Otherwise one could argue that those of the nineteenth century born in the Louisiana Territory would have been ineligible to be President.
The Canal Zone was never a US territory. It was a concession by Panama. US law all the way back to 1790 recognized children born overseas to two parents who are US citizens to be "natural born citizens" of the US.
You'll notice in the excerpt of the Act of 1795, Section 3, that children born overseas are not called 'natural born citizens' overseas anymore but are only called " as citizens."
"SEC. 3. And be it further enacted, that the children of persons duly naturalized, dwelling within the United States, and being under the age of twenty-one years at the time of such naturalization, and the children of citizens of the United States born out of the limits and jurisdiction of the United States, shall be considered as citizens of the United States. Provided, that the right of citizenship shall not descend on persons whose fathers have never been resident of the United States. No person heretofore proscribed by any state, or who has been legally convicted of having joined the army of Great Britain during the late war, shall be admitted as foresaid, without the consent of the legislature of the state in which such person was proscribed. "
The Canal Zone was considered an ‘unincorporated territory’. Look it up versus an ‘incorporated territory’.
The Panama Canal Zone was considered a US possession outside the United States. However, Senator Shelby’s remark if quoted correctly was in the context of American jurisdiction.
I’ll take this as a good reference link:
http://www.usconstitution.net/consttop_citi.html
The above link breaks down Section 1401 of USC Title 8 into several categories one of which is ‘in a US possession’. That can be construed to be in the America versus inside the United States.
In any event this is all splitting hairs. We know what Senator Shelby meant and we know he is one of the finest characters possessing a fine mind in the US Senate.