Fees and Foreign Influence: Examining the Panama Canal and Its Impact on U.S. Trade and National Security (U.S. Senate Committee on Commerce, Science, and Transportation)

Hearings	Fees and Foreign Influence: Examining the Panama Canal and Its Impact on U.S. Trade and National Security
Committee	U.S. Senate Committee on Commerce, Science, and Transportation
Date	January 28, 2025

 

Hearing Takeaways:

• Threats to the Neutrality of the Panama Canal: Committee Members and the hearing’s witnesses raised concerns regarding the current neutrality of the Panama Canal. They noted how the U.S. is the greatest user of the Canal and that the Canal serves as a key shipping lane for U.S. exports, imports, and military ships. They expressed particular concerns that China’s growing influence over the Canal and the surrounding areas could pose economic and national security threats to the U.S.
  • The Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal: The Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal requires the U.S. and Panama to establish and maintain a “regime of neutrality” for the Panama Canal, prohibits foreign control of the Canal, and requires that the Canal’s tolls and other charges be just, reasonable, equitable, and consistent with the principles of international law. Committee Republicans raised significant concerns that Panama is violating this Treaty. Prof. Kontorovich remarked that there exists ambiguity surrounding whether the involvement of Chinese firms near the Canal violates the Treaty. He commented that the unclear nature of the relationship between these firms and the Chinese government raises questions as to whether Panama has permitted a foreign government to violate the Canal’s regime of neutrality. He further noted that the Treaty does not contain a third-party dispute resolution provision and indicated that the Treaty states that each party determines for itself whether a violation has occurred. Sen. Bernie Moreno (R-OH) expressed hope that the U.S. Senate would develop a resolution calling for the President to renegotiate or cancel the Treaty while Prof. Kontorovich suggested that the U.S. consider revisiting and updating the Treaty to account for current events. Prof. Kontorovich also remarked that the U.S.’s cancellation of its treaties with Panama would not necessarily reverse its concessions to Panama given that it has already transferred control and sovereignty of the Panama Canal Zone to Panama.
  • Chinese Control over the Port of Balboa and the Port of Cristobal: Committee Members and the hearing’s witnesses raised concerns over how Panama had provided no-bid concessions to a Chinese company (Hutchison Ports PPC) to operate two ports near the Panama Canal: the Port of Balboa and the Port of Cristobal. They raised concerns that China might leverage its influence over these ports to restrict transits or to conduct surveillance, which could have significant impacts on the U.S. economy and national security. They emphasized that Hutchison Ports PPC is subject to both the National Security Law and the National Intelligence Law of the People’s Republic of China (PRC), which requires Chinese companies to assist the Chinese government with their national security and national intelligence efforts. They warned that China might employ this law during a wartime situation to impede the U.S.’s ability to transit the Panama Canal.
  • Chinese Construction of a Bridge Across the Panama Canal: Committee Members and U.S. Federal Maritime Commission (FMC) Chairman Sola also raised concerns over how Chinese companies are currently building a bridge across the Panama Canal. They warned that this bridge could enable Chinese surveillance of the Canal’s traffic. Chairman Sola further expressed concerns that this bridge’s collapse could paralyze cargo traffic in and out of the Canal.
  • Chinese Influence of the Panamanian Government: Committee Members, FMC Chairman Sola, and FMC Commissioner Maffei warned that China is using its Belt and Road Initiative (BRI) to grow its influence with the Panamanian government. They discussed how China is pursuing economic investments within Panama to influence (and possibly corrupt) the Panamanian government. Sen. Marsha Blackburn (R-TN) mentioned how China is using its BRI to push for the global use of the Digital Yuan. She raised concerns that China might force U.S. shippers and U.S. ally shippers using the Panama Canal to use the Digital Yuan for payments. Full Committee Chairman Ted Cruz (R-TX) and Chairman Sola also alleged that that China had used its influence with the Panamanian government to attempt to seize private land (which belonged to Chairman Sola’s family) to build a new Chinese embassy. Chairman Sola further suggested that Panama’s efforts to influence the Panamanian government had led Panama to eliminate its diplomatic relations with Taiwan in 2015.
  • Cybersecurity Concerns: Committee Democrats raised concerns over the potential for the Panama Canal to include Chinese technology and equipment, which could pose cybersecurity risks. Full Committee Ranking Member Maria Cantwell (D-WA) called for the largest basic democracies with technology interests to form a technology-focused alliance. She asserted that no one should purchase technology or equipment with a government “backdoor.”
• High Cost of Transits Through the Panama Canal: Committee Members, FMC Chairman Sola, FMC Commissioner Maffei, and Mr. Kramek raised concerns over the recent cost increases for ships seeking to transit the Panama Canal. They attributed these higher costs to prolonged drought conditions in 2024, which had forced operational changes for the Canal. These operational changes had included reduced transit slots, restrictions on vessel types, and the auctioning of transit slots. They stated that these operational changes had significantly impacted U.S. shippers because U.S. shippers are the greatest users of the Canal. Full Committee Chairman Ted Cruz (R-TX) also mentioned how U.S. Navy vessels pay additional fees to use the Canal. The hearing’s witnesses indicated however that these drought conditions have largely subsided. They also highlighted how the Panama Canal Authority is working with the U.S. Army Corps of Engineers is working to increase the Canal’s freshwater supplies.
  • Impact on U.S. Consumers and Businesses: Committee Members, FMC Chairman Sola, FMC Commissioner Maffei, and Mr. Kramek discussed how the high cost of transits through the Panama Canal result in higher prices and delayed shipments for U.S. consumers and businesses. Sen. Lisa Blunt Rochester (D-DE), Chairman Sola, and Commissioner Maffei raised particular concerns that these higher Canal shipping goods are impacting the shipment of agricultural goods and that the spoilage of these good during the shipping process reduces the financial viability of shipping said goods. Chairman Sola and Commissioner Maffei partially attributed this situation to the fact that liquified natural gas (LNG) exporters (who also ship time sensitive products) would bid significant amounts of money for preferred Canal transit slots, which resulted in delayed shipments for agricultural products. Sen. Shelly Moore Capito (R-WV) added that high shipping costs have impeded the shipments of coal through the Canal.
  • Impact on Cruise Lines: Full Committee Chairman Cruz also raised concerns over the prices that the Panamanian government had charged for cruise ships to transit the Canal. FMC Commissioner Maffei testified that the FMC has found that the Panamanian government is providing disparate treatment for cruise lines.
  • The Panamanian Government’s Reliance on Panama Canal Fees: Full Committee Chairman Cruz suggested that the Panamanian government could have a perverse incentive to maintain high shipping fees for the Panama Canal given the Panamanian government’s reliance on these fees. He highlighted how the Canal’s profits cover one-tenth of the Panamanian government’s budget. He further noted how the Panama Canal Authority has generated record revenues from the Panama Canal over the previous two years, even though drought conditions had depressed transits.
  • FMC Oversight of the Panama Canal: FMC Chairman Sola and FMC Commissioner Maffei expressed the FMC’s commitment to continue monitoring the Panama Canal’s pricing practices and to consider broad reviews of Panama’s maritime sector. They noted how the FMC possesses authority to impose significant remedies, including fines and restrictions on Panamanian flag vessels entering U.S. ports. They stated that the FMC would identify for Congress any areas in need of additional regulation or statute.
• Additional Policy Issues: Committee Members and the hearing’s witnesses used the hearing to discuss additional policies related to shipping and U.S.-Panama relations.
  • The Ocean Shipping Reform Act of 2022: Committee Democrats expressed interest in the implementation of the Ocean Shipping Reform Act of 2022, which is a bipartisan law that addressed shipping costs and stopped carriers from engaging in practices that delay U.S. cargo and increase costs. FMC Commissioner Maffei mentioned how instances of detention and demurrage fees being waived, forgiven, or refunded have increased since the passage of the Ocean Shipping Reform Act of 2022. He also noted how this law has enabled U.S. importers and exporters to obtain greater settlements from ocean carriers. He stated however that FMC administrative judges are limited in their ability to respond to the large quantity of cases being brought under this law.
  • Shipping Safety: Full Committee Ranking Member Maria Cantwell (D-WA) expressed interest in ensuring the safety of the shipping sector and in supporting federal efforts to protect against the occurrence of shipping accidents. Mr. Kramek testified that the members of his organization, the World Shipping Council (WSC), work with the International Maritime Organization (IMO), the U.S. Coast Guard, and other entities to achieve the safest operations possible. He also testified that WSC members are investing in the latest safety technologies. He further stated that shipping accidents are rare and asserted that continued investments in U.S. infrastructure and reviews of existing infrastructure could be helpful for preventing shipping incidents.
  • U.S. Maritime Infrastructure: Committee Democrats also expressed interest in ensuring that the U.S. sufficiently invests in its maritime infrastructure. Full Committee Ranking Member Cantwell highlighted how the Infrastructure Investment and Jobs Act (IIJA) had included support for dock replacements, rail improvements, pier infrastructure, safety improvements, and container yard expansions. Sen. Amy Klobuchar (D-MN) raised concerns that a recently issued White House Office of Management and Budget (OMB) memorandum that would freeze all federal funding already granted to port and freight infrastructure.
  • U.S. Shipbuilding: Sen. Tammy Baldwin (D-WI) and FMC Commissioner Maffei raised concerns regarding China’s dominance in the commercial shipbuilding sector and commented that this dominance burdens U.S. commerce. Commissioner Maffei noted how China heavily subsidizes its shipbuilding sector and highlighted how half of WSC member company ships come from China. He stated that WSC member companies often must choose Chinese ships because of their low prices. He expressed optimism that the U.S. can counter China’s aggressiveness in this space if the U.S. makes such efforts a national priority. He stated however that these efforts would entail foreign investments, which could be politically challenging.
  • Chinese Subsidization of Companies Involved in Panama: Full Committee Chairman Ted Cruz (R-TX), FMC Chairman Sola, Commissioner Maffei, and Prof. Kontorovich raised concerns over how China is heavily subsidizing companies working in Panama (including those biding for Panama Canal-related contracts). They expressed frustration that this subsidization makes it very difficult for U.S. companies to compete for contracts within Panama. Commissioner Maffei noted that China’s activities in Panama are unique and asserted that China is employing subsidies to unfairly compete for maritime infrastructure contracts around the world. He indicated that countries often have laws requiring them to award contracts to the lowest bidders, which can force them to partner with China on maritime infrastructure projects. He testified that the FMC is considering using its authority under Section 19 of the Merchant Marine Act of 1920 to address activities that interfere with the U.S.’s foreign trade. He stated however that more information is required before the FMC makes use of this authority. 
  • Limitations on the U.S.’s Ability to Invest in Panama: FMC Chairman Sola stated that current restrictions on the Export-Import Bank of the U.S. (EXIM Bank) and the U.S. International Development Finance Corporation (DFC) limit the U.S.’s ability to economically compete with China in Panama. Full Committee Ranking Member Cantwell expressed support for leveraging the EXIM Bank to support U.S. companies in competing for Panamanian contracts. She also expressed support for having the U.S. pursue a free trade agreement (FTA) of the Americas to increase the U.S.’s economic involvement in the broader region.
  • Use of Chinese Labor in Panamanian Infrastructure Projects: FMC Chairman Sola also discussed how Chinese companies that receive contracts in Latin America tend to insert clauses into the contracts that allow them to bring in their own workers from China to staff the contracts. He stated that these Chinese workers tend to be housed in heavily guarded camps. He raised concerns that the identities of these Chinese workers are often unknown. He also noted how these contracts can involve thousands of Chinese workers and commented that these workers are meant to undercut local labor.
  • Panama’s Flagging of Iranian Ships: Committee Republicans raised concerns that Panama has flagged dozens of vessels in the Iranian fleet. They stated that this flagging enables Iran to evade sanctions and to fund their hostile activities. FMC Chairman Sola testified that he had discussed these problems with Panamanian officials and that Panama had responded by making their appeals process for de-flagging vessels more expedient. He highlighted how these changes had resulted in Panama de-flagging 53 vessels.
  • Prolonged Vacancy of the U.S. Ambassador to Panama Position: Committee Members and FMC Chairman Sola lamented how the U.S. had lacked an Ambassador to Panama for a five-year period and stated that the U.S.’s lack of an Ambassador in Panama had impeded the U.S.’s ability to proactively address the situation at the Panama Canal. They expressed hope that President Trump and the U.S. Senate would quickly move to fill the U.S. Ambassador to Panama position.
  • Transnational Gang Activity in Panama: Sen. Bernie Moreno (R-OH), FMC Chairman Sola, and Mr. Kramek raised concerns regarding the amount of criminal activity occurring in the Darién Gap (which is the region that separates Panama and Columbia). Sen. Moreno noted how there exists a strong presence of multinational gangs and criminal organizations in the Darién Gap and commented that the Chinese are funding these gangs and organizations. Mr. Kramek stated many commercial vessels are being exploited and contaminated at the transshipment point in Panama. He testified that the WSC is working to address these problems. Chairman Sola applauded the Trump administration’s new migrant policy and commented that this policy would discourage treks through the Darién Gap.

