. The situation now
will be one in which American workers, although em-
ployed by the American government, will be subjected to
a foreign jurisdiction, police, as the colonial status will
cease to exist.
Defendant's Brief at 79-80. Minister Royo’s final comment sug-
gests that the Panamanian position was animated at least in
part by a desire to alter as much as possible the pre-treaty
situation where the United States exercised full sovereignty in
operating the canal.
As disclosed by a State Department briefing paper prepared
on July 8, 1977, the United States was well aware of the
motivations of the Panamanian negotiators and appreciated
that this was not principally a dispute over revenues:
Suggested Position and Strategy:
33a
We should not agree to taxation of U.S. citizen em-
ployees. Since taxation of U.S. employees would not yield
very much in new revenues [remainder of sentence
classified].
Supporting Arguments:
—Taxation of U.S. employees by a foreign country
would be tantamount to taxation of the [U.S. Govern-
ment]. This is not acceptable international practice.
—wWhile it is international practice to tax employees of
government trade organizations, airlines etc. on the basis
that these enterprises fulfil] a commercial function, gov-
ernment employees engaged in governmental activities
are not taxed.
—Contrary to Panama’s argument, we have always
managed the waterway as a government—not a commer-
cial—facility. Personnel policies, toll structures and finan-
cial practices reflect this. The Canal is, in effect, a govern-
ment monopoly, not a commercial enterprise, and its
employees should be treated accordingly.
-Panama may be raising this as an issue to assert its
“sovereign right” to tax persons resident within its juris-
diction. The money involved is not important to the [Gov-
ernment of Panama], but the principle is. At current
Panamanian tax rates, tax payments by US employees
would total approximately $2 million per annum (average
U.S. employee taxable income is $11,000 + ). [Remainder
of paragraph classified. ]
Defendant’s Brief at 62-63 (emphasis added).
(Paragraph deleted from published version of opinion. ]’°
'5Certain materials pertaining to the negotiating history are still classified
and were examined by the court ex parte. The portion of the opinion discuss-
ing classified information has been separately filed in camera and is subject to
dissemination only pursuant to a separate order.
34a
As the negotiations progressed, the positions of the parties
hardened and their differences grew wider rather than nar-
rower. As Ambassador Linowitz noted at the July 11, 1977,
negotiating session, “these problems have been even inten-
sified in our further discussions.” Defendant’s Brief at 56.
The last negotiating session for which we have a contempo-
raneous record was held on July 18, 1977, in Washington and
there appears to have been no specific discussion of this issue.
However, a memorandum from U.S. Ambassadors Bunker and
Linowitz to the Secretary of State indicates that the issue had
not been resolved as of July 21. The memorandum, which
provides “talking points” for the Secretary, continues to reflect
the U.S. position that taxation of Canal Commission employees
by Panama would set an undesirable precedent and that the
monetary gain t> Panama would be relatively small. In addi-
tion, the memorandum suggests that a U.S. concession on this
point “woud be the type of issue which treaty opponents could
use to considerable advantage.” Defendant's Brief at 95.
At this point, the contemporaneous record of negotiations
abruptly ceases. It is important to note that the language that
eventually became Article XV of the Implementation Agree-
ment was not considered during any of the sessions for which
we have a transcript or other contemporaneous documenta-
tion. Indeed, informatiun provided by the U.S. Government
does not disclose when this language was first considered, what
if anything was said about it, or even who was in attendance.
Curiously, the only evidence we have on the consideration of
the Article XV language comes from plaintiff by means of the
Affidavit of Dr. Carlos Alfredo Lopez Guevara, Panama’s Am-
bassador Extraordinary and Plenipotentiary for Canal Treaty
negotiations. Ambassador Guevara reports that the parties
met a last time in Panama during August and that the language
in question was presented by the United States during that
session. According to Ambassador Guevara, “[the] text [of
paragraph 2] was tabled without explanation and no objection
was raised by the Panamanian Delegation. Therefore, it was
35a
agreed.” Affidavit of Dr. Carlos Alfredo Lopez Guevara { 5
(filed Mar. 8, 1984) [hereinafter cited as Guevara Affidavit].
‘6 Ambassador Guevara goes on to state that the language of paragraph 2
was intended to preclude both the United States and Panama from taxing
American employees “f the Commission, that it was so read by Panama, and
that a contrary interpretation by the United States would be viewed as a
material breach of the treaty. Guevara Affidavit {4% 6, 7.
Defendant has objected to this portion of the Guevara affidavit arguing that
“it simply is an opinion after the fact. It’s not contemporaneous. It was
prepared in preparation of this lawsuit.” Official Transcript in the Matter of
Coplin v. United States, Feb. 23, 1984, at 26 [hereinafter cited as Feb. 23
Transcript]. Defendant's position on the admissibility of this type of evidence
has been jess than consistent. Appended to defendant's brief is -he Affidavit
of Michael G. Kozak, Deputy Legal Advisor for the United States Depart-
ment of State. Mr. Kozak states that between 1973 and 1977 he served as a
member of the U.S. negotiating team for the Panama Canal Treaty and
“participated directly in the negotiation of the Panama Canal Treaty and of
the Agreements in Implementation thereof.” Affidavit of Michael G. Kozak
{ 3 (Dec. 8, 1982), reprinted in Defendant's Brief at 19. Mr. Kozak notes that
he was “one of the principal drafters of the Treaty and of the Agreements in
Implementation of Articles III and IV thereof.” Jd. { 4. Mr. Kozak does not
claim to have been present at the negotiating session where the language of
Art. XV was considered nor do we have any other indication that he was
there. See pp. 142-143 infra. Nevertheless, he opines as follows:
The purpose of the pertinent language of Article [ ] XV . . . [is] to
ensure that United States citizen employees of the Canal Commission
. . . would not be subject to host-country [i.e., Panamanian] taxation.
Id. § 11. Defendant relied on the Kozak Affidavit to support its Requested
Finding of Fact No. 6 pertaining to the purpose of Article XV. It is anomalous
for defendant to object to the statement of Ambassador Guevara regarding
the meaning of the language in question, but to tender the statement of Mr.
Kozak on the very same point.
Defendant now concedes that the Kozak Affidavit may not be used to divine
the purpose of Article XV. Feb. 23 Transcript at 30-3: . Defendant has also
suggested that reliance on the Kozak Affidavit to support its proposed finding
as to intent was inadvertent. Reply Brief for the United States in Support of
its Motion for Summary Judgment at 7 n. 4 (filed Jan. 23, 1984). Defendant
has not, however, explained why paragraph 11 of the Kozak Affidavit was
presented at all, given its position as to the admissibility of post-hoc state-
ments by negotiators. Moreover, the Kozak Affidavit, in the very form
presented to this court, has been presented to other courts that have consid-
ered this issue. See n. 9 supra. Some of those courts have expressly relied on
36a
c. Defendant appears to overlook the fundamental issue in
these negotiations when it argues that Article XV was not
it. See, e.g., Stabler v. United States, No. CA3-83-0166-R, slip op. at 3
(N.D.Tex. Nov. 30, 1983); Pierpoint v. United States, No. 83-0354-2, slip op.
at 5-6 (D.S.C. Oct. 3, 1983). Other courts may have be 2n swayed by the
affidavit without specifically mentioning it.
Whether a court may consider non-contemporaneous statements of nego-
tiators for purposes of divining the intention of the parties is, in fact, a
difficult and unsettled question. At least one Supreme Court opinion seems
to : aggest that such evidence is not admissible. Arizona v. California, 292
U.S. 341, 359-60, 54 S.Ct. 735, 742-43, 78 L.Ed. 1298 (1934) (Brandeis, J.). It
is unclear the extent to which the ruling in Arizona is bound up in the specific
facts of that case and whether its rationale survives the adoption of the
Federal Rules of Evidence. See United States v. Jacobs, 547 F.2d 772, 777 (2d
Cir. 1976), cert. dismissed, 436 U.S. 31, 98 S.Ct. 1873, 56 L. Ed.2d 53 (1978)
(purpose of Rule 402 “was to bar common law rules of evidence . . . if
inconsistent”).
International courts and arbitrators have traditionally relied on non- con-
temporaneous statements of negotiators. For example, in a dispute con-
cerning the Jay Treaty of Nov. 19, 1794, the depositions of John Adams and
John Jay, surviving negotiators, were considered, as was a letter from Ben-
jamin Franklin. 1 J. Moore, International Adjudications 63-67 (1929). One
commentator has argued that where a jury is not involved, “(dJeclarations of
ithe] negotiators, in so far as they indicate the sense in which terms were
employed, are valuable, not merely because they are enlightening, but also
because they may be safely entrusted to the consideration of judges or
arbitrators.” 2 Hyde, International Law 1497; ef. Sumitomo Shoji, 457 U.S.
at 187 n. 10, 102 S.Ct. at 2379 n. 10 (distinguishing government's official
position from “evidence of the state of mind of the Treaty negotiators”).
Because the issue is unsettled, and because the evidence in question is
merely cumulative, the court decides this case without reliance on the state-
ments of negotiators on either side as to the intent of the parties. The court
notes, however, that insofar as reliance on such statements is deemed rele-
vant and probative, Ambassador Guevara is the only one identified as having
been present at the negotiating session where the language of Article XV
was actually considered. He is therefore the only one competent to give an
opinion as to the intent of the negotiators.
The court does rely on the Guevara Affidavit insofar as it describes the
physical events at the August 1977 negotiating session. As an eyewitness
participant, his competency to testify as to what he saw and heard is not
subject to challenge. Indeed, defendant has largely adopted the Guevara
version of what transpired. Official Transcript in the Matter of Coplin v.
United States, Mar. 8, 1984, at 35-36 [iereinafter cited as Mar. 8 Transcript).
37a
intended to shield Commission employees from U.S. taxation
because that possibility was not expressly raised during the
negotiating sessions for which we have a record. Equally naive
is its assertion that Panama could have no interest in whether
the U.S. taxes its citizens who live and work on Panamanian
soil and operate the canal in which it has such a significant
interest. Defendant’s error lies in characterizing the negotia-
tions as turning exclusively on fiscal issues, whereas the record
indicates that the controversy was primarily a political one."
