    [Senate Hearing 119-139]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 119-139

                          FEES AND FOREIGN INFLUENCE:
                     EXAMINING THE PANAMA CANAL AND ITS
               IMPACT ON U.S. TRADE AND NATIONAL SECURITY

    =======================================================================

                                    HEARING

                                   BEFORE THE

                             COMMITTEE ON COMMERCE,
                          SCIENCE, AND TRANSPORTATION
                              UNITED STATES SENATE

                        ONE HUNDRED NINETEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                JANUARY 28, 2025

                                   __________

        Printed for the use of the Committee on Commerce, Science, and
                                 Transportation

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                    Available online: http://www.govinfo.gov

                                    __________

                       U.S. GOVERNMENT PUBLISHING OFFICE
    61-333 PDF                  WASHINGTON : 2025

    -----------------------------------------------------------------------------------

           SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                        ONE HUNDRED NINETEENTH CONGRESS

                                 FIRST SESSION

                           TED CRUZ, Texas, Chairman
    JOHN THUNE, South Dakota             MARIA CANTWELL, Washington,
    ROGER WICKER, Mississippi                Ranking
    DEB FISCHER, Nebraska                AMY KLOBUCHAR, Minnesota
    JERRY MORAN, Kansas                  BRIAN SCHATZ, Hawaii
    DAN SULLIVAN, Alaska                 EDWARD MARKEY, Massachusetts
    MARSHA BLACKBURN, Tennessee          GARY PETERS, Michigan
    TODD YOUNG, Indiana                  TAMMY BALDWIN, Wisconsin
    TED BUDD, North Carolina             TAMMY DUCKWORTH, Illinois
    ERIC SCHMITT, Missouri               JACKY ROSEN, Nevada
    JOHN CURTIS, Utah                    BEN RAY LUJAN, New Mexico
    BERNIE MORENO, Ohio                  JOHN HICKENLOOPER, Colorado
    TIM SHEEHY, Montana                  JOHN FETTERMAN, Pennsylvania
    SHELLEY MOORE CAPITO, West Virginia  ANDY KIM, New Jersey
    CYNTHIA LUMMIS, Wyoming              LISA BLUNT ROCHESTER, Delaware
                     Brad Grantz, Republican Staff Director
               Nicole Christus, Republican Deputy Staff Director
                         Liam McKenna, General Counsel
                       Lila Harper Helms, Staff Director
                     Melissa Porte

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on January 28, 2025.................................     1
    Statement of Senator Cruz........................................     1
    Statement of Senator Cantwell....................................     3
        Letter to Senator Maria Cantwell from John D. Feely, U.S.
          Ambassador to Panama (ret) and MariCarmen Aponte, U.S.
          Ambassador to Panama (ret).................................     5
    Statement of Senator Fischer.....................................    33
    Statement of Senator Blunt Rochester.............................    34
    Statement of Senator Sullivan....................................    36
    Statement of Senator Baldwin.....................................    38
    Statement of Senator Blackburn...................................    41
    Statement of Senator Klobuchar...................................    42
    Statement of Senator Budd........................................    44
    Statement of Senator Kim.........................................    46
    Statement of Senator Schmitt.....................................    48
    Statement of Senator Curtis......................................    50
    Statement of Senator Moreno......................................    52
    Statement of Senator Capito......................................    54
    Statement of Senator Sheehy......................................    56
    Statement of Senator Young.......................................    58

                                   Witnesses

    Hon. Louis E. Sola, Chairman, Federal Maritime Commission........     9
        Prepared statement...........................................    10
    Daniel B. Maffei, Commissioner, Federal Maritime Commission......    12
        Prepared statement...........................................    14
    Eugene Kontorovich, Professor, Antonin Scalia Law School, George
      Mason University...............................................    15
        Prepared statement...........................................    17
    Joseph Kramek, President and CEO, World Shipping Council.........    20
        Prepared statement...........................................    21

                                    Appendix

    Response to written questions submitted to Hon. Louis E. Sola by:
        Hon. John Thune..............................................    63
        Hon. Roger Wicker............................................    65
        Hon. Dan Sullivan............................................    65
        Hon. Eric Schmitt............................................    65
    Response to written questions submitted to Daniel B. Maffei by:..
        Hon. Jacky Rosen.............................................    66
        Hon. Andy Kim................................................    67
    Response to written questions submitted by Hon. Eric Schmitt to:.
        Eugene Kontorovich...........................................    68
    Response to written questions submitted to Joseph Kramek by:
        Hon. John Thune..............................................    68
        Hon. Jacky Rosen.............................................    68

                     FEES AND FOREIGN INFLUENCE: EXAMINING
                       THE PANAMA CANAL AND ITS IMPACT ON
                        U.S. TRADE AND NATIONAL SECURITY

                                  ----------

                           TUESDAY, JANUARY 28, 2025

                                           U.S. Senate,
            Committee on Commerce, Science, and Transportation,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 10:07 a.m., in
    room SR-253, Russell Senate Office Building, Hon. Ted Cruz,
    Chairman of the Committee, presiding.
        Present: Senators Cruz [presiding], Thune, Wicker, Fischer,
    Moran, Sullivan, Blackburn, Young, Budd, Schmitt, Curtis,
    Moreno, Sheehy, Capito, Lummis, Cantwell, Klobuchar, Schatz,
    Markey, Peters, Baldwin, Duckworth, Rosen, Lujan, Hickenlooper,
    Kim, and Blunt Rochester.

                  OPENING STATEMENT OF HON. TED CRUZ,
                        U.S. SENATOR FROM TEXAS

        The Chairman. Good morning, everyone. Welcome. The Senate
    Committee on Commerce, Science, and Transportation will come to
    order.
        We are here today to examine a monument to American
    ingenuity, the Panama Canal. Senator Moreno down there
    suggested we open the hearing by playing Van Halen and Panama.
    We may not do that. But between the American construction of
    the Panama Canal, the French effort to build an Isthmus Canal,
    and America's triumphant completion of that canal, the major
    infrastructure projects across Panama cost more than 35,000
    lives.
        For the final decade of work on the Panama Canal, the
    United States spent nearly $400 million, equivalent to more
    than $15 billion today. The Panama Canal proved a truly
    invaluable asset, sparing both cargo ships and warships the
    long journey around South America. When President Carter gave
    it away to Panama, Americans were puzzled, confused, and many
    outraged.
        With the passage of time, many have lost sight of the
    Canal's importance, both to national security and to the U.S.
    economy. Not President Trump. When he demanded fair treatment
    for American ships and goods, many in the media scoffed. But
    the Panama Canal was not just given away. President Carter
    struck a bargain. He made a treaty.
        And President Trump is making a serious and substantive
    argument that that treaty is being violated right now. This
    committee has jurisdiction under the Senate rules over the
    Panama Canal, and today we will examine evidence of potential
    violations.
        President Trump has highlighted two key issues: Number one,
    the danger of China exploiting or blocking passage through the
    Canal. And number two, the exorbitant costs for transit.
    Chinese companies are right now building a bridge across the
    Canal at a slow pace so as to take nearly a decade. And Chinese
    companies control container ports at either end.
        The partially completed bridge gives China the ability to
    block the Canal without warning. And the ports give China ready
    observation posts to time that action. This situation, I
    believe, poses acute risks to U.S. national security.
        Meanwhile, the high fees for canal transit
    disproportionately affect Americans, because U.S. cargo
    accounts for nearly three-quarters of canal transits. U.S. Navy
    vessels pay additional fees that apply only to warships. Canal
    profits regularly exceed $3 billion. This money comes from both
    American taxpayers and consumers in the form of higher costs
    for goods. American tourists aboard cruises, particularly those
    in the Caribbean Sea, are essentially captive to any fees
    Panama chooses to levy for canal transits.
        And they have paid unfair prices for fuel bunkering at
    terminals in Panama as a result of government-granted monopoly.
    Panama's Government relies on these exploitative fees, nearly
    one-tenth of its budget is paid for with canal profit. As those
    fees cascade through the American economy in the Federal FISC,
    the Chinese Communist Party advances its global economic
    contest against the United States and takes a militaristic
    interest in the Canal.
        While President Trump has rightly focused on these key
    issues, there are additional problems. In the last 2 years, the
    Canal Authority generated record revenue even while transits
    were depressed by drought conditions. And the only comfort to
    delayed and overcharged ships is that Panama may invest in more
    freshwater reserves in the future.
        Even as it takes advantage of the global maritime system,
    Panama has emerged as a bad actor. Panama has for years flagged
    dozens of vessels in the Iranian Ghost Fleet, which brought
    Iran tens of billions of dollars in oil profits to fund terror
    across the world.
        And Chinese companies have won contracts, often without
    fair competition, as the infamous Belt and Road Initiative has
    come to Panama. China often engages in debt-trap diplomacy to
    enable economic and political coercion. In Panama, it also
    seems to have exploited simple corruption.
        We have four panelists with us today. At Ranking Member
    Cantwell's request, we also invited the Deputy Administrator of
    the Panama Canal to appear today. She declined that invitation.
        I understand this witness claimed her absence was due to a
    scheduling matter, but I also recognize that defending the
    Panama Canal Authority is an unenviable task. This committee
    may be obliged to compel her testimony at a future hearing.
        It will not escape Senators' notice that Professor
    Kontorovich is appearing virtually today. That will be a very
    unusual practice before this committee. The Professor was ready
    to fly from Israel to D.C. to appear in person, but he was
    unable to because too few American carriers have resumed direct
    flights to Israel. While European airliners are willing to fly
    to Israel, service to America has been prohibitively long and
    expensive.
        Israel is America's closest ally in the Middle East, and
    U.S. carriers are refusing to fly there. Late last week, Delta
    Airlines announced it would finally restart direct flights to
    Tel Aviv in April. And I very much hope that United Airlines
    and American Airlines will very quickly follow suit and resume
    direct flights to Israel.
        Turning back to the topic at hand, I am grateful to
    President Trump for raising public awareness about the state of
    the Panama Canal and the threats to American interests. We
    cannot afford to let American shippers be extorted. We cannot
    turn a blind eye if Panama exploits an asset of vital
    commercial and military importance. And we cannot stay idle
    while China is on the march in our hemisphere.
        I expect and hope the testimony today to enlighten all of
    those issues.
        I will now turn to Ranking Member Cantwell for her opening
    statement.

                   STATEMENT OF HON. MARIA CANTWELL,
                      U.S. SENATOR FROM WASHINGTON

        Senator Cantwell. Thank you, Mr. Chairman. And thank you
    for having this important hearing, and the witnesses that are
    here today, and virtually.
        Access to the Panama Canal is essential, maintaining
    America's supply chains, lowering inflation costs on consumers
    and goods, and ensuring our national security. With about 72
    percent of the goods transiting the Canal coming to or from
    U.S. markets, a stable waterway is vital for states like mine,
    where one in four jobs are related directly or indirectly to
    trade.
        Seattle-based SSA Marine, operated in the Manzanillo
    International Terminal in Colon, Panama, for the last 30 years,
    is our largest U.S. logistics presence in Panama, with 19
    massive cranes, 3.5 million cargo containers, and employing
    over a thousand people.
        In fact, Washington's maritime economy supports 170,000
    jobs and $45 billion in revenue, and our U.S. maritime economy
    supports over 21 million jobs and almost $3 trillion in
    America's GDP.
        So anything that our committee can do to help grow our
    maritime economy, I am all for. That is why it is so important
    that the Committee not just focus on Panama, but the broader
    solutions to meet our U.S. maritime opportunities and
    challenges. This committee passed the Ocean Shipping Reform
    Act, led by our colleagues, Senator Klobuchar and Senator
    Thune, to address shipping costs and stop carriers from
    practices that delay U.S. cargo or increased costs.
        This law also gave the FMC, our two Commissioners that are
    here today, the ability to do better investigation. So I look
    forward to hearing about their investigation on the Panama
    Canal and these cost issues.
        And many members of this committee have worked on the
    Infrastructure Bill to do dock replacements in places like
    Alaska, rail improvements, pier infrastructure, safety
    improvements, container yard expansion. And I know that my
    colleagues who represent these maritime investments need a
    maritime workforce and continued investment.
        Many of our colleagues, Mr. Chairman, have great ideas.
    Senators Kelly and Young from the Senate, Representatives
    Garamendi and Kelly from the House, and they have been working
    with maritime stakeholders on these larger bills.
        But Mr. Chairman, if this committee does not embrace this
    larger agenda, it is going to get decided in the Finance
    Committee. So I hope that we can get some of these issues and
    show that this committee is the Committee for maritime
    jurisdiction.
        A bill that provides a comprehensive strategy to rebuild
    America's supply chain supremacy, sea lift capacity that we
    need to defend our interests in the South China Sea and the
    Indo-Pacific region, and to revitalize our Nation's ports and
    shipbuilding capacity. A revitalized U.S. maritime strategy
    would not only be good for our economy, but critical for
    national security.
        At the same time, we face cyber threats from our foreign
    adversaries, and Panama is a perfect example, which brings us
    to the hearing today. I am concerned about Chinese-owned ports
    in Panama and their proximity to the Canal.
        I am also deeply concerned about the installation of
    Chinese equipment from Huawei and Chinese companies near the
    Canal. This is why this committee successfully worked to get $3
    billion in Rip and Replace at the end of the last Congress. So
    if we are trying to get them out of U.S. ports and areas, we
    should not certainly allow them in vessels and back doors in
    places like Panama.
        Mr. Chairman, I would like to ask unanimous consent to
    enter into the record a letter from the two most recent U.S.
    Ambassadors to Panama, who make the case for continued U.S.
    investment in infrastructure and cybersecurity.
        The Chairman. Without objection.
        Senator Cantwell. Thank you, Mr. Chairman.
        [The information referred to follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Senator Cantwell. These Ambassadors know better than anyone
    that America's adversaries have built back doors into
    communication technology, software--supply chains, both
    software and hardware. So whether it is a crane over the port,
    or a bridge, we cannot tolerate Huawei, TikTok, artificial
    intelligence, or other adversaries using a government back
    door.
        Mr. Chairman, I am a very big fan of the five biggest
    technology interests and basic democracies forming a technology
    NATO, we should be saying to the world, nobody should be buying
    technology or equipment that has a government back door.
        These are complex issues and we need solutions. I will be
    requesting that the Department of Defense provide a classified
    briefing to all members of our committee about foreign
    adversary threats to the Panama Canal, including these adjacent
    areas. I received an initial classified briefing from the U.S.
    Southern Command and have spoken to former U.S. Southern
    Command leader General Laura Richardson on these issues.
        I also plan to go as a delegation, or by myself, to Panama
    and visit the Panama Canal Authority. I invite other members to
    do so hopefully this spring.
        Any successful strategy also has to not just focus on
    cybersecurity and cooperation, and we will ask some of our
    witnesses here today, but the larger issue is we need to
    understand what are the shortfalls of the current agreement
    that does not get at this upgraded technology concern, I would
    hope that Panama would be very cooperative in discussing these
    cybersecurity investments and what needs to be made.
        As we all know, the Panama Canal is, as an authority,
    independent and the Chinese Government do not start the
    shipping rates, but the authority has been grappling with
    historic rainfalls, climate change, and the solution, I
    believe, is for us to work together, as the Army Corps did
    before on solutions, in making sure that instability in water
    is not the cause of increase in rates. We need to work on these
    solutions.
        But Mr. Chairman, I also believe that the larger issue
    here, as you mentioned in your statement about Belt and Road
    Initiative by the Chinese and their expansion, needs to be met
    with an aggressive response by the United States. I firmly
    believe in trade.
        But, again, easy for me to say, or maybe for Texas, when
    you are coming from a very trade-dependent state, but the issue
    is we did not have an ambassador there for 5 years in Panama.
    For all my colleagues who hold up Ambassadors, you should
    rethink your strategies when you do this, because holding up
    Ambassadors and not dealing with these issues put us behind the
    eight ball.
        Expanding exports to 95 percent of the world's consumers
    and roughly 3.5 billion people, I believe, is a good idea. I
    hope we can have a more aggressive strategy in Latin America.
        I think the proposals by Senator Cassidy and Bennet, the
    Americas Act, is also a like-minded thing of Latin American
    countries that we could join together in sort of a U.S.-Mexico-
    Canada free trade agreement.
        And I also believe that a free trade agreement of the
    Americas that link modernization of all our FTAs in Latin
    America and the Caribbean would help, along with an aggressive
    strategy on saying no government back doors, and making the
    kind of investments that the Export-Import Bank can do to
    counter China.
        So Mr. Chairman, thank you for organizing this important
    hearing. Such investments ensure resilient supply chains, boost
    exports, lower consumer costs, and most importantly, protect
    our national security. Thank you, Mr. Chairman.
        The Chairman. Thank you, Senator Cantwell. Our first
    witness today is Chairman Louis Sola of the Federal Maritime
    Commission. He was recently in Panama on a fact-finding mission
    and can speak to concerning developments that I noted in my
    opening statement.
        Chairman Sola, you are recognized for five minutes.