Hearing Witnesses:

1. The Hon. Louis E. Sola, Chairman, U.S. Federal Maritime Commission
2. The Honorable Daniel B. Maffei, Commissioner, U.S. Federal Maritime Commission
3. Mr. Eugene Kontorovich, Professor, Scalia Law School, George Mason University
4. Mr. Joseph Kramek, President & CEO, World Shipping Council

Member Opening Statements:

Full Committee Chairman Ted Cruz (R-TX):

• He described the Panama Canal as a “monument to American ingenuity” and noted how the Panama Canal’s construction had cost more than 35,000 lives.
  • He indicated that the U.S. had spent nearly $400 million during the final decade of the Canal’s construction, which is equivalent to more than $15 billion in current U.S. dollars.
  • He stated that the Panama Canal has proven a “truly invaluable asset” because it enables both cargo and war ships to avoid long trips around South America.
• He remarked that former President Carter’s decision to give control of the Panama Canal to Panama had left many Americans puzzled, confused, and outraged.
  • He commented that many Americans have subsequently forgotten the Canal’s importance to national security and the U.S. economy.
• He mentioned how President Trump has demanded fair treatment for U.S. ships and goods that pass through the Panama Canal and has asserted that the Torrijos–Carter Treaties are currently being violated.
• He highlighted how the U.S. Senate Committee on Commerce, Science, and Transportation has jurisdiction over the Panama Canal.
  • He indicated that the Committee would use the hearing to examine evidence that the Torrijos–Carter Treaties are being violated.
• He noted that President Trump has highlighted two key issues regarding the operation of the Panama Canal.
  • He indicated that the first issue involves the danger of China exploiting or blocking passage through the Canal.
  • He indicated that the second issue involves the exorbitant cost of transit through the Canal.
• He discussed how Chinese companies are currently building a bridge across the Panama Canal and noted that this bridge would take nearly a decade to complete.
  • He also highlighted how Chinese companies control container ports at both ends of the bridge under construction.
• He stated that the partially completed bridge across the Panama Canal provides China with the ability to block the Canal without warning.
  • He also indicated that the container ports provide China with ready observation points to time such blockages.
• He asserted that the current situation with the Chinese bridge across the Panama Canal poses acute risks to U.S. national security.
• He then remarked that the high fees for Panama Canal transit disproportionately impact Americans because U.S. cargo accounts for nearly three-quarters of Canal transits.
  • He also mentioned how U.S. Navy vessels pay additional fees to use the Canal that apply only to warships.
• He noted how the Panama Canal’s profits regularly exceed $3 billion and indicated that this money comes from both U.S. taxpayers and consumers in the form of higher costs for goods.
• He also stated that U.S. tourists aboard cruises are “essentially captive” to any fees that Panama chooses to levy for Panama Canal transits.
  • He also commented that these cruise ships have paid unfair prices for fuel bunkering at terminals in Panama as a result of the government-granted monopoly.
• He stated that the Panamanian government relies upon the Panama Canal’s “exploitative” fees and noted how the Canal’s profits cover one-tenth of the Panamanian government’s budget.
  • He also warned that the Chinese Communist Party (CCP) is taking a militaristic interest in the Canal.
• He mentioned how the Panama Canal Authority has generated record revenues from the Panama Canal over the previous two years, even though drought conditions had depressed transits.
  • He commented that the only comfort to delayed and overcharged ships is that Panama may invest in more freshwater reserves in the future.
• He then asserted that Panama has emerged as a bad actor and noted how Panama has flagged dozens of vessels in the Iranian fleet.
  • He indicated that this ghost fleet had brought Iran tens of billions of dollars in oil profits to fund terror across the world.
• He also noted how Panama has awarded Chinese companies with contracts and commented that these contracts had often been awarded without fair competition.
• He discussed how China often engages in “debt trap diplomacy” to enable economic and political coercion and noted how Panama participates in China’s BRI.
  • He also asserted that China is engaging in corruption within Panama.
• He then mentioned how the Committee had invited the Deputy Administrator of the Panama Canal to appear at the hearing as a witness and indicated that the Deputy Administrator had declined the invitation.
  • He noted that while the Deputy Administrator had attributed her invitation decline to scheduling conflicts, he commented that defending the actions of the Panama Canal Authority would constitute an “unenviable task.”
• He stated that the Committee might be obliged to compel the Panama Canal Deputy Administrator’s testimony at a future hearing.
• He also mentioned how Prof. Kontorovich’s testimony would be virtual due to his inability to fly directly from Israel to the United States.
  • He noted that while European airliners are willing to fly directly to Israel, he stated that airline service between the U.S. and Israel has been prohibitively long and expensive.
• He criticized U.S. airline carriers for refusing to fly to Israel, despite Israel being the U.S.’s closest ally in the Middle East.
  • He noted how Delta Airlines had recently announced that it would restart direct flights to Tel Aviv in April.
  • He also expressed hope that American Airlines and United Airlines would also restart direct flights to Israel.
• He then applauded President Trump for raising public awareness regarding the current state of the Panama Canal and its threats to U.S. interests.
  • He asserted that the U.S. cannot allow the extortion of U.S. shippers, must ensure that Panama does not exploit an asset of vital commercial and military importance, and cannot remain idle in response to Chinese activities within the Western Hemisphere.

Full Committee Ranking Member Maria Cantwell (D-WA):

• She remarked that access to the Panama Canal is “essential” for maintaining the U.S.’s supply chains, lowering inflation costs, and ensuring U.S. national security.
• She noted how 72 percent of the goods that transit the Panama Canal come to or from U.S. markets and commented that a stable waterway is vital for her state of Washington.
  • He highlighted how one quarter of Washington’s jobs are directly or indirectly related to trade.
• She discussed how Seattle-based SSA Marine has operated in the Manzanillo International Terminal in Panama for the past 30 years and stated that SSA Marine is the U.S.’s largest logistics presence in Panama.
  • She noted how SSA Marine has 19 massive cranes, 3.5 million cargo containers, and over 1,000 employees.
• She mentioned how Washington’s maritime economy supports 170,000 jobs and $45 billion in revenue.
  • She also noted how the U.S.’s maritime economy supports over 21 million jobs and almost $3 trillion in gross domestic product (GDP).
• She expressed support for any Committee actions that would grow the U.S. maritime economy and asserted that the Committee should broaden its attention beyond the Panama Canal in addressing U.S. maritime opportunities and challenges.
• She highlighted how the Committee had previously passed the bipartisan Ocean Shipping Reform Act of 2022, which addressed shipping costs and stopped carriers from engaging in practices that delayed U.S. cargo or increased costs.
  • She also noted how this law had improved the FMC’s ability to conduct investigations and expressed interest in learning about the FMC’s investigation into the Panama Canal and associated cost issues.
• She further mentioned how the IIJA had included support for dock replacements, rail improvements, pier infrastructure, safety improvements, and container yard expansions.
  • She commented that these infrastructure projects require a maritime workforce and continued investments.
• She expressed hope that the Committee could address maritime issues and warned that the Committee’s failure to address these issues will result in the U.S. Senate Committee on Finance addressing the issues.
• She remarked that the Committee should consider legislation that would rebuild the U.S.’s supply chain supremacy, improve the U.S.’s sealift capacity, and revitalize the U.S.’s ports and shipbuilding capacity.
  • She asserted that a revitalized U.S. maritime strategy would benefit both the U.S. economy and U.S. national security.
• She then discussed how the U.S. faces cyberthreats from its foreign adversaries and raised concerns over Chinese-owned ports in Panama and the proximity of these ports to the Panama Canal.
  • She also expressed concerns over the installation of equipment from Huawei and Chinese companies near the Canal.
• She mentioned how the Committee had successfully worked to provide $3 billion for the U.S. Federal Communications Commission’s (FCC) Rip and Replace Program at the end of the previous 118th Congress.
• She entered into the hearing’s record a letter from the two most recent U.S. Ambassadors to Panama and indicated that these Ambassadors are calling for continued U.S. investments in infrastructure and cybersecurity.
  • She commented that these Ambassadors are well aware that U.S. adversaries have built “backdoors” into communications technology, supply chains, software, and hardware.
• She remarked that the U.S. cannot tolerate Huawei, TikTok, artificial intelligence (AI), or other U.S. adversaries employing a government “backdoor” to access critical infrastructure.
  • She called for the largest basic democracies with technology interests to form a technology-focused alliance and asserted that no one should purchase technology or equipment with a government “backdoor.”
• She indicated that she would be requesting that the U.S. Department of Defense (DoD) provide a classified briefing for all Committee Members regarding foreign adversary threats to the Panama Canal and adjacent areas.
  • She mentioned how she had received an initial classified briefing from U.S. Southern Command and has spoken to former U.S. Southern Command leader General Laura Richardson about these issues.
• She also indicated that she plans to visit the Panama Canal Authority either through a Congressional Delegation or on her own and invited other Committee Members to join her on this planned visit.
• She then remarked that any successful strategy for addressing the Panama Canal cannot exclusively focus on cybersecurity and cooperation and asserted that the U.S. must also identify the current shortfalls in its current agreements governing the Canal.
  • She expressed hope that Panama would be cooperative in discussing its current cybersecurity investments and in identifying areas where further investments must be made.
• She noted that the Panama Canal Authority is independent and that the Chinese government does not set the shipping rates for the Canal.
  • She stated however that the Panama Canal Authority is currently grappling with historic rainfalls and climate change.
• She remarked that the U.S. should work with Panama to ensure that water instability at the Panama Canal does not cause higher shipping rates.
  • She also stated that the U.S. must aggressively respond to China’s BRI.
• She then lamented how the U.S. had lacked an Ambassador to Panama for a five-year period and commented that the U.S.’s lack of an Ambassador in Panama had impeded the U.S.’s ability to proactively address the situation at the Panama Canal.
• She expressed hope that the U.S. could pursue a more aggressive trade strategy in Latin America and expressed support for the bipartisan Americas Act.
  • She also stated that the U.S. should pursue a FTA of the Americas that would link modernization of all current U.S. FTAs in Latin America and the Caribbean.
  • She further stated that the U.S. should aggressively oppose government “backdoors” in technology and leverage the EXIM Bank to counter China.

Witness Opening Statements:

Chairman Louis E. Sola (U.S. Federal Maritime Commission):

• He discussed how prolonged drought conditions in 2024 had forced operational changes for the Panama Canal.
  • He elaborated that these operational changes had included reduced transit slots, restrictions on vessel types, and the auctioning of transit slots.
• He noted how the Panama Canal Authority manages the Panama Canal and explained that this Authority is an independent agency of the Panamanian government.
  • He described the Panama Canal Authority as a model of public infrastructure management and stated that the Authority’s independence has been key for ensuring safe and reliable transit of vessels critical to U.S. and global commerce.
• He recounted how he had recently met with members of the Panama Canal Authority and stated that the Authority is committed to maintaining the Panama Canal’s efficiency and resilience.
• He stated however that the Panamanian government’s maritime policies pose broader challenges.
  • He elaborated that these policies complicate the Panama Canal Authority’s mission and raise concerns about corruption and foreign influence.
• He noted how Panama’s broader maritime sector (including the nation’s ports, water rights, and ship registry) falls under the direct purview of the Panamanian government.
• He lamented however that Panama’s maritime sector has faced persistent challenges, including corruption scandals and foreign influence.
  • He indicated that these foreign influence challenges particularly stem from Brazil and China.
• He stated that these issues create friction between the Panamanian government and the Panama Canal Authority.
  • He commented that this friction undermines the Panama Canal Authority’s ability to address long-term challenges, such as securing adequate water supplies for the Panama Canal.
• He noted that while the Panama Canal Authority operates independently, he indicated that U.S. law considers the Panama Canal Authority and the Panamanian government’s maritime sector one and the same.
  • He commented that any challenges in the Panamanian government’s maritime sector (including corruption, lack of transparency, and foreign influence) can directly or indirectly impact the operations and long-term stability of the Panama Canal.
• He stated that this legal dynamic underscores the need for vigilance in monitoring both the Panama Canal Authority’s management and the Panamanian government’s policies impacting maritime operations.
• He then discussed how Chinese companies have increased their presence and influence throughout Panama since 2015.
  • He noted how Panama had become a member of China’s BRI and had ended its diplomatic relations with Taiwan.
• He mentioned how Chinese companies have been able to pursue billions of dollars in development contracts in Panama and noted how many of these contracts involved projects that were directly on or adjacent to the Panama Canal.
  • He indicated that many of these contracts were no-bid contracts and had waived labor laws.
  • He further raised concerns that many of the Chinese companies with development contracts in Panama are state-owned and that some of these companies have links to the People’s Liberation Army.
• He remarked that the U.S. must address the significant growing presence and influence of China throughout the Americas and specifically in Panama.
• He also stated that U.S. companies should play a leading role in enhancing the Panama Canal’s infrastructure.
  • He commented that support for U.S. firms reduces reliance upon Chinese contractors and promotes fair competition.
• He further called on the U.S. Senate to confirm a U.S. Ambassador to Panama and commented that this confirmation would be “critical” for advancing the U.S.’s national and economic interests.
• He testified that the FMC would continue monitoring the Panama Canal’s pricing practices and consider broad reviews of Panama’s maritime sector.
  • He noted that the FMC possesses authority to impose significant remedies, including fines and restrictions on Panamanian flag vessels entering U.S. ports.
• He remarked that the Panama Canal is vital to the U.S. economy and highlighted how over 75 percent of the Canal’s traffic is bound for U.S. ports.
• He stated that safeguarding the Panama Canal Authority’s independence and addressing the challenges posed by the Panamanian government are essential for maintaining U.S. competitiveness in a global economy.