To the United States, the question of revenues was of rela-
tively little consequence; it felt, however, that allowing Panama
to tax Commission employees would set a bad precedent world-
wide. Panama, for its part, appears to have felt that operation
of the canal was a joint commercial venture by the two govern-
ments, not a continued exercise of U.S. sovereign authority.
Putting the matter in terms of other tax conventions to which
the United States is a party, our negotiators wanted Commis-
sion employees to be treated for tax purposes as if they were
performing purely U.S. governmental functions while the Pan-
amanian negotiators wanted Commission employees treated as
if they were providing commercial services. See, e.g., Agree-
ment for the Avoidance of Double Taxation and Prevention of
Tax Evasion with Respect to Taxes on Income, Apr. 30, 1984,
United States-China, art. 18, reprinted in 23 Tax Notes 695
(1984) (not yet ratified); Convention for the Avoidance of Dou-
ble Taxation and the Prevention of Fiscal Evasion with Respect
to Taxes on Income, June 17, 1980, United States-Denmark,
art. 20, reprinted in Sen. Exec. Q, 96th Cong., 2d Sess. (1980)
‘If the question had been one of revenues alone, it could have been
resolved without reference to the tax issue. The parties were in the process of
negotiating fees to be paid by the Commission for services provided by
Panama. The package ultimately agreed upon called for an initial annuity to
Panama of $50-60 million per year. S.Exec.Rep. No. 12, at 100. According to
the U.S., Panama would derive no more than $2-3 million from taxing Com-
mission employees. Defendant's Brief at 95. Because this amount was viewed
as relatively trivial, it could have been factored into the negotiations for the
annuity payment.
38a
(not yet ratified) [hereina‘ter cited as Denmark Treaty]; Con-
vention for the Avoidance of Double Taxation and the Preven-
tion of Fiscal Evasion with Respect to Taxes on Income, July 1,
1957, United States-Pakistan, art. IX, 10 U.S.T. 984, T.1.A.S.
No. 4232 [hereinafter cited as Pakistan Treaty]; Convention for
the Avoidance of Double Taxation and the Establishment of
Rules of Reciprocal Administrative Assistance in the Case of
Income and Other Taxes, Mar. 23, 1939, United States-Swe-
den, art. X, 54 Stat. 1759, T.S. No. 958 (hereinafter cited as
Sweden Treaty].'* So far as this record discloses, neither side
gave any indication that it was prepared to yield to the other's
position.
The language finally adopted reflected the position of neither
party. Indeed, it neatly sidestepped the sensitive sovereignty
issue altogether. Without a statement from Panama, it is of
course difficult to be certain as to what its motivations might
have been in accepting this language. However, several pos-
'8As these and other tax treaties demonstrate, the United States is com-
mitted to the principle that only those employees performing governmental
functions will be exempt from host-country taxation. Article VI(2) of the
treaty with Canada, for example, provides that the tax exemption “shall not
apply to payments in respect of services rendered in connection with any
trade or business carried on for purposes of profit by either of the contracting
states or by any agency, instrumentality or political subdivision thereof.”
Convention and Protocol for the Avoidance of Double Taxation and Preven-
tion of Fiscal Evasion in the Case of Income Taxes, Mar. 4, 1942, United
States-Canada, art. V1(2), 56 Stat. 1399, T.S. No. 983 [hereinafter cited as
Canada Treaty]. Whether operation of the Panama Canal is a profit-making
enterprise or performance of a governmental function is a question as to
which two states may differ. In that regard, it is worth noting that the
technical explanation to a similar provision in a more recent treaty with
and on Capital, signed at Washington, D.C., on Sept. 26, 1980, art. XIX,
reprinted in Tax Treaties (CCH) # 1317R. Application of a similar rule to the
Implementation Agreement would suggest that the Panamanian conception
of what is and what is not a governmental function ought to be given some
weight.
39a
sibilities readily come to mind. First, and most obvious, a
provision whereby the United States agreed not to tax Com-
mission employees could have been construed by Panama as a
recognition of the special status of the Panama Canal Commis-
sion. Moreover, an increase in the disposable income of Com-
mission employees (by exempting their salary from U.S. taxa-
tion) would leave more for them to spend in Panama, thereby
boosting the local economy. Finally, Panama could well have
been concerned that Commission employees would be uncom-
fortable with their new status, suddenly finding themselves on
foreign soil rather than on what had been essentially U.S.
territory. Panama could have feared an exodus of skilled canal
operators and might have been pleased to accept a compromise
that made it more attractive for Americans to stay and work for
the Commission. In short, the record does not support defen-
dant’s assertion that Panama could have had no conceivable
interest in whether the United States taxes Commission
employees.
From the perspective of the United States, the language of
Article XV could also have been viewed as advantageous. By
providing that neither country could tax the salary of Commis-
sion employees, the United States avoided the possibility of
Panamanian taxation and the undesirable precedent it would
have set. Moreover, compromise language avoided the danger
(noted by Ambassadors Bunker and Linowitz) that the issue
might be used by treaty opponents as an argument against
ratification. Because the loss of tax revenue was not considered
significant, side-stepping the sensitive issue of sovereignty
that divided the parties could well have been welcomed by the
United States.
To be sure, the language of Article XV did not satisfy all of
the concerns of the parties; it was certainly an uneasy compro-
mise. Yet, the time for concluding negotiations was drawing
near and there was growing pressure to bring the process toa
successful conclusion. See, e.g., N.Y. Times, Aug. 2, 1977, at
Al, col. 5; Wash. Post, July 30, 1977, at A2, col. 3; N.Y. Times,
July 30, 1977, at Al, col. 3. A compromise that left the sov-
40a
ereignty issue unresolved and allowed each side to claim victo-
ry as to its essential concerns seems entirely plausible.
It is conceivable, of course, that in August 1977 the Panama-
nian delegation decided to abandon its position entirely and
embrace the view advanced by the United States. However,
there is simply no evidence on this record that this occurred.
Certainly, the fact that the Panamanians accepted language
that on its face is a compromise provides no support at all for
the proposition that they capitulated entirely and accepted the
U.S. view that they had so forcefully resisted. A fair review of
the negotiating history of Article XV leads to the conclusion
that in all likelihood the language adopted accurately reflects
the agreement reached by the parties.
d. Defendant also suggests that the United States would not
have entered into an agreement with Panama as to how it would
tax its own citizens, that being an internal matter not the
proper subject of negotiation with foreign governments. De-
spite its common sense appeal, defendant’s argument fails be-
cause it is based on a false premise.
The fact is that our government regularly enters into treaties
and conventions limiting the amount of tax that the United
States may collect from its own citizens. The most common
type of provision fits under the heading of “relief from double
taxation” and precludes the United States from taxing its
citizens or residents to the extent that income taxes have been
paid to the other signatory to the convention. See, e.g.,
Pakistan Treaty art. XV; Canada Treaty art. XV; Sweden
Treaty art. XIV; U.S. Draft Model Income Tax Convention of
June 16, 1981, art. 23, reprinted in Tax Treaties (P-H) 4 1022.
Another situation where the United States has agreed to limit
the tax it will impose upon its citizens is in the area of shipping
and air transportation. In some treaties, the United States
appears to have bound itself not to tax U.S. citizens who
operate such businesses in other signatory states. See Con-
vention for the Avoidance of Double Taxation with Respect to
Taxes on Income, July 22, 1954, United States-Germany, art.
V, 5 U.S.T. 2768, T.I.A.S. No. 3133; Sweden Treaty art. IV.
4la
Occasionally, the United States negotiates treaties that ex-
empt certain types of income from taxation by both states. For
example, the 1957 treaty with Pakistan contained a “tax spar-
ing” provision. Pakistan Treaty Art. XV(1). Under that provi-
sion, American investors in Pakistan would have been allowed a
credit consisting not only of taxes paid to Pakistan, but also of
taxes waived by virtue of Pakistan's investment incentive pro-
gram. Under the terms of this provision, certain Americans
doing business in Pakistan would have been exempt from taxa-
tion by both countries. The Senate adopted a reservation pre-
venting this provision from going into effect because of a
change in Pakistani law. It did, however, express its continued
interest in this type of arrangement. S.Exec. Rep. No. 1, 85th
Cong., 2d Sess. 3 (1958).'* A more recent treaty signed with
Italy (but not yet ratified) exempts certain types of alimony
and child support payments from taxation in both jurisdictions.
Convention for the Avoidance of Double Taxation with Respect
to Taxes on Income and the Prevention of Fraud or Fiscal
Evasion, Apr. 17, 1984, United States-Italy, art. 18(3); see also
Convention with Respect to Taxes on Income and Capital,
Sept. 26, 1980, United States-Canada, art. XVIII(6)(b), re-
printed in S.Exec. T, 96th Cong., 2d Sess. (1980) (alimony and
child support payments exempted from U.S. tax if Canada
would exclude such payments from the recipient's taxable in-
come). These agreements demonstrate that it is not unprece-
dented for the United States and another government to agree
that certain parties will be exempted from taxation in both
jurisdictions.
Contrary to defendant's assertion, therefore, no principle of
law, policy or tradition precludes the United States from nego-
‘The issue has arisen again from time to time. Exchange of Notes Regard-
ing the Convention for the Avoidance of Double Taxation and the Prevention
of Fiscal Evasion with Respect to Taxes on Income, Aug. 1, 1977, United
States-Morocco, T.1.A.S. No. 10194. Most recently it was considered during
the negotiations of the tax treaty between the United States and China
signed on April 30, 1984. Exchange of Notes Regarding the Agreement for
the Avoidance of Double Taxation and Prevention of Tax Evasion with Re-
spect to Taxes on Income, Apr. 30, 1984, United States-China, reprinted in
23 Tax Notes 701 (1984).
42a
tiating with another government as to U.S. taxation of Amer-
ican citizens. When Americans live, work or invest abroad (or
when citizens of other countries live, work or invest in the
United States) taxation of their income becomes the concern of
both states. Under those circumstances, it is not at all unusual
for the two governments to apportion the amount of tax col-
lected by each so as to assure fairness or serve some other
policy. Such agreements generally contain provisions that limit
how much tax the United States may collect from its own
citizens and residents, in exchange for reciprocal promises
from the other signatory.