              STATEMENT OF HON. LOUIS E. SOLA, CHAIRMAN,
                      FEDERAL MARITIME COMMISSION

        Mr. Sola. Thank you, Chairman Cruz, Ranking Member
    Cantwell, and distinguished members of the Committee. Thank you
    for the opportunity to speak today about the critical
    importance of the Panama Canal to U.S. trade and global
    commerce.
        I bring a unique perspective as someone who has not only
    served as a maritime regulator but also lived and worked
    extensively in Panama. I have transited the Panama Canal over
    100 times. This experience provides me with a profound
    understanding of the Canal's significance and challenges it
    faces.
        Prolonged drought conditions last year forced operational
    changes, reducing transit slots, restricting vessel types, and
    auctioning of slots, raising alarm about its resilience. The
    Panama Canal is managed by the Panama Canal Authority, ACP, an
    independent agency of the Panamanian Government. The ACP is a
    model of public infrastructure management and its independence
    has been key to ensure a safe and reliable transit of vessels
    critical to the U.S. and global commerce.
        During my recent visit to Panama, I had the opportunity to
    meet with leaders of the ACP to better understand their efforts
    to address the ongoing challenges facing the Canal. I saw
    firsthand their commitment to maintaining the Canal's
    efficiency and resilience.
        These conversations also highlighted the broader challenges
    posed by the Panamanian Government's maritime policies, which
    complicate the ACP's mission and raise concerns about
    corruption and foreign influence.
        In contrast, the broader maritime sector in Panama,
    including the Nation's ports, water rights, and the world's
    largest ship registry, falls under the direct purview of the
    Panamanian Government. Unfortunately, this sector has faced
    persistent challenges, including corruption scandals and
    foreign influence, particularly from Brazil and China. These
    issues create friction with the ACP, especially as it works to
    address long-term challenges, such as securing adequate water
    supplies for the Canal.
        Although the ACP operates independently under U.S. law,
    both the ACP and the government of Panama's maritime sector are
    considered one and the same. This means that any challenges in
    Panama's maritime sector, including corruption, lack of
    transparency, or foreign influence, can have a direct or
    indirect impact on the operations and long-term stability of
    the Canal.
        This legal perspective highlights the need for diligence in
    monitoring both the ACP's management and Panama Government's
    policies affecting maritime operations.
        Since 2015, Chinese companies have increased their presence
    and influence throughout Panama. Panama became a member of the
    Belt and Road Initiative and ended its diplomatic relations
    with Taiwan.
        Chinese companies have been able to pursue billions of
    dollars in development contracts in Panama, many of which were
    projects directly on or adjacent to the Panama Canal. Many were
    no-bid contracts, labor laws were waived, and the Panamanian
    people are still waiting to see how they have been benefited.
    It is all the more concerning that many of these companies are
    state-owned, and in some cases even designated as linked to the
    People's Liberation Army.
        We must address the significant growing presence and
    influence of China throughout the Americas, and in Panama
    specifically. American companies should play a leading role in
    enhancing the Canal's infrastructure. By supporting U.S. firms,
    we reduce reliance on Chinese contractors and promote fair
    competition.
        Additionally, confirming a U.S. Ambassador in Panama is
    critical to advancing our national and economic interests. The
    FMC will continue to monitor the Canal's pricing practices and
    consider broad reviews of Panama's maritime sector. Yes, FMC
    has the authority to impose significant remedies, including
    fines and restrictions on Panamanian-flagged vessels entering
    U.S. ports.
        In closing, the Panama Canal is vital to our economy, with
    over 75 percent of its traffic bound for our ports.
    Safeguarding the ACP's independence and addressing the
    challenges posed by the broader government are essential to
    maintaining U.S. competitiveness in a global economy.
        I look forward to your questions.
        [The prepared statement of Mr. Sola follows:]

              Prepared Statement of Hon. Louis E. Sola, Chairman,
                          Federal Maritime Commission
        Chairman Cruz, Ranking Member Cantwell, and distinguished members
    of the Committee: Thank you for the opportunity to appear before you
    today to address the vital role the Panama Canal plays in U.S. trade
    and the global economy. I understand many of the issues of interest to
    you from not only my perspective as a regulator, but as someone who is
    a ``Zonian.''
        Panama is a place I know well. I grew-up in Goodland, Indiana, but
    Panama has been a part of my life from when I first moved there in my
    very early twenties as a young Army Non-Commissioned-Officer. I
    launched my post-military career there, my children were born there, I
    have transited the Canal 110 times as a Captain, earning the
    distinction as ``Honorary Lead Pilot.'' I know the country, I speak the
    language at home, I have a genuine affinity for the people of Panama
    and for the country itself. Nonetheless, I am not blinded to issues
    which should command each of our attention.
        Your interest in the Panama Canal is commendable. Despite the Canal
    being more than 100 years old, it remains a critical conduit for trade
    moving by vessel. The United States, more than any other nation,
    benefits from ships being able to transit the Panama Canal. In excess
    of 40 percent of U.S. container traffic, valued at roughly $270 billion
    annually, transits this waterway. Nor is Canal traffic limited to
    container ships. Vessels of all sorts--container ships, passenger
    vessels, bulk and breakbulk vessels, and product tankers--use the
    waterway to carry cargoes to and from the United States.
        For much of the more than 100-year history of the Canal, the United
    States was responsible for operating the facility, but that
    responsibility shifted in 1999 when control of the Canal was
    transferred to the Republic of Panama. For the past 25 years, the Canal
    has been very ably administered by the (Panama Canal Authority) a
    government entity that is separate from the government of Panama.
        Drought conditions had consequential effects on Canal operations in
    2024, forcing the Authority to cut the total number of transit slots
    available, bar some classes of vessels from transiting at all, and
    mandate vessels be more lightly loaded to allow for higher drafts. In
    some instances, available transit slots were auctioned off to the
    highest bidder. In response to the concerns expressed by many different
    sources about how the Canal was being operated, then-Chairman Maffei
    and I traveled to Panama last August to meet government, the Authority,
    and business executives to learn more about how the drought was
    impacting Canal operations and what measures the Authority was taking
    to make the Canal more drought resistant.
        Panama Canal Authority executives appeared to be fully transparent
    in discussing the management of the Canal and options for making the
    waterway more resilient against drought conditions. These improvements
    are absolutely critical. Without a solution, projections suggest that
    by 2050, the Canal's capacity could decline by as much as 50 percent,
    which would have devastating consequences for global trade and U.S.
    commerce. The Authority is working to create the additional volumes of
    water necessary to operate the Canal, but must do so within the
    constraints of laws and regulations administered by the Government of
    the Republic of Panama. That relationship has been frictional at times.
    The Republic of Panama is responsible for administering that nation's
    ports, water rights, and ship registry. The reality is one entity--the
    Panama Canal Authority--administers the Canal and is responsible for
    its continued viability, but many of the initiatives necessary to
    realize that goal are under the control of Panama's government.
        Further complicating this split of authorities is the reputation
    the Government of Panama has for corruption and susceptibility to
    foreign influence. Transparency International places Panama at 108 out
    of 180 rated countries, and the U.S. Department of Commerce
    International Trade Administration notes that ``Corruption is Panama's
    biggest challenge.'' Prevalent examples exist of the systemic
    corruption found in how the Panamanian government does business.
    Officials have been sanctioned. The Panamanian Registry included
    Iranian-owned vessels that were involved in sanctions busting.
    Presidential administrations that preceded that of now-President Mulino
    were particularly receptive to Chinese overtures and beginning in 2015,
    the People's Republic of China only had to push lightly on a cracked
    door in Panama. In subsequent years, Panama became a member of the Belt
    and Road Initiative and ended its diplomatic relations with the
    Republic of China (Taiwan). Chinese companies have been able to pursue
    billions of dollars in development contracts in Panama, many of which
    were physical infrastructure projects, some on or adjacent to the
    Panama Canal. No bid contracts were awarded, labor laws were waived,
    and the Panamanian people are still waiting to see how they benefitted.
        The United States is not without options in addressing the growing
    presence of China and Chinese companies in Panama and throughout the
    Americas. Nor are we without options as they relate to the continued
    viability of the Canal.
        First, we need to increase support for American companies seeking
    to do business in Panama and throughout the Americas. Chinese companies
    must not be the sole bidders on contracts. Improving the resiliency of
    the Panama Canal will require significant engineering and construction
    work. U.S. firms can and should be at the top of the list of bids
    considered. Further, the United States must address any conduct by
    foreign competitors that American companies are legally prohibited from
    engaging in. Commercial opportunities abound throughout the Americas
    and our foreign and commercial services must embrace their roles as
    champions of U.S. businesses in spite of a strong presence of anti-US
    and Chinese aligned local media outlets. The U.S. Embassy in Panama is
    a crucial part of these efforts. Having an ambassador confirmed, in
    place in Panama, and protecting our national interests must be a
    priority.
        Second, we must protect the independence of the Panama Canal
    Authority. Any effort by other interests in Panama to diminish the
    independence or professionalism of the Authority must be stopped.
    Building or expanding relationships with the Panama Canal Authority can
    increase its capabilities and competencies even further. The United
    States should work with the Authority to identify opportunities for
    technical collaboration or expertise sharing. One example is the U.S.
    Army Corps of Engineers, which has unparalleled experience in managing
    large public works projects. The relationship between it and the
    Authority could be formalized. Another opportunity for growing
    relationships is to foster closer, more frequent consultations between
    users, or their representatives, of the Canal and the Authority
    leadership. Such exchanges would be productive, particularly if they
    identified and alleviated concerning issues before they become
    problematic issues.
        Third, the Federal Maritime Commission will continue its monitoring
    and review of the practices of the Panama Canal Authority with a
    particular eye toward the appropriateness of pricing structure for
    transits. The Commission will also consider expanding its ongoing
    examination of the Authority to include other maritime/supply chain
    businesses operating in Panama. The authorities the Commission
    possesses under section 19 of the Merchant Marine Act of 1920 to
    address conditions affecting shipping in foreign trade (46 U.S. Code
    Chapter 421) authorize the Commission to address foreign government
    laws or practices that are harmful to U.S. shipping. More explicitly,
    should the Commission formally investigate the practices of the Panama
    Canal Authority and find them to be unfavorable, the Commission could
    act against the Republic of Panama broadly as opposed to the Authority
    specifically. The Commission can levy significant remedies under the
    law, including substantial daily fines and barring Panamanian-flagged
    vessels from calling at U.S. ports.
        More than one-third of the U.S. economy is tied to goods,
    commodities, and inputs that move by sea, and the Panama Canal is an
    indispensable part of the ocean-linked supply chains on which we are
    reliant. Safeguarding the viability of the Panama Canal for the coming
    century and beyond must be a priority we meet if we want to remain
    economically competitive.
        Thank you for your attention and interest. I am pleased to address
    any questions you might have.

