Explainer: Why is Trump threatening to take over the Panama Canal?
29/01/2025 24:55
(Adds details on neutrality treaty in paragraphs 9-12)
By Sarah Morland and Marianna Parraga
Jan 28 (Reuters) - Newly inaugurated U.S. President
Donald Trump is pushing to "take back" the Panama Canal, the
world's second busiest interoceanic waterway, spurring concerns
that the United States could invade the Central American nation.
Trump argues that Panama has broken a pledge of neutrality
made when the United States transferred the canal to Panama in
1999, falsely claiming that China is operating it.
The canal is operated by the Panama Canal Authority, an
autonomous agency overseen by the Panamanian government.
WHY IS THE CANAL KEY FOR THE U.S?
The Panama Canal is an 82-km (51-mile) artificial waterway
that connects the Pacific and Atlantic Oceans, and key to global
trade flows. It saves ships thousands of miles and weeks of
travel. Before it was built, ships had to make the long journey
around the stormy tip of South America in order to travel by sea
between the two oceans.
Over two-thirds of all cargo passing through the canal today
originates from or is destined for the United States.
The U.S. completed construction of the canal in the early
20th century, a project begun by France that claimed the lives
of over 25,000 workers.
Following pressure from anti-colonial movements, the U.S.
signed treaties in 1977 granting Panama control and sovereignty
over the canal zone and guaranteeing its permanent neutrality.
These took effect in 1999.
An amendment to one of the treaties indicates that the
"correct interpretation" of the treaty obligations mandates that
Panama and the United States must "defend the canal against any
threat to the regime of neutrality."
Permitted action under the treaty includes taking
"unilateral" actions to defend the canal against any threat as
defined by either nation, according to the 48-year-old accord.
But the treaty's language also prohibits some U.S.
actions.
"This does not mean, nor shall it be interpreted as, a
right of intervention of the United States in the internal
affairs of Panama," according to the text, adding that any U.S.
action must ensure that the waterway remains "open, secure and
accessible."
Over the past couple years, a severe drought aggravated by
climate change lowered water levels at lakes feeding the canal,
forcing restrictions on transits and vessel drafts, raising
costs and waiting times.
The passage restrictions were lifted late last year, but the
waterway has not yet seen normal traffic return as many
shippers, especially bulk carriers and liquefied natural gas
tankers, have continued taking alternative routes.
WHAT IS CHINA'S INVOLVEMENT?
In his inaugural address, Trump repeated claims that Panama
has ceded control of the canal to China. He has also said
Chinese troops are stationed at the canal, without providing
evidence.
Both Panama's government and the Chinese government reject
those assertions.
CK Hutchison Holdings 0001.HK , a Hong Kong-based company,
has for more than two decades operated the ports of Balboa and
Cristobal at the canal's Pacific and Atlantic entrances. The
publicly listed company is not financially tied to the Chinese
government, though Hong Kong firms are subject to state
oversight.
Other ports are operated by firms from the U.S., Taiwan and
Singapore.
China's economic influence has been growing in Latin
America, fueling worries in Washington that the resource-rich
region will tilt to Chinese interests rather than those of the
United States.
Panamanian President Jose Raul Mulino has asserted that the
canal is and will continue to be Panamanian.
Panama's authorities recently announced an audit on CK
Hutchison's operated ports, saying they are investigating the
firm's compliance with concession agreements.
CK Hutchison's local arm did not respond to a Reuters
request for comment, but said in a statement it has paid the
state hundreds of millions of dollars during its concession and
that its labor force is 99.9% Panamanian.
DISPUTE OVER TOLLS
Trump has repeatedly complained that the fees charged to
ships to use the canal are too high, and has accused Panama of
levying unfair tariffs on U.S. goods.
"American ships are being severely overcharged and not
treated fairly in any way and that includes the United States
Navy," Trump said in the address.
Between the fiscal years ended in 2020 and 2023, the canal's
toll revenue increased almost 26% to $3.35 billion. In the
fiscal year ended last September, the canal offset less vessel
traffic with a water surcharge, which it combined with slot
auctions that rose to as much as $4 million per vessel.
The canal's fees are not differentiated by a ship's flag,
country of origin, or destination. The United States does not
have a relevant commercial fleet under its flag, and U.S.
military ships enjoy priority passage.
Mulino said the tariffs are carefully and transparently
evaluated according to demand.
Shipping experts and cargo movers say tolling fee increases
have been applied in recent years by other key waterways amid
demand spikes and geopolitical conflicts.
WHAT'S NEXT
Trump's threat is already impacting Panama's debt rating.
U.S. investment bank JPMorgan downgraded its recommendation on
the country's bonds over threats to the canal, a key source of
national income.
U.S. Secretary of State Marco Rubio is scheduled to visit
Panama in the coming days in his first foreign trip since taking
the post. Immigration will be a focus of the trip.
Mulino, who took office last year, has taken a harder line
on migration than his predecessor, agreeing to U.S.-funded
deportation flights from Panama and installing barbed wire at
the Darien Gap, a dangerous jungle route many migrants traverse
from South America on their way to the U.S. border.
(Reporting by Sarah Morland and Alejandra Ceballos in Mexico
City, Marianna Parraga in Houston and Elida Moreno in Panama
City; Editing by Rosalba O'Brien and Stephen Coates)
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