The negotiating record indicates that the negotiators consid-
ered more traditional approaches such as tax sharing and tax
rebating but rejected them because of objections from the
United States. That the provision actually adopted is some-
what unorthodox may simply reflect the unusual circum-
stances surrounding the treaty negotiations and the history of
the canal. However, the language adopted is not such a drastic
departure from past practice as to render unthinkable the
notion that it could have been the product of a deliberate
compromise.
2. Deference to the Position of the United States
As the Supreme Court has often noted, the interpretation
given a treaty by the Executive Branch of our government is
entitled to significant deference. E.g., Sumitomo Shoji, 457
U.S. at 184-85, 102 S.Ct. at 2379-80; Kolovrat v. Oregon, 366
U.S. 187, 194, 81S.Ct. 922, 926, 6 L. £d.2d 218 (1961); Factor v.
Laubenheimer, 290 U.S. 276, 295, 54 S.Ct. 191, 196, 78 L.Ed.
315 (1933). This deference is based on a number of related
considerations. Because the Executive Branch is involved di-
rectly in negotiating treaties, it is well situated to assist the
court in determining what the parties intended when they
agreed on a particular provision. Moreover, treaties normally
carry significant foreign policy implications, matters peculiarly
within the purview of the political branches of our government.
A court should minimize intrusion in the conduct of foreign
affairs by adopting the interpretation suggested by the Ex-
43a
ecutive Branch whenever it can fairly do so. Finally, the Ex-
ecutive Branch generally has administrative authority over the
implementation of international agreements. As in the case of
domestic legislation, a court should generally give great weight
to the interpretations of agencies charged with implementation
of treaties because such agencies may possess significant ex-
pertise in the relevant subject matter.
Deference, however, is not the same as blind acceptance.
There is no authority for the proposition that a court con-
struing a treaty must follow the interpretation suggested by
our government where that interpretation is unreasonable or
runs contrary to what the court determines was the intent of
the high contracting parties.” Indeed, the Supreme Court has
noted that “courts interpret treaties for themselves,” Kolovrat,
366 U.S. at 194, 81 S.Ct. at 926, and that the construction given
by government agencies is “not conclusive,” Swmitomo Shoji,
457 U.S. at 184, 102 S.Ct. at 2379.2 Accord Factor v.
Our State Department has, in fact, advised other states that “[uJnder the
system of government of the United States, a final decision of questions
involving the interpretation of laws and treaties, from the standpoint of
municipal law, rests with the courts.” Aide memoire handed the German
Ambassador by the Under Secretary of State (Phillips) (May 3, 1933), MS.
Department of State, file 611.623 Coal/46, quoted in 5 G. Hackworth, Digest
of International Law 267 (1943).
2'The principle that courts are not bound by the unilateral interpretations
of only one of the signatories is shared by other nations. For example, the
French courts have held as follows:
[B]oth in theory and in present day judicial practice, when a govern-
mental interpretation is unilateral—that is, when it expresses the
opinion of one only of the contracting parties—it has a merely advisory
effect. But, on the other hand, if the interpretation is agreed upon by
both governments, there is, so to speak, a clause added to the treaty
which is embodied therein, has the same authority, and, like it, has the
binding force of a law.
Societe Ruegger & Boutet c. Societe Weber & Howard, 32 Revue Critique de
Droit International 86, 87 (Le Tribunal Civ. de la Seine (3e Ch.)) (1934),
English synopsis in Annual Digest and Reports of Public International Law
Cases 404, 405 (H. Lauterpacht ed. 1940). The effect of a bilateral interpreta-
tion of the treaty, and the failure of the United States to provide such an
interpretation, is discuss2d at greater length below. See pp. 146-148 infra.
Laubenheimer, 290 U.S. at 295, 54 S.Ct. at 196; Restatement
(Second) of the Foreign Relations Law of the United States
§ 150 (1965) [hereinafter cited as Restatement]. The deference
afforded depends upon the degree to which the interpretation
proffered by our government is reasonable, unbiased and con-
sistent with what appear to be the circumstances surrounding
the treaty. As discussed below, there is much on this record
that undermines the plausibility of the position taken by the
United States, and hence the deference that the court is able to
afford to the interpretation it advances in this litigation.
a. The Implausibility of a Drafting Error. In attempting
to explain why the language of Article XV does not reflect what
it claims was the intention of the parties, defendant has sug-
gested that there has been a drafting error or at least inartful
draftmanship. This explanation does not ring true. In the first
place, the error the United States now argues it made is so
obvious that it fairly leaps from the page even upon a cursory
reading of Article XV. This is not a situation where the lan-
guage used was ambiguous or imprecise; rather, language was
used w’1ich, in its plain and ordinary meaning, achieves an end
that the United States now repudiates.
The Supreme Court has noted that “treaties are the subject
of careful consideration before they are entered into, and are
drawn by persons competent to express their meaning and to
choose apt words in which to embody the purposes of the high
contracting parties.” Rocca v. Thompson, 223 U.S. 317, 332, 32
S.Ct. 207, 210, 56 L.Ed. 453 (1912). This observation is cer-
tainly germane here. The record discloses that (aside from our
two ambassadors and miscellaneous other negotiators) at least
three State Department attorneys were directly involved in
the negotiation and drafting process, including the Legal Ad-
viser himself, the highest ranking attorney in the State De-
partment. In addition, this provision was of significance to
other agencies of the United States government; the negotiat-
ing transcripts specifically mention that the Department of the
Treasury was consulted on the issue. It is simply incredible
45a
that in negotiating a sensitive and important provision with a
foreign government, with the advice and assistance of so many
experienced attorneys and negotiators, the representatives of
the United States of America were unable to come up with
language that more accurately reflected their intentions.
Nor was this a case where the language was thrown together
at the last minute so that our negotiators could not take advan-
tage of the resources at their disposal. The language of Article
XV underwent significant revision in the drafting process.
According to defendant, the language of Article XV was adapt-
ed from a similar provision in the Implementation Agreement
pertaining to Article IV of the treaty, the so-called Status of
Forces Agreement (SOFA). Agreement in Implementation of
Article IV of the Panama Canal Treaty, Sept. 7, 1977, United
States-Panama, art. XVI, T.1.A.S. No. 10032. A comparison
between Article XV of the Implementation Agreement and the
relevant Article of SOFA reveals a significant number of word-
ing changes.” In addition, defendant has produced no fewer
2The following is the full text of SOFA Article XVI, with all words
changed or deleted in drafting the Implementation Agreement emphasized:
(1) By virtue of this Agreement, the United States Forces are exempt
from payment in the Republic of Panama of all taxes, fees or other
charges on their activities or property, including those imposed
through contractors or subcontractors.
(2) Members of the Forces or the civilian component, and depen-
dents, shall be exempt from any taxes, fees, or other charges on income
received as a result of their work for the United States Forces or for any
of the service facilities referred to in Articles XI or XVIII of this
Agreement. Similarly, as is provided by Panamanian law, they shall be
exempt from payment of taxes, fees or other charges on income derived
from sources outside the Republic of Panama.
(3) Members of the Forces or the civilian component, and depen-
dents, shall be exempt from taxes, fees or other charges on gifts or
inheritance or on personal property, the presence of which within the
territory of the Republic of Panama is due solely to the stay therein of
such persons on account of their or their sponsor's work with the
United States Forces.
(4) The Joint Committee may establish such regulations as may be
appreyriate for the implementation of this Article.
ww
AE TT TEE —_
46a
than four intermediate drafts, prepared over the course of
several weeks. See Defendant’s Response to Plaintiffs’ Inter-
rogatories at 2 (no. 2) (filed June 11, 1984). The language of
Article XV quite clearly was subject to careful scrutiny and
manipulation before the drafters were satisfied that it accu-
rately expressed their intentions.
It is of particular significance that during the drafting pro-
cess the phrase “as provided by Panamanian law” was deleted
from the second sentence of paragraph (2) of the SOFA. See n.
22 supra. This language in the SOFA firmly anchors the sub-
ject matter of its paragraph (2) to Panamanian law. Experi-
enced attorneys would surely have appreciated the negative
inference raised by deleting such language from the equivalent
paragraph of the Implementation Agreement. Moreover, the
deletion suggests that the drafters were aware that Panama-
nian law would not otherwise exempt Commission employees
from taxation; this was an issue raised by Panama during the
negotiations.* This careful tailoring of the language of Article
XV and particularly the very paragraph here in issue, does not
square with defendant's theory of error through unthinking
adoption of boilerplate language.
Finally, Status of Forces Agreements with other countries
contain provisions that are similar to Article XV of the Imple-
mentation Agreement, except for the fact that they are very
specific about which country is providing the tax exemptions.
For example, the NATO SOFA provides that “[mJembers of a
force or civilian component shall be exempt from taxation in the
receiving State.” North Atlantic Treaty, June 19, 1951, art.
X(1), 4 U.S.T. 1792, T.1.A.S. No. 2846 (emphasis added); see
also Agreement Under Article IV of the Mutual Defense
Treaty Regarding Facilities and Areas and the Status of United
States Armed Forces in the Republic of Korea, July 9, 1966,
United States-Korea, art. XIV(2), 17 U.S.T. 1677, T.LA.S.
No. 6127 (exemption from payment of “any Korean taxes to the
Defendant's Brief at 79 (Statement of Mr. Rodrigo Gonzalez during the
July 14, 1977, negotiating session).
47a
Government of the Republic of Korea”); Agreement Regarding
Status of United States Forces in Australia, May 9, 1963,
United States- Australia, art. 6(1), (2), 14 U.S.T. 506, T.LA.S.
