BUSINESS – In a significant geopolitical development, Panama is contemplating the termination of a port operation agreement with Hong Kong-based CK Hutchison Holdings. This move aligns with recent U.S. diplomatic efforts to curb China’s influence in strategic global locations.
The contract in question grants CK Hutchison Holdings the rights to operate ports at both entrances of the Panama Canal. Originally secured in 1997, the concession was renewed in 2021 for an additional 25 years. However, following discussions with U.S. Secretary of State Marco Rubio, Panamanian President José Raúl Mulino indicated a potential review of this agreement, pending the results of an audit.
This development comes on the heels of Panama’s decision to let its participation in China’s Belt and Road Initiative (BRI) expire. The BRI, a global infrastructure strategy launched by China, has been viewed by the U.S. as a means for Beijing to expand its geopolitical influence through “debt trap diplomacy.” Rubio lauded Panama’s move as a positive step for U.S.-Panama relations and the autonomy of the Panama Canal.
The U.S. has long harbored concerns about Chinese companies’ activities near the Panama Canal, a critical maritime route facilitating approximately 3% of global seaborne trade annually. A Hong Kong-based firm operates two ports at the canal’s entrances, while two Chinese state-owned enterprises are constructing a fourth bridge over one of the canal’s entrances. The U.S. perceives China’s presence in these strategic areas as a potential threat to the canal’s neutrality and a violation of the U.S.-Panama treaty.
In response to these concerns, Panama’s Office of the Comptroller General initiated an audit of Hutchison Ports, the subsidiary of CK Hutchison Holdings responsible for the canal’s port operations. This audit aims to ensure the transparent and efficient use of public resources. The potential cancellation of the port deal has significant implications. If the contract is revoked, Panama could face international arbitration on grounds of politically motivated expropriation. Additionally, any preferential treatment, such as granting free passage to U.S. military vessels, could violate the canal’s commitment to neutrality.
China has expressed regret over Panama’s decision to distance itself from the BRI. Chinese officials have dismissed U.S. criticisms of the initiative as unfounded, asserting that the BRI has facilitated global development through the construction of ports, bridges, railways, and other infrastructure projects. Panama’s strategic location and the canal’s pivotal role in global trade underscore the importance of these developments. As the situation evolves, the international community will closely monitor the outcomes of Panama’s audit and any subsequent actions regarding the port operations contract.