Commissioner Daniel B. Maffei (U.S. Maritime Commission):

• He remarked that the Panama Canal remains “absolutely vital” for maintaining resilient supply chains for both U.S. importers and exporters.
• He noted how the Panama Canal depends on large supplies of freshwater to maintain full operations.
  • He mentioned how the Canal has previously experienced insufficient freshwater levels and noted how dams and lakes have been built to address the Canal’s water shortages.
  • He also indicated that the Canal has subsequently undertaken several projects to accommodate larger and more modern ships.
• He discussed how a recent trend of worsening droughts in the Panama Canal region has limited the Canal’s operations.
  • He mentioned how the Panama Canal Authority had begun employing draft restrictions and reducing the number of ships that could transit the Canal in June 2023.
• He remarked that the combination of the Panama Canal’s limitations and the Suez Canal’s de facto closure to container traffic has had serious consequences for ocean commerce.
  • He commented that these consequences include increased rates, fees, and transit times.
• He testified that U.S. importers and exporters had expressed Panama Canal-related concerns to the FMC during the first half of 2024.
  • He indicated that these concerns involved doubts about the future reliability of the Canal and questions about how the Panama Canal Authority was determining which ships could transit the Canal and how long these ships would need to wait.
• He noted that the FMC has statutory authority to investigate and take appropriate counteractions if it finds that a foreign country’s laws or regulations have contributed to “conditions unfavorable to shipping in foreign trade.”
• He discussed how he has worked with FMC Chairman Louis Sola to further investigate the issues facing the Panama Canal and testified that he has met with Panamanian officials and other stakeholders.
  • He noted that these meetings had focused on the conditions adversely impacting the Canal’s operations, the actions being taken to address these concerns, and whether any aspects of the Canal’s operations might result in conditions unfavorable to U.S. shipping that the FMC could address.
• He mentioned how he and FMC Chairman Sola had traveled to Panama in July 2024 to meet with Panamanian President José Mulino, Panamanian officials, Panama Canal Authority officials, and private sector stakeholders.
  • He testified that he had engaged in “candid” discussions with these parties on key issues, such as Panama’s plans to ameliorate water level challenges, the bidding processes used to allocate transits during times of restrictions, and concerns that the Panama Canal Authority was generating more revenue during the crisis.
• He stated that both the Panamanian government and the Panama Canal Authority had provided substantive responses to the FMC’s questions.
  • He mentioned how the Panama Canal Authority had indicated that it was already making changes to its allocation system.
• He then expressed relief that Panama’s 2024 rainy season currently appears to have alleviated the most acute water supply issues at the Panama Canal and indicated that the Canal’s normal transit volumes have been restored.
• He stated that the Panamanian government and the Panama Canal Authority have developed credible plans to mitigate future water shortages (with the advice of the U.S. Army Corps of Engineers).
  • He indicated however that these bodies have warned that one more period of reduced transits will occur before the plans can be fully implemented.
• He testified that the FMC has continued to monitor Panama’s progress on addressing the Panama Canal’s current issues and has examined the Panama Canal Authority’s announced policy changes.
• He raised concerns over the Panama Canal’s auction-like slot allocation procedures during future periods of low rainfalls.
  • He stated that the FMC remains positioned to take appropriate action to respond to future problems if warranted.
• He concluded that the impact of the Panama Canal’s operations on American commerce remains a high priority for the FMC.

Prof. Eugene Kontorovich (Scalia Law School, George Mason University):

• He remarked that determining whether a certain situation violates the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal is a “mixed question” of law and fact.
  • He commented that such determinations depend on both the meaning of the Treaty and the actual situation on the ground.
• He testified that he had not received any classified intelligence briefings regarding the Panama Canal.
  • He stated that he would therefore confine his remarks to the meaning of the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal.
• He discussed how international law entitles each party to the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal to determine for itself whether a violation of the Treaty has occurred.
• He noted how Panama had agreed to a special regime of neutrality for governing the Panama Canal in exchange for the U.S. ceding control of the Canal.
  • He commented that the special features of this regime of neutral are that the Canal must be open to all nations for transit (Article II), that the Canal have equitable tolls and fees (Article III), that there be exclusive Panamanian operation of the Canal (Article V), and that foreign military processes must be prohibited from the Canal (Article V).
• He mentioned how the Carter administration had asserted that Article V of the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal prohibits foreign operation of the Panama Canal and the Canal’s garrisoning of foreign troops.
  • He indicated that the Carter administration had made these assertions in testimony before the U.S. Senate during the Treaty’s ratification hearings.
• He stated that Article V of the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal appears to be primarily concerned about foreign sovereigns controlling the Panama Canal.
  • He commented that a hypothetical treaty between Panama and China that had China operate the Canal on Panama’s behalf would constitute a clear violation of the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal.
• He remarked however that Article V of the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal is less clear regarding Panama’s ability to contract with a Chinese state-owned firm or a Chinese-influenced firm to conduct port operations for the Panama Canal.
  • He mentioned how the Suez Canal Company had previously been a private firm in which the United Kingdom (UK) was a controlling shareholder.
  • He noted how the UK’s previous control over the Suez Canal Company was understood to represent British control over the Suez Canal.
• He remarked that policymakers must determine the degree of de jure or de facto control over a foreign sovereign company when assessing adherence to the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal.
  • He commented that this control can range from government companies in an authoritarian regime to purely private companies in an open society and noted how there exist companies that operate between these two extremes.
• He stated that the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal is silent on the question of how much government control over a company is too much for the purposes of the Treaty.
  • He commented that each party of the Treaty has judgement and discretion in answering this question.
• He then discussed how the presence of third-country troops at the Panama Canal would violate Article V of the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal.
  • He commented however that something short of a foreign military base at the Panama Canal would not necessarily be permissible.
• He stated that the presence of foreign security forces at the Panama Canal could violate the regime of neutrality, even if the forces are not represented and organized in open military formations.
• He noted how belligerent powers have sought to evade international legal limitations through disguising their actions in civilian garb.
  • He commented that bad actors seek to exploit the fact that international treaties focus on sovereign actors.
  • He highlighted how many of China’s man-made islands in the South China Sea had begun as civilian projects before being militarized.
• He mentioned how the U.S. Senate ratification hearings for the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal had considered what constitutes the presence of third-country troops at the Panama Canal.
  • He mentioned how former U.S. Secretary of State Dean Rusk had stated during these hearings that “informal forces” would be prohibited under the Treaty.
• He asserted that the ostensible civilian character of the Chinese presence around the Panama Canal does not necessarily mean that the Chinese presence could not represent a violation of the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal.
  • He elaborated that the Treaty would be violated if the companies surrounding the Canal involved Chinese covert agents.
• He then noted how the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal does not contain a third-party dispute resolution provision and indicated that the Treaty states that each party determines for itself whether a violation has occurred.
  • He explained that Article IV of the Treaty provides that each party is separately authorized to maintain the regime of neutrality.
• He also stated that the U.S. Senate’s understanding of the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal at the time of ratification makes clear that Article V allows for each party to take unilateral action.
  • He mentioned how former Sen. Jacob Javits (R-NY) had stated at the Treaty’s markup that the U.S. can decide that the Treaty’s regime of neutrality is being threatened and unilaterally act with “whatever means are necessary” to keep the Canal neutral.

Mr. Joseph Kramek (World Shipping Council):

• He noted how his trade association, the WSC, represents the international liner shipping industry.
  • He testified that the WSC’s membership consists of 90 percent of the world’s liner shipping tonnage, which are container vessels and vehicle carriers.
  • He discussed how the WSC’s members operate on fixed schedules to provide customers with regular service to ship their goods to ports throughout the world.
• He remarked that the WSC is focused on providing sustainable, safe, and secure international ocean transportation and asserted that a sustainable, safe, and secure Panama Canal would benefit both the U.S. economy and the WSC’s members.
• He stated that the use of the Panama Canal for transiting between the Atlantic Ocean and the Pacific Ocean saves significant time and money.
  • He noted how a typical voyage between Asia and the U.S.’s East Coast can be made in under 30 days using the Canal while the same voyage would take up to 40 days for carriers using alternate routes.
• He discussed how one of the world’s busiest trade lanes is the Trans-Pacific trade lane and explained how this trade lane is used to transport cargo between Asia and the U.S.
  • He noted how cargo coming from Asia and bound for U.S. Gulf and East Coast ports always transits the Panama Canal.
  • He also noted how cargo being exported from U.S. Gulf and East Coast ports (of which a large portion are U.S. agricultural exports) almost always transit the Panama Canal.
• He highlighted how 75 percent of the Panama Canal’s traffic either originates in the U.S. or is bound for the U.S.
  • He mentioned how the Port of Houston exports $14 billion in containerized trade to Asia, the Port of New Orleans exports $27 billion in seaborne trade to Asia, the Port of New York and New Jersey exports $16.5 billion to Asia, and the Port of Savannah exports $13 billion to Asia.
  • He added that not all of the Port of New Orleans’s exports to Asia involve containerized vessels.
• He testified that the WSC’s members are the largest users of the Panama Canal and that these members carry the bulk of the trade transiting the Canal.
• He discussed how global ocean trade is always facing challenges and mentioned how the Panama Canal had experienced a drought in 2023.
  • He noted how these low water levels had reduced transits across the Canal from 36 transits per day to as low as 22 transits per day.
• He also mentioned how the Panama Canal’s low water levels had required a reduction in maximum allowable draft levels, which reduced the number of containers that WSC members could carry through the Canal.
  • He indicated that this reduction in maximum allowable draft levels had resulted in a 10 percent reduction in import volumes for U.S. Gulf and East Coast ports.
  • He highlighted how the Port of Houston had experienced a 26.7 percent reduction in import volumes.
• He stated that the volume of containerized trade coming into the U.S. remains at near record levels and is continuing to expand.
  • He mentioned how inbound trade to the U.S. had expanded by 15 percent in 2024, which is second only to the 17.5 percent inbound trade growth during the COVID-19 pandemic.
  • He also mentioned how the Port of Houston had recently reported record-breaking trade volumes with an 8 percent increase.
• He testified that WSC members have transported $1.5 trillion in goods to and from U.S. ports, which represents 64 percent of all seaborne trade.
  • He also indicated that these members have contributed $2 trillion in economic output to the U.S., supported 6.4 million U.S. jobs, and have supported over $442 billion in wages and salaries.
• He expressed the WSC’s interest in working with the Committee on maintaining the sustainability, safety, and security of the Panama Canal.
  • He described the Canal as a “vital ocean artery” that is critical to U.S. trade.