No. 5349 (exemption from “Australian tax” and “taxation under
the laws of the Commonwealth of Australia”); Agreement Un-
der Article VI of the Treaty of Mutual Cooperation and Se-
curity: Facilities and Areas and the Status of United States
Armed Forces in Japan, Jan. 19, 1960, United States-Japan,
art. XIII(2), 11 U.S.T. 1652, T.I.A.S. No. 4510 (exemption
from payment of “any Japanese taxes to the government of
Japan”); Agreement Regarding Status of United States Forces
in Lebanon, July 31-Aug. 6, 1958, United States-Lebanon, 10
U.S.T. 2166, T.1.A.S. No. 4387 (exemption from “any form of
taxation in Lebanon”). In the words of Mr. Chief Justice
Hughes, “[wJe must assume that the representatives of the
United States had these clauses before them when they negoti-
ated [the Implementation Agreement] and that the omission
was deliberate.” Valentine v. United States ex rel. Neidecker,
299 U.S. at 13, 57 S.Ct. at 104.
b. The Failure of the United States to Clarify the Lan-
guage of Article XV Before the Treaty Went Into Effect. It is
not entirely clear when the United States first became aware of
the error it now claims is part of Article XV of the Implementa-
tion Agreement. The record does reveal that two weeks after
the treaty documents were first signed, there were written
communications within the government noting the need to
clarify the issue. Memorandum from Marcia Field to Richard
Goodman (Sept. 21, 1977), reprinted in Submission Pursuant
to the Judge's Order Filed June 6, 1984, at Exhibit E (filed June
11, 1984). Despite this very early notice, the record discloses a
remarkable degree of reluctance on the part of the United
States to seek a clarification of the Article XV language from
Panama. That reluctance casts doubt upon defendant's asser-
tion that the Article XV language was an error rather than a
compromise. The court notes at least three opportunities for
clarifying the language of Article XV even after it was initially
accepted by Panama but long before the treaty documents
went into force.
48a
First. Immediately following the Implementation Agree-
ment there is an Agreed Minute consisting of 21 numbered
paragraphs (many having several sub- paragraphs) each of
which specifically refers to a portion of the Implementation
Agreement. Each paragraph and sub-paragraph provides ex-
planatory and clarifying information as to the understanding of
the negotiators pertaining to various portions of the Imple-
mentation Agreement. See S.Exec.Rep. No. 12, at 35. The
Minute thus serves as an official negotiating history to clarify
or round out terms of the agreement that were thought to be
unclear or ambiguous. No paragraph of the Minute refers to
Article XV of the Implementation Agreement.
Second. There was an exchange of notes between the repre-
sentatives of the United States and Panama on September 7,
1977, the date the treaties were signed. This was approx-
imately a month after agreement had been reached on the
language of Article XV. The notes dealt with a number of
matters not covered by the treaty documents and also supplied
clarifications and assurances as to the effect of the various
provisions. See, e.g., Exchange of Notes Relating to Postal
Services, Sept. 7, 1977, United States-Panama, reprinted in
S. Exec. Rep. No. 12, at 276 (exchange of notes clarifying opera-
tion of Article X of Agreement in Implementation of Article
IV). There was no note exchanged pertaining to Article XV of
the Implementation Agreement, at that time or since.
Third. During testimony by Herbert J. Hansell, the Depart-
ment of State’s Legal Advisor, before the Foreign Relations
Committee, Senator Richard Stone raised a serious question
about the meaning of Article XV. Senator Stone cited news-
paper reports that Zone residents were interpreting Article
XV as exempting them from U.S. income taxes, much as
plaintiff now claim.. The Senator expressed concern that the
matter would spawn litigation and suggested that the language
“An exchange of notes to correct errors or omissions in an executive
agreement is entirely consistent with past practice of the United States. See
14 M. Whiteman, Digest of International Law 134-36 (1970).
49a
be clarified by means of a formal understanding attached to the
ratification documents. Treaty Hearings Part 1, at 268. Mr.
Hansell strongly resisted the suggestion but promised that “we
will find a way to avoid this” and Senator Stone dropped the
subject. Jd. at 269.
Senator Stone's suggestion that the meaning of Article XV
be clarified by means of an understanding was sensible and
consistent with established practice. It is not at all unusual for
the Senate to approve a treaty subject to a formal declaration
modifying or clarifying its terms. Where the declaration ex-
empts the United States from a portion of the treaty, or
changes one of its terms, it is called a reservation. Restatement
§ 124: Vienna Convention art. 2(1)(d), 63 Am.J.Int’l L. 876.
Where the declaration merely sets forth the Senate's inter-
pretation of a basic term of the agreement, without purporting
to change it, it is called an understanding. Restatement § 124
comment c: 14 M. Whiteman, Digest of International Law
137-38 (1970) (hereinafter cited as Whiteman, Digest}.
Reservations and understandings are communicated to the
other signatory before the formal exchange of ratification docu-
ments. If the terms of the reservation or understanding are
acceptable, the other party will affirmatively communicate its
acceptance or at least will fail to object. The party will then be
bound by the treaty as so modified or clarified. Restatement
§ 124; D.H. Miller, Reservations to Treaties 76-80 (1919) ([here-
inafter cited as Miller, Reservations]; 14 Whiteman, Digest
138-39. See generally Bishop, 103 Receuil de Cours ‘5-302.
This principle was recognized by the Supreme Court as estab-
lished over a century and a quarter ago:
[I]t is too plain for argument that where one of the parties
to a treaty, at the time of its ratification annexes a written
declaration explaining ambiguous language in the instru-
ment or adding a new and distinct stipulation, and the
treaty is afterwards ratified by the other party with the
declaration attached to it, and the ratifications duly ex-
changed—the declaration thus annexed is a part of the
50a
treaty and as binding and obligatory as if it were inserted
in the body of the instrument.
Doe v. Braden, 57 U.S. (16 How.) 635, 656, 14 L.Ed. 1090
(1853).* Only if the other signatory objects to the proposed
reservation or understanding will the parties have to resolve
their differences by further negotiation. However, to be
effective,
(t]he declaration must be communicated to the other
Party . . . to the treaty. This is obviously necessary, for a
treaty is an agreement, and failure to communicate such a
declaration would deprive it of any international effect.
Miller, Reservations 77 (emphasis original).*
If both sides intended that Article XV exempt employees of
the Commission only from Panamanian taxes, following Sen-
ator Stone's suggestion would have clarified the issue once and
for all. The Senate in fact considered a number of reservations
and understandings to the treaty package and passed no fewer
than 21 of them. Senate Debate on the Panama Canal Treaties
411-13, 495-96. Each of these was accepted by Panama and
became part of the treaty package without the need for reopen-
ing negotiations. Jd. at 549-52, 557-59. Prudence, candor to our
negotiating partner and fairness to the American public, which
would have to bear the cost of clarifying the issue through
*The practice of attaching reservations to treaties dates back at least to
1795 when the Senate gave its advice and consent to ratification of the Treaty
of Amity, Commerce and Navigation between the United States and Great
Britain (commonly known as the Jay Treaty), subject to certain conditions. 8
Stat. 116, T.S. No. 105. One commentator estimated that between 1800 and
1929 the Senate had introduced reservations into at least 66 bilateral treaties.
Owen, Reservations to Multilateral Treaties, 38 Yale L.J. 1086, 1091 (1929).
*In Sullivan v. Kidd, 254 U.S. 433, 442, 41 S.Ct. 158, 161, 65 L.Ed. 344
(1921), the Court rejected the argument that a treaty with Britain ought to be
interpreted in accordance with the intention of the British negotiators be-
cause it found no evidence that their position had peen made known to the
United States.
5la
litigation,” all strongly supported Senator Stone's suggestion
that the language of Article XV be clarified through a formal
understanding.
The United States argues that such an understanding would
have been superfluous because the language of Article XV is
clear, because taxation of U.S. citizens is purely an internal
matter and because Panama could have no legitimate interest
in how the United States construes this language. As discussed
above, these assertions are subject to significant doubt. Nev-
ertheless, even if one were to assume that the United States
was fully justified in its views, the refusal to confront Panama
and seek its concurrence is so striking a departure from the
practice of the United States in the field of public international
law as to give one serious pause.
Even the most cursory review of how the United States has
conducted itself in this delicate area reveals unflagging ad-
herence to the principle that potential disagreements, even of
the most remote kind, are resolved through concurrence of the
signatory parties, preferably before the treaty goes into force.
Doe v. Braden, 57 U.S. (16 How.) 635, 14 L. Ed. 1090 illustrates
this point. The case involved a treaty whereby Spain ceded
certain territories to the United States. The treaty was signed
by the President and approved by the Senate. However, before
ratification instruments could be exchanged, our government
learned of a claim to the territory by a third party. Jd. at 655.
Although the Secretary of State was satisfied that this claim
was entirely without merit, he “deemed it his duty to place the
matter beyond all controversy before the ratifications were
exchanged.” Jd. The United States therefore insisted on the
inclusion in the treaty documents of a written declaration ex-
pressing “the positive understanding of the negotiators on both
sides” that the claim in question had been annulled. Jd. The
“7At least 42 lawsuits, involving perhaps hundreds of plaintiffs, have pre-
sented the issue to this and other courts. See n. 9 supra. The cost berne by
the plaintiffs, the defendant and the judicial system in resolving this issue
through piecemeal litigation has been, and will continue to be, substantial.
52a
treaty then had to be resubmitted to the Senate and only then
were ratification instruments exchanged, bringing the treaty
into force.
Our Department of State has, moreover, consistently taken
the position that one signatory to an international agreement
cannot unilaterally determine what is and what is not of signifi-
cance to the other signatory. Even matters that are merely of a
clarifying nature, or which purport to confirm the view of the
negotiators, must be formally presented if they are to become
part of the treaty. This position is perhaps best expressed in
advice given to Congress by a representative of the Depart-
ment of State:
He (Mr. Beverage] asked what kind of reservation
would not require renegotiation of a treaty. I emphasized
that it was impossible to define such a reservation because
each other country concerned has the right to decide
whether or not a particular reservation modifies the text
or would affect its interests in the application of the treaty.
In reply to his statement that he had in mind a reservation
which merely clarified the intention of the negotiators, I
said that, nevertheless, the other countries concerned
would still be entitled to their views with respect to the
effect of she reservation.
Office of the Legal Adviser, Treaty Branch (Bevans), “Reserv-
ations to treaties,” memorandum of conversation with Mr.
Beverage of Senator Langer’s office, July 20, 1949, MS. De-
partment of State, file 711.00/7-2049, quoted in 14 Whiteman,
Digest 140.
Much thought has also been given to whether matters that
are of purely domestic concern to one of the negotiating parties
must be presented for the approval of the other party. The
advice given by the State Department again clarifies the posi-
tion of the United States:
He also inquired as to whether a simple reservation
relating to “a purely domestic matter”, such as “one re-
—————
53a
quiring approval by two-thirds of the Senators of any arms
assistance”, would have to be approved by other coun-
tries. I explained that while the reservation may be con-
sidered by the United States as relating to a purely do-
mestic matter, the fact that our ratification is given sub-
ject to a reservation would give the other countries
concerned the right to consider whether or not the reser-
vation affected our international obligations under that
treaty or would affect the application of the treaty in our
relations with other countries.
