Under treaties signed by Presidents Carter and Torrijos two years earlier, the United States relinquished sovereignty over the Panama Canal Zone, a 553-square-mile strip that Washington had controlled since 1903. Full transfer of the canal itself would not be complete until the end of 1999, but this day marked the formal end of America's colonial-style enclave in Panama.
The Canal Zone had functioned almost as an American colony for 75 years—its own courts, schools, currency, even zip codes, carved through the middle of a sovereign nation. Panamanians resented the arrangement bitterly; riots in 1964 over flag rights had killed more than 20 people.
Jimmy Carter spent significant political capital pushing the treaties through a skeptical U.S. Senate, arguing that clinging to a colonial relic undermined America's standing across Latin America. Ronald Reagan, campaigning against Carter, famously declared 'we bought it, we paid for it, it's ours'—a line that captured conservative fury over the handover.
The treaties phased out U.S. control gradually, culminating in full Panamanian ownership on December 31, 1999. Far from the disaster critics predicted, Panama has run the canal efficiently, even completing a major expansion in 2016 to handle massive modern container ships.
Key people: Jimmy Carter, Omar Torrijos