Congressional Question Period:

Full Committee Chairman Ted Cruz (R-TX):

• Chairman Cruz asked Chairman Sola and Commissioner Maffei to indicate whether he is aware of allegations from some vessel operators that Panama had provided disparate treatment through “sweetheart deals” or favorable rebates for Panama Canal transits.
  • Chairman Sola testified that the FMC had received complaints from cruise lines that the cruise lines were not receiving refunds for their Panama Canal tolls. He indicated that the FMC had reviewed these complaints and had found a Panamanian executive order that provides full fee refunds for cruise lines that stop at a specific port. He testified that this executive order is the only instance of disparate treatment that he is aware of.
  • Commissioner Maffei testified that the FMC is continuing to investigate whether Panama is providing disparate treatment for vessel operators. He stated that the FMC has found that the Panamanian government is providing disparate treatment for cruise lines.
• Chairman Cruz then noted how some press coverage states that the Panama Canal is “nominally independent.” He commented however that the Canal provides a large share of the Panamanian government’s revenue. He asked Chairman Sola to describe how the FMC views the Panama Canal Authority and the Panamanian government. He asked Chairman Sola to indicate whether the Panama Canal Authority and the Panamanian government are distinct entities or a single foreign government apparatus that controls the Panama Canal.
  • Chairman Sola remarked that the Merchant Marine Act of 1920 states that only one entity controls the Panama Canal. He also noted how the U.S. Shipping Board had been the predecessor to the FMC and stated that the U.S. Shipping Board had been formed as a direct result of the Panama Canal. He mentioned how the first Chairman of the U.S. Shipping Board was the Panama Canal’s first administrator.
  • Commissioner Maffei compared the relationship between the Panama Canal Authority and the Panamanian government to the relationship between the Georgia Ports Authority and the state of Georgia. He noted that while the Georgia Ports Authority is independent, he remarked that the state of Georgia has ultimate responsibility for the Georgia Ports Authority.
• Chairman Cruz then noted how Panama had been the first Latin American country to join China’s BRI. He highlighted how China is currently constructing a fourth bridge across the Panama Canal for car traffic and light rail. He asked Chairman Sola to explain why Chinese construction of a bridge near Panama City should concern the U.S.
  • Chairman Sola stated that the recent Francis Scott Key Bridge collapse had devastated Baltimore. He also mentioned how a recently stuck ship in the Suez Canal had created problems. He warned that China’s current efforts to both build a new bridge over the Panama Canal and remove an existing bridge over the Canal would “paralyze” cargo traffic in and out of the Canal.
• Chairman Cruz also mentioned how Panama had recently renewed the concessions for two container ports to a Chinese company (Hutchison Ports PPC). He stated that the CCP controls Chinese companies. He asked the witnesses to discuss how China uses control of these container ports for their own economic gain.
  • Chairman Sola noted how the Port of Balboa (which is owned by Hutchison Ports PPC) is approximately the same size as the Port of Houston. He indicated that the Port of Balboa handles 4 million containers annually and has about 28 gantry cranes. He also noted how the Port of Cristobal (which is owned by Hutchison Ports PPC) is approximately the same size as the Port of Miami. He indicated that the Port of Cristobal handles about 1 million containers annually. He mentioned how the Port of Houston generates about $1 billion annually in concessions and how the Port of Miami generates about $200 million annually in concessions. He noted however that the Hutchison Ports PPC had not paid concessions for 20 years to operate the Port of Balboa and the Port of Cristobal. He commented that this situation puts U.S. ports at a competitive disadvantage.
  • Commissioner Maffei noted that the Port of Balboa and the Port of Cristobal do not control the entrances to the Panama Canal. He indicated that the Panama Canal Authority controls these entrances. He stated however that Hutchison Ports PPC’s involvement with these ports is concerning. He also mentioned how the Panamanian government is concerned about Hutchison Ports PPC’s control of these ports. He noted how the Panamanian government is conducting its own audit of these port deals. He reiterated the FMC’s interest in monitoring this situation.
• Chairman Cruz then mentioned how President Trump has argued that Chinese control over the Panama Canal’s infrastructure and the Panama Canal Authority’s “exorbitant” fees charged for Canal transits constitute violations of the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal. He noted how Article IV of the Treaty requires both the U.S. and Panama to establish and maintain a “regime of neutrality,” how Article V of the Treaty prohibits foreign control of the Canal, and that Article III of the Treaty requires that the Canal’s tolls and other charges be just, reasonable, equitable, and consistent with the principles of international law. He asked Prof. Kontorovich to indicate whether the facts being discussed at the hearing could be considered violations of the Treaty.
  • Prof. Kontorovich stated that the facts being discussed at the hearing could potentially be considered violations of the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal. He asserted however that it remains impossible to definitively conclude that the Treaty is being violated without additional information regarding China’s control and involvement with companies working near the Panama Canal. He mentioned how Hong Kong-based companies had received initial contracts with the Canal prior to China’s takeover of Hong Kong. He noted how Hong Kong has now been incorporated into China and has been placed under a special national security regime. He remarked that the independence of said Hong Kong-based companies has thus been “greatly abridged.” He also noted how there exist Chinese state-owned companies operating in the Canal area. He stated that these companies raise “significantly greater questions.” He further discussed how understandings between former President Carter and former Panamanian leader Herrera (which formed part of the Treaty) provide that the U.S. can defend the Canal against any threat to the regime of neutrality. He stated that these understandings provide the U.S. with preemptive authority to intervene regarding the Canal. He concluded that there exists some incipient ability to address potential violations of the Treaty.
• Chairman Cruz asked Prof. Kontorovich to identify the range of remedies that the U.S. could pursue if the U.S. were to determine that Panama had violated the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal.
  • Prof. Kontorovich remarked that the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal was understood as providing both parties separately the right to resort to the use of armed force to enforce the Treaty’s provisions. He called the provision of this right unsurprising given how the U.S. had transferred the Panama Canal (which it had built and operated at great expense) to Panama without charge. He noted how Panama had accepted a permanent limitation on its sovereignty through agreeing that the U.S. could enforce a regime of neutrality through armed force. He stated that while the use of armed force should not be considered a first course of action, he commented that the Treaty contemplates the use of armed force as a remedy for Treaty violations.

Full Committee Ranking Member Maria Cantwell (D-WA):

• Ranking Member Cantwell remarked that the hearing is fundamentally focused on shipping costs. She noted how consumers, exporters, and importers pay more for goods when shipping costs are higher. She then mentioned how her state of Washington had nearly experienced a shipping incident involving a container ship that had lost power. She also mentioned how Baltimore and the Suez Canal had experienced incidents that had obstructed shipping activities. She asked Mr. Kramek to discuss how the U.S. could ensure that it is making sufficient security investments to prevent potential shipping incidents. She also asked Chairman Sola to address how the U.S. should work with Panama to ensure sufficient security at the Panama Canal. She further asked Commissioner Maffei to indicate whether Panama’s current audit of its port contracts with Hutchison Ports PPC would lead Panama to reconsider these contracts. She asserted that the U.S. should be “very aggressive” regarding its involvement in the Latin American shipping space.
  • Mr. Kramek remarked that a single shipping safety incident should be considered unacceptable. He testified that WSC members work with the IMO, the U.S. Coast Guard, and other entities to achieve the safest operations possible. He acknowledged that shipping accidents still occur and noted that these accidents are rare. He stated that continued investments in U.S. infrastructure and reviews of existing infrastructure could be helpful for preventing shipping incidents. He testified that WSC members are investing in the latest safety technologies. He mentioned how there are currently over 600 ships on order that contain these latest safety technologies.
• Ranking Member Cantwell interjected to express her desire for the U.S. to obtain a large portion of these new ships. She then asked Chairman Sola to comment on the prospect of the U.S. working with the Panama Canal Authority to ensure the safety of the Panama Canal.
  • Chairman Sola remarked that there has always existed an understanding that the U.S. would provide security for the Panama Canal. He noted that Panama does not have a military. He also stated that U.S. Southern Command and Panama have a close relationship and that the U.S. would provide security for the Canal if needed. He expressed support for formalizing this understanding. He stated that the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal does not formally provide the U.S. with the authority to provide security for the Canal.
• Ranking Member Cantwell then remarked that the U.S. should work to formalize a cybersecurity agreement with Panama. She raised concerns over the prospect that Panama would adopt technology or equipment with a government “backdoor.” She asserted that the U.S. should actively oppose the adoption of such technology or equipment. She then asked Commissioner Maffei to discuss Panama’s current audit of its port contracts with Hutchison Ports PPC. She also asked Commissioner Maffei to indicate whether the U.S. could influence Panama to adopt U.S. infrastructure. She recounted how China had swiftly asserted control over Hong Kong and raised concerns that a similar situation may occur in Panama. She reiterated her assertion that the U.S. must actively oppose the adoption of technology or equipment with a government “backdoor.” She also remarked that the U.S. should work with other democracies to actively oppose the adoption of such technology or equipment.
  • Commissioner Maffei mentioned how the Panamanian Comptroller’s Office is investigating Panamanian port contracts. He noted that the U.S. lacks jurisdiction over Panamanian ports. He remarked however that several Panamanians had expressed interest in having U.S. companies provide services for Panama Canal ports. He stated that U.S. company bids are currently uncompetitive with Chinese company bids at the Panama Canal ports. He also stated that U.S. companies are not bidding on Panama Canal-related contracts and are instead pursuing more lucrative opportunities elsewhere. He asserted however that the U.S. companies face challenges making competitive bids for these contracts given how China is subsidizing their companies pursuing Canal-related contracts. He added that this problem is not confined to the Panama Canal.
• Ranking Member Cantwell interjected to indicate that her question period time had expired. She remarked that the U.S. should seek to become a dominant competitor in the global maritime sector. She commented that the U.S. can accomplish this objective through revitalizing its supply chains, driving down costs for consumers, and promoting security.

Full Committee Chairman Ted Cruz (R-TX):

• Chairman Cruz asked Commissioner Maffei to address why China is heavily subsidizing the bids of Chinese companies competing for contracts related to the Panama Canal.
  • Commissioner Maffei remarked that China has not hidden their ambition to gain influence at ports throughout the world. He mentioned how China has directly invested in 129 ports in dozens of countries and runs a majority of 17 ports. He noted that these investments do not include Hutchison Ports PPC’s involvement in the Panama Canal. He remarked that China believes that investments in and influence with global maritime ports is economically important.

Sen. Deb Fisher (R-NE):

• Sen. Fischer mentioned how Hutchison Ports PPC had been awarded contracts in 2021 for two Panama Canal ports in a no bid award process. She indicated that these ports are the Port of Balboa and the Port of Cristobal. She asked Prof. Kontorovich to indicate whether the U.S. has any authority or recourse with the Panama Canal Authority under its current treaties to rebid these terminal concession contracts.
  • Chairman Sola noted that both the Porto of Balboa and the Port of Cristobal are under 25-year contracts through 2047.
• Sen. Fischer interjected to ask Chairman Sola to clarify whether the two Panama Canal port contracts cannot be rebid until 2047.
  • Chairman Sola noted that the Panamanian Comptroller’s Office is auditing the Port of Balboa, the Port of Cristobal, and the contracts associated with the ports. He indicated that these port contracts had been awarded under the previous Panamanian administration. He mentioned that the new Panamanian administration had immediately called for the audit upon taking office.
• Sen. Fisher asked Commissioner Maffei to indicate whether Panama would be receptive to receiving contract bids from non-Chinese companies.
  • Commissioner Maffei first acknowledged that Panama’s contracting process is outside the FMC’s purview. He remarked however that the ability of U.S. companies to compete for Panama Canal contracts is important. He stated that the U.S. has not prioritized efforts to make U.S. firms competitive for international contracts. He noted how many countries maintain laws requiring that contracts be awarded to the lowest bidder. He remarked that Congress should consider whether the U.S. ought to invest in infrastructure at port maritime locations around the world for strategic and economic reasons. He mentioned how China has been pursuing these international investments for 20 years.
• Sen. Fisher then noted how the Panama Canal loses freshwater when ships move through it and called freshwater “vital” to the Canal’s workings. She asked Commissioner Maffei to comment on the effectiveness of investments that increase the Canal’s freshwater storage. She asked Commissioner Maffei to indicate whether such investments are occurring and viable.
  • Commissioner Maffei discussed how there exist several investments that could increase the Panama Canal’s freshwater storage, including water reclamation. He noted how the main plan that the U.S. Army Corps of Engineers has developed for the Canal involves bringing in more freshwater at an elevation. He commented that this plan faces many implementation challenges (including its impact on indigenous populations). He remarked that while this plan is viable, he stated that this plan would take time to implement. He also commented that there will likely occur at least one instance of freshwater limitations during the plan’s implementation.