        The Chairman. Thank you, Chairman.
        Our next witness is Commissioner Daniel Maffei of the
    Federal Maritime Commission. He was also in Panama with
    Chairman Sola.
        Mr. Maffei, I look forward to your opening statement.

       STATEMENT OF HON. DANIEL B. MAFFEI, COMMISSIONER, FEDERAL
                          MARITIME COMMISSION

        Mr. Maffei. Thank you very much, Chairman Cruz, and Ranking
    Member Cantwell, and members of the Committee.
        I do want to say that in addition to Chairman Sola and
    myself, Commissioner Max Vekich is also here from the Federal
    Maritime Commission, which I just think underscores the
    importance of this issue to us.
        More than 110 years after its opening, the Panama Canal
    does remain absolutely vital to maintaining resilient supply
    chains for both American importers and exporters. Because the
    Canal is essentially a waterway bridge over mountainous terrain
    above sea level, it does depend on large supplies of fresh
    water to maintain the full operations.
        Panama has among the world's largest annual rainfalls,
    nonetheless, insufficient fresh water levels have occurred
    before in the Canal's history, such as in the 1930s when the
    Madden Dam and Lake Alejuela were built to address water
    shortages. Since that time, the Canal has undertaken several
    projects to accommodate larger, more modern ships.
        In the last couple of years, a trend of worsening droughts
    in the region once again has forced limits to the operations of
    the Canal. Starting in June 2023, the Panama Canal Authority
    employed draft restrictions and reduced the number of ships
    allowed to transit the Canal per day. Now, the Panama Canal
    limitations, in combination with the de facto closure of the
    Suez Canal to container traffic, has had serious consequences
    for ocean commerce, increasing rates, fees, and transit times.
        In the first half of 2024, U.S. importers and exporters
    expressed Panama Canal-related concerns to the FMC, including
    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 they would have to
    wait.
        The FMC has statutory authority under the laws concerning
    foreign shipping practices to investigate and potentially take
    appropriate counteraction if it finds that a foreign country,
    through its laws or regulations, has contributed to, quote,
    ``Conditions unfavorable to shipping in the foreign trade'',
    unquote.
        Given this statutory mandate and consistent with FMC's
    mission, I and then Commissioner Louis Sola started to look
    deeper into the causes of the issues facing the Canal. The
    first step was to meet with Panamanian officials and other
    stakeholders, as the Chairman has pointed out, about the
    conditions adversely affecting the Canal's operations, about
    what was being done to address these concerns, and about
    whether any aspect of the Canal's operations might result in
    conditions unfavorable to U.S. shipping that should be
    addressed under the Commission's authority.
        So we traveled to Panama, which was in July 2024, and we
    met with then-recently elected President Jose Mulino and
    officials in his administration. We also met with the Panama
    Canal Authority, as well as private sector stakeholders.
        We had very candid discussions on key issues, such as
    Panama's command to--I am sorry--Panama's plans to ameliorate
    the water-level challenges, the bidding processes used to
    allocate transits during times of restrictions, and our concern
    the Canal Authority was bringing in far more revenue during the
    crisis than it had before limits were forced by water
    shortages.
        Both the Government of Panama and the Canal Authority did
    answer our questions very substantively. The Canal Authority
    informed us they were already making changes to that allocation
    system. Now, fortunately, Panama's 2024 rainy season has, for
    now, alleviated the most acute water supply issues at the
    Canal, and normal transit volumes have been restored.
        That said, while the Panamanian Government and Canal
    Authority have, with the advice of the U.S. Army Corps of
    Engineers, developed credible plans to mitigate future water
    shortages, they also warned that it is likely that at least one
    more period of reduced transits will occur before these plans
    can be fully implemented.
        Now, since our meetings, the FMC has continued to monitor
    Panama's progress on this front and examined other policy
    changes announced by the Canal Authority. I do have continuing
    concerns, particularly about the auction-like slot allocation
    procedures, not so much as they are applied right now because
    transits are not being rationed, but when another low rainfall
    rain period occurs--or rainfall period occurs.
        As we learn more about Panama and the Canal Authority and
    how they would handle another drought and receive more input
    from American importers and exporters, the Commission does
    remain positioned to take appropriate action if warranted. How
    the Panama Canal's operations affect American commerce was a
    high priority for the FMC under my chairmanship, it remains a
    high priority at the Federal Maritime Commission under
    Commissioner Sola's chairmanship, and I am extremely pleased
    that it is a priority for this committee as well.
        Thank you.
        [The prepared statement of Mr. Maffei follows:]

           Prepared Statement of Hon. Daniel B. Maffe, Commissioner,
                          Federal Maritime Commission
        Thank you, Chairman Cruz, Ranking Member Cantwell, and members of
    the Committee for inviting me to participate.
        The Panama Canal is crucial to ensuring an efficient and reliable
    ocean transportation system, particularly for the United States. When
    the Canal opened in 1914, global trade by sea was drastically altered
    as international commerce benefited from the expedited maritime passage
    through Central America. Today--more than 110-years later--the Panama
    Canal remains vital to maintaining resilient supply-chains for both
    American importers and exporters.
        The Panama Canal has always had limits to its capacity. Because the
    Canal is essentially a waterway bridge over mountainous terrain above
    sea level, it depends on large supplies of fresh water to maintain full
    operations.
        Panama has among the world's largest annual rainfalls. Nonetheless,
    insufficient freshwater levels have occurred before in the Canal's
    history, such as in the 1930s, when Madden Dam and Lake Alejuela were
    built to address water shortages. Since that time, the Canal has
    undertaken several projects to accommodate larger, more modern ships.
    Less than a decade ago, the Panama Canal Authority opened new sets of
    locks on both the Atlantic and Pacific ends.
        In the last couple years, a trend of worsening droughts in the
    region forced limits to the operations of the Canal. Starting in June
    of 2023, the Canal Authority employed draft restrictions (preventing
    some larger and/or heavily loaded ships from passing through the
    Canal's lock systems) and reduced the number of ships allowed to
    transit the Canal per day.
        The diminished capacity at the Panama Canal, in combination with
    the de facto closure of the Suez Canal--due to Houthi attacks in the
    Red Sea--had serious consequences for ocean commerce which sometimes
    included increased rates, fees, and/or transit times. U.S. importers
    and exporters expressed Panama Canal-related concerns to Commissioners
    and staff at the FMC, including 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 when.
        The FMC has statutory authority under the laws concerning foreign
    shipping practices to investigate and potentially take appropriate
    counter action if it finds that a foreign country, through its laws or
    regulations, has contributed to ``conditions unfavorable to shipping in
    foreign trade.''
        Given this statutory mandate, and consistent with FMC's mission, I
    and then-Commissioner Sola started to look deeper into the causes of
    the issues facing the Canal. We thought the first step was to meet with
    Panamanian officials and other stakeholders and speak to them directly
    about the conditions adversely affecting the Canal's operations and
    some of the input we had heard from American shippers. We specifically
    sought to better understand the current state of the Canal's
    operations, what was being done to improve them, and whether any aspect
    of the Canal's operation might result in conditions unfavorable to U.S.
    shipping that should be formally investigated under the Commission's
    authority.
        While in Panama, we met with the then recently elected President,
    Jose Mulino, as well as several senior officials in his administration
    to discuss maritime policy. We also met with the Canal's Administrator
    and other officials of the Panama Canal Authority. We had additional
    meetings with private-sector stakeholders.
        We had candid discussions on key issues such as Panama's plans to
    ameliorate the water level challenges, the bidding process used to
    allocate transits during times of restrictions, and our concern that
    the Canal Authority was collecting much more money per transit during
    the crisis than it had before the 2023-24 water shortage. Both the
    government of Panama and the Canal Authority answered our questions
    substantively. The Canal Authority informed us they were already making
    changes to the allocation system.
        Fortunately, Panama's 2024 rainy season has now alleviated the most
    acute water supply issues at the Canal for the time-being and restored
    normal transit volumes. That said, while the Panamanian government and
    Canal Authority have, with the advice of the U.S. Army Corps of
    Engineers, developed credible plans to mitigate future water shortages,
    they also warned that it is likely at least one more period of reduced
    transits will occur before these plans can be fully implemented.
        Since our meetings in late July, the Commission has continued to
    monitor Panama's progress on this front and examined other policy
    changes announced by the Canal Authority. I do have continuing concerns
    about the auction-like slot allocation procedures--not so much as they
    are applied right now when transits are not being rationed--but when
    another lower rainfall period occurs. As we learn more about how Panama
    and the Canal Authority would handle another drought crisis and receive
    more input from American importers and exporters, the Commission
    remains prepared to take any appropriate action, if warranted.
        How the Panama Canal's operations affect American commerce remains
    a priority at the Federal Maritime Commission, and I am very pleased
    that it is a priority for this Committee as well.
        Thank you.

        The Chairman. Thank you, Commissioner. Our next witness is
    Law Professor Eugene Kontorovich, who can explain Panama's
    treaty obligations and the remedies the U.S. might seek for
    potential violations.
        Professor Kontorovich is appearing virtually. And
    Professor, you are recognized for your opening statement.

    STATEMENT OF EUGENE KONTOROVICH, PROFESSOR, ANTONIN SCALIA LAW
                    SCHOOL, GEORGE MASON UNIVERSITY

        Mr. Kontorovich. Chairman Cruz, Ranking Member Cantwell,
    Honorable Members of the Committee, I appreciate and regret the
    opportunity to testify before you remotely.
        I have been asked to discuss possible violations of the
    treaty concerning the permanent neutrality and operation of the
    Panama Canal entered into between the two countries in 1977.
        I should say at the outset that determining whether a
    certain situation violates the treaty is a mixed question of
    law and fact, depending on both the meaning of the treaty and
    the actual situation on the ground. I have not had any
    classified intelligence briefings on this subject, so I am
    going to speak about the meaning of the treaty primarily. We
    shall see that under international law, each party to the
    treaty is entitled to determine for itself whether a violation
    has occurred.
        Now, in exchange for the United States seizing control of
    the Canal, which it built and maintained, Panama agreed to a
    special regime of neutrality. The essential features of this
    regime of neutrality is that the Canal must be open to all
    nations for transit, that is Article II, equitable tolls and
    fees, Article III, and exclusive Panamanian operation, Article
    V (sic), the prohibition of any foreign military presence,
    Article V.
        Article V provides that only Panama shall operate the
    Canal. Testifying about the meaning of the treaty at the Senate
    ratification hearings, the Carter administration emphasized
    that this prohibits foreign operation of the Canal as well as
    the garrisoning of foreign troops.
        Now, Article V appears to be primarily concerned about
    control by foreign sovereigns. If Panama signed a treaty with
    the People's Republic of China, whereby the latter would
    operate the Canal on Panama's behalf, this would be a clear
    violation. But what if Panama contracted for port operations
    with a Chinese state firm, or even a private firm influenced,
    or controlled in part by the Chinese Government?
        The Suez Canal Company was itself, before being
    nationalized, a private firm in which the United Kingdom was
    only a controlling shareholder, yet this was understood to
    represent British control over the Canal. In other words, a
    company need not be owned by the government to be, in part,
    controlled by the government.
        So the real question is the degree of de jure or de facto
    control over a foreign sovereign company. And scenarios range
    from government companies in an authoritarian regime,
    completely controlled, to purely private firms in an open
    society like the United States, but those many possible
    situations in the middle.
        The treaty is silent on the question of how much control is
    too much. And as we will see, this is one of the many questions
    committed to the judgment and discretion of each party.
        Now, turning to foreign security forces, the presence of
    third-country troops would manifestly violate Article V. But
    this does not mean that anything short of a People's Liberation
    Army base flying a red flag is permissible. The presence of
    foreign security forces could violate the regime of neutrality,
    even if they are not represented in organized and open military
    formations.
        Modern warfare has seen belligerent powers seek to evade
    international legal limitations by disguising their actions in
    civilian garb. From Russia's notorious little green men, to
    Hamas terrorists hiding in hospitals or disguised as
    journalists, bad actors seek to exploit the fact that
    international treaties focus on sovereign actors.
        Many of China's man-made islands in the South China Sea
    began as civilian projects before being suddenly militarized.
    Indeed, this issue was discussed in the Senate ratification
    hearings over the treaty.
        Dean Rusk said, ``Informal forces would be prohibited under
    the treaty.'' Thus, the ostensible civilian character of the
    Chinese presence around the Canal does not in itself mean that
    it could not represent a violation of the treaty if, for
    example, these companies and their employees involved Chinese
    covert agents or other agents of the Chinese security forces.
        So this leads us to the final question: Who determines
    whether neutrality is being threatened or compromised? Unlike
    many other treaties that provide for third-party dispute
    resolution, the Neutrality Treaty has no such provision.
    Instead, the treaty makes clear that each party determines for
    itself the existence of a violation.
        Article IV provides that each party is separately
    authorized to maintain the regime of neutrality, making it a
    separate obligation of each party. The Senate's understanding
    made accompanying the ratification also made clear that Article
    V allows each party to take, quote, ``unilateral action''.
        Senator Jacob Javits, at the markup hearing, said that
    while the word ``unilateral'' is abrasive, we can, quote,
    ``Decide that the regime of neutrality is being threatened and
    then act with whatever means are necessary to keep the Canal
    neutral, unilaterally.''
        I look forward to your questions.
        [The prepared statement of Mr. Kontorovich follows:]

    Prepared Statement of Professor Eugene Kontorovich, Antonin Scalia Law
     School, George Mason University Senior and Research Fellow, Heritage
                                   Foundation
        Chairman Cruz, Ranking Member Cantwell, and Honorable Members of
    the Committee:

