Can the US declare that China's presence in Panama violates the neutrality treaty with Panama?

Some U.S. officials and lawmakers are citing a nearly 50-year-old treaty signed between the United States of America and Panama as a way to justify Trump's threat to take back the Panama Canal, provided they can prove that the waterway's operations are threatened.

Some, however, believe that obstacles would arise if the U.S. tried to use the 1997 Panama Canal Neutrality Treaty - which went into effect in 1999 - to claim the canal. The treaty guarantees the canal will remain neutral and available to ships from any country.

Since 1999, the Panama Canal Authority has controlled the 82-km waterway. This autonomous agency is overseen by Panamanian government.

Donald Trump, during his inauguration speech on Jan. 20, falsely claimed that China was operating the second-largest interoceanic canal in the world. He has also complained about Panamanian firms based in China and Hong Kong, as well the tolls on the canal.

At a Senate hearing held on Tuesday, Federal Maritime Commission Chairman Louis Sola stated that the agency overseeing U.S. ocean transport and merchant marine will "consider broad reviews" of Panama's nautical sector and may impose fines or restrictions on Panamanian flagged vessels entering U.S. port.

Panama is the flag and registration country for more than 8,000 vessels worldwide.

In advance of the weekend visit by U.S. Secretary Marco Rubio to Panama, President Jose Mulino said on Thursday that he was unable "to negotiate and even less open a negotiation process on the canal."

He added, "The canal belongs Panama."

Is China a threat?

Some U.S. officials claim that, in addition to stipulating the canal will "remain secure and open for peaceful transit by vessels of all countries," the treaty gives the U.S. military the right to defend the canal.

During this week's hearing U.S. Senator Ted Cruz stated that a new bridge being built over the canal by Chinese contractors could cause a shutdown of transit. He also said the Chinese ports at both ends of the waterway posed "acute" risks to security.

After listening to U.S. officials, experts and other Texas Republicans, the Texas Republican stated that "Panama could well be violating this treaty."

After delays and contract modifications, the $1.3 billion bridge is expected to be finished by 2026.

CK Hutchison Holdings, a Hong Kong-based company, has operated the Balboa Port and Cristobal ports for more than 20 years. Hong Kong-based CK Hutchison Holdings, a publicly listed company, is not financially linked to the Chinese government.

At the hearing, Eugene Kontorovich of George Mason University, a law professor and research fellow with the Heritage Foundation (a conservative organization), said: "The presence and involvement of Chinese state-owned companies and the Chinese government raises serious questions and concerns about the neutrality and integrity of the treaty."

The favorable financial terms offered to the company by CK Hutchison led to criticism both in the U.S.A. and Panama. Security was not a concern at the time.

Hutchison Port Holdings is a global company that operates in hundreds of ports, including the U.S. Why don't the U.S. terminate Hutchison contracts in their own country if these ports are a threat to U.S. national security? In a recent opinion piece published in a local paper, Julio Yao wrote that he was one of Panama’s advisors at the time it signed its neutrality treaty.

The U.S. can't force Panama to terminate or review contracts with Chinese companies.

Yao, an expert in international relations, says that arguments for intervention are based upon 1978 amendments by the U.S. Senate, which guaranteed the U.S. protection of the canal from any threats. Panama should not acknowledge those amendments, said Yao.

The eight-paragraph agreement and its annexes don't include any provisions on the resolution of disputes, or an expiration date.

Do higher tolls on canals violate neutrality?

Several U.S. officials also claimed that the increase in Panama Canal passage fees in recent years "disproportionately impacts Americans".

The toll system for the canal does not distinguish between flags, origins or destinations.

The severe drought in the year ended September saw the canal report a 5% drop in toll revenues to $3.18billion. The annual reports show that the toll revenue of the canal increased by almost 26% between 2020 and 2023.

The canal's fee structure, however, is based on the number of reservations made by vessel type and size. This is combined with auctions to determine ships that arrive without reservations, and a variable surcharge for water.

The tolls for military vessels are different than those charged to commercial vessels. Priority is given to U.S. military vessels.

The treaty states only that "tolls, other charges, and fees for transit, ancillary service, and related services, shall be reasonable, fair, and consistent with international law principles."

Daniel Maffei, a commissioner from the FMC, said that the U.S. was disproportionately affected because "the U.S. uses it disproportionately."

He added, "We are aware that it is an important trade corridor. We want to continue using this corridor and to be treated fairly."

Shipping experts warned that toll increases were applied by Panama and other waterways, including the Suez Canal in recent years. This was due to a spike in demand, geopolitical conflict, and weather conditions made worse by climate change.

"The U.S. does not operate a fleet commercial vessels." In the 1960s, less than 10% of cargo entering or leaving the U.S. was under American flag. In a recent TV interview, John Feeley said that the toll has increased to 1.5%. He added that Panama's use of freshwater is what caused this increase.

(source: Reuters)