Id.
The position traditionally taken by the United States is so
intuitively correct that it requires little elucidation. The fact is
that even exercising the utmost good faith, one country simply
cannot take into account all of the interests, points of view,
political and social factors, perceived advantages and disadvan-
tages, realities and appearances, and other considerations that
define another country’s self-interest. As an equal sovereign,
each country is entitled to make up its mind as to whether @
particular provision of a treaty, or a reservation or understand-
ing attached thereto, does or does not affect its interests. It has
been traditional, therefore, for our government to inform its
negotiating partners of even those matters that it believes are
of no consequence to them, and to allow them an opportunity to
assent or object. See, e.g., Power Authority of New York v.
Federal Power Commission, 247 F.2d 538 (D.C.Cir.), vacated
as moot sub nom., American Public Power Association v.
Power Authority of New York, 355 U.S. 64, 78 S.Ct. 141, 2
L.Ed.2d 107 (1957).
The Power Authority of New York case involved a treaty with
Canada concerning use of the water of the Niagara River. In
ratifying the treaty, the Senate attached a stipulation that
reserved to the United States the right “tc provide by Act of
Congress for redevelopment, for the public use and benefit, of
the United States share of the waters” made available through
the treaty. Jd. at 539. Our Department of State advised the
54a
Canadian Government of this “reservation” but took the posi-
tion that this was a purely internal matter, of no interest to
Canada. Canada responded by diplomatic note, accepting the
position of the United States that this was a matter relating
“only to the internal application of the Treaty within the United
States (that did) not affect Canada’s rights or obligations under
the Treaty.” Id. at 541. The court relied upon this disclaimer in
determining that the reservation was not a matter of interest to
Canada, and therefore effectively not a part of the treaty. Jd.*
These principles have been applied so uniformly by our State
Department in dealings with other governments, and by other
governments in their dealings with us, that they can fairly be
characterized as reflecting the universally accepted practice in
the area of international law. See generally 14 Whiteman, Di-
gest 137-93; 5 G. Hackworth, Digest of International Law
93-153 (1943) [hereinafter cited as Hackworth, Digest]. In-
deed, a memorandum prepared by the State Department and
transmitted to the United Nations stated the proposition as
follows:
Even in the case of an “understanding” . . . it is the
invariable rule in regard to bilateral treaties to obtain the
consent of the other country before ratifying the treaty.
U.S. Department of State, The Law of Treaties as Applied by
The Government of the United States of America 102 (Mar. 31,
* Additional examples of this practice are abundant. For example, in giving
its advice and consent to the treaty establishing friendly relations with
Austria signed on August 24, 1921, the Senate included a series of under-
standings dealing with matters of U.S. domestic law. Prior to the exchange of
ratification instruments, Secretary of State Hughes wrote to Austria and
advised that these understandings “of course relate merely to matters of
domestic policy and procedure, which are of no concern to the Austrian
Government.” Letter from Secretary of State Hughes to Commissioner
Frazier of Austria (Oct. 24, 1921), MS. Department of State file
711.63119/22b, quoted in 5 G. Hackworth, Digest of International Law
120-21 (1943). The Austrians were satisfied with this explanation and ap-
proved the exchange of ratification documents. Letter from Commissioner
Frazier to Secretary of State Hughes (Nov. 8, 1921), MS. Department of
State file 711.63119/26, cited in 5 Hackworth, Digest at 121.
55a
1950), quoted in Bishop, 103 Receuil des Cours 304 (emphasis
added).” The failure of our government to comply with this
established practice throughout the treaty ratification process,
despite serious questions on the proper construction of Article
XV raised by Congress, the press and within the Executive
Branch itself, diminishes further the deference that the court
can accord defendant’s interpretation of the language in
question.
Over half a century ago Charles Evans Hughes wrote the
following in response to a Senate inquiry as to the types of
reservations or understandings that might prop rly be at-
tached to the ratification of the Treaty of Versailles:
Statements to safeguard our interest which clarify am-
biguous clauses in the covenant by setting forth our inter-
pretation of them, and especially when the interpretation
is one which is urged by the advocates of the covenant to
induce support, can meet with no reasonable objection. It
is not to be supposed that such interpretations will be
opposed by other parties to the treaty, and they will tend
to avoid disputes in the future.
58 Cong.Rec. 3302 (1919). The interpretation of Article XV
offered by our Department of State to the Senate can fairly be
“Marjorie Whiteman, Assistant Legal Adviser to the United States De-
partment of State, expressed the same view in almost identical terms:
A statement designated as a “reservation” or “reservation and un-
derstanding” contained in an instrument of ratification of a treaty may
be regarded as nothing more than a clarifying statement or declaration
short of a reservation if it does not, in fact, constitute a qualification or
modification of the substantive terms of the treaty. Nevertheless, in the
case of a bilateral treaty it is the invariable practice, prior to the
making of arrangements for the exchange of ratifications and some-
times even prior to ratification of the treaty, for the government making
the statement or declaration to notify the other government thereof in
order that the latter may have an opportunity to accept, reject, or
otherwise express its views with respect thereto.
14 Whiteman, Digest 188-89 (emphasis added). The Digest catalogues and
generally reflects the official position of the United States on questions of
international law.
4
56a
characterized as “urged by the advocates of the covenant to
induce support.” If the defendant is correct that it concerns a
purely internal matter of no consequence to Panama, then “it is
not to be supposed that such interpretation[{ ] [would have
been] opposed by [the] other part[y] to the treaty.” Under such
circumstances, the clarification of the meaning of Article XV
by means of an understanding, as suggested by Senator Stone,
a diplomatic note, or some other means that secured con-
currence from Panama on this simple point “[could] meet with
no reasonable objection . . . [and would have tended] to avoid
disputes in the future.” Since defendant has offered no satisfac-
tory explanation for its failure to follow established practice in
this sensitive area, the court must infer that officials of the
Department of State who were familiar with the treaty nego-
tiations (and had access to the then classified negotiating tran-
scripts) feared that Panama would refuse to concur in their
interpretation of Article XV and for that reason refused to seek
its consent.
c. Aduitional Considerations.
A number of other factors, each of them perhaps less
weighty than the foregoing, conspire to further undermine the
deference the court is able to afford the interpretation offered
by the United States. It is worth mention, for example, that in
this case the United States is a litigant—a party with a finan-
cial interest in the outcome of the proceedings. In such circum-
stances it is appropriate to scrutinize its position more closely
than where it is participating as amicus curiae, its only interest
being the proper conduct of our foreign relations and the cor-
rect interpretation of our laws. See, e.g., Sumitomo Shoji, 457
U.S. 176, 102 S.Ct. 2374, 72 L.Ed.2d 765; Kolovrat, 366 U.S.
187, 81 S.Ct. 922, 6 L.Ed.2d 218.
Moreover, this case is not like Factor v. Laubenheimer, 290
U.S. at 295, 54S.Ct. at 196, or Great-West Life Assurance Co.,
678 F.2d 180, 230 Ct.Cl. at 491, where the construction offered
by the United States had remained unchallenged for decades
and therefore was entitled to deference by virtue of its longevi-
57a
ty and consistency. Cf Consumer Products Safety Commis-
sion v. GTE Sylvania, 447 U.S. 102, 120, 100 S.Ct. 2051, 2062,
64 L.Ed.2d 766 (1980) (lack of longstanding contemporaneous
administrative construction of statute undermines degree of
deference to be afforded agency’s interpretation). Here, the
controversy over what this language means arose within days
of its initial adoption, in ample time for the United States to
obtain a correction or clarification before the ratification pro-
cess was completed. Nor is the language of Article XV so
complex, or its subject matter so specialized, that deference to
administrative expertise is of particular relevance. Cf Great-
West Life Assurance Co., 678 F.2d 180, 230 Ct.Cl. at 481.
Finally, defendant has offered no factual basis supporting a
significant degree of administrative deference. Indeed, it ap-
pears that the interpretation of Article XV proffered by the
United States consists of little more than the best hopes of
State Department officials, many of whom had no direct in-
volvement in the negotiation of this provision. The letter trans-
mitting the section-by-section analyses to the Senate states
that they were prepared “by members of the treaty negotiating
team and have been approved by the offices of the State and
Defense Departments directly involved in the negotiations.”
S.Exec. Rep. No. 12, at 127. It is interesting to note, however,
that there is no evidence that anyone involved with the actual
negotiation of Article XV of the Implementation Agreement
drafted or reviewed these analyses. In response to a discovery
request, defendant admitted that the analyses were prepared
after the negotiations had been completed and after the treaty
documents had been signed. Defendant’s Response to Plain-
tiffs Second Request for Admissions at 2 (Nos. 21 and 22) (filed
June 11, 1984). Moreover, defendant disclosed that the ana-
lyses were drafted by two individuals, Michael Kozak and
Geraldine Chester, who were not present at any of the nego-
tiating sessions during which we know that the substance of
Article XV was discussed. Jd. (No. 22b(A)) (Mr. Kozak and Ms.
Chester were present at the July 18, 1977, negotiating session
where there appears to have been some general discussion of
58a
the Implementation Agreement but not of Article XV or the
subject of taxation.) Defendant admits that it does not know
who was present when the Article XV language was proposed
or discussed. Defendunt’s Response to Plaintiffs’ Interrogato-
ries ai 3 (No. 10) (filed June 11, 1984). There is no evidence,
therefore, that the supposedly authoritative interpretations of
the language proffered by the United States were ever re-
viewed or approved by those who were involved in face tu-iace
negotiations with Panama on the subject.
3. The Legislative History
Defendant suggests that the Senate consented to the
ratification of the Panama Canal Treaty with the understand-
ing that Article XV of the Implementation Agreement ex-
empted Commission employees only from Panamanian taxa-
tion and not from United States taxation. Defendant cites in
support of its proposition the colloquy between Senator Stone
and the State Department's Legal Adviser, Mr. Hansell, see p.
138 supra, and the Report of the Senate Foreign Relations
Committee, which incorporated the State Department’s sec-
tion-by-section analysis.