        I am Eugene Kontorovich, a professor at George Mason University's
    Antonin Scalia Law School, as well as senior research fellow at the
    Heritage Foundation's Margaret Thatcher Center for Freedom.\1\ My
    research focuses on constitutional and international law.
    ---------------------------------------------------------------------------
        \1\ The title and affiliation are for identification purposes.
    Members of The Heritage Foundation staff testify as individuals
    discussing their own independent research. The views expressed here are
    my own and do not reflect an institutional position for The Heritage
    Foundation, its Board of Trustees, George Mason University, or the
    Commonwealth of Virginia.
    ---------------------------------------------------------------------------
        I have been asked to discuss possible violations of the Treaty
    Concerning the Permanent Neutrality and Operation of the Panama Canal,
    entered into on September 7, 1977, between the United States and
    Republic of Panama. I should say at the outset that determining whether
    a certain situation represents a violation of a given treaty is a mixed
    question of law and fact. It depends both on the treaty and its
    interpretation, as well as on the actual situation on the ground, the
    latter of which I have no special information about.
        We shall see that under international law that each party to a
    treaty is entitled to determine for itself whether a violation has
    occurred. In our constitutional system, that determination is left
    primarily to the President, in part because of his superior and ongoing
    access to facts, much of which might not be public.
    What ``Neutrality'' Means
        The Neutrality Treaty was part of a deal made with Panama and
    embodied in two instruments. In one, the Panama Canal Treaty, the
    United States agreed to cede the Panama Canal Zone and, as of 1999, the
    operation of the Canal, to Panama. In exchange for the United States
    ceding the control of the Canal which it built and then maintained and
    defended, Panama agreed to a special ``regime of neutrality'' of the
    Canal, which is set forth in a separate treaty.
        Under international law, neutrality is a robust and detailed
    doctrine focused on third parties treating belligerents equally, or not
    affording them certain facilities, in time of war. The rules of
    neutrality are complex and detailed. Such rules were of great interest
    to the Framers, as they navigated the geopolitics of the Napoleonic
    Wars. The technicalities of neutrality are of somewhat less practical
    relevance today,\2\ when states of declared war are uncommon, and
    belligerence falls in several shades of grey.
    ---------------------------------------------------------------------------
        \2\ See Stephen P. Mulligan, Cong. Rsch. Serv., LSB10735,
    International Neutrality and U.S. Military Assistance to Ukraine
    (2022).
    ---------------------------------------------------------------------------
        In any case, the neutrality spoken of by the Treaty is not the
    general doctrines of customary international law, but the specific
    ``regime of neutrality'' \3\ that is ``spelled out in the treaty
    itself,'' as Dean Rusk explained in Senate hearings at the time.\4\
    Indeed, the neutrality spoken of in this treaty is different from
    classic neutrality in several ways, as it applies in times of peace,
    and gives preferential treatment to U.S. warships and Colombian
    vessels. This is not general neutrality, but rather a relative
    neutrality that places the safeguarding of U.S. interests in a special
    position.
    ---------------------------------------------------------------------------
        \3\ Treaty Concerning the Permanent Neutrality and Operation of the
    Panama Canal, U.S.-Panama, Sept. 7, 1977, T.I.A.S. No. 10030, reprinted
    in 16 I.L.M. 1022 (1977), Art. I.
        \4\ See Panama Canal Treaties: Hearings Before S. Comm. on Foreign
    Relations, 95th Cong., 559-60 (1978) (statement of Dean Rusk, former
    U.S. Sec. of State).
    ---------------------------------------------------------------------------
    What Violates Neutrality
        The essential features of the neutrality that must be preserved in
    the Canal are the non-discrimination among nations in the right of
    transit (Art. II); just and equitable tolls and fees (Art. III);
    exclusive Panamanian operation of the Canal (Art. V); and the
    prohibition of any foreign military or defense presence in the country
    (Art. V). A significant purpose of these provisions was to ensure
    foreign powers would not control the Canal.
    Foreign Operation of the Canal
        Article V provides that only Panama shall ``operate'' the Canal.
    Testifying about the meaning of the treaty in the Senate ratification
    hearings, the Carter Administration via Assistant Secretary of State
    for Legislative Affairs Douglas J. Bennet, Jr., emphasized that the
    treaty ``prohibits foreign operation of the Canal, the garrisoning of
    foreign troops.'' \5\
    ---------------------------------------------------------------------------
        \5\ Id. at 673, 675 (1978) (statement of Douglas J. Bennet, Jr.,
    Ass't Sec. of State for Legislative Affairs).
    ---------------------------------------------------------------------------
        This raises the question of whether the operation of the Canal or
    its appurtenant facilities by a private firm, neither American nor
    Panamanian, is consistent with the treaty. Article V appears primarily
    to be concerned about control by foreign sovereigns. If Panama signed a
    treaty with the People's Republic of China, whereby the latter would
    operate the Canal on Panama's behalf, it would be a clear violation of
    the treaty. But what if Panama contracted for port operations with a
    Chinese state firm? Or even a private firm? The Suez Canal company was
    itself a private firm in which the United Kingdom was only a
    controlling shareholder, and yet it was understood to represent Anglo-
    French control over the Canal.
        One analytic factor would be the degree of de jure or de facto
    control the foreign sovereign has over the company. Here, scenarios
    range from government companies in an authoritarian regime to purely
    private firms in an open society such as the United States. In between
    exists a spectrum of levels of governmental control and influence. The
    treaty is silent on the question of how much is too much. As we shall
    see, that is one of the many questions committed to the judgment and
    discretion of each party.
        In a communist regime, distinctions between private and government-
    owned firms are not as absolute or clear-cut as in a Western liberal
    society. This is particularly the case for the People's Republic of
    China (PRC), which has an official doctrine known as ``Military-
    Civilian Fusion,'' a top-level strategy of the CCP Central Committee
    since 2019.\6\ Moreover, Panama has formally joined China's ``Belt and
    Road Initiative'' (BRI), a sprawling Chinese governmental policy to
    strengthen its strategic influence overseas. China has used the BRI to
    expand its overseas security footprint in Belt and Road countries.\7\
    ---------------------------------------------------------------------------
        \6\ See U.S. Dep't of Defense, Military and Security Developments
    Involving the People's Republic of China, 28-30 (2023).
        \7\ Id. at 27.
    ---------------------------------------------------------------------------
        Another formal distinction of uncertain substantive value is that
    between Hong Kong and the PRC. When a Hong Kong company first won
    contracts to manage the ports on each side of the Canal--over vigorous
    U.S. objections\8\--the island was still a British Crown Dependency.
    Just a few months later, it was handed over to China; two years later,
    the Canal Zone was handed over by the United States to Panama. In the
    ensuing decades, China has cemented its control over Hong Kong far
    beyond what was contemplated in its agreement with the United Kingdom,
    culminating in imposition of Chinese security laws in 2020.
    ---------------------------------------------------------------------------
        \8\ The Security of the Panama Canal: Hearings before the S. Armed
    Serv. Comm., 106th Cong. (1999) (statement of Amb. Lino Gutierrez).
    ---------------------------------------------------------------------------
        These developments may have a combined cumulative effect. It
    emerges that the operation of facilities proximate to the Canal is
    under the control of companies subordinate to a rival or even hostile
    power, known for its integration of civilian and military sectors and
    use of infrastructure development to project global power.
    Foreign Security Forces
        The presence of third-country troops or military infrastructure
    would manifestly violate Article V. But this does not mean that
    anything short of a People's Liberation Army base flying a red flag is
    permissible. The presence of foreign security forces could violate the
    neutrality regime even if they are not represented by organized
    military formations. Modern warfare has seen belligerent powers seek to
    evade international legal limitations by disguising their actions in
    civilian garb. From Russia's notorious ``little green men'' to Hamas
    terrorists in hospitals, bad actors seek to exploit the fact that
    international treaties focus on sovereign actors. Many of China's
    manmade islands in the South China Sea began as ostensibly civilian
    projects before being militarized.
        Indeed, this issue was discussed in the Senate ratification
    hearings, with Dean Rusk testifying that ``informal forces'' would also
    be prohibited under the Treaty.\9\ (The question of Chinese influence
    over the canal was already discussed with concern by Senator Joe Biden
    during the mark-up hearings on the treaty.) Thus, the ostensible
    civilian character of the Chinese presence around the Canal does not
    mean China cannot be involved in violations of the treaty if, for
    example, the civilian presence includes agents of Chinese intelligence
    or security forces. It would hardly be surprising if these companies
    included agents of Chinese security services, but this is of course a
    factual matter.
    ---------------------------------------------------------------------------
        \9\ Supra note 3 at 539-40 (statement of Dean Rusk, U.S. Sec. of
    State).
    ---------------------------------------------------------------------------
    Who Determines Neutrality Violations
        The operations of Chinese companies have apparently not compromised
    traffic through the Canal in any way at this point. But the treaty is
    not merely violated when transit through the Canal is obstructed in
    wartime--indeed, such a treaty would leave the United States with no
    recourse until it is too late.
        This leads to the question of who determines whether neutrality is
    being threatened or compromised. Under international law, states
    determine for themselves the meaning of their treaty obligations unless
    a dispute resolution mechanism is provided for. Unlike many other
    treaties, the Neutrality Treaty provides no clause referring disputes
    to some form of third-party resolution.
        Instead, the treaty makes clear that each party determines for
    itself the existence of a violation. First, Article IV provides that
    each party is separately authorized to ``maintain'' the regime of
    neutrality. The Carter-Herrera Declaration, which is part of the full
    treaty, makes clear that both countries have ``the responsibility'' to
    ``defend the canal against any threat to the regime of neutrality.''
    \10\ This is far from the language of the U.N. Charter, which requires
    an ``armed attack'' to trigger a right of self-defense--and even that
    language the United States interprets as allowing for preemptive self-
    defense. By contrast, the Neutrality Treaty makes explicit that the
    United States can act when it deems the neutral operation of the Canal
    threatened--that is, when the danger is still inchoate.
    ---------------------------------------------------------------------------
        \10\ Joint Statement of Understanding Issued Following a Meeting
    Between the President and Brigadier General Omar Torrijos Herrera of
    Panama (Oct. 14, 1977).
    ---------------------------------------------------------------------------
        The Senate ratification amendments also indicate that ``each of the
    two countries'' shall separately be entitled to defend the neutrality
    regime. Indeed, this is the only plausible interpretation, as a
    requirement of joint-decision making would allow Panama to veto any
    U.S. action and violate the neutrality regime with impunity. Similarly,
    the Senate's understandings accompanying ratification make clear that
    Article V allows each party to take ``unilateral action.'' Senator
    Jacob Javits said at the mark-up hearings that, while the word
    ``unilateral'' is abrasive, ``we can decide that the regime of
    neutrality is being threatened and then act with whatever means are
    necessary to keep the canal neutral.'' \11\
    ---------------------------------------------------------------------------
        \11\ Hearings on Neutrality Treaty Before the S. Foreign Relations
    Comm., 95th Cong. 71 (1978) (statement of Sen. Jacob Javits).
    ---------------------------------------------------------------------------
    How Neutrality Is Enforced
        There is no doubt that the treaty authorizes the use of force
    against threats to the neutrality of the Canal. This was a matter of
    general consensus in the ratification debates and is made explicit in
    the conditions attached by the Senate to the ratification. The
    Statement of Understanding issued by the United States and Panama also
    makes this clear, adding the limitation that any use of force many not
    be directed against the ``territorial integrity or political
    independence of Panama.'' This phrasing means that while the treaty
    authorizes (but does not require) military force to remove threats to
    the neutrality of the Canal, such force can be used only as for as
    required to remove the threat. The treaty does not provide a basis for
    the reconquest of the Canal on a permanent basis.
        The fact that the treaty allows the use of military force--in
    contexts when it would otherwise have been forbidden by international
    law--does not mean this should be the first recourse. Needless to say,
    any resort to arms should be not taken lightly and should only follow
    the failure of diplomacy. And as the Statement of Understanding notes,
    the treaty's allowance for military action does not substitute for the
    satisfaction of the ``constitutional processes'' of each party, which
    for us may, depending on the circumstances, require congressional
    authorization.
        Senators, thank you for your attention.
                      * * * * * * * * * * * * * * * * * *
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        The Chairman. Thank you, Professor.
        Our final witness, World Shipping Council CEO, Joseph
    Kramek, can discuss the challenges faced by container lines
    moving goods to or from America through the Panama Canal.
        Mr. Kramek, you are recognized for your opening statement.

