From Wikipedia: “In 1953, Congress passed legislation to specify the status of Americans born in the Canal Zone—and to exclude non-Americans born there from citizenship. Title 8, Section 1403 of the United States Code[5] grants citizenship to those born in the Canal Zone with at least one parent who is a United States citizen. This differs from the provision in the Fourteenth Amendment which grants citizenship to all born in the United States, regardless of parental nationality.”
Note “at least one parent” clause. This made it easier to be natural born in the Canal Zone than in Kenya, for instance.
In John McCain’s case, it doesn’t really appear to be a question over whether he is or is not a U.S. citizen that is of concern. Instead it is a question of interpretation of the basic qualification layed out in the U.S. Constitution that a president must be a “natural-born citizen.” In the case of John McCain, who was born in 1936, it was a retroactive 1937 law that conferred citizenship on children born in the Canal Zone after 1904 to American parents.
“...Any person born in the Republic of Panama on or after February 26, 1904, and whether before or after the effective date of this Act, whose father or mother or both at the time of birth of such person was or is a citizen ofthe Unied States employed by the Government of the United States or by the Panama Railroad Company, or its successor in title, is declared to be a citizen of the United States.”
Because this law was not in effect at the time of McCain’s birth, experts such as University of Arizona law professor Prof. Gabriel J. Chin say that it came too late to make John McCain a natural-born citizen. At the time of McCain’s birth, the relevant statute did grant citizenship to any child of an American parent “out of the limits and jurisdiction of the United States.” Professor Chin said the precise wording is important here, and that “out of the...jurisdiction” doesn’t apply to the Panama Canal Zone which was under the jurisdiction of the United States at the time. Others argue that recognition of the “unintentional gap” is the reason that Congress passed the 1937 Canal Zone citizenship law.