Panamanian efforts to renegotiate the original Hay–Bunau-Varilla Treaty had been ongoing almost since it was first signed in November 1903, a few weeks after Panama obtained its independence from Colombia. However, activity to renegotiate or abrogate the treaty increased considerably after the Suez Crisis, and events in 1964 precipitated a complete breakdown in relations between the U.S. and Panama. On January 9 of that year, Panamanian students entered the canal zone to fly the Panamanian flag next to the American flag, as per a 1963 agreement to defuse tension between the two countries. Panamanians watching the event began rioting after the students raising the Panamanian flag were jeered and harassed by American school officials, students, and their parents. During the scuffle, somehow the Panamanian flag was torn. Widespread rioting ensued, during which over 20 Panamanians were killed and about 500 were injured. Most of the casualties were caused by fire from U.S. troops, who had been called in to protect Canal Zone property, including private residences of Canal Zone employees. January 9 is a National Holiday in Panama, known as Martyrs' Day.
The next day, January 10, Panama broke off diplomatic relations with the United States and on January 19, President of Panama Roberto Chiari declared that Panama would not re-establish diplomatic ties with the United States until the U.S. agreed to begin negotiations on a new treaty. The first steps in that direction were taken shortly thereafter on April 3, 1964 when both countries agreed to an immediate resumption of diplomatic relations and the United States agreed to adopt procedures for the "elimination of the causes of conflict between the two countries". A few weeks later, Robert B. Anderson, President Lyndon Johnson's special representative, flew to Panama to pave the way for future talks. Negotiations over the next years resulted in a treaty in 1967, but it failed to be ratified in Panama.
Two ballots for 1977 Panamanian Plebiscite
Negotiations were resumed on February 15, 1977 and were completed by August 10 of that year. On the American side the negotiators were Ellsworth Bunker and Sol Linowitz; the Panamanian side of the negotiations was headed by
Rómulo Escobar Betancourt. Senator Dennis DeConcini sponsored a critical amendment to the Panama Canal Treaty that allowed the Senate to come to a consensus on giving control of the Canal to Panama. A few days before final agreement on the treaties was reached, President Jimmy Carter had sent a telegram to all members of Congress informing them of the status of the negotiations and asking them to withhold judgment on the treaty until they had an opportunity to carefully study it. Senator Strom Thurmond responded to Carter's appeal by stating in a speech later that day, "The canal is ours, we bought and we paid for it and we should keep it."