     STATEMENT OF JOSEPH KRAMEK, PRESIDENT AND CEO, WORLD SHIPPING
                                COUNCIL

        Mr. Kramek. Thank you, Chairman Cruz, Ranking Member
    Cantwell, and members of the Committee.
        My name is Joe Kramek. I am President and CEO of the World
    Shipping Council.
        The World Shipping Council is the global voice of the liner
    shipping. Our membership consists of 90 percent of the world's
    liner shipping tonnage, which are container vessels and vehicle
    carriers. They operate on fixed schedules to provide our
    customers with regular service to ship their goods in ports
    throughout the world. Our focus is on sustainable, safe, and
    secure international ocean transportation.
        Nothing could be more important to the U.S. economy and WSC
    member lines who carry the trade that supports the U.S.
    economy, than a sustainable, safe, and secure Panama Canal. As
    you have heard, using the Panama Canal to transit between the
    Atlantic and Pacific saves significant time and money. A
    typical voyage from Asia to the U.S. or East Coast can be made
    in under 30 days using the Canal, while the same journey can
    take up to 40 days if carriers must take alternate routes.
        From a commercial trade perspective, the big picture is
    this: One of the world's busiest trade lanes is the Trans-
    Pacific. The Trans-Pacific is cargo coming from and going to
    Asia via the United States. Focusing in a bit, cargo coming
    from Asia and bound for U.S. Gulf and East Coast ports always
    transits the Panama Canal, similarly, cargo being exported from
    U.S. and East Coast ports, a large share of which are U.S.
    agricultural exports like soybeans, corn, cotton, livestock,
    and dairy also almost always transits the Panama Canal.
        The result is that 75 percent of canal traffic originates
    in or is bound for the United States. Some examples include the
    Port of Houston ships--exports $14 billion in containerized
    trade to Asia. The Port of New Orleans exported $27 billion in
    seaborne trade to Asia, not all of which was on container
    vessels. The Port of New York and New Jersey exported $16.5
    billion to Asia. And the Port of Savannah exported $13 billion
    to Asia.
        Our member lines are the largest users of the Panama Canal,
    and we carry the bulk of this trade. Global ocean trade is
    always facing challenges, as you have heard, and the Panama
    Canal is no exception. We have talked about the drought in 2023
    and the historic low water levels that it caused in Lake Gatun,
    which feeds the Canal locks, a unique system that is a
    freshwater feed as a result as contrasted to an ocean-to-ocean
    system, which the French tried and failed, but which is
    actually active in the Suez Canal.
        These low water levels reduce transits from 36 transits a
    day to as low as 22 per day. Additionally, the low water levels
    required a reduction in maximum allowable draft levels or the
    depth of the ship below the water line which, for our members,
    reduced the amount of containers they could carry through the
    Canal.
        This resulted in a 10 percent reduction in import volumes
    for U.S. Gulf and East Coast ports, with the Port of Houston
    experiencing a 26.7 percent reduction.
        Looking forward, the volume of containerized trade coming
    into the United States remains at near record levels and
    continues to expand. 2024 numbers are just out, and the inbound
    trade to the U.S. expanded 15 percent, which is second only to
    the 17.5 percent inbound traffic we experienced during the
    pandemic-driven demand.
        Just yesterday, the Port of Houston reported record-
    breaking trade volumes with an 8 percent increase. More
    broadly, WSC member lines have transported 1. (sic) trillion in
    goods to and from U.S. ports, which represents 64 percent of
    all seaborne trade, contributed 2 trillion in economic output
    to the United States, supported 6.4 million U.S. jobs, and over
    $442 billion in wages and salaries.
        These goods are the clothes on your back, the shoes on your
    feet, and the phones likely in your hands or on your dais. WSC
    members look forward to working with the Committee on
    maintaining the sustainability, safety, and security of the
    Panama Canal.
        It is a vital ocean artery critical to U.S. trade. The
    record volume of cargo that our members continue to carry
    demonstrates our commitment.
        We appreciate the Committee's continuing support,
    commitment to the liner shipping industry, the U.S. maritime
    industry. And I look forward to answering your questions.
        Thank you.
        [The prepared statement of Mr. Kramek follows:]

             Prepared Statement of Joe Kramek, President and CEO,
                             World Shipping Council
    Introduction
        Chairman Cruz, Ranking Member Cantwell, and members of the
    Committee, thank you for the invitation to testify today. My name is
    Joe Kramek. I am President and CEO of the World Shipping Council
    (``WSC''). WSC is a non-profit global trade association whose goal is
    to provide a coordinated voice for the liner shipping industry in its
    work with policymakers, the public, and other industry groups with an
    interest in sustainable, safe and secure international transportation.
        WSC members are the international container ocean carriers and
    roll-on roll-off vehicle carriers that make global trade possible by
    offering cost efficient and effective transport for everything from raw
    materials, food, and machinery, to consumer goods like clothes,
    furniture, and electronics.
    Liner Shipping--An Economic Engine of the United States
        Shipping delivers 80 percent of global trade by volume, and liner
    ships carry 64 percent of all U.S. seaborne trade. In 2023 alone,
    global liner shipping contributed just over $2 trillion to the economic
    output of the nation--transporting nearly $1.5 trillion in goods to and
    from U.S. ports.
        The liner shipping industry provides American importers and
    exporters with door-to-door delivery service for almost any commodity
    to and from roughly 190 countries.
        Approximately 1,100 ocean-going liner vessels, mostly
    containerships, make more than 18,000 calls at ports in the United
    States during a given year. The liner shipping industry supports, both
    directly and indirectly, 6.4 million U.S. jobs; with wages and salaries
    paid to U.S. workers amounting to just over $442 billion.
        WSC members' vessels calling on U.S. ports carry on average over
    7,000 twenty-foot equivalents (TEU)--amounting to about 36 million TEUs
    of international trade transported into or out of U.S. ports.\1\ Our
    members' largest vessels can carry 24,000 TEU at one time.
    ---------------------------------------------------------------------------
        \1\ PIERS, S&P Global
    ---------------------------------------------------------------------------
        What makes liner shipping unique is that our vessels operate on
    regularly scheduled services with fixed routes--known as strings or
    loops--much like a bus or train service does. These regularly scheduled
    services provide our members' customers--U.S. importers and exporters
    including agricultural exporters and farmers--with a vessel in a
    particular port several times a week to receive and offload imports or
    load their exports.
        In 2024, U.S. container import volumes remained at near record
    levels, continuing a trend of higher year-on-year volumes, with
    December marking only the third time in history when imports exceeded
    2.3 million TEUs.\2\
    ---------------------------------------------------------------------------
        \2\ Descartes Global Shipping Report 2024, available at https://
    www.descartes.com/resources/global-logistics-shipping-report-resource-
    center
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        These record volumes demonstrate WSC member lines' sustained
    commitment to serving the international trade of the United States.
    Importance of the Panama Canal to the U.S. Trade and Economy
        The Panama Canal connects the Atlantic and Pacific Oceans running
    some 51 miles across the Isthmus of Panama. The original locks were
    completed in 1914 and can handle ships with a draft of 40 feet, a width
    of 106 feet, and a length of 965 feet--ships of this size have a
    maximum capacity of approximately 4,500 TEU.\3\ The new expanded locks
    were completed in 2016 and can handle ships with a draft of 50 feet, a
    width of 160 feet, and a length of 1200 feet--ships of this size are
    known as Neopanamax vessels and can carry in excess of 14,000 TEU.\4\
    Uniquely, unlike other canals such as the Suez, the Panama Canal is fed
    by freshwater from Lake Gatun, and recent droughts have impacted canal
    water levels, resulting in reduced transits or vessel draft
    restrictions.
    ---------------------------------------------------------------------------
        \3\ https://transportgeography.org/contents/chapter5/maritime-
    transportation/evolution-containerships-classes/
        \4\ Port Economics and Management Policy 2022, Theo Notteboom,
    Athanasios Pallis and Jean-Paul Routledge, available at Main Components
    of the Panama Canal | Port Economics, Management and Policy
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The Panama Canal is strategically important to ocean liners
    servicing U.S. markets. The Canal handles about 5 percent of global
    maritime trade, and 75 percent of Panama Canal traffic either
    originates or is bound to the United States. Recently, more than 14,000
    transits through the Panama Canal were made in a single year.
        Use of the Panama Canal reduces transit time and the associated
    fuel costs that would otherwise be incurred to transit between the
    Atlantic and Pacific Oceans. The reduction in transit time and distance
    facilitates trade between East Asia and the East Coast of the United
    States, as well as between Europe and the West Coast of South America.
        An ocean carrier transiting from New York to Shanghai via the
    Panama Canal could complete this trip in 29 days using the Panama
    Canal, whereas not using the Panama Canal would require transit via
    Suez Canal or transiting around the Cape of Good Hope which would take
    34 or 39 days, respectively.
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Similarly, a vessel transiting from Peru to New York would take 9
    days on average via the Panama Canal, and 26 days via Cape Horn.
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        Container liners are the largest users of the Panama Canal,
    accounting for 20 percent-25 percent of all transits, with 2,787
    transits in 2023, and 2,773 transits in 2024.
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        75 percent of all cargo transiting the canal originates in or is
    destined for the United States. In 2024 alone, nearly 100 million long
    tons of cargo originating in the United States (of which 93 percent
    originated in the Gulf or East Coast), and over 57 million long tons of
    cargo destined for the United States (of which 87 percent was destined
    for the Gulf or East Coast) passed through the Panama Canal.\5\
    ---------------------------------------------------------------------------
        \5\ https://pancanal.com/en/statistics/
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        U.S. East and Gulf Coast imports and exports, by a large margin,
    are the most common goods transported through the Panama Canal.

        Exports to Asia from the U.S. Gulf and East Coast, also represent a
    significant market, for which the Panama Canal provides the fastest
    route.
        In 2023, the Port of Houston exported $13.9 billion in
    containerized trade to Asia--the largest commodity being plastics (or
    resins); and while not entirely containerized, the Port of New Orleans
    exported $26.9 billion in seaborne trade to Asia. In that same year
    along the East Coast, the Port of New York and New Jersey exported
    $16.4 billion in containerized commodities headed for Asia. This was
    closely followed by the Port of Savannah with their containerized
    exports to Asia valued at $13.1 billion--the top containerized exports
    being cotton and vehicles.
        The U.S. exported $71 billion in agriculture exports to Asia in
    2023, with the major containerized ports on the Gulf and East Coast
    being Norfolk, New York and New Jersey, Houston, and Savannah.
    Panama Canal Administration, Tariff Schedule and Transit Options
        The Panama Canal is managed by the Panama Canal Authority (PCA).
    The PCA is an autonomous legal entity with the exclusive responsibility
    for the administration, operation, conservation, regulation,
    maintenance and modernization of the Canal. The PCA sets the tariffs
    schedule to transit the Canal and makes the fees available to the
    public on its website.\6\
    ---------------------------------------------------------------------------
        \6\ Panama Canal Authority, Tariff Schedules, available at https://
    pancanal.com/en/maritime-services/maritime-tariff/
    ---------------------------------------------------------------------------
        Canal transit charges are based on, among other things, the size of
    the vessel, the lock to be used, and the cargo aboard the vessel. Prior
    to revising its tariff schedule, the PCA is required to provide
    interested parties an opportunity to participate in a public
    consultation process.
        There are several ways to arrange passage through the Panama
    Canal--advanced booking, regular transit and auctions. WSC members,
    because of the nature of liner shipping being on scheduled routes,
    largely book their passage in advance--which can be done up to a year
    in advance.
        Other types of shipping, such as product tankers or bulk vessels,
    tend to use ``regular transit'' because they receive their orders on a
    per trip basis (known as tramp shipping) and therefore can only book
    their canal transit slot once their destination is known. Vessels
    making regular transit books have their transit order determined by the
    PCA, and may have to wait several days until their transit slot is
    available.
        Transit slots may also be arranged via auction. While typically
    more costly, the auction process does provide a unique service where
    vessels with high priority cargos, who do not have advanced booking
    slots, and do not wish to wait for slot availability, can bid for
    immediate availability. The PCA typically keeps two extra slots open
    per day for auction customers. In August 2024, the PCA implemented a
    new system for the larger Neopanamax locks--called long term slot
    allocation system (LoTSA)--which is a blind tender bid process starting
    at $200,000, that allows parties to bid for remaining Neopanamax slots.
    Panama Canal--Low Water Level Impacts 2023-2024
        The Panama Canal locks are fed by fresh water from Lake Gatun. The
    rainy season in Panama runs from May to November. However, in 2023,
    Panama experienced a severe drought, which led to historic low water
    levels in Lake Gatun, resulting in the PCA reducing transits through
    the canal from 36 to as low as 22 per day--ultimately reducing
        yearly transits by 20 percent.\7\ In addition, the PCA reduced the
    maximum allowable draft (i.e., the vertical distance between the
    waterline and the lowest point of the vessel) from 50 feet to 44 feet
    for Neopanamax vessels, to conserve water.\8\
    ---------------------------------------------------------------------------
        \7\ Freightwaves Nov. 29, 2023, ``No reservation at the Panama
    Canal? Prepare for a long wait, available at https://
    www.freightwaves.com/news/no-reservation-at-panama-canal-prepare-for-a-
    long-wait
        \8\ Panama Canal Authority, Advisory to Shipping No. A-20-2023
    ---------------------------------------------------------------------------
        The low water levels had significant impacts on global shipping.
    The impacts on liner shipping resulted in an almost 10 percent
    reduction in import volumes for U.S. Gulf and East Coast Ports, with
    the Port of Houston experiencing a 26.7 percent reduction.\9\
    ---------------------------------------------------------------------------
        \9\ Descartes Global Shipping Report November 2023, Panama Drought
    Impacting East and Gulf Coast Ports, available at https://
    www.descartes.com/resources/knowledge-center/global-shipping-report-
    november-2023-us-container-import-volumes-down-from-october
    ---------------------------------------------------------------------------
        Overall, however, liner shipping experienced the least impact of
    all vessel sectors, because as discussed above, container liners booked
    advanced slot reservations which were honored by the PCA. The average
    wait time for container vessels transiting from North to South
    (Atlantic Ocean to the Pacific Ocean) did not exceed 1.5 days. For
    container vessels transiting from South to the North (Pacific to
    Atlantic) the average wait time did not exceed 1.8 days. Some liner
    companies also elected to move a portion of their loaded containers via
    rail across Panama and retrieve them on the opposite side, as a means
    of dealing with draft restrictions.

    Facilitating Transshipment--Major Container Ports in Panama
        Prior to the mid-1990s, Panamanian ports handled small container
    volumes--under 200,000 TEU--and most of those were for domestic use.
    However, between 1995 and 2002, a time corresponding to the initial
    privatization of ports, new container facilities were built in Panama--
    thereby starting the process of making Panama a major regional
    transshipment hub.
        Transshipment is the process of transferring containers from one
    vessel to another at an intermediate port. This method is critical to
    container shipping as it optimizes shipping routes and reduces costs--
    allowing goods to be routed efficiently to their final destination. The
    main container terminal facilities on the Atlantic side of Panama are
    the Manzanillo International Terminals, and the Colon Container
    Terminal--privatized in 1995 and 1997, respectively. On the Pacific
    side of Panama, the major ports are the Port of Balboa (privatized in
    1997) and the PSA Panama International Terminal (opening and privatized
    in 2011).
        From 2002 through 2011 the Port of Balboa made significant gains in
    the number of TEUs handled--signaling the emergent transshipment
    function that Panama plays in the transpacific and west coast of Latin
    America trade. Thereafter from 2012 through today, ports in Panama have
    increased their transshipment capability with the PSA Panama
    International Terminal starting with an initial container capacity of
    250,000 TEU in 2012 and expanding that capacity to 2 million TEU in
    2017.\10\ All told, collectively, container traffic handled at the main
    container ports in Panama exceeded 8 million TEU in 2021 and 2022. The
    drop in 2023 is attributed to the aforementioned drought.\11\
    ---------------------------------------------------------------------------
        \10\ Port Economics and Management Policy 2022, Theo Notteboom,
    Athanasios Pallis and Jean-Paul Routledge, available at https://
    porteconomicsmanagement.org/pemp/contents/part1/interoceanic-passages/
    container-traffic-panamanian-ports/
        \11\ Id.
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Container Traffic Handled at the Main Panamanian Ports 1995-2023
    \12\
    ---------------------------------------------------------------------------
        \12\ Id.
    ---------------------------------------------------------------------------
    Conclusion
        Thank you for the opportunity to discuss WSC member lines'
    contributions to the U.S. economy and our industry's use of the Panama
    Canal. WSC members appreciate the Committee's continuing support and
    commitment to the liner shipping and maritime industry, and I look
    forward to any questions you and the members of the Committee may have.

