Panama’s Supreme Court on Thursday (Jan. 29) ruled that the decades-long contract between Panama and a Hong Kong company is unconstitutional, weakening Beijing’s grip on the Panama Canal.
The court said in its decision that the contract violated Panama’s constitution by giving the port operator Panama Ports Company, a subsidiary of Hong Kong company CK Hutchison, exclusive privileges and tax exemptions.
The contract also lacked a requirement for environmental impact assessments and said the government had to seek the port operator’s approval before granting other concessions, the court added.
The Hong Kong company will be forced to stop operating the canal ports.
Panama’s President José Raúl Mulino Quintero said the country plans to keep the ports running with a temporary operator before launching a new bidding process with revised terms.
The announcement is a major win for U.S. President Donald Trump, who argued that China’s growing footprints around the canal poses a national security threat.
He warned that China’s growing influence over its ports could let Beijing block or pressure U.S. military operations in a crisis.
About 40% of the U.S.’ ships pass through the Panama Canal annually.
Trump said American ships are overcharged for the use of the canal given the growing Chinese influence over the key waterway.
According to a government audit, Panama has lost more than US$1.3 billion (SG$1.7 billon) in revenue since CK Hutchison took over in the late 1990s.
The Panama ports are controlled by China.
“The previous Panamanian government repeatedly adjusted the contract terms, clearly to the advantage of Chinese companies,” according to a report by money.udn.
“The negotiation conditions and process were not made public or transparent, and much of the information was classified as “confidential” by the previous government, preventing relevant authorities from reviewing it,” the report added.
The ruling also comes amid U.S.-China tensions over port dominance.
Last year, CK Hutchison agreed to sell dozens of ports worldwide.
A business association led by the U.S investor group BlackRock agreed to buy a majority stake in the company for about U$23 billion (SG$29 billion) in March last year.
However, Beijing pushed back on the deal, aiming to maintain control over the ports.
The Hong Kong media launched a series of scathing remarks on the owner of CK Hutchison, billionaire Li Ka-shing, when the deal was announced.
Ta Kung Pao, a Hong Kong newspaper now controlled by the Chinese Communist Party (CCP), launched scathing commentaries on Mar. 13, 15, and 17 last year, criticizing Li’s actions as “disregarding national interests” and “betraying and selling out all Chinese people.”
Wen Wei Po, another CCP controlled Hong Kong daily, also blasted CK Hutchison.
In all, the two papers published 20 news stories and opinion pieces denouncing the sale and urging the company to consider national interests.
Despite China’s presence in the region, the U.S. remains Panama’s top investor and trading partner.
Panama pulled out of China’s Belt and Road Initiative (BRI) last year, signaling a shift back toward the U.S.