Sen. Lisa Blunt Rochester (D-DE):

• Sen. Blunt Rochester remarked that the hearing is fundamentally focused on the U.S.’s ability to compete globally and to maintain its national security. She mentioned how she had reintroduced the bipartisan Promoting Resilient Supply Chains Act of 2025. She stated that this legislation would ensure that the U.S. possesses a national strategy for addressing its supply chains. She also stated that the legislation would support the U.S.’s relationship building with international allies so that these allies do not partner with the U.S.’s global competitors. She called on the Committee to hold a hearing focused on how the U.S. competes with China internationally. She raised concerns over China’s global infrastructure investments and potential cyberthreats to the U.S. She then discussed how the Panama Canal has experienced challenges resulting from droughts. She asked Mr. Kramek to indicate whether the Panama Canal Authority had taken sufficient actions to anticipate the challenges impacting the Canal’s operation.
  • Mr. Kramek remarked that the Panama Canal Authority had acted appropriately considering the information that was available. He commented that the Panama Canal Authority likely did not anticipate the magnitude of the recent drought at the Panama Canal. He expressed support for efforts to develop a second reservoir to support Gatun Lake and for the U.S. Army Corps of Engineers’s feasibility review of this project. He stated that these actions would improve the resiliency of the Canal and make the Canal a viable water pathway over the long-term.
• Sen. Blunt Rochester asked Mr. Kramek to indicate whether the Panama Canal Authority had considered the impacts of droughts as part of their planning efforts.
  • Mr. Kramek stated that he does not know the factors that the Panama Canal Authority had considered as part of their planning efforts.
• Sen. Blunt Rochester remarked that the Panama Canal Authority had known about the potential impact of droughts on shipping and had not taken sufficient action to address drought concerns. She asked Mr. Kramek to discuss the actions that the Panama Canal Authority must take to return the Panama Canal to full operation.
  • Mr. Kramek remarked that the Panama Canal has returned to full operation and that the Canal’s traffic issues have been resolved. He recommended that the Panama Canal Authority consider infrastructure projects to make the Canal more viable.
• Sen. Blunt Rochester then mentioned how her state of Delaware is home to the Port of Wilmington and noted how the Port is one of the leading importers of fruits. She stated that the Panama Canal’s delays have an outsized impact on perishable goods (such as fruits). She asked the witnesses to indicate whether the Panama Canal Authority can and should prioritize perishable goods or provide some other solution for addressing perishable goods.
  • Commissioner Maffei testified that the FMC has received complaints from container shippers that export time-sensitive goods. He identified cotton as an export product that might be time-sensitive due to market conditions. He noted however that these time sensitive goods are being exported on container ships that are also carrying less time-sensitive cargo. He recounted how the Panama Canal Authority had established a bidding process during the recent drought to allocate their reduced number of transit slots. He noted how ships containing LNG (which is a very valuable and time-sensitive product) had “far outbid” other container shippers for these transit slots. He then mentioned how the FMC is studying whether container ships holding time-sensitive products (such as agriculture products) could be assisted.
• Sen. Blunt Rochester acknowledged that her question period time had expired and indicated that she would be submitting additional questions for the record. She also expressed interest in improving the U.S.’s competitiveness in bids for Panama Canal-related contracts.

Sen. Dan Sullivan (R-AK):

• Sen. Sullivan noted how a Chinese company operates the two ports (the Port of Balboa and the Port of Cristobal) at both ends of the Panama Canal. He mentioned how these ports had received a 25-year extension of their concession and how this extension had not been subjected to bidding. He asked Chairman Sola and Prof. Kontorovich to indicate whether this extension constitutes a “sweetheart deal.”
  • Chairman Sola noted that the Chinese company (Hutchison Ports PPC) that had received the 25-year extension of the concession to operate the Panama Canal ports had paid back taxes totaling $150 million according to the press release of the deal.
• Sen. Sullivan asked Chairman Sola to confirm that the Panama Deputy Attorney General is now objecting to the Panama Canal Authority’s granting of these 25-year extensions for the concession to operate the Port of Balboa and the Port of Cristobal.
  • Chairman Sola noted that Panama’s Comptroller has requested an audit of the 25-year extension of the concession to operate the Port of Balboa and the Port of Cristobal.
• Sen. Sullivan asked Chairman Sola to indicate whether the extensions of the concession to operate the Port of Balboa and the Port of Cristobal had received objections when the extensions were granted.
  • Chairman Sola stated that the extensions of the concession to operate the Port of Balboa and the Port of Cristobal had received many objections.
• Sen. Sullivan remarked that CCP officials have a reputation for engaging in bribery with foreign officials around the world. He also commented that Panama has a reputation for having government officials that are susceptible to bribery. He asked Prof. Kontorovich to indicate whether there exists evidence that CCP officials had engaged in bribery with Panamanian officials to obtain the concession to operate the Port of Balboa and the Port of Cristobal. He also asked Prof. Kontorovich to indicate whether such bribery would violate the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal.
  • Prof. Kontorovich remarked that CCP officials bribing Panamanian officials to obtain a concession to operate ports would not violate the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal in itself. He stated however that actual threats to the operation of the Panama Canal would constitute a violation of said Treaty. He remarked that the extent of the Chinese government’s involvement in procuring contracts provides additional support for the notion that the companies that were awarded the contracts are serving a government interest. He concluded that while the bribery itself would not be a violation of the Treaty, he stated that the bribery would serve as circumstantial evidence that the Treaty had been violated.
• Sen. Sullivan posited a hypothetical scenario where China invades Taiwan or goes to war in the South China Sea. He noted that this hypothetical invasion would cause the U.S. to surge the U.S. Navy to the Indo-Pacific region (which would entail the use of the Panama Canal for transit). He asked the witnesses to indicate whether the Chinese company controlling the ports at both ends of the Panama Canal is subject to the PRC’s National Security Law security laws. He explained that these laws mandate that Chinese companies cooperate with the Chinese military and state intelligence agencies.
  • Prof. Kontorovich remarked that Hutchison Ports PPC is always subject to the PRC’s National Security Law by virtue of being a Hong Kong-based company. He stated that Hutchison Ports PPC would therefore face consequences if it failed to comply with these laws.
• Sen. Sullivan interjected to ask Prof. Kontorovich to indicate whether the fact that the Panama Canal Authority had contracted with a Chinese company subject to the PRC’s National Security Law violates the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal.
  • Prof. Kontorovich interjected to remark that the fact that the Panama Canal Authority had contracted with a Chinese company subject to the PRC’s National Security Law poses a threat to the neutrality provisions of the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal.
• Sen. Sullivan asked Prof. Kontorovich to indicate whether China could direct the Port of Balboa and the Port of Cristobal to obstruct U.S. ships if these U.S. ships were seeking to respond to Chinese military action.
  • Prof. Kontorovich indicated that he did not know whether the Port of Balboa and the Port of Cristobal would be obligated to carry out China’s directions to obstruct U.S. ships under Sen. Sullivan’s hypothetical scenario. He stated however that China would have many “tools of leverage” to exert pressure on these ports. He highlighted how the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal empowers the U.S. to act to end potential obstructions to the Panama Canal. He elaborated that the Treaty does not require that the U.S. wait until the Canal is closed to take action. He noted that the President has discretion to determine whether potential threats to the Panama Canal’s access warrant a U.S. response.
• Sen. Sullivan raised concerns that Chinese control of the Port of Balboa and the Port of Cristobal could pose a significant national security threat to the U.S. in the event of a Chinese military action. He noted that these ports would be obligated to take direction from China if such an event were to occur. He asked Prof. Kontorovich to comment on these concerns.
  • Prof. Kontorovich expressed agreement with Sen. Sullivan’s concerns that Chinese control of the Port of Balboa and the Port of Cristobal pose a national security threat to the U.S. He stated that the U.S. faces challenges responding to China’s actions because China is concealing the true extent of their involvement in the Panama Canal.
• Sen. Sullivan posited a scenario in which Hutchison Ports PPC has Chinese spies or military officials within the ranks of their employees. He commented that this scenario is likely already occurring. He asked Prof. Kontorovich and Chairman Sola to indicate whether this presence of Chinese military officials at the Port of Balboa and the Port of Cristobal constitute a blatant violation of Article V of the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal.
  • Prof. Kontorovich answered affirmatively. He noted how former U.S. Secretary of State Dean Rusk had stated that informal forces could violate Article V of the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal during the Treaty’s U.S. Senate ratification hearing.
• Sen. Sullivan asked Chairman Sola to indicate whether he agrees with Prof. Kontorovich’s response. He also asked Chairman Sola to indicate whether there exists any evidence that Chinese spies or other nefarious Chinese actors are embedded within Hutchison Ports PPC.
  • Chairman Sola testified that the FMC has no information regarding the presence of Chinese spies or other nefarious Chinese actors being embedded within Hutchison Ports PPC. He commented that the presence of such Chinese actors within the Port of Balboa or the Port of Cristobal does not fall under the FMC’s purview. He also stated that the presence of such Chinese actors at these ports would violate Article V of the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal.

Sen. Tammy Baldwin (D-WI):

• Sen. Baldwin raised concerns over China’s large and growing influence within global infrastructure networks. She discussed how a Hong Kong-based company (Hutchison Ports PPC) operates ports located at both ends of the Panama Canal. She noted that while this company is not state-owned, she indicated that the company is subject to the National Intelligence Law of the PRC. She further mentioned how a Chinese state-owned entity is currently constructing a bridge over the Panama Canal. She remarked that the Panama Canal is just one example of the broad scope of China’s influence. She stated that China’s dominance in the maritime, logistics, and shipbuilding sectors lessens competition, poses supply chain risks, and creates opportunities for surveillance and information gathering. She called it essential for there to exist a “secure and level playing field” to facilitate the movement of goods throughout the world. She commented that China’s current practices do not allow for such an environment. She mentioned how the U.S. Trade Representative had recently investigated China’s practices in the commercial shipbuilding sector under Section 301 of the Trade Act of 1974. She noted how the U.S. Trade Representative had concluded that China’s dominance in this sector is a burden to U.S. commerce. She highlighted how the U.S. Trade Representative had found that the U.S. had only built five commercial ships in 2023 while China had built over 1,700 commercial ships in 2023. She asked Commissioner Maffei to recommend policies that the U.S. should pursue to prioritize the growth of the U.S.’s influence in the maritime and logistics sectors to compete with China and provide a fairer environment.
  • Commissioner Maffei expressed agreement with Sen. Baldwin’s concerns over China’s involvement within the maritime, logistics, and shipbuilding sectors. He also raised concerns over the fact that Hutchison Ports PPC operates the ports at both ends of the Panama Canal. He remarked that the U.S. should be concerned that Hutchison Ports PPC might be harboring spies beyond these two ports. He highlighted how Hutchison Ports PPC owns the UK’s largest container port (the Port of Felixstowe), which is responsible for nearly half of the UK’s container trade. He also mentioned how Hutchison Ports PPC controls major maritime terminals in Argentina, Australia, the Bahamas, Germany, Indonesia, Mexico, Myanmar, the Netherlands, South Korea, and Tanzania. He further stated that China might have operational or strategic influence over the Suez Canal, the Singapore Strait, the Mediterranean Sea, and the English Channel through Hutchison Ports PPC. He then discussed how China heavily subsidizes its shipbuilding sector and noted how half of WSC member company ships come from China. He stated that WSC member companies often must choose Chinese ships because of their low prices. He remarked that this problem has been ongoing for 20 years. He expressed support for Full Committee Ranking Member Maria Cantwell’s (D-WA) call for the U.S. to adopt a national maritime strategy to address the national security and economic implications stemming from China’s involvement within the global maritime space. He expressed optimism that the U.S. can counter China’s aggressiveness in this space if the U.S. makes such efforts a national priority. He acknowledged that these efforts would entail investments in foreign countries, which could be politically challenging. He asserted however that these efforts are necessary for countering China’s global influence.
• Sen. Baldwin expressed confidence that Congress could develop bipartisan solutions for addressing the Panama Canal-related challenges being discussed at the hearing. She remarked that the U.S. should strengthen its relationship with Panama through mutually beneficial actions. She specifically asserted that the U.S. should have a fully-staffed U.S. Embassy in Panama. She lamented how the U.S. had lacked a U.S. Ambassador to Panama from 2018 to 2022, which she attributed to “partisan gridlock” in the U.S. Senate confirmation process. She asked Prof. Kontorovich to suggest additional strategies for the U.S. to pursue that would encourage Panama to enhance its security relationship with the U.S. rather than China. She also asked Prof. Kontorovich to discuss how the U.S. can leverage the strength of U.S. private sector to encourage more investment in infrastructure projects in Chinese-dominated areas.
  • Prof. Kontorovich remarked that China’s advantage in bidding for international infrastructure projects stems from their willingness to use government wealth to consistently underbid for contracts. He stated that having these international infrastructure projects be based on contract awards would therefore render U.S. companies globally uncompetitive. He recommended that the U.S. make clear to Panama that contracts with Chinese companies are considered suspect and incompatible with the neutrality regime envisioned under the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal. He commented that this conclusion is based on increasing Chinese control over Hong Kong, the passage of the National Security Law of the PRC, China’s BRI, and China’s Military-Civilian Fusion strategy. He remarked that this approach would enable U.S. and other truly private companies to effectively compete for Panama Canal-related contracts.