        The Chairman. Thank you very much. We will now move to
    questioning.
        I want to start, Chairman Sola, Commissioner Maffei: Are
    you aware of allegations from some vessel operators of
    disparate treatment, such as sweetheart deals or favorable
    rebates, by Panama for canal transits?
        Mr. Sola. Thank you for the question, Mr. Chairman. We have
    become aware through some complaints by cruise lines that said
    that they were not getting a refund of their canal tolls. When
    we looked into this, we found a Panamanian Executive Order
    Decree 73, that specifically says that if a cruise line would
    stop at a certain port, that they could be refunded 100 percent
    of the fees. As far as I know, that is the only instance where
    that exists.
        Mr. Maffei. We continue to look into it. But the cruise
    ships is the one area where we have found something that would
    fit that bill, I think, in general.
        The Chairman. Some press coverage says the Panama Canal is
    nominally independent, even though it provides a large share of
    the Panamanian Government's revenue. Chairman Sola, briefly,
    can you describe how the FMC views the Canal authority and the
    Panamanian Government? Are they distinct entities or a single
    foreign government apparatus that controls the Panama Canal?
        Mr. Sola. Mr. Chairman, our law is clear. It comes from the
    Merchant Marine Act of 1920 that there is only one entity. And
    in addition to that, that our predecessor at the Federal
    Maritime Commission was the U.S. Shipping Board, it was formed
    in 1916 in direct result of the Panama Canal. The very first
    chairman of that was George Washington Goethals, which was the
    very first administrator of the Canal. We look at it as one
    entity.
        Mr. Maffei. Yes. If I might just add, Mr. Chairman?
        The Chairman. Sure.
        Mr. Maffei. It is sort of like the Georgia Ports Authority
    and the State of Georgia. The Georgia Ports Authority is
    clearly independent. It can do its own bonds, it has got
    independent governance. But ultimately, Georgia is responsible
    for it, the State of Georgia.
        The Chairman. Right. So Panama was the very first Latin
    American country to join China's Belt and Road Initiative. And
    right now, China is building a fourth bridge across the Panama
    Canal for car traffic and light rail.
        Chairman Sola, why should Chinese construction of a bridge
    near Panama City concern the United States?
        Mr. Sola. Mr. Chairman, we all saw the tragedy that
    happened here in the Francis Scott Key Bridge incident and the
    devastation that had happened to Baltimore. We also saw
    recently what happened in the Suez Canal, where we had a ship
    get stuck in there. It is not only the construction of the
    bridge, but it is a removal of a bridge, as I understand it,
    called the Bridge of the Americas, it was built in 1961, and
    that would paralyze cargo traffic in and out of the Canal.
        The Chairman. Panama also recently renewed the concessions
    for two container ports to a Chinese company, Hutchison Ports
    PPC. Of course, Chinese companies are controlled by the
    Communist Party. How does China use control of those ports for
    economic gain?
        Mr. Sola. Mr. Chairman, I am a regulator, a competition
    regulator, and the Chinese ports that you are referring to, let
    me put them into scope. The one on the Pacific, the Port of
    Balboa, is roughly the same size as the Port of Houston. They
    do about 4 million containers a year. They have about 28 gantry
    cranes. The one on the Atlantic is the same as my hometown of
    Miami. They do about 1 million containers. So where Roger
    Guenther in the Port of Houston generates about $1 billion a
    year, and Hydi Webb in Miami does about $200 million, the
    Panama Ports company paid zero, zero for 20 years on that
    concession.
        It is really hard to compete against zero. So I think that
    is our concern, our economic concern that we would have.
        The Chairman. Commissioner Maffei, anything to add on that?
        Mr. Maffei. Yes. I do, too, also think it is important. And
    I would point out that you do not have to stop at either port.
    It is not like these two ports control the entrance to the
    Canal. That is the Canal Authority that does control that.
    However, I think it is of concern. I would also point out that
    the Panamanian Government thinks it is of concern, too, because
    they are conducting their audit of those particular deals. But
    we remain very interested as well.
        The Chairman. So Professor Kontorovich, I want to turn to
    the treaty. So President Trump has made important arguments,
    both the Chinese control over canal infrastructure and
    exorbitant fees charged for canal transits are violations of
    the Neutrality Treaty.
        I want to highlight three specific provisions that you
    mentioned in your opening statement. Article IV of the
    neutrality treatment requires both the United States and Panama
    to establish and maintain ``A regime of neutrality''.
        Article V limits any foreign control by providing, ``Only
    the Republic of Panama shall operate the Canal and maintain
    military forces, defense sites, and military installations
    within its national territory''.
        And finally, Article 3(1)(c) requires that, ``Tolls and
    other charges be just, reasonable, equitable, and consistent
    with the principles of international law.'' In your opinion, as
    an expert in international law, could the facts discussed here
    be considered violations of the Neutrality Treaty in force
    right now between the United States and Panama?
        Mr. Kontorovich. So I think, Senator, I think potentially
    they could, but it is impossible to say definitively without
    knowing more, in particular about the degree of Chinese control
    and involvement in these companies. I think it is important to
    note that these port operation companies that operate the ports
    on both sides, when they received their first contract, it was
    just a few months before Hong Kong was handed over to China.
        In other words, they received them as British companies,
    sort of very oddly, just a few months before the handover. Now,
    of course, since then, Hong Kong has incorporated--been
    incorporated into China, has been placed under a Special
    National Security regime, and the independence of those
    companies has been greatly abridged. To say nothing of state-
    owned companies involved elsewhere in the Canal area, which
    raise significantly greater questions.
        Additionally, I should point out that the understandings
    between President Carter and Panamanian Leader Herrera, which
    were attached to the treaty and formed part of the treaty,
    provide that the United States can, ``Defend the Canal against
    any threat to the regime of neutrality''. And I understand that
    as providing some degree of preemptive authority to intervene,
    one need not wait until the Canal is actually closed by some
    act of sabotage or aggression, which, as we heard from the
    testimony, would be devastating to the United States. But there
    is some incipient ability to address potential violations.
        The Chairman. And your final point there leads to my last
    question, which is, if the United States determines that Panama
    is in violation of the treaty, what remedies, what is the range
    of remedies the United States would have for that treaty
    violation?
        Mr. Kontorovich. So I think it may be shocking to people to
    hear today, but when one goes over the ratification history and
    the debates and discussions in this body over this treaty, it
    was clear that the treaty was understood as giving both sides,
    separately, the right to resort to use armed force to enforce
    the provisions of the treaty.
        And it is not so surprising when one understands that the
    United States made an extraordinary concession to Panama by
    transferring this canal, which the United States built at great
    expense, and maintained, and operated, to Panama, gratis. And
    in exchange, it received a kind of limitation, a permanent
    limitation on Panamanian sovereignty, that Panama agreed that
    the United States could enforce this regime of neutrality by
    force.
        Now, of course, armed force should never be the first
    recourse for any kind of international dispute, and should not
    be arrived at sort of rashly, or before negotiations and other
    kinds of good offices are exhausted. But it is quite clear that
    the treaty contemplates that as a remedy for violations.
        The Chairman. Thank you very much.
        Ranking Member Cantwell.
        Senator Cantwell. Thank you, Mr. Chairman.
        Mr. Kramek, I think costs are critical. When you think
    about it, we are here discussing costs. Why? Because consumers
    pay more when shipping costs are higher, whether their--or our
    farmers who are trying to export their products, as we saw
    during COVID, are literally our products getting left on the
    docks. And importers are paying more if shipping costs are too
    high.
        So when we look at these incidents that we now see in our
    supply chain, and we had our own incident in Seattle where a
    container ship lost power and was careening toward our big
    Ferris wheel in the downtown, right next to our ferry terminal;
    luckily, some ferry, a passenger ferry vessels were able to
    push the tug from, you know, out of the direct path of severe
    devastation.
        So now we mentioned Suez Canal, we mentioned Baltimore. We
    have our own Seattle experience. What do we need to do to make
    sure, on the cost side, that we are not--that we are making the
    right investments from a security level to make sure that these
    kinds of incidents that can do great harm do not happen?
        And Commissioner Sola, since you were at U.S. Southern
    Command, what do you think we need to do to renegotiate or to
    have a conversation with the Panamanians about the security
    level that we think needs to exist in Panama with this close
    proximity?
        And Mr. Maffei, this audit, will the audit lead to a
    discussion with Panama about those contracts? As I have said in
    my opening statement, I believe we should be very aggressive
    about U.S. involvement here and in Latin America. I think
    Panama represents one of our--the biggest U.S. supporters in
    that region. But we should engage to get this right, both on
    the cost side and on the security side.
        So if I could just hear your comments on each of those.
        Mr. Kramek. Thank you, Senator Cantwell. Well, certainly
    even one incident is unacceptable from a safety perspective
    that you are citing. Our members work tremendously hard with
    the International Maritime Organization, the U.S. Coast Guard,
    and other entities to try to have the safest operations
    possible. But accidents do occur. They are rare if you really,
    if you count the number of some 7,000 port visits a year. But
    again, one is unacceptable.
        So continued investment, obviously, in U.S. infrastructure
    and a review, I mean, we have a lot of old infrastructure as
    the tragic incident in Baltimore illustrated, unfortunately,
    when we have these bridges that need a hard look to whether or
    not they need additional fendering systems, and the like. And
    investments in our ports and infrastructure can be helpful
    along those lines as well.
        And for our members, I can assure you that they continue to
    invest in the latest technology. We have over 600 new ships on
    order with some of the latest technology in the world. So we
    are playing our role with this----
        Senator Cantwell. And I want the U.S. to get a big portion
    of that. That is why we need to reinvigorate.
        Mr. Kramek. Yes, ma'am.
        Senator Cantwell. Commissioner Sola, what about just a new
    U.S. Southern Command, U.S. Government conversation with the
    Canal Authorities and the Government about the security level
    that we seek?
        Mr. Sola. Thank you very much, Senator. First of all, the
    airborne wing that I am wearing today is decorative. I have not
    worn a uniform in 35 years. So this is my personal experience
    here.
        I believe that the security of the Canal has always been
    understood to be provided by the United States. Panama does not
    have a military, and I always believe that there has been a
    close relationship with Southern Command that we would provide
    that. And it would be nice to see if we had a formalization of
    that in one way or another, because I do not believe that it is
    in the treaty at all.
        Senator Cantwell. OK, so formalization of maybe a
    cybersecurity agreement? You see, I am thinking this is--you
    have accidents, and then you have larger cybersecurity issues
    that you just have to be on top of. And what I do not like
    about anybody that has a back door is, I am for the United
    States advocating, do not buy from people who have a government
    back door. Do not do it. Because what are you going to do? At
    some point in time, you are going to regret that.
        Commissioner Maffei, what about this audit, and could we
    push Panama on these issues of looking at closer U.S.----
        Mr. Maffei. You mean, yes----
        Senator Cantwell.--infrastructure instead, particularly
    since, you know, the sea change here is like what everybody
    said? Like everybody thought this was Hong Kong, then it turned
    into China. We did not have an ambassador after that. Next
    thing you know, they have made more aggressive postures.
        They are making aggressive postures everywhere. That is why
    the United States saying no government back doors in technology
    and getting five other technology nations and democracies to
    say the same thing and evangelize that every day is going to
    help us.
        Mr. Maffei. Yes.
        Senator Cantwell. And so is the investment. But what about
    getting the stevedoring business or some of that back into
    proximity under the audit?
        Mr. Maffei. Well, it is the Panama Comptroller's Office and
    they are investigating, you know, contracts at Panamanian
    ports. And we do not have any jurisdiction over Panamanian
    ports, per se.
        But your broader point, I think, is very, very important.
    While we were down there, both of us heard, I think, several
    times, that the Panamanians would--the ones we talked to
    anyway, would welcome U.S. companies coming in and doing a lot
    of this work. Frankly, their bids are not competitive with the
    Chinese bids. Frankly, they are not that existent because the
    U.S. companies can make more money doing things other places.
        But even if they were existent, it is difficult to put
    competitive bids when the Chinese bids are so heavily
    subsidized by China. So you are absolutely right. This is a
    problem and it is a problem in many, many other areas of the
    world that we can get into if you want in subsequent questions.
    But that is the concern.
        Senator Cantwell. I think my time has expired, but I think
    my major point is, let us be a big maritime powerhouse. Let us
    revitalize our supply chains, drive down costs for consumers,
    and secure what we need to secure.
        Thank you, Mr. Chairman.
        The Chairman. Thank you, Senator Cantwell.
        And very quickly, Commissioner Maffei, you talked about the
    Chinese bids were heavily subsidized by the Chinese Government.
    What would China's incentive be to heavily subsidize those bids
    to undercut American companies and other companies?
        Mr. Maffei. Yes, and so it is not a real short answer, but
    Senator, China has made no secret of its ambitious policies to
    gain influence at ports throughout the globe. It has invested
    in 129 ports in dozens of countries. It runs a majority of 17
    ports. That does not include this Hong Kong company, right, so
    that is just directly, direct Chinese-owned ports.
        So it has been a part of their Belt and Road Strategy,
    whatever you want to call it, the Maritime Silk Road for
    decades. So they believe that this influence, this investment
    in owning maritime ports is important to their economy.
        The Chairman. Senator Fischer.

