China Moves to Penalize Panama for Court Ruling Against CK Hutchison

Both the U.S. and China are applying heavy pressure to Panama in a bid for influence at a strategic maritime choke point (file image courtesy Roger W / CC BY)

The Chinese government has reportedly forced a pause on infrastructure deals in Panama in retaliation for a Panamanian court's decision to suspend CK Hutchison's seaport operations contracts, according to Bloomberg. The development comes as Hong Kong-based Hutchison launches an arbitration process against Panama over the cancelation.

Last week, the Panama Supreme Court ruled that contracts that allowed Hutchison to operate two container ports near the Panama Canal were "unconstitutional." Hutchison - which has been trying to sell the operating rights for the two ports as part of a giant package deal for its global portfolio - disputes this finding, and has accused Panamanian authorities of disregarding its communications during the trial. For now, the terminals remain in the firm's operational control, it says.

In response to the ruling, Hutchison has initiated arbitration proceedings in Hong Kong against the Panamanian government. The arbitration process could take years; if successful, it would likely result in a compensation payment, legal analysts say.

The Panamanian court ruling against Hutchison followed nearly a year of pressure from the Trump administration over alleged Chinese influence in the Panama canal zone. The White House, without evidence, has accused China of "running" the canal; it initially threatened to take action to "take back" the canal from Panamanian control. Secretary of State Marco Rubio recently told Panama that China's presence near the canal "is unacceptable," and could prompt the U.S. to take unspecified measures to "protect its rights under the treaty" that transferred control from the U.S. to Panama in 1999.

Hutchison's giant plan for a $23 billion port portfolio sale would have handed its two Panama port leases to an American company, BlackRock, a favorable development for U.S. interests. Everything else would be sold to Terminal Investment Limited (TIL), the ports division of the Aponte family's shipping empire - if the deal can be concluded.

Against this backdrop of U.S. pressure, the government of China has accused Panama's supreme court of giving in to "hegemonic powers" by ruling against Hutchison. In a statement, Beijing's Hong Kong affairs office - responsible for the jurisdiction where Hutchison is headquartered - called the ruling "utterly ridiculous," and threatened "a heavy price both politically and economically" for Panama if it is not reversed.

That cost is already being imposed, according to Bloomberg and Reuters. Chinese state companies have been instructed to pause all talks over new infrastructure projects in Panama - a serious threat, given China's prominent role in Panama's construction sector. Chinese customs officials are also reportedly applying additional scrutiny to Panama's agricultural exports. Possible further actions could include rerouting cargo to other seaports, depriving Panama of revenue.

So far, Panama's leaders have been unequivocal in resisting Chinese pressure. President Jose Raul Mulino said Wednesday that Panama's government respects the independence of the judiciary, and as a "country of laws," it has no interest in overriding the court system.

Top image courtesy Roger W / CC BY