Even in the case of purely domestic legislation, “[rJeliance on
legislative history in divining the intent of Congress is... a
step to be taken cautiously.” Piper v. Chris-Craft Industries,
Inc., 480 U.S. 1, 26, 97 S.Ct. 926, 941, 51 L.Ed.2d 124 (1977);
see Hart v. United States, 585 F.2d 1025, 218 Ct.Cl. 212, 221-31
(1978). That caution must be even greater where the document
in question grows out of sensitive negotiations with a foreign
government whose intentions and views can oniy be expressed
through treaty language and other documents attached to the
ratification process.
It should first be noted that the legislative history cited by
defendant is not as compelling as it would have the court
believe. The most one can say about the cdnversation between
Senator Stone and Mr. Hansell is that one member of the
Senate Foreign Relations Committee may have been per-
suaded by the position taken by the Executive Branch; there is
59a
no indication that any other members of the Committee shared
those views. “[O]rdinarily even the contemporaneous remarks
of a single legislator . . . are not controlling in analyzing legis-
lative history.” Consumer Products Safety Commission, 447
U.S. at 118, 100 S.Ct. at 2061. The Committee Report merely
recites the interpretation offered by the State Department
without elaboration or discussion. Of course, there was no
reason the Committee should have questioned the interpreta-
tion offered by the Executive Branch. The issue, on its face,
appeared to be merely one of domestic tax law; the negotiating
transcripts, which place the matter in a wholly different light,
were still classified and there is no indication that they were
presented to or examined by the Committee.
In any case, all three branches of our government have taken
the position that even the clearest expression of legislative
intent cannot change the legal effect of an international agree-
ment to which the Senate has given its approval. In Fowrteen
Diamond Rings v. United States, 183 U.S. 176, 179-80, 22
S.Ct. 59, 60-61, 46 L.Ed. 138 (1901), the Court held that a
Senate Resolution that had not been brought to the attention of
Spain, the other signatory to the treaty, was “absolutely with-
out legal significance.” Charles Evans Hughes, in his letter to
the Senate in 1919, considered this proposition as black letter
law: “The adoption of resolutions by the Senate setting forth its
views will not affect the obligations of the covenant if it is in fact
ratified without reservations which constitute part of the in-
strument of ratification.” 58 Cong. Rec. 3302 (1919).
The Senate thoroughly considered the same issue during the
deliberations over the Kellogg-Briand Peace Treaty of August
27, 1928. See 70 Cong. Rec. 1655 et seq. (1929). After consider-
able debate, the Senate concluded that a legislative report not
mentioned or included in the resolution of ratification could not
modify or amend the treaty in any way. See id. at 1730. This
view was accepted by the Department of State and related to
other signatories of the treaty. Telegram from Secretary of
State Kellogg to Ambassador to Great Britain (Jan. 17, 1929) &
Telegram from Secretary Kellogg to Ambassador to France
(Jan. 18, 1929), cited in 5 Hackworth, Digest 153.
60a
The State Department has consistently taken this view. For
example, on May 24, 1907, Secretary of State Root wrote
Dominican Republic Minister Joubert concerning the effect of a
resolution adopted by the Dominican Congress in approving a
convention with the United States. Secretary Root requested
that the resolution—which explained the Dominican Congress’
interpretation of the convention—not be included in the instru-
ment of ratification because to do so might change the legal
effect of the treaty, making it impossible for our President to
accept the ratification. On the other hand, Secretary Root took
the position that if the legislative report was not attached to the
ratification documents, it could have no legal effect on the
relationship between the parties, even though the United
States was fully aware of it. Letter from Secretary of State
Root to Dominican Minister Joubert (May 24, 1907), cited in 5
Hackworth, Digest 125-26.
There are important policies behind the refusal to give legal
effect to expressions of intent that are not contained in the
ratification documents and thereby made part of the formal
agreement between the parties. Unless such statements are
included in the ratification instruments, it is impossible to
determine whether the confirming body (here the Senate) as-
sented to the proposed interpretations. See Fourteen Diamond
Rings, 183 U.S. at 180, 22 S.Ct. at 61. Here, for example, the
Committee Report, which reflects the State Department’s sec-
tion-by-section analyses, was voted upon by the members of
the Foreign Relations Committee but not by the full Senate.
Even if one were persuaded that the Foreign Relations Com-
mittee accepted all of the State Department’s analyses, there is
no assurance that two-thirds of the full Senate would have. As
the Court of Claims cautioned in Hart, “[t]o legislate by com-
mittee report would raise a [serious] constitutional problem.”
585 F.2d 1025, 218 Ct.Cl. at 222. In addition, where the docu-
ment is not part of the ratification protocol, there is no as-
surance that the President has given his approval to it. See New
York Indians v. United States, 170 U.S. 1, 23, 18 S.Ct. 531,
536, 42 L.Ed. 927 (1897).
6la
Perhaps most important, foreign governments dealing with
us must rely upon the official instruments of ratification as an
expression of the full intent of the government of the United
States, precisely as we expect from foreign governments. The
Supreme Court confronted this very issue in New York Indians
where the United States relied upon a provision in the resolu-
tion of ratification not included in the President’s proclamation
ratifying the treaty. The Court held the resolution to be of no
effect, stating as follows:
There is something. . . which shocks the conscience in the
idea that a treaty can be put forth as embodying the terms
of an arrangement with a foreign power or an Indian tribe,
a material provision of which is unknown to one of the
contracting parties, and is kept in the background to be
used by the other only when the exigencies of a particular
case may demand it.
Id. More recently, Professor Bishop stated the same proposi-
tion in more general terms:
The fundamental basis remains, that no state is bound in
international law without its consent to the treaty. This is
the starting point for the law of treaties, and likewise for
our international law rules dealing with reservations.
Bishop, 103 Receuil des Cours 255.
The Senate managed to attach a multitude of reservations,
understandings and other modifications to the treaties with
Panama as a condition for giving its advice and consent. Each of
those instruments was approved by two-thirds of the Senate.
presented by the President and accepted by Panama. It would
be entirely inappropriate—and inconsistent with the estab-
lished policy of the United States—to now modify the agree-
ment on the basis of views expressed in committee and never
approved by the Senate or presented to Panama for its con-
currence or rejection. See New York Indians, 170 U.S. at
22-23, 18 S.Ct. at 536.
In sum, nothing presented by defendant supports the find-
ing that Panama and the United States “intended to agree on
62a
something different from’ ..° .ppearing on the face of” Article
XV of the Implementation Agreement. “Without such a finding
the agreement must be interpreted according to its unam-
biguous language.” Choctaw Nation, 318 U.S. at 432, 63 S.Ct.
at 678.
C.
ADDITIONAL CONSIDERATIONS
The preceding section of the opinion was premised on the
court’s conclusion that the language of Article XV is clear and
unambiguous. Even if one were to take the position that the
language of Article XV is ambiguous, there is, nevertheless,
much reason to resolve the ambiguity in favor of the interpreta-
tion offered by plaintiff.
i. The Failure of the United States to Present Evidence of
Panama’s Intent
Even under the best of circumstances, it is very difficult for
the court of one signatory state to understand and appreciate
the intentions, interests and motivations of another signatory
state. For one thing, states are not always of a single mind;
different officials or agencies may hold different views as to
what is in the state's interest.” It is therefore important to
obtain the official position of the government in question. Then
again, governments are known to change their official position
as to how a treaty ought to be interpreted. For example, in
“Sumitomo Shoji provides an example of this. In that case, the United
States presented an interpretation of the disputed treaty provision from
Japan’s Ministry of Foreign Affairs (Mr A). Brief for the United States as
Amicus Curiae at 19-20 & n. 11, Sumitomo Shoji America, Inc. v. Avagliano,
457 U.S. 176, 102 S.Ct. 2374, 72 L.Ed.2d 765 (1982). The interpretation
offered by MFA supported the respondents in that case. At the same time,
Japan's Ministry of International Trade and Industry (MIT) filed an amicus
curiae brief which presented a position that “might be understood to support
[petitioner's] position on this issue.” /d. at 20 n. 11. The United States
requested that the Supreme Court accept MFA's position because “MFA is
the Office of the Government of Japan responsible for interpretation of the
Treaty.” Jd.
63a
Sumitomo Shoji, the Department of State initially interpreted
the treaty in a manner that supported petitioner; later, it
interpreted the treaty consistent with the view offered by
respondents. The Supreme Court was not troubled by this lack
of consistency. It accepted the official interpretation presented
at the time the case was pending for decision. 457 U.S. at 184 n.
9, 102 S.Ct. at 2379 n. 9.
As has been noted, there is little doubt as to the interpreta-
tion our government places on Article XV of the Implementa-
tion Agreement. However, the record is devo‘d of any state-
ment of the official Panamanian positinn. The court has dis-
cussed at length the possibilities for obtaining a clarification of
the language in question before the treaty was ratified. See pp.
137-142 supra. In addition, there has been ample opportunity
for the United States to obtain Panamanian concurrence for its
views even after the treaty went into effect.
One method would have been through the administrative
mechanism established by the Implementation Agreemeni it-
self. Article II of the agreement provides for the establishment
of a Coordinating Committee composed of representatives of
the United States and Panama. Paragraph 4 of Article XV
authorizes the Coordinating Committee to “establish such reg-
ulations as may be appropriate for the implementation of this
Article.” The Coordinating Committee was in fact established.
Agreement Establishing Coordinating Committee, Oct. 1,
1979, United States-Panama, T.I.A.S. No. 10044. Its charter
covers a broad array of functions, largely in resolving points of
friction that might arise under the Implementation Agree-
ment. The Coordinating Committee has been in operation for
about four years but has not issued any regulations pertaining
to taxation. Letter from John L. Haines, Jr., Deputy United
States Representative to the Coordinating Committee, to Pa-
tricia M. McDermott, Librarian, United States Court of Ap-
peals for the Federal Circuit (June 1, 1984) (filed June 12, 1984).
Issuance of regulations that support defendant's position
would have been an effective and time-honored method for
64a
clarifying language in the Implementation Agreement that the
United States claims is ambiguous. Of course, promulgation of
any such regulations would require the concurrence of the
Panamanian member of the Coordinating Committee.
However, if defendant is correct in its assertion that paragraph
2 of Article XV was meant to exempt Commission employees
only from Panamanian taxes, such concurrence should not have
been difficult to secure. Nevertheless, defendant has failed to
avail itself of this opportunity to clarify the language of the
Implementation Agreement.
In addition, defendant might have obtained a diplomatic
note or other official indication from Panama as to its view of
this matter. Indeed, after expressing considerable skepticism
as to defendant's position, Feb. 23 Transcript at 52, 65-66, the
court recessed for two weeks to give defendant an opportunity
to consider supplementing the record by obtaining an indica-
tion from Panama as to its intentions in agreeing to the lan-
guage of Article XV. At the next hearing on the matter, de-
fense counsel informed the court that no clarification would be
requested or obtained from Panama. Mar. 8 Transcript at 3, 8.
The court then took the unusual step of inviting an appearance
by a more senior attorney to ensure that the implications of this
decision were fully understood and appreciated by defendant.
Defense counsel and her supervisor appeared at a hearing later
the same day and the court once again stated that it found
plaintiffs presentation persuasive but urged defendant to sup-
plement the record by obtaining clarification from Panama or
through some other means. Id. at 26-27, 39-40, 43-45, 49-50.
Despite numerous statements by the court that it would decide
the case in favor of plaintiff on the record as presented, defen-
dant steadfastly refused the opportunity to supplement the
record.
The notion that defendant can obtain clarifying statements
as to the meaning of treaty language while a case is in litigation
did not originate with this court. From time to time, our
government has used diplomatic channels to obtain the con-
currence of its negotiating partner where ambiguous treaty
65a
language has been the subject of litigation. The most recent
example of which the court is aware occurred in Sumitomo
Shoji, 457 U.S. 176, 102 S.Ct. 2374, 72 L.Ed.2d 765. That case
involved a suit by female employees against the New York
subsidiary of a Japanese trading company; plaintiffs claimed
that the company discriminated in favor of Japanese males in
promotions to executive positions. Resolution of the dispute
turned on interpretation of ambiguous language in a treaty
between the United States and Japan. The United States ap-
peared as amicus curiae while the case was pending before the
Supreme Court. As part of its presentation, it referred to a
cable from the Japanese Ministry of Foreign Affairs to the
United States Embassy in Tokyo. The cable gave an interpreta-
tion of the treaty that was consistent with the interpretation of
our government. /d. at 183-84 & n. 10, 102 S.Ct. at 2378-79 & n.
10. The Supreme Court obviously was impressed by the sub-
mission and relied upon it. Jd. Similarly, in Kolovrat, the
Supreme Court was swayed by an exchange of notes between
our government and Yugoslavia’s “to the effect that the 1881
Treaty, now and always, has been construed” in the manner
suggested by the United States. 366 U.S. at 194, 81 S.Ct. at
926.
Obtaining a diplomatic note interpreting an ambiguous
treaty provision makes sense because, after all, the court must
divine the intent of both parties to the agreement. Of course, it
would be entirely plausible for defendant to take the position
that such clarifications will not be sought because the practice
might unduly burden our relations with other countries.” De-
The court has been exceedingly careful to give appropriate deference to
the political branches of our government on matters involving foreign affairs.
See, e.g., Langenegger v. United States, 5 Cl.Ct. 229 (1984), appeal docketed,
No. 84-1420 (Fed.Cir. July 10, 1984); Shanghai Power Co. v. United States, 4
Cl.Ct. 237 (1983), appeal docketed, No. 84-860 (Fed.Cir. Feb. 28, 1984). Even
in this case, the court has examined a number of documents on an ex parte, in
camera basis to avoid publication of classified material. See p. 131 & n. 15
supra. However, defendant raised no suggestion, however veiled, that ap-
proaching Panama on this issue would have adverse foreign policy implica-
tions. Indeed, defense counsel represented that she had not even discussed
the court's suggestion with representatives of the Department of State. Mar.
8 Transcript at 8.
66a
fendant has not, however, taken this positio.. In fact, it ap-
pears perfectly willing and able to obtain such clarifications
when it believes it advantageous to do so.
It is quite clear from the repeated exchanges on this point
between the court and counsel that the decision not to seek
clarification from Panama was based exclusively upon counsel's
assessment of tne litigacion risks. See, e.g., Mar. 8 Transcript
at 44, 49-50. Under these circumstances, the court must draw a
negative inference from defendant’s refusal to “produc[e] evi-
dence peculiarly within its possession.” Paccon, Inc. v. United
States, 399 F.2d 162, 185 Ct.Cl. 24, 40 (1968); accord Borror v.
Herz, 666 F.2d 569, 573-74 (C.C.P.A.1981); California-Pacific
Utilities Co. v. United States, 194 Ct.Cl. 703, 718 (1971).* The
negative inference means, at the very least, that any ambiguity
in the language of Article XV must be construed against
defendant.
2. Established Principles of Treaty Construction
Courts are naturally reluctant to give treaties a construction
contrary to that proffered by the Executive Branch, although
they will do so from time to time. See, e.g., Johnson v. Browne,
205 U.S. 309, 27 S.Ct. 539, 51 L.Ed. 816 (1907); New York
Indians, 170 U.S. 1, 18 S.Ct. 531, 42 L.Ed. 927. However, the
step is never to be taken lightly or without careful considera-
tion of the arguments offered by the United States in support of
its position. Yet, the court must also be mindful of the fact that
it has special responsibilities in interpreting an international
agreement. Aside from its normal duty to uphold the law as
written, the court must also safeguard the dignity and cred-
ibility of our nation in its dealings with other sovereigns. As the
Supreme Court noted a century ago:
“Of course, defendant alone is in a position to solicit and present the official
view of Panama. Plaintiff has already done more than can be expected in this
regard. See p. 131 & n. 16 supra. Any further efforts by plaintiff might run
afoul of U.S. law. See 18 U.S.C. § 953 (1982).
67a
Aside from the duty imposed by the Constitution to re-
spect treaty stipulations when they become the subject of
judicial proceedings, the court cannot be unmindful of the
fact, that the honor of the government and people of the
United States is involved in every inquiry whether rights
secured by such stipulations shall be recognized and
protected.
Chew Heong v. United States, 112 U.S. 536, 540, 5 S.Ct. 255,
256, 28 L.Ed. 770 (1884). The Court has therefore urged again
and again that treaties be interpreted in a spirit of “uberrima
fides,” that is, with the most scrupulous good faith. Tucker v.
Alexandroff, 183 U.S. 424, 487, 22S.Ct. 195, 200, 46 L.Ed. 264
(1902). More specifically, the Court stated:
As treaties are solemn engagements entered into be-
tweer independent nations for the common advancement
of their interests and the interests of civilization, and as
their main object is not only to avoid war and secure a
lasting and perpetual peace, but to promote a friendly
feeling between the people of the two countries, they
should be interpreted in that broad and liberal spirit
which is calculated to make for the existence of a per-
petual amity, so far as it can be done without the sacrifice
of individual rights or other principles of personal liberty
which lie at the foundation of our jurisprudence.
Id.; accord Santovincenzo, 284 U.S. at 40, 52 S.Ct. at 84;
Jordan v. Tashiro, 278 U.S. at 127; see Vienna Convention art.
26, 63 Am.J. Int’] L. 884 (“(e]very treaty in force is binding upon
the parties to it and must be performed by them in good faith”).
In addition, the Court has noted that “[w]Jhen a treaty provision
fairly admits of two constructions, one restricting, the other
enlarging rights which may be claimed under it, the more
liberal interpretation is to be preferred.” Nielsen v. Johnson,
279 U.S. 47, 52, 49 S.Ct. 223, 224, 73 L.Ed. 607 (1929); accora
Bacardi Corp. v. Domenech, 311 U.S. 150, 163, 61 S.Ct. 219,
226, 85 L.Ed. 98 (1940); Jordan v. Tashiro, 278 U.S. at 127, 49
68a
4
S.Ct. at 48; Geofroy v. Riggs, 133 U.S. at 271-72, 10 S.Ct. at
298-99.*
Even if defendant was under the impression that the provi-
sion only limits Panama’s right to tax Commission employees, it
must be remembered that it was the United States that pro-
ffered the language in question to Panama. Any ambiguity in
the language must therefore be construed against the United
States unless there is convincing evidence showing that both
parties interpreted the provision in the same manner. Restate-
ment (Second) of Contracts § 206 (1979).* As previously noted,
no such evidence exists. Moreover, the United States appears
to have had notice of the ambiguity at a very early stage in the
process, long before the agreement went into effect. Its failure
to alert its negotiating partner of the problem and to obtain a
clarification means that the language should be construed as
Panama would read it.* The court’s responsibility to act in good
faith toward nations that enter into treaties with the United
States requires no less.
In this case, the construction :irged by plaintiff is further supported by
the rule that laws affecting taxaticn must be construed strictly in favor of the
taxpayer. Crooks v. Harrelson, 282 U.S. 55, 61, 51 S.Ct. 49, 51, 75 L.Ed. 156
(1930); Estate of Renick v. United States, 687 F.2d 317, 231 Ct.Cl. 457, 463
(1982).
“While this rule of construction is most frequently applied to contracts
between private parties, it is equally applicable where the contracting par-
ties are sovereign states. See, e.g., Opinion of Umpire Parker, Mixed Claims
Commission, The Lusitania Cases (United States v. Germany), Decisions
and Opinions 17, 31, quoted in 5 Hackworth, Digest 230. See also 5 Hack-
worth, Digest 234.
*One Commentator has noted as follows:
The performance of treaties is subject to an overriding obligation of mutual
good faith. This obligation is also operative in the sphere of the interpretation
of treaties, and it would be a breach of this obligation for a party to make use
of an ambiguity in order to put forward an interpretation which it was known
to the negotiators of the treaty not to be the intention of the parties.
A. MeNair, The Law of Treaties 465 (1961).
69a
CONCLUSION
The question presented in this case is not whether the Imple-
mentation Agreement (or indeed the Panama Canal Treaty
package as a whole) is a wise policy; policy must be left to the
political branches of our government. Nor is the question
whether the agreement signed with Panama is a good deal for
the United States; striking bargains with other nations is the
prerogative of the President. The only issues presented here
are whether the President was acting within the scope of his
authority when he signed the Implementation Agreement and,
if so, whether the agreement means what it says. For the
reasons discussed above, both questions must be answered in
the affirmative.