                    STATEMENT OF HON. DEB FISCHER,
                       U.S. SENATOR FROM NEBRASKA

        Senator Fischer. Thank you, Mr. Chairman. I would like to
    follow up on the ports and where we are on that. In 2021,
    Hutchinson was awarded those two ports, Port Balboa and Port
    Cristobal, in a no-bid award process. Can you tell me, does the
    United States have any authority or recourse with the Panama
    Canal Authority under our current agreement with Panama to re-
    bid those terminal concession contracts? And perhaps, Mr.
    Kontorovich, that is more in your purview?
        Mr. Sola. Senator----
        Mr. Kontorovich. Senator Fischer----
        Mr. Sola. Both of those ports were redone for 25 years,
    until 2047, if I believe. And they have to pay $7 million, is
    what the ongoing rate is for the Port of Houston and the Port
    of Miami size concessions. As far----
        Senator Fischer. And it cannot be rebid until after that
    date?
        Mr. Sola. Well, I believe that that is what the
    Comptroller's Office is auditing, both of those ports and that
    contract. And that was done under the previous Panamanian
    administration. A new administration came in and they called
    for an audit of that contract immediately.
        Senator Fischer. Mr. Maffei, you were talking about how to
    incentivize, perhaps incentivize companies from the United
    States to be able to participate in a bid process that does not
    seem to be reasonable. And do you think that the Panamanians
    would welcome viable alternatives? Are we in that position yet?
        Mr. Maffei. Senator, let me first say that this is outside
    the scope of what the Federal Maritime Commission does. But
    having gone there, having looked at this issue very carefully,
    I think it would--it is very important. It was mentioned
    actually, Senator Cantwell just mentioned EXIM Bank programs.
        So it is not like this does not happen. But it certainly
    has not been a huge priority of the United States to try to, if
    you will, match these bids, to create programs widely available
    to U.S. firms in order to put together more competitive bids in
    these countries, where some of their domestic laws, I am not
    sure about Panama, but some of their domestic laws actually
    require that you go to the lowest bidder sometimes, just as
    ours do.
        So yes, I think if you are looking for places to do--U.S.
    policy to counter this, I think you definitely want to look at
    whether the United States should be, for strategic and economic
    reasons, investing in infrastructure, in important maritime
    locations all over the world.
        China certainly has done that. And they have been doing it
    for 20 years, and it is a cow that has long left the barn.
        Senator Fischer. You mentioned investing in infrastructure.
    I was at the Panama Canal in 2023, and I learned at that time
    about the loss of fresh water with each ship movement through
    the Canal.
        You talked about the drought, sir, in your opening
    comments. Fresh water is vital to the workings with the Canal.
    How effective do you think investments in increasing that fresh
    water storage are? Are they happening? Are they viable? You
    touched on it briefly in your opening comments, but how do we
    see those investments happening so that we can have operational
    stability?
        Mr. Maffei. Yes. That is a good question, a bit out of my
    purview, but I will say that there are several investments.
    There is water reclamation, pumping water up, et cetera, but
    the main thing, the main plan that the U.S. Army Corps of
    Engineers has helped the Panamanian Authority develop involves
    another basic expansion of bringing in even more water at an
    elevation that you could then use to continue the Canal. Now,
    there is a lot of issues with implementing that, not the least
    of which being indigenous people in those areas.
        Not a huge number, but certainly towns, and thanks, and
    negotiating that and all sorts of other issues, just as if it
    was in the United States, there would be issues, but it is a
    very--it is viable. In that part of the world, you can make
    more fresh water available to make the Canal not have to be
    limited. However, it takes time, and there will at least be one
    more incidence of severe limitations before that occurs unless
    we get really, really lucky, and there could be more than that.
        Senator Fischer. Thank you. Thank you, Mr. Chair.
        The Chairman. Thank you. Senator Blunt Rochester.

                STATEMENT OF HON. LISA BLUNT ROCHESTER,
                       U.S. SENATOR FROM DELAWARE

        Senator Blunt Rochester. Thank you Chairman Cruz, and
    Ranking Member Cantwell.
        At the heart of this hearing is a fundamental question
    about how the U.S. will compete on the world stage and maintain
    our national security. These are the questions that will define
    the future of this country.
        For American families to see lower prices and better
    economic opportunities, we have to meet this moment honestly
    and seriously, and I am proud to have joined Senators Cantwell
    and Blackburn to reintroduce the bipartisan Promoting Resilient
    Supply Chains Act, a legislation that I led and authored in the
    House.
        This bill ensures that we have a national strategy to
    address our broken supply chains, whether it is a bridge
    collapse, a major global conflict, or unions striking for their
    rights. Interruptions and disruptions to our supply chains
    severely impact our economy. Our bipartisan legislation tackles
    this issue by elevating supply chains, like the disruptions at
    the Panama Canal, to be proactive and strategic.
        It helps us understand how we strengthen our ties with our
    friends and allies instead of pushing them into the arms of our
    competitors. I agree with Ranking Member Cantwell that we
    should have a hearing on how we compete with countries like
    China, and I have grave concerns about China's global
    infrastructure investments and any cyber threats to the U.S.,
    addressing these are our national security interests.
        With that, I would like to shift to my first line of
    questioning, and it is for you, Captain Kramek. It is no secret
    that the Canal has had issues due to droughts, nor is the
    increasingly frequent drought a new phenomenon. Do you believe
    the Panama Canal Authority did enough to anticipate the issues
    impacting the Canal's operation?
        Mr. Kramek. Senator Blunt-Rochester, thanks for your
    question. They did the best, I guess, with the information that
    they had. I do not know that they anticipated a drought of that
    magnitude.
        I would say, going forward, with what Commissioner Maffei
    just discussed about the development of a second reservoir to
    feed into Lake Gatun and the U.S. Army Corps of Engineers doing
    a feasibility review of that project, as well as some other
    projects that were mentioned, that that seems to be a good path
    forward in terms of resiliency of the Panama Canal and making
    it a viable waterway for 2050 and beyond.
        Senator Blunt Rochester. I think part of the challenge is
    that it was recently started and time is of the essence. Did
    you think that the Canal Authority considered the obvious
    impacts from drought in its planning?
        Mr. Kramek. Senator Blunt Rochester, I do not have that
    information on what they considered.
        Senator Blunt Rochester. It is clear that the Canal
    Authority knew that this would have an impact on shipping and
    that enough had not been done to address it. Now that we are
    faced with this impact, what do you think the Canal Authority
    needs to do expeditiously to bring the Canal back into full
    authority and full operation?
        Mr. Kramek. So they are back to full operation, is my
    understanding. Traffic is flowing well. But looking forward, I
    think it is taking a hard look at some of these infrastructure
    projects to make the Canal more viable, like I mentioned.
        Senator Blunt Rochester. The Port of Wilmington is in my
    state. We are very proud of it. It is one of the leading
    importers of fruits. The delays through the Canal have an
    outsized impact on perishable goods like those that my port
    handles. Do you believe the Canal Authority can and should
    prioritize perishable goods? Or provide some other solution to
    support perishable goods? And anyone on the panel can answer
    that.
        Mr. Maffei. Yes, ma'am. Let me address your question,
    because I am not sure it is my place to exactly answer it. But
    you are quite right. So one of the complaints that we have
    heard is from container shippers, mostly exporters that export
    goods, as you say, and many other commodities, too, are
    sensitive, either because of market conditions such as cotton,
    or because of actual perishability of the product, such as what
    you mentioned.
        However, they are on container ships, and most of the cargo
    on the container ship is less time-sensitive. In the bidding
    process that the Panamanian Canal Authority developed in order,
    when they did have to ration these slots, it was a bidding
    process, and the highest bidder got the first slot, got the
    less of a delay.
        The challenge there is every kind of commodity, and every
    kind of ship was bidding, so liquid natural gas, which is
    extraordinarily, all the cargo on that ship is both
    extraordinarily valuable, not that your agricultural
    commodities are not valuable, but compared pound for pound to
    the LNG, and very, very--I mean, it is out, you know, there is
    a--you are losing volume every delay. So they would far outbid
    the container shippers.
        Now, whether or not there is something that can be done
    specifically to help these container, I am not sure we have
    been looking into that, but it does remain a large concern is,
    how do we figure out a way for these agricultural shippers who
    are, you know, not the main players on these ships, but part of
    it, an important part of it, particularly for the United
    States.
        So you bring up a great question. I wish I had a better
    answer, but.
        Senator Blunt Rochester. Thank you for your answer. I will
    be submitting some questions for the record because I know my
    time has run out, and I really want to understand also what we
    can do, as the United States, in terms of us being able to bid
    and be competitive in these bids. What can we do better?
        So I will be submitting questions for the record. Thank
    you, Mr. Chairman, and I yield back.
        The Chairman. Thank you.
        Senator Sullivan.

                    STATEMENT OF HON. DAN SULLIVAN,
                        U.S. SENATOR FROM ALASKA

        Senator Sullivan. Thank you, Mr. Chairman, for this
    important hearing. And I appreciate the witnesses.
        I have questions, for now primarily focused on Chairman
    Sola and Professor Kontorovich. So let us just--the setting in
    which you testified, two Chinese companies operate the two huge
    ports on both ends of the Panama Canal, and the concession for
    these ports were extended in 2021 for a 25-year period without
    any bidding, is that correct?
        Mr. Sola. That is correct, Senator.
        Senator Sullivan. OK, so it was clearly a sweetheart deal,
    correct?
        Mr. Sola. According to the press releases, the company paid
    back taxes of $150 million.
        Senator Sullivan. And the Panama Deputy Attorney General
    has now objected to that. That is my understanding. Is that
    correct?
        Mr. Sola. The Comptroller of the country has asked for an
    audit of----
        Senator Sullivan. But someone objected to it when it was
    going on, a lot in Panama?
        Mr. Sola. A lot of people objected to it.
        Senator Sullivan. So Chinese Communist Party officials are
    known to bribe other officials in countries all around the
    world. We know that, they do it all the time. No offense to
    Panama, but they do not have the greatest reputation of having
    officials who are not on the take.
        So is there any evidence that the Chinese bribed people for
    this great concession? And if so, Professor, would that be a
    violation of the treaty? Let us assume we find evidence that
    Chinese Communist Party officials bribed Panama officials for
    this sweetheart deal, would that be a--and I think it is
    probably likely because the Chinese do this everywhere--would
    that be a violation of this treaty?
        Mr. Kontorovich. So in itself, that would not be a
    violation. What would be a violation is actual threats to the
    operation of the Canal.
        Senator Sullivan. OK.
        Mr. Kontorovich. However, to the extent that the Chinese
    Government was involved in procuring these contracts, it
    strongly, it provides sort of additional support for the notion
    that these companies are serving some kind of governmental
    interest. And that would not be a violation itself.
        Senator Sullivan. All right. Let us say--I do not want to--
    sorry to interrupt.
        Mr. Kontorovich. There would be circumstantial evidence to
    support it.
        Senator Sullivan. Let me get to the issue of threats. Let
    us assume the PRC, the PLA invaded Taiwan, or invaded the
    Philippines, or went to war somewhere in the South China Sea,
    and we were surging our Navy to the Indo-Pacific through the
    Panama Canal. Are the companies now controlling both sides of
    the Panama Canal, the Chinese companies, subject to the PRC's
    National Security Laws that mandate cooperation with the
    military, with state intelligence agencies? Does anyone know
    that?
        Professor, do you know that?
        Mr. Kontorovich. They are subject all the time.
        Senator Sullivan. Do you know that----
        Mr. Kontorovich. They are subject to those--they are
    subject to those laws all the time by virtue of being Hong Kong
    companies. And you know, they face, of course, consequences for
    not complying with the wishes of the Chinese Government, and
    one of the companies----
        Senator Sullivan. And would not that be a--would not that
    be a violation of the treaty? And isn't that a huge risk to us
    right now that the Chinese, the PLA invaded----
        Mr. Kontorovich. So that is a threat to be in the
    neutrality.
        Senator Sullivan. They invaded Taiwan, invaded the
    Philippines. They could go to these two companies saying, hey,
    shut it down, make it hard, sink a ship in the Canal. And
    wouldn't they be obligated to do that under Chinese law if they
    were ordered to by the PLA or the CCP?
        Mr. Kontorovich. I do not know if they would be obligated,
    but certainly the People's Republic of China would have many
    tools of leverage and pressure on these companies. That is why
    the treaty specifically says that we can act not just to end
    actual obstructions to the Canal. We do not have to wait until
    the Canal is closed by hostile military action. That would be a
    suicide pact. That would be catastrophic for us.
        But rather that we can respond at the inchoate, incipient
    level to threats. And then this is up to the President to
    determine whether this is significantly robust to constitute
    any threat.
        Senator Sullivan. So Professor, aren't we kind of walking
    up to the idea of a suicide pact, because we have got two big
    Chinese companies on both ends of the Panama Canal who, if
    there is a war, INDOPACOM, Taiwan that involves us and China,
    these companies would be obligated to do the bidding of the
    Chinese Communist Party and PLA? I mean, isn't that--aren't we
    kind of walking up to a very significant national security
    threat already?
        Mr. Kontorovich. Certainly there is a threat. And I think
    what makes the action of the Chinese Government so difficult to
    respond to, but important to respond to, is that they conceal
    this in sort of levels of gray, right, without direct control.
        Senator Sullivan. Yes. Well, let me ask you on that topic,
    this is my last question, Professor. Let us assume that we find
    out, and again, it would not be surprising. I think you can
    almost assume it, that these two companies have Chinese spies
    or military officials within the ranks of the employees of the
    companies. Let us assume we found that out, that somehow that
    becomes public. But I do not think it is a big assumption. It
    is probably true right now.
        So you have spies and military personnel within the ranks
    of these two companies that are controlling both ends of the
    Panama Canal. For you, Professor and Chairman Sola: would not
    that be a blatant violation of Article V of the Neutrality
    Treaty if that were true; which probably is true?
        Mr. Kontorovich. Yes, I do think----
        Senator Sullivan. What is your answer, Professor?
        Mr. Kontorovich.--it would be a--yes, I do think it would
    be a clear violation. As Dean Rusk, Former Secretary of State
    Dean Rusk said at the ratification hearings, informal forces
    can violate Article V as well as formal forces. It is a clear--
    --
        [Crosstalk.]
        Senator Sullivan. And Chairman Sola, do you agree with
    that? Is there any evidence of Chinese spies or other nefarious
    Chinese actors embedded in these companies?
        Mr. Sola. Senator, we have no information of that.
        Senator Sullivan. OK.
        Mr. Sola. And that is not under the purview of the
    Federal----
        Senator Sullivan. But you agree that would be a violation
    of Article V of the Neutrality Treaty?
        Mr. Sola. I do.
        Senator Sullivan. Thank you. Thank you, Mr. Chairman.
        The Chairman. Thank you. Senator Baldwin.