Sen. Marsha Blackburn (R-TN):

• Sen. Blackburn asked Chairman Sola, Commissioner Maffei, and Mr. Kramek to indicate whether China’s investments in the Panama Canal constitute a direct threat to U.S. national security.
  • Note: Chairman Sola and Commissioner Maffei’s responses were inaudible.
  • Mr. Kramek commented that his industry trade association lacks sufficient information to answer Sen. Blackburn’s question.
• Sen. Blackburn then noted how the U.S. is the primary user of the Panama Canal. She also highlighted how the U.S. is Panama’s largest provider of direct foreign investment and indicated that the U.S. invests $3.8 billion into Panama annually. She asked Prof. Kontorovich to indicate whether the U.S.’s investments in Panama should be contingent on Panama’s adherence to the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal and on Panama’s sole control of the Panama Canal.
  • Prof. Kontorovich remarked that the U.S. could put conditions on its aid to and economic relationships with Panama to enforce the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal. He also stated that U.S. could put conditions on its aid to and economic relationships with Panama outside of the context of the Treaty to discourage Panama from working with China. He commented that the U.S. has traditionally not conditioned its economic involvement with other countries on these countries not maintaining ties with China. He suggested that China might have developed robust international relationships because the U.S. has not imposed such conditions. He stated that the U.S. does not require treaties to exert economic pressures on countries to refrain from working with China.
• Sen. Blackburn interjected to note how China is using its BRI to push the Digital Yuan. She raised concerns that China might force U.S. shippers and U.S. ally shippers using the Panama Canal to use the Digital Yuan for payments. She asked Chairman Sola to discuss the potential for the CCP to engage in fee manipulation at the Panama Canal. She mentioned how there are reports that the Canal’s toll structure is disadvantageous to U.S. companies and that the Canal’s fees put bulk shippers in an adverse position. She noted that these bulk shippers have a significant impact on ports along the lower Mississippi River. She further asked Chairman Sola to comment on her concerns that Chinese companies along the Panama Canal would provide preference to payments made in Chinese currency.
  • Chairman Sola remarked that FMC Commissioners had traveled to the Panama Canal to investigate Panama’s auctioning of slots for ships seeking to transit the Canal. He noted how Panama had increased the number of slots that were subject to auctions because these auctions generated significant revenue.
• Sen. Blackburn interjected to ask Chairman Sola to confirm that ships that won auctions were given priority in transiting the Panama Canal.
  • Chairman Sola answered affirmatively. He noted how maritime law dictates that ships should transit the Panama Canal on a “first come, first served” basis. He stated however that Panama has always reserved a certain percentage of priority transit slots and has raised this percentage of reserved priority transit slots. He mentioned how the FMC had received complaints from LNG carriers that they were paying very high fees for these reserved priority transit slots. He also mentioned how the FMC had received complaints from agriculture carriers that could not afford the reserved priority transit slots. He noted how these fees had enabled the Panama Canal Authority’s revenues to increase from about $500 million to $1.8 billion over three years. He stated that these revenue increases are “very concerning” to the FMC and U.S. shippers.
• Sen. Blackburn asked Chairman Sola to indicate whether the Panama Canal has provided preference for the use of the Digital Yuan over the use of the U.S. dollar.
  • Chairman Sola indicated that he had heard that the Digital Yuan has been used in international shipping as a currency. He testified that the FMC is monitoring the use of the Digital Yuan in international shipping and noted how a digital shipping exchange rule is currently under development.

Sen. Amy Klobuchar (D-MN):

• Sen. Klobuchar first criticized the recently issued White House OMB memorandum that would pause federal funding. She stated that this memorandum presents a “severe” problem for trade and U.S. innovation. She raised concerns over how the memorandum would freeze all federal funding already granted to port and freight infrastructure. She then discussed how the Panama Canal is a critical trade corridor that allows for U.S. businesses (including farmers) to reach international customers. She mentioned how she had worked with now-Senate Majority Leader John Thune (R-SD) to pass the Ocean Shipping Reform Act of 2022. She explained that this law empowers the FMC to better address rates charged by international shippers to U.S. businesses. She stated that this law has helped to reduce these rates. She then asked Commissioner Maffei to indicate whether there have been any instances of the U.S. having been treated unfairly under the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal.
  • Commissioner Maffei answered no. He stated that Panama Canal fee increases disproportionately impact the U.S. because the U.S. disproportionately uses the Canal.
• Sen. Klobuchar reiterated her statement that the Panama Canal constitutes a critical trade corridor for the U.S. She called it important for the U.S. to receive fair treatment when using the Canal. She stated that congestion and reduced capacity at the Canal can result in delayed shipments and higher transportation costs. She commented that these challenges can in turn lead to higher consumer prices. She asked Commissioner Maffei to identify actions that could be taken to minimize disruptions and prevent cascading costs for consumers during periods of operational strain at the Canal.
  • Commissioner Maffei remarked that importers and exporters must ensure that they possess resilient supply chains. He commented that a company’s dependence on a single sea lane can foster significant risks. He stated that the Panama Canal plays a key role as a backup sea lane in the event that another sea lane becomes unavailable. He remarked that the Panama Canal’s current congestion and delays are causing higher shipping costs.
• Sen. Klobuchar then noted how Mr. Kramek’s testimony had described how the Panama Canal’s droughts had resulted in reduced imports at U.S. ports. She asked Mr. Kramek to indicate whether these reduced imports impact prices for U.S. consumers.
  • Mr. Kramek answered affirmatively.
• Sen. Klobuchar then asked Commissioner Maffei to indicate whether the Ocean Shipping Reform Act of 2022 has improved the ability of U.S. importers and exporters to have unreasonable charges waived or refunded by ocean carriers.
  • Commissioner Maffei answered affirmatively. He mentioned how instances of detention and demurrage fees being waived, forgiven, or refunded have increased since the passage of the Ocean Shipping Reform Act of 2022. He also noted how this law has enabled U.S. importers and exporters to obtain greater settlements from ocean carriers. He further discussed how this law has resulted in more cases. He highlighted how the number of FMC administrative law judges has increased in response to these greater numbers of cases. He commented however that FMC administrative law judges are experiencing excessive caseloads.
• Sen. Klobuchar then asked Commissioner Maffei to indicate whether he has concerns over the Trump administration’s recent freezing of funds that have already been granted for port and infrastructure improvements.
  • Commissioner Maffei remarked that the FMC works to be efficient with its limited resources. He highlighted how the FMC’s annual budget amounts to approximately 68 minutes of the container shipping industry’s profits during the COVID-19 pandemic. 
• Sen. Klobuchar interjected to note that the Trump administration had announced its funding freeze 12 hours prior. She expressed hope that Congress could develop an estimate regarding how this funding freeze will impact U.S. infrastructure.

Sen. Ted Budd (R-NC):

• Sen. Budd noted how the U.S.-China Economic and Security Review Commission’s November 2024 report had detailed China’s efforts to deepen ties with countries across Latin America and the Caribbean. He remarked that the CCP’s activities within the Panama Canal zone should be viewed in the context of the CCP’s broader efforts to further access Latin American markets and to obstruct U.S. interests within the Western Hemisphere. He asked Chairman Sola to indicate whether he agrees with this view.
  • Chairman Sola remarked that the CCP is seeking to interrupt the U.S.’s economic interests within the Western Hemisphere.
• Sen. Budd mentioned how he had travelled to the Panama Canal several years prior and stated that he had observed the CCP’s encroachment in the Canal. He asked Chairman Sola to indicate whether there exist noticeable differences in port operations at the Panama Canal when the ports are under Chinese company control and are receiving Chinese financing.
  • Chairman Sola first highlighted how there is a U.S.-operated port near the Panama Canal (SSA Marine MIT) and explained that this port is converted U.S. Navy submarine base. He then discussed how a Chinese company-controlled port near the Panama Canal has a “major infrastructure footprint” and noted how this port moves 4 million containers annually. He described this amount of container traffic as “phenomenal.” He also mentioned how the Chinese company also controls a smaller port near the Panama Canal with a strategic location. He expressed confusion as to how this Chinese company does not make money from these ports. He called this dynamic concerning and stated that these Chinese ports are not fairly competing with U.S. ports.
• Sen. Budd then asked Mr. Kramek to project the consequences for U.S. trade and the U.S. economy if access to the Panama Canal were to be suddenly revoked or significantly reduced for U.S. shippers.
  • Mr. Kramek remarked that the revocation or significant reduction of access for U.S. shippers to the Panama Canal would be “pretty catastrophic.” He discussed how U.S. shippers are currently being denied access to the Red Sea. He noted how this denial of access forces U.S. shippers to travel around Africa, which results in 40 percent longer voyages. He added that these longer voyages result in higher costs, greater crew needs, greater maintenance needs, greater fuel needs, and greater emissions.
• Sen. Budd asked Mr. Kramek to estimate the difference in time between a ship being able to transit the Panama Canal versus having to travel around South America.
  • Mr. Kramek noted that a cargo ship can travel to the U.S. East Coast from Asia in 30 days using the Panama Canal. He indicated that the same voyage would take 40 days if the Panama Canal is not used.
• Sen. Budd then discussed how China is investing billions of dollars into infrastructure projects across Central and South America. He mentioned how China is funding a $3.4 billion hydroelectric dam in Ecuador. He highlighted how this hydroelectric dam already has 17,000 cracks and how several Ecuadorian officials have been convicted of bribery related to their involvement with the dam. He remarked that China is seeking to take economic control of foreign countries. He asked Chairman Sola to indicate whether China could extract significant leverage over Panama through their involvement in the Panama Canal.
  • Chairman Sola answered affirmatively. He also stated that U.S. Secretary of State Marco Rubio is well positioned to respond to China’s influence in Panama given his familiarity with both countries.
  • Commissioner Maffei recommended that Sen. Budd look into how China is seeking to influence Peru through its investment in the Port of Chancay.

Sen. Andy Kim (D-NJ):

• Sen. Kim noted how President Trump has asserted that China is operating the Panama Canal and is seeking to retake U.S. control of the Canal. He asked Chairman Sola to indicate whether China is actually operating the Panama Canal.
  • Chairman Sola noted that President Trump receives different information as President than he receives as FMC Chairman. He remarked that the Panama Canal Authority is operating the Panama Canal based on the information that he had received. He also stated that the Panama Canal Authority is operating the Panama Canal efficiently based on the Canal’s current throughput.
• Sen. Kim asked Chairman Sola to confirm that he does not believe that China is operating the Panama Canal based on the information that he has available.
  • Chairman Sola noted that the Panama Canal Authority serves as the entity that collects money on behalf of the Panama Canal. He stated however that companies operate ports along the Canal.
• Sen. Kim interjected to note that Chairman Sola is referring to Hutchison Ports PPC, which operates the Port of Balboa and the Port of Cristobal.
  • Chairman Sola interjected to note that the Port of Balboa and the Port of Cristobal are subsidized.
• Sen. Kim asked Chairman Sola to indicate whether Hutchison Ports PPC controls the Panama Canal’s locks.
  • Chairman Sola answered no.
• Sen. Kim asked Chairman Sola to indicate whether Hutchison Ports PPC directly controls the Panama Canal’s entrances.
  • Chairman Sola stated that both the Port of Balboa and the Port of Cristobal are in operational control of the Panama Canal. He noted how these ports rely upon a special permit from the Panama Canal Authority to operate. He elaborated that these ports require a special permit because the ports block Canal traffic whenever they bring a ship in or out of the Canal.
• Sen. Kim asked Chairman Sola to indicate whether the Port of Balboa or the Port of Cristobal are under the jurisdiction of the Panama Canal Authority.
  • Chairman Sola noted how the Panamanian government has provided concessions to the Port of Balboa and the Port of Cristobal. He stated however that these ports are within the operational range of the Panama Canal.
• Sen. Kim interjected to ask Chairman Sola to indicate whether the Port of Balboa and the Port of Cristobal are under the jurisdiction of the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal.
  • Chairman Sola discussed how the U.S. had returned to Panama the Panama Canal, all of the land on the entryway to the Canal, and all of the water on the entryway to the Canal. He mentioned how this land immediately outside of the Canal includes Corozal, which the Panamanian government operates. He noted that the Port of Balboa is located past Corozal. He stated that the Panama Canal Authority only operates where the ships go up, go down, and come out. He noted that pilots operate outside of this area and explained that pilots help take ships onto and off of the Canal. He remarked that these areas are within the operational control of the Panama Canal because ships in these areas are dependent on pilots. He also noted that a ship will block the Panama Canal’s traffic every time it goes into the Port of Balboa or the Port of Cristobal.
• Sen. Kim asked Chairman Sola to provide an assessment of the Panama Canal Authority’s ability to administer the Panama Canal.
  • Chairman Sola remarked that the Panama Canal Authority has done a “fantastic job” in administering the Panama Canal. He noted how the Panama Canal Authority has been running the Panama Canal for 25 years and has generated $28 billion for the Panamanian government during this period. He stated however that the Port of Balboa and the Port of Cristobal have not generated any money for the Panamanian government during this period. He remarked that he could not explain why Panama would allow these ports to operate. He asserted that these ports jeopardize the Panama Canal’s operations.
• Sen. Kim expressed agreement with Chairman Sola’s assertion that the Panama Canal Authority’s independence must be protected. He remarked that the U.S. must be precise in its statements regarding the Panama Canal Authority so as to not create the perception that the U.S. is undermining the Panama Canal Authority’s independence.
  • Chairman Sola interjected to indicate that his assertion pertained to the independence of the Panama Canal’s board of directors. He specifically expressed interest in identifying the directors of the Port of Balboa and the Port of Cristobal. He noted that these ports indicate that they have local partners and that these local partners are not identified.