Plaintiffs motion for summary judgment is granted. Defen-
dant’s motion for summary judgment is denied.
The clerk is directed to file a copy of this opinion in each of
the cases that has been suspended pending final resolution of
this case.
70a
APPENDIX C
UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
PAUL H. & PATRICIA COPLIN,
Appellees,
V. No. 85-504 Your No. 517-81T
THE UNITED STATES,
Appellant.
ROBERT F.. O'CONNOR, et ux.
GLA’ * E. O'CONNOR,
Appellees,
V. No. 85-505 Your No. 265-84T
THE UNITED STATES,
Appellant.
JON D. COFFIN,
Appellee,
V. No. 85-506 Your No. 223-83T
THE UNITED STATES,
Appellant.
JACK R. & MARIA R. MATTOX,
Appellees,
V. No. 85-507 Your No. 717-83T
THE UNITED STATES,
Appellant.
JUDGMENT
ON APPEAL from the United States Claims Court
Tla
This CAUSE having been heard and considered, it is
ORDERED and ADJUDGED: REVERSED, and direct that
summary judgment be granted in favor of the appellant.
DATED May 10, 1985 ENTERED BY ORDER OF THE
The Three Appellees COURT
Petitions for George E. Hutchinson, Clerk
Rehearing, Denied,
July 3, 1985.
Clerk
ISSUED AS A MANDATE: JUL 12 1985
72a
APPENDIX D
UNITED STATES COURT OF APPEALS,
ELEVENTH CIRCUIT.
AUG. 14, 1985.
No. 84-8424.
RALPH D. HARRIS AND JOAN F. HARRIS,
Plaintiffs-Appellees,
V.
UNITED STATES OF AMERICA,
Defendant-Appellant.
On cross motions for summary judgment in action for refund
of federal income taxes, the United States District Court for
the Southern District of Georgia, Dudley H. Bowen, Jr., J., 585
F.Supp. 862, granted plaintiffs’ motion and denied defendant’s
motion, and defendant appealed. The Court of Appeals, Eu-
gene A. Wright, Circuit Judge, sitting by designation, held
that clear language of Panama Canal treaty creates binational
tax exemption for Panama Canal Commission employees.
Affirmed.
Appeal from the United States District Court for the South-
ern District of Georgia.
Before KRAVITCH, CLARK and WRIGHT™, Circuit
Judges.
EUGENE A. WRIGHT, Circuit Judge
During 1979, Ralph and Joan Harris resided in the territory
within the Republic of Panama that formerly constituted the
Canal Zone. They worked for and received a salary from the
*Honorable Eugene A. Wright, U.S. Circuit Judge for the Ninth Circuit
sitting by designation.
73a
Panama Canal Commission (PCC). They filed a joint federal
income tax return and paid taxes allegedly due. In 1980, the
Harrises filed a refund claim for excess taxes of $6,647 paid in
1979. The claim constituted taxes assessed on wages earned
from the PCC from October 1 to December 31, 1979. The
Internal Revenue Service (IRS) disallowed the claim.
The basis for taxpayers’ refund claim is Article XV of the
Agreement in Implementation of Article III of the Panama
Canal Treaty (Agreement). Taxpayers assert it exempts U.S.
citizens from taxation of income derived from their PCC em-
ployment. The government censtrues the Agreement as allow-
ing an exemption only from Panamanian taxation.
The Harrises initiated this civil lawsuit in the district court
for the Southern District of Georgia, where they then resided.
On cross-motions for summary judgment, the court granted
the plaintiffs’ motion and entered judgment against the govern-
ment for the amount sought, plus interest. 585 F.Supp. 862
(S.D.Ga.1984). We affirm.
PANAMA CANAL TREATY
Pursuant to Treaty adopted in 1903, the United States con-
structed the Panama Canal. Isthmian Canal Convention, T.S.
No. 431, 33 Stat. 2234 (Nov. 18, 1903). The treaty granted to
the United States “the rights, powers and authority. . . which
the United States would possess and exercise if it were the
sovereign of the territory. . . .” Jd., Article III.
On September 7, 1977, the United States and Panama signed™~
a second Panama Canal Treaty, T.I.A.S. No. 10030, which
became effective on October 1, 1979. See 22 U.S.C.
§§ 3601-3871 (West Supp.1985). It restored to Panama ter-
ritorial sovereignty over the Canal Zone and granted to the
U.S. the right to manage, operate and maintain the canal until
the year 2000. The PCC is the agency through which the
United States manages canal operations. /d., § 3611.
Because sovereignty was being transferred from the U.S. to
Panama, it was imperati’e to define the rights and legal status
of PCC employees. Article III, paragraph 9, provides that:
74a
the rights and legal status of the United States Govern-
ment agencies and employees operating in the Republic of
Panama pursuant to this Article, shall be governed by the
Agreement in Implementation of this Article, signed this
date.
The issue before the court concerns interpretation of para-
graph two of Article XV of the Agreement. Article XV, which
governs taxation of the PCC, its contractors and subcontrac-
tors, and its U.S. citizen employees and their dependents, is
quoted in its entirety.
TAXATION
1. By virtue of this Agreement, the Commission, its con-
tractors and subcontractors, are exempt from payment in
the Republic of Panama of all taxes, fees or other charges
on their activities or property.
2. United States citizen employees and dependents shall
be exempt from any taxes, fees, or other charges on
income received as a result of their work for the Commis-
sion. Similarly, they shall be exempt from payment of
taxes, fees or other charges on income derived from
sources outside the Republic of Panama.
3. United States citizen employees and dependents shall
be exempt from taxes, fees or other charges on gifts or
inheritance or on personal property, the presence of which
within the territory of the Republic of Panama is due
solely to the stay therein of such persons on account of
their or their sponsor’s work with the Commission.
4. The Coordinating Committee may establish such regu-
lations as may be appropriate for the implementation of
this Article.
Historically, U.S. citizens employed by the Canal Zone re-
ceived favorable tax treatment. Until 1951, income earned by
U.S. citizens employed by the Panama Canal Company or the
Panama Canal Zone government was totally exempt from
75a
federal income taxation. Beginning in 1951, the income of those
persons was taxed by this government at a lower effective tax
rate than mainland taxpayers.
MOTIONS TO STRIKE
By motion on October 19, 1984, the appellees moved to strike
footnotes 18 and 19 of the government’s opening brief alleging
lack of foundation, irrelevancy, incompetency and
immateriality. '
Although the government did not request leave of court to
file extra-record materials, it filed a diplomatic note from the
Panamanian Government on March 1, 1985. This late filing of
extra-record evidence prompted a second motion to strike by
appellees. Therein, they challenged the manner in which the
diplomatic note was prepared and presented to us.
The government opposed the motions, citing Supreme Court
practice in this area of international diplomacy, which calls for
supplementing the record with any material that might aid in
treaty interpretation.
We shall dispense with the need for a formal order granting
the motions.” We shall not consider the challenged material and
‘Footnote 18 of appellant's brief states:
We are informed that the Government of the Republic of Panama has never
expressed any difference of opinion with respect to the position taken by
the United States with respect to the domestic taxation of United States
citizens who are employed by the Commission.
Footnote 19 states:
Significantly, the official Panama Government publication of the texts of the
Canal Treaties and related agreements, entitled Tratados Del Canal de
Panama (1980), indicates that the Republic of Panama shares the United
States’ view that the exemptions in paragraph 2 of Article X V apply only to
Panamanian taxes. The index of that publication (at 313) contains a heading
entitled ‘IMPUESTOS (Republica de Panama)’ (TAXES (Republic of Pan-
ama)) and lists thereunder, inter alia, ‘Exenciones a los empleados
ciudadanos de los Estados Unidos y sus dependientes por razon de su
trabajo’ (Exemptions to the United States citizen employees and their
dependents by reason of their work) Ac—III, Art. XV, pars. 2, 3. No
mention is made of exemption from United States taxation.
“Appellees request for costs and expenses in bringing their motions is
denied.
76a
we reject the government's suggestion that self-serving evi-
dence outside the record, for which additional explanation is
required, can be considered by this court.* See United States v.
Oakley, 744 F.2d 1553, 1556 (11th Cir. 1984) (per curiam) (appel-
late court reviewing grant of summary judgment can review
only matters presented to the district court); Mitchell v. Trade
Winds Co., 289 F.2d 278, 279 (5th Cir.1961) (Labor Dept. files
not in evidence before district court rejected on appeal). But cf
Dickerson v. Alabama, 667 F.2d 1364, 1367 & n. 5 (11th Cir.)
(appellate court has inherent equitable powers to supplement
the record to include state court trial transcript in habeas
corpus action), cert. denied, 459 U.S. 878, 103 S.Ct. 173, 74
L.Ed.2d 142 (1982).
STANDARD OF REVIEW
In reviewing the grant of summary judgment, an appellate
court must apply those legal standards that control the district
court’s determination. Mercantile Bank & Trust Co., Ltd. v.
Fidelity and Deposit Co., 750 F.2d 838, 841 (11th Cir. 1985);
Environmental Defense Fund v. Marsh, 651 F.2d 983, 991 (5th
Cir. 1981). The appellate court may review only matters pre-
sented to the trial court. Oakley, 744 F.2d at 1556.
We apply the same rules of treaty interpretation to executive
agreements implementing treaty provisions. Clear language
controls unless it “‘effects a result inconsistent with the intent
or expectations of its signatories.’” See Sumitomo Shoji Amer-
ica, Inc. v. Avagliano, 457 U.S. 176, 180, 102 S.Ct. 2374, 2377,
72 L.Ed.2d 765 (1982) (quoting Maximov v. United States, 373
U.S. 49, 54, 83 S.Ct. 1054, 1057, 10 L. Ed.2d 184 (1963)). While
possessing the force and effect of law, international agreements
should be construed more like contracts than statutes. See
Santovincenzo v. Egan, 284 U.S. 30, 40, 52 S.Ct. 81, 84, 76
L.Ed. 151 (1931) (international agreements are contracts be-
tween foreign states).
TAX EXEMPTION ISSUE
The issue before the court is one of first impression in this
circuit. Lower courts generally have held for the government
’At oral argument, counsel for th
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