                   STATEMENT OF HON. TAMMY BALDWIN,
                      U.S. SENATOR FROM WISCONSIN

        Senator Baldwin. Thank you. Commissioner Maffei, good to
    see you, thank you for being here today.
        Mr. Maffei. Thank you.
        Senator Baldwin. I am very concerned about China's large
    and growing influence in the world's infrastructure network. A
    company from Hong Kong operates two ports in the Panama Canal,
    one on each end. And while the company is not Chinese state-
    owned, it is subject to China's national intelligence law as we
    have been discussing. Moreover, a Chinese state-owned entity is
    currently building a bridge over the Panama Canal.
        But the Panama Canal is just one example of how far China's
    influence stretches. Their dominance in maritime, logistics,
    and shipbuilding sectors lessens competitions--competition
    creates supply chain risks, and creates opportunities for
    surveillance and information gathering. In order to facilitate
    the movement of goods throughout the world, it is essential to
    have a secure and level playing field, which we currently do
    not. Chinese current practices do not allow for that.
        The United States trade representative recently
    investigated China's practicing--practices in the commercial
    shipbuilding sector under Section 301, and recently concluded
    that their dominance is a burden to United States commerce.
        One, a few decades back, we were the dominant country in
    commercial shipbuilding. Last, or in 2023, we built five
    commercial ships, and China built over 1,700 according to
    that--according to that investigation.
        So what policies would you recommend to prioritize growth
    of the United States influence in the maritime and logistics
    sector to compete with China and level the playing field?
        Mr. Maffei. I will answer in less than a minute.
        Senator Baldwin. Yes.
        Mr. Maffei. Senator Baldwin, it is very good to see you
    again. And we were colleagues for one term in the House, and I
    appreciate that.
        I think the best I can answer in the short term is to amen
    to everything you said. And as an illustration, Senator
    Sullivan was talking about Hutchison Ports. That is actually
    the same company that runs terminals on both ends of the Canal.
    I am concerned about that.
        However, if we want be concerned about that, all of us
    should lose a lot more sleep than we are losing, because if
    there are spies there, then there might be spies at other
    Hutchison Ports. And there are other Hutchison Ports in almost
    every part of the world. They own the largest container port in
    the United Kingdom, Felixstowe, which is responsible for nearly
    half of Britain's container trade.
        They control major maritime terminals in Argentina,
    Australia, the Bahamas, Germany, Indonesia, Mexico, Myanmar,
    the Netherlands, South Korea, and Tanzania. If owning and
    managing adjacent ports means that China somehow like has
    operational control or strategic control over the Panama Canal,
    they also have it over the Suez, the Singapore Straits, the
    Mediterranean Sea, and the English Channel. That is just one
    aspect of what you were talking about.
        That does not include the shipbuilding, heavily subsidized,
    such that now, I believe over half of new ships that are in the
    companies that belong to the World Shipping Council are coming
    from China, not because these are bad companies, but because
    they are undercutting other things. And it is a problem that
    has been going on for 20 years, which makes it very difficult
    to answer your question. It is a long answer.
        This is not a problem that occurred last week. This is not
    something that President Trump identified. This was going on
    all of President Biden's term, but all of President Trump's
    first term. It has been going on for decades and decades
    through both U.S. Republicans and Democrats as President.
        The only thing I can say is I echo what Ranking Member
    Cantwell said, and I think others of both parties have echoed
    it, that we need some sort of overall maritime strategy. We
    have to acknowledge that this is part of our national security.
    That economic resilience is extraordinarily important. And I
    believe this is the greatest country in the world. I think if
    we start countering some of these efforts, we can do it, but it
    has to become a national priority.
        And part of the challenge is, we are talking about outside
    the borders of our U.S., investing outside the borders of our
    U.S. does not make a very good campaign ad, but it may be
    necessary to secure, particularly with such an aggressive, and
    frankly on this, open strategy that China has had.
        Senator Baldwin. Thank you for that answer. I know my time
    is now short.
        I will allow Professor Kontorovich to answer this for the
    record. But Professor, I would like to ask for your help in
    finding productive actions we can take to overcome some of the
    challenges that are being discussed today. I am confident that
    we can find bipartisan solutions to pursue.
        It is my view that we should strengthen our relationship
    with Panama through mutually beneficial actions. For one, we
    should have a fully staffed embassy. The United States went
    without an ambassador to Panama from 2018 to 2022, largely due
    to partisan gridlock in the Senate confirmation process.
        So what additional strategies would you suggest the U.S.
    pursue to encourage Panama to enhance its security relationship
    with us, the United States of America, rather than China? And
    how can we leverage the strength of the American private sector
    to encourage more investment in the important infrastructure
    projects where China currently has a strong presence, in fact,
    dominance?
        Mr. Kontorovich. So thank you. So my understanding of the
    Chinese advantage is that to the extent that they are using--
    willing to use their government wealth to consistently underbid
    contracts, they have an advantage that cannot be beat. And thus
    leaving these kinds of issues to contracting is going to put
    American companies perpetually at a disadvantage.
        You know, I think one potential action would be to make
    clear to Panama that based on these changes that have occurred
    over the years, increasing Chinese control over Hong Kong, the
    passage of the national security law, the Belt and Road
    Initiative, the military-civilian integration doctrine of
    China, that contracts with Chinese-based companies are
    considered suspect and incompatible with the neutrality regime
    of the treaty. That would at least give American companies and
    other truly private companies a fighting chance.
        The Chairman. Thank you. Senator Blackburn.

                  STATEMENT OF HON. MARSHA BLACKBURN,
                      U.S. SENATOR FROM TENNESSEE

        Senator Blackburn. Thank you, Mr. Chairman. Yes or no,
    quickly, for the three of you, just for the record. Is the
    China investment into the Panama Canal a direct threat to U.S.
    national security? Yes or no?
        Mr. Sola, I will start with you down the panel. Thank you.
        Mr. Sola. To the economic security, yes Senator.
        Mr. Maffei. Yes.
        Mr. Kramek. I do not have that information as an Industry
    Trade Association, Senator.
        Senator Blackburn. OK. All right. And we have talked some
    about the Neutrality Treaty, which I think is of concern to all
    of us. And as I have looked at this, and I appreciated Senator
    Sullivan's questioning on this, we look at how President Trump
    is going to push forward with getting this issue addressed. And
    we have heard a good bit about this from our shippers that are
    looking at what happens coming out of the port of Memphis.
        And I think that the Government of Columbia learned a
    lesson last week that we are not going to go soft on some of
    these issues. And when you look at the fact that the U.S. is a
    primary user, it is the primary user of the Panama Canal. And
    we are also Panama's largest provider of direct foreign
    investment. I think those two things should be significant. Our
    foreign investment into Panama is $3.8 billion annually. This
    is why people are looking at this issue.
        So Professor, let me come to you on this, and we thank you
    for joining us remotely. Should not our investment in Panama be
    contingent on their adherence to that Neutrality Committee,
    ensuring that Panama and Panama alone would control that canal?
        Mr. Kontorovich. So certainly that is an action we can take
    to enforce the treaty and to enforce our understanding of the
    treaty. That is an action we can take even without the treaty.
    So to the extent that the United States considers the Chinese
    operation of facilities around the Canal to be against its
    interests, it can certainly condition aid and economic
    relationships on the exclusion of China.
        Now, the United States has typically not worked that way.
    And that may be one of the reasons why, as we heard in the
    testimony, China has basically made inroads everywhere. But for
    that, we do not even need the treaty. Certainly, if we consider
    the treaty to be violated, measures like that, far short of the
    Armed Force authorized by the treaty, would be reasonable to
    start a----
        Senator Blackburn. And Professor, let me interrupt you
    there, because I do want to move on. I think that as you look
    at how China has used the Belt and Road Initiative, and we have
    talked some about that this morning, we know that they have
    pushed the digital yuan.
        And I am concerned that given their control over much of
    that infrastructure around the Canal, that they would attempt
    to force U.S. shippers, or our allies to bypass the dollar and
    use the digital yuan as they are in other countries, where they
    are practicing debt diplomacy, and where they are expanding the
    Belt and Road Initiative.
        So Chairman Sola, could you speak for a moment about the
    potential for fee manipulation with the CCP? Because as I
    mentioned, we are hearing a good bit about that, we are hearing
    that the toll structure disadvantages U.S. companies, that the
    Canal Authority has begun charging millions of dollars to skip
    the queue.
        And these fees put many bulk shippers in an adverse
    position. And these bulk shippers have a huge impact on ports
    along the lower Mississippi River. And these exorbitant fees
    are there unless you are going to face delays at the Canal. And
    then the impact of hearing these Chinese companies would
    preference the yuan as opposed to the dollar.
        Mr. Sola. Thank you, Senator. The fees that I think we are
    looking at, or we have been looked at, and the reason that we
    went there was because of the auctioning of the slots. And so
    what Panama did is they had a smaller percentage, maybe 20
    percent allocation, and then they moved it up to 30 percent and
    40 percent because it became a moneymaker for them. So as they
    were doing this----
        Senator Blackburn. OK, and let us--let me interject here.
    The auctioning of the slots gives these the right to skip the
    queue?
        Mr. Sola. Yes, ma'am.
        Senator Blackburn. OK. So just for the record there,
    continue.
        Mr. Sola. So the auctioning of the slot--under maritime
    law, it is first come, first serve. But Panama has always put a
    certain percentage aside. And they started to put more and
    more. So we got a lot of complaints. We got a lot of complaints
    from LNG carriers that paid $4 million to go through. And we
    got a lot of complaints from agriculture that did not have the
    money to pay to go through because their goods were going to--
    their goods were going to go down.
        So if you look at the financial statements, I am a nerd, I
    look at financial statements of everybody, but the Canal
    increased the amount of revenue that they had from about $500
    million to $1.8 billion in the last three years just because of
    those fees, so this is what is very concerning to us and for
    the American shipping.
        Senator Blackburn. And have you seen a tendency to
    preference the digital yuan over the dollar?
        Mr. Sola. I have heard of the digital yuan, and I have also
    heard of it used in international shipping as a currency.
        Senator Blackburn. OK.
        Mr. Sola. It is something that I would say that we have an
    eye on because we have a digital shipping exchange rule coming
    up.
        Senator Blackburn. Yes.
        Mr. Sola. But we will keep monitoring it.
        Senator Blackburn. OK, thank you, Mr. Chairman.
        The Chairman. Thank you. Senator Klobuchar.

                   STATEMENT OF HON. AMY KLOBUCHAR,
                      U.S. SENATOR FROM MINNESOTA

        Senator Klobuchar. Thank you very much, Mr. Chairman. And I
    cannot help but think as we debate this issue of the Panama
    Canal, while it is important, if you want to look at what is
    happening right now as in the middle of the night last night
    when an executive order was issued by--well, not an executive
    order, just a memo by the Acting Budget Director which put a
    pause on all Federal funding for not only NIH research of
    cancer trials, and not only HeadStart, and people are in a
    panic in calling our offices, it is also a severe problem for
    trade and America's innovation.
        Freezing all Federal funding already granted to improve
    port and freight infrastructure through the Port Infrastructure
    Program seems to me a major problem we should be addressing if
    we are talking about America's shipping interests.
        But I will go to the topic at hand. The Panama Canal is a
    critical trade corridor that allows for American farmers, other
    businesses to reach international customers. I care a lot about
    the shipping issue. As many of you know, Senator Thune and I
    joined forces two years ago to pass a very important bill that
    took on the international shippers in terms of giving more
    power to the Maritime Commission in taking on the rates they
    were charging businesses, and farmers, and manufacturers in
    America, and it actually immediately had an impact because they
    knew what was coming their way, and continues to. I will get to
    that in a minute.
        But I do want to raise with you, Commissioner Maffei, do
    you know of any instances where the United States has been
    singled out, or treated unfairly under the Neutrality Treaty in
    the operation of the Canal?
        Mr. Maffei. I do not. I would add that one of the reasons
    why saying the U.S. is disproportionately affected by raises in
    canal fees, and other kinds of fees at the Canal, is because
    the United States disproportionately utilizes the Canal.
        Senator Klobuchar. Right. and that is something that would
    affect the total number of fees, and we know it is a critical,
    critical trade corridor and want to continue to use that
    corridor and be treated in a fair way. But I do think one of
    the things that has not been brought out as we look at the
    periods of congestion or reduced capacity at the Canal which we
    know have occurred, like we saw with last year's drought can
    delay shipments, increase transportation costs, potentially
    leading to higher consumer prices.
        Commissioner, what steps can be taken to minimize
    disruptions and prevent cascading costs for consumers during
    periods of operational strain?
        Mr. Maffei. At the Panama Canal?
        Senator Klobuchar. Yes.
        Mr. Maffei. I mean, the main thing is that companies,
    importers, and exporters need to make sure that they have very
    resilient supply chains. Depending on any one sea lane is
    awfully risky in this very, very difficult to predict world. It
    is one of the reasons why the Panama Canal is so important. In
    fact, it