Sen. Eric Schmitt (R-MO):

• Sen. Schmitt posited a hypothetical scenario in which Taiwan is under siege and that the CCP leverages its control over global ports and shipping infrastructure to prevent a U.S. response. He also posited that the CCP would close the Port of Balboa and the Port of Cristobal in this scenario, which would cause U.S. ships carrying food, oil, and military supplies to be turned away. He further posited that ZPMC (which is a Chinese state-owned company that supplies 80 percent of U.S. port cranes) has their cranes mysteriously malfunction during these events. He asserted that his hypothetical scenario is “entirely plausible.” He remarked that the Panama Canal must remain neutral and that the U.S. must ensure that the CCP does not encroach on its economic and national security interests. He mentioned how Sen. Ed Markey (D-MA), Sen. Brian Schatz (D-HI), and then-Sen. Marco Rubio (R-FL) had urged President Trump in 2017 to address China’s aggressive maritime actions. He stated that these warnings remain relevant given China’s growing control over critical infrastructure, ports, and strategic waterways (such as the Panama Canal) pose an “unacceptable” threat. He warned that the U.S. is “sleepwalking” into a Chinese trap and asserted that President Trump is working to avoid this trap. He applauded President Trump for raising concerns about China’s influence over the Panama Canal. He mentioned how he had recently introduced a U.S. Senate Resolution meant to safeguard the Panama Canal from Chinese influence. He explained that this resolution calls on Panama to expel Chinese entities, end foreign control of the Panama Canal, and honor its neutrality under the Torrijos-Carter Treaties. He warned that U.S. inaction on this issue would have significant costs. He stated that China’s BRI creates “debt trap” concerns and raised concerns that the BRI enables China to exert significant pressure on countries through controlling their critical infrastructure. He asserted that China should not be permitted to control the Panama Canal. He noted how the hearing’s witnesses have stated that the CCP has operational control over the Panama Canal and that a Chinese company had received a “sweetheart deal” to control critical Panama Canal-related ports. He then asked Prof. Kontorovich to identify the most blatant violations of the Torrijos-Carter Treaties.
  • Prof. Kontorovich remarked that the Panama Canal Authority’s charges and fees to use the Panama Canal are less problematic because these charges and fees are not discriminatory across countries. He commented that the U.S. pays more charges and fees to use the Canal because the U.S. is the largest user of the Canal. He then remarked that the presence of Chinese companies near the Canal do raise “serious issues and concerns” regarding the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal. He stated that the Panama Canal for the purposes of this Treaty is not limited to the actual locks of the Canal and the transit of ships through the Canal. He noted how this Treaty applies to the entrances of Canal and the territorial seas adjacent to the Canal. He remarked that all of the activities being discussed during the hearing are thus within the geographic scope of the Treaty’s neutrality regime.
• Sen. Schmitt remarked that the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal prohibits foreign operations within the Panama Canal. He stated that foreign operations are occurring within the Canal.
  • Prof. Kontorovich remarked that the extent to which China has de facto control over companies operating in the Panama Canal could threaten the neutrality regime of the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal.
  • Commissioner Maffei remarked that China does not currently have operational control over the Panama Canal. He commented however that Chinese ownership of ports near the Panama Canal poses threats. He also warned that China’s global influence extends beyond the Panama Canal and stated that China has influence over the Suez Canal and the Mediterranean Sea. He specifically raised concerns over how China controls the UK’s largest port. He further noted how a Chinese state-owned company runs the Port of Piraeus, which is one of the largest ports in the Mediterranean Sea. He recommended that Sen. Schmitt expand his focus on Chinese influence beyond the Panama Canal.
• Sen. Schmitt expressed agreement with Commissioner Maffei’s concerns. He stated however that Chinese influence over the Panama Canal is particularly concerning given how the U.S. had ceded control of the Canal (which he described as a “huge mistake”). He noted how the one concession that the U.S. had received for ceding this control of the Canal was a guarantee of neutrality. He commented that the undermining of this neutrality is the hearing’s concern.

Sen. John Curtis (R-UT):

• Sen. Curtis remarked that China is not the only hostile country that exploits Panama to endanger U.S. national security. He discussed how Iranian vessels under the Panamanian flag registry have posed problems for many years. He asked Chairman Sola to explain how Panama has enabled Iran to evade U.S. sanctions.
  • Chairman Sola mentioned how the U.S. had found that Iranian vessels are sometimes flagged by Panama to avoid sanctions. He noted that this sanctions evasion enables Iran to sell its fuel to fund their various activities. He discussed how Panama had previously maintained a complicated process for de-flagging vessels that involved investigations and an appeals process. He stated that these vessels would change their flags before the U.S. could take action against the identified Iranian vessels. He mentioned how he had met with the Panamanian President and the Panamanian Maritime Minister to discuss these problems. He noted how Panama had subsequently made their appeals process for de-flagging vessels more expedient. He highlighted how these changes had resulted in Panama de-flagging 53 vessels.
• Sen. Curtis stated that the FMC should continue to pursue the de-flagging of Iranian vessels. He then asked the witnesses to indicate whether Chinese influence over the Panama Canal poses military threats to the U.S.
  • Commissioner Maffei remarked that the FMC does not have expertise in determining military threats. He asserted however that economic threats are ultimately military threats.
  • Chairman Sola discussed how Chinese companies that receive contracts in Latin America tend to insert clauses into the contracts that allow them to bring in their own workers from China to staff the contracts. He stated that these Chinese workers tend to be housed in heavily guarded camps. He raised concerns that the identities of these Chinese workers are often unknown. He also noted how these contracts can involve thousands of Chinese workers and commented that these workers are meant to undercut local labor.
• Sen. Curtis stated that the U.S. far outspends China in the Panama Canal region. He noted however that Panama’s decision to switch diplomatic recognition from Taiwan to China had coincided with Chinese economic investment in Panama. He asked the witnesses to indicate whether the U.S. should monitor Chinese overall influence within Panama.
  • Chairman Sola answered affirmatively. He remarked that the U.S. has left a void in Panama and has not been competitive within the country. He expressed that the U.S. could become competitive in Panama moving forward.
• Sen. Curtis then raised concerns over the Chinese bridge currently being built over the Panama Canal. He asked the witnesses to indicate whether China could use this bridge to surveille traffic transiting the Panama Canal.
  • Chairman Sola mentioned how U.S. Southern Command has raised concerns over the Chinese bridge currently being built over the Panama Canal and the bridge’s potential for supporting Chinese surveillance efforts.

Sen. Bernie Moreno (R-OH):

• Sen. Moreno asked Chairman Sola to provide an assessment of the Panamanian people’s sentiment toward the U.S.
  • Chairman Sola mentioned how he has many friends, family, and professional relationships in Panama and described the bond between the U.S. and Panama as “very deep.” He compared the U.S.-Panama relationship to the U.S.-Great Britain relationship and called the Panamanian people “absolutely wonderful.”
• Sen. Moreno remarked that Panama has suffered through “catastrophically bad” leaders. He then asserted that the Torrijos-Carter Treaties are “clearly” being violated. He expressed hope that the U.S. Senate would develop a resolution allowing for the President to renegotiate or cancel these Treaties. He then discussed how the Darién Gap separates Panama and Columbia and stated that this region is now being used for human and drug trafficking operations. He noted how there exists a strong presence of multinational gangs and criminal organizations within the Darién Gap and commented that the Chinese are funding these gangs and organizations. He asked Chairman Sola to discuss how these transnational gangs and increasing human and drug trafficking impact maritime activity along the Panama Canal.
  • Chairman Sola remarked that the Darién Gap is one of the most dangerous treks that one can do. He applauded the Trump administration’s new migrant policy and commented that this policy would discourage treks through the Darién Gap. He also remarked that transnational gangs tend to seek out areas with earning potential and black markets. He stated that utilization of the Darién Gap has decreased because of the U.S.’s recent migration policy changes.
• Sen. Moreno asked Mr. Kramek to discuss how the gang and criminal activity within the Darién Gap impacts WSC members.
  • Mr. Kramek remarked that the gang and criminal activity within the Darién Gap impacts WSC members. He mentioned how the WSC works with the World Customs Organization and 58 customs agencies throughout the world. He testified that the WSC will share data from its supply chains with customs officials and law enforcement authorities. He stated many commercial vessels are being exploited and contaminated at the transshipment point in Panama. He concluded that the WSC is working diligently to address these problems.
• Sen. Moreno raised concerns regarding China’s influence in Central and South America. He asked Chairman Sola to indicate whether the U.S. has failed to properly engage with Latin America.
  • Chairman Sola answered affirmatively. He noted that while the U.S. Department of State has designated “countless” past Panamanian Presidents for corruption, he indicated that the U.S. Department of Justice (DoJ) has not pursued corruption charges against these officials. He remarked that obtaining a successful conviction against a Panamanian President would change the narrative in this region.
• Sen. Moreno asked Chairman Sola to discuss the problems that the U.S. could solve if the U.S. were to regain control of the Panama Canal. He commented that U.S. military presence in Panama could help to prevent human and drug trafficking.
  • Chairman Sola noted that the Panama Canal is likely one of the top contraband areas in the world based on its geographical location and the large volume of containers that pass through it. He stated that reducing contraband movements would be beneficial.
• Sen. Moreno called on the U.S. Senate to de-ratify the Torrijos-Carter Treaties.

Sen. Shelly Moore Capito (R-WV):

• Sen. Capito noted how 11 percent of the cargo that transits the Panama Canal is coal. She raised concerns that bulk goods (such as West Virginia coal and other forms of coal) cannot always be fully loaded to go through the Canal. She mentioned how $900 million is being invested in the Canal to make it more resilient. She asked Chairman Sola to discuss how the U.S. can ensure that its energy exports are being punctually transited to their intended destinations.
  • Chairman Sola remarked that the Panama Canal’s draft restrictions have the greatest impact on bulk and coal shippers. He noted that container ships and passenger vessels have lighter drafts. He testified that the FMC has engaged in extensive conversations with the Panama Canal Authority and the Panamanian government regarding the need to add freshwater to the Panama Canal. He noted that the Panama Canal is losing between 1 percent and 2 percent of freshwater each year. He warned that the continuation of this trend would cause the Canal to be “severely diminished” by up to 40 percent by 2050. He stated that adding freshwater to the Panama Canal is key to addressing the Canal’s challenges. He noted how the Panama Canal Authority is working with the U.S. Army Corps of Engineers to address these challenges. He indicated that the U.S. Army Corps of Engineers has provided several recommendations to the Panama Canal Authority to address this issue.
• Sen. Capito asked Chairman Sola to explain why the Panama Canal Authority would oppose adding freshwater to the Panama Canal.
  • Chairman Sola remarked that the Panama Canal Authority is not opposed to adding freshwater to the Panama Canal. He noted how environmentalists had previously enacted a law in Panama that restricted the Panama Canal Watershed. He indicated that this law had recently been overturned and that the Canal now has access to the Watershed. He stated that the Panama Canal Authority now must undertake a major infrastructure project to pull the freshwater from the Watershed into the Canal. He noted that the Panama Canal Authority is concurrently raising fees for this infrastructure project and providing more revenue to the Panamanian government.
• Sen. Capito asked Chairman Sola to indicate whether the Panama Canal Authority’s infrastructure project to pull freshwater from the Panama Canal Watershed into the Panama Canal is the $900 million investment that she had previously referenced.
  • Chairman Sola answered affirmatively.
• Sen. Capito then asked the witnesses to opine on the Panama Canal Authority’s congestion pricing system and to indicate whether this system is fair. She expressed concerns that this system might be vulnerable to corruption.
  • Commissioner Maffei noted that the Panama Canal Authority uses an auction system to provide priority slots to some ships transiting the Panama Canal and indicated that this system is being increasingly used. He raised concerns that this auction system could create future challenges in the event of future water shortages at the Canal. He noted that while the Canal’s regular toll revenue has increased, he emphasized that the Canal’s special revenue derived from various fees and auction proceeds has increased by close to 300 percent. He described this increase as a “huge amount.” He expressed concerns that the Panama Canal Authority is making more money while providing fewer transits through the Canal. He stated that this money is likely going to the Panamanian government. He raised concerns however that these higher fees drive up shipping costs and disadvantage certain types of cargos. He stated that he did not know how this auction system impacts coal transports.

