For decades, the United States had been biding its time, positioning itself for the job. The U.S. wasn't alone. To prevent each other from snatching the opportunity first, the U.S. and Great Britain signed the Clayton-Bulwer Treaty in 1850, agreeing that neither would act unilaterally to build a canal across Central America. By the time the U.S. signed its next canal agreement with Britain, the Hay-Pauncefote Treaty, in 1901, the French attempt to build the Panama Canal had failed. The new agreement allowed the U.S. to build and operate a canal on its own, giving all nations access to it. That the United States drew up and signed this treaty with Britain even though it did not yet have the authorization of any Central American country to build the canal foreshadowed what was to come next.
Though it was his credentials as an engineer that got twenty-six year old Philippe Bunau-Varilla the job as chief engineer of the French Panama Canal project, he is remembered for the notorious buy-out he negotiated on behalf of France to the Americans. At the turn of the century, the territory of Panama was still under the control of Colombia, so the first treaty to transfer the project to the US was signed by John Hay, U.S. Secretary of State, and Tomas Herran, Colombian Ambassador to the U.S. With a planned cash payment of $40 million by the U.S. to France for the canal company and all its assets, the 1903 Hay-Herran Treaty offered $10 million to Colombia for a 99-year lease with annual payments of $250,000 but nothing to repay the government what was already owed by France under the original canal contract. Though readily ratified by the U.S. Senate, without such a provision, the treaty was a non-starter in Colombia.
Instead of going back to the bargaining table, Bunau-Varilla proposed a new strategy for getting a treaty signed—fomenting a civil war. After securing U.S. support for a revolt against Colombia to claim independence for the isthmus population of 350,000, rebels staged a coup on November 3, 1903 in Panama City. With the USS Nashville stationed in Colon Harbor and more warships on the way, the uprising was short and successful.
Just two weeks later, the new Hay-Bunau-Varilla Treaty, containing radically different terms, was ready for signing to seal the deal between the U.S. and the new country of Panama. The revised agreement giving Panama what the former treaty had offered Colombia won quick Senate approval on February 23, 1904. Instead of a lease, it granted the United States ownership of a ten-mile wide strip of land through Panama as a canal zone. To the previous stakeholder, Colombia, went nothing.
The treaty also gave the U.S. the right to defend the canal militarily and participate in Panamanian politics. Though Panama protested this controversial provision, with the U.S. government's support hanging in the balance, the rebels soon decided the concession was worth the price. What Bunau-Varilla wanted out of the arrangement was to be named Panama's first foreign minister which legitimized his signing of the treaty though technically, as a French citizen, he represented no one.
From the U.S. perspective, the new treaty offered reasonable assurances to the country willing to undertake this colossally expensive risk. To the countries of Latin America, it was tantamount to a foreign government stealing the land and the project.
While indisputable that the treaty laid the groundwork for a supremely important international enterprise in an unstable geo-political setting, it also sowed the seeds for ongoing tensions between Latin America and the U.S. that continue today. With all the pieces in place, financially and politically, America began its grand undertaking.