Sen. Tim Sheehy (R-MT):

• Sen. Sheehy asked the witnesses to indicate how quickly China could block the Panama Canal if China wanted to pursue such an action.
  • Chairman Sola mentioned how the Panama Canal had a quick reaction force prior to 2000 that considered all Canal delay and blockage possibilities. He stated that he does not know the Canal’s current capabilities or planning efforts for responding to delay and blockage possibilities.
• Sen. Sheehy commented that the U.S. does not have a ready response strategy for potential blockages in the Panama Canal.
  • Chairman Sola interjected to state that U.S. Southern Command likely has a ready response strategy for potential blockages in the Panama Canal.
• Sen. Sheehy raised concerns that the U.S. is not taking seriously the threat that the Panama Canal could be blocked.
  • Commissioner Maffei interjected to note that the hearing’s witnesses are focused on commercial activity involving the Panama Canal (rather than potential military activity involving the Panama Canal).
• Sen. Sheehy interjected to comment that his question is not a military question. He recounted how the Ever Given container ship had previously blocked the Suez Canal and noted that this blockage was not a military blockage. He asked the witnesses to indicate how quickly China could close the Panama Canal to U.S. usage if China wanted to pursue such an action.
  • Commissioner Maffei remarked that a Chinese closure of the Panama Canal would more likely be through an act of terrorism than through the leveraging of existing facilities. He stated that the hearing has largely focused on the economic threats posed by China because of their foreign BRI investments. He remarked that closing a waterway is not difficult to accomplish. He warned that the Panama Canal is vulnerable in terms of infrastructure and noted how the Canal is not a militarily re-enforced location. He remarked that Chinese company control of Panama Canal-related ports would likely not accelerate China’s ability to close the Panama Canal. He stated however that China might be better situated to infiltrate these ports with their own officials. He commented that China’s ability to infiltrate these ports is outside the FMC’s purview.
• Sen. Sheehy contended that the potential infiltration of Chinese company-owned ports near the Panama Canal is not outside of the FMC’s purview. He stated that the Panama Canal is both an economic and national security engine and asserted that the Canal is vulnerable to Chinese influence.
  • Commissioner Maffei questioned why China would pursue military operations at the Panama Canal when China could achieve its objectives at the Canal through non-military means.
• Sen. Sheehy remarked that the U.S. will approach issues through different vantage points, including military, intelligence, and economic vantage points. He stated that China by contrast does not segment its approach to issues and will instead pursue whole-of-government approaches to issues. He remarked that a Chinese attack on the Panama Canal might not resemble a traditional military attack and might instead involve less direct sabotage. He stated that the U.S.’s lack of military infrastructure surrounding the Panama Canal inhibits the U.S.’s ability to respond to such an attack. He asked the witnesses to indicate whether shipping companies have concerns regarding the security of narrow waterways.
  • Mr. Kramek remarked that shipping companies are always considering the security of narrow waterways. He stated that recent turmoil in the Red Sea had demonstrated the potential for shipping traffic on an important waterway to be blocked for a sustained period.
• Sen. Sheehy interjected to note that a disaffected non-state actor had denied shipping access to the Red Sea. He reiterated his concern that the U.S.’s access to the Panama Canal could be quickly eliminated without warning and that the U.S. is powerless to stop this loss of access. He asserted that this dynamic indicates that the U.S. does not have operational control of the Panama Canal.

Full Committee Chairman Ted Cruz (R-TX):

• Chairman Cruz stated that China had used its influence with the Panamanian government to seize land near the Pacific Ocean end of the Panama Canal for the purposes of building a new Chinese embassy. He noted that this seized land had included Chairman Sola’s personal land. He asked Chairman Sola to discuss his personal experience with having his personal land seized. He also asked Chairman Sola to address how Panama had ignored property rights as it sought to appease China with a new embassy.
  • Chairman Sola recounted how his family’s maritime business had received a concession to build a marina on the Pacific area of Panama ten years prior. He noted how this marina had incorporated a cruise component. He indicated that this marina would have been the first cruise port in the Pacific Ocean. He testified that his family’s maritime business had spent millions of dollars on consulting services for this project. He indicated however that Panama had subsequently nationalized this concession upon joining China’s BRI. He noted that Panama then rescinded his family’s maritime business’s concession and gave the concession to a Chinese competitor. He testified that his family’s maritime business was going to build the cruise port for $30 million using private funds. He noted how Panama has paid the Chinese competitor $300 million to date to build this port. He stated that it will take the Panamanian people 375 years to recoup this investment and called this cruise port the world’s most expensive cruise port on a per-passenger basis. He also mentioned how Panama had designated the land that his family’s maritime business had purchased for the marina to serve as China’s embassy to Panama. He noted how the U.S. Department of Commerce had instructed him to fill out a complaint form regarding this situation. He testified that the U.S. Department of Commerce had denied his ability to file the complaint because the environmental permit for his claimed land was set to expire within 6 months. He mentioned how he had subsequently raised his problem with Congress and stated that Congress was ultimately able to rectify this situation. He indicated that Panama later returned this claimed land to his family’s maritime business.

Sen. Todd Young (R-IN):

• Sen. Young remarked that the Panama Canal underpins the U.S.’s economic strength and national security. He asserted that the U.S. cannot afford unilateral Panama Canal toll hikes given how 40 percent of U.S. bound container traffic depends upon the Canal. He commented that these toll hikes harm competition, smaller carriers, and exporters. He discussed how his state of Indiana’s manufacturing firms and farmers rely upon consistent and reasonably priced shipping routes to move heavy machinery, automotive parts, and agricultural products (such as corn and soil). He warned that high shipping tolls resulting from the Panama Canal’s auction system could have “devastating” impacts on U.S. jobs and supply chains. He asked Chairman Sola to indicate whether Congress or the FMC should more aggressively use existing legal authorities or create new tools to block or penalize toll practices that disproportionately harm U.S. shippers and exporters.
  • Chairman Sola remarked that the U.S. should continue to monitor the situation at the Panama Canal. He stated that the FMC would identify for Congress any areas in need of additional regulation or statute. He remarked the FMC is focused on the U.S.’s ability to import and export products and commented that the Panama Canal is a main concern for the FMC.
• Sen. Young remarked that Indiana depends on waterways and shipping lines. He expressed interest in remaining in communication with Chairman Sola to identify and develop policy measures for ensuring the fair treatment of U.S. shipping interests. He then discussed how Torrijos–Carter Treaties were signed during a period when Chinese state-backed actors did not wield significant influence over global infrastructure and when drought concerns were rarely considered in international agreements. He noted how the U.S. remains the Panama Canal’s biggest customer. He asserted that the U.S. has a right to expect an operational framework for the Canal that acknowledges the U.S.’s modern security and economic challenges. He commented that the Panama Canal impacts states with robust exports (such as Indiana). He asked the witnesses to address whether the U.S. should explore a more comprehensive update of or supplemental protocols for the Torrijos–Carter Treaties.
  • Chairman Sola remarked that the U.S. should support U.S. investment in the Panama Canal region. He lamented how the U.S. Ambassador to Panama position had remained vacant for a protracted period of time. He commented that this situation had harmed U.S. companies operating within Panama. He contended that China is outcompeting the U.S. within Panama through its use of its BRI. He stated that current restrictions on the EXIM Bank and the DFC limit the U.S.’s ability to economically compete with China in Panama.
• Sen. Young expressed hope that the Trump administration and the U.S. Senate would prioritize filling the U.S. Ambassador to Panama position. He then provided the other witnesses with an opportunity to make comments.
  • Commissioner Maffei expressed agreement with Chairman Sola’s previous comments. He remarked that the U.S. must consider additional policies to make U.S. companies competitive with Chinese companies in Panama. He stated that Panama should not be entirely blamed for providing port concessions to Chinese companies. He mentioned how Greece had not wanted to provide a concession for its largest port to a Chinese company. He stated however that international organizations had pressured Greece to provide a port concession to a Chinese company because of Greece’s financial situation. He then noted that Panama is deriving record revenues from the Panama Canal. He commented that these record revenues are not necessarily a negative development so long as the revenues are being properly channeled. He highlighted however that Panama is deriving these record revenues from auctioning priority slots to transit the Panama Canal. He testified that the FMC is considering whether to use its authority under Section 19 of the Merchant Marine Act of 1920 to address activities that interfere with the U.S.’s foreign trade. He stated however that more information is required before the FMC makes use of this authority.
  • Mr. Kramek mentioned how the U.S. Army Corps of Engineers has already performed feasibility reviews for potential infrastructure projects to make the Panama Canal more sustainable and viable. He commented that these infrastructure projects could provide the Canal with additional supplies of freshwater.
  • Prof. Kontorovich stated that treaties tend not to be very flexible and tend to lack automatic processes that allow for easy amendment. He mentioned how the U.S. Senate had been primarily concerned about Soviet Union and Cuba-related threats when it had ratified the Torrijos–Carter Treaties. He remarked that the world has changed significantly since these treaties were ratified. He emphasized that China’s role in the world has changed significantly since this time. He contended that it is useful for the U.S. to revisit its current treaties and to update these treaties to account for current events. He stated that the U.S. possesses a considerable amount of leverage to push for treaty modernization.

Full Committee Chairman Ted Cruz (R-TX):

• Chairman Cruz noted how Commissioner Maffei had stated that the FMC could pursue several remedies if it were to determine that Panama’s actions regarding the Panama Canal were harming U.S. trade. He asked Commissioner Maffei to discuss these potential remedy options.
  • Commissioner Maffei mentioned how the FMC can take several countermeasures to respond to Panamanian actions that harm U.S. trade. He highlighted how the FMC can impose sanctions on Panamanian ships (including Panamanian flagged ships). He expressed his intention to respond to Chairman Cruz’s question with a more comprehensive list of the FMC’s authorities for the hearing’s record. He added that he would work with Chairman Sola to develop this list.
• Chairman Cruz applauded Commissioner Maffei and Chairman Sola for their expertise regarding federal maritime policy issues. He then raised concerns that Panama might be violating the Torrijos–Carter Treaties in two key regards. He first questioned whether Panama is fulfilling its obligation to keep the Panama Canal neutral through providing port concessions to Chinese companies and through permitting China to build a bridge across the Canal. He also raised concerns regarding the amount of revenue that Panama is deriving from the Panama Canal. He commented that this revenue collection could violate the obligation that the Canal’s tolls and other charges be just, reasonable, equitable, and consistent with principles of international law. He posited a hypothetical scenario in which the U.S. determines that Panama is violating the Torrijos–Carter Treaties. He asked Prof. Kontorovich to address how the U.S. could remedy such violations (beyond military force remedies). He also asked Prof. Kontorovich to indicate whether a breach of the Treaties could lead the U.S. to determine that the Treaties are null and void. He further asked Prof. Kontorovich to indicate whether nullifying and voiding these Treaties would enable the U.S. to reassert operational control over the Panama Canal.
  • Prof. Kontorovich remarked that the Torrijos–Carter Treaties demonstrate that countries must seriously consider the consequences of giving away strategic assets. He stated that the U.S. is free to cancel these Treaties at any time. He remarked however that the U.S.’s cancellation of these Treaties would not necessarily reverse its concessions to Panama given that the U.S. has already transferred control and sovereignty of the Panama Canal Zone to Panama. He stated that concessions that pertain to sovereign control are not particularly reversible. He mentioned how Israel had recently given maritime territory to Lebanon in exchange for peace. He noted that while Israel had not received its desired peace from Lebanon, he stated that it remains unclear whether Israel can regain this maritime territory. He remarked however that the U.S. can take a variety of measures to ensure that the Panama Canal remains neutral. He indicated that one measure could involve putting U.S. firms in operation of the Canal. He expressed uncertainty as to whether the U.S. could assert territorial control over the Panama Canal unless this assertion accompanies actions needed to restore the Canal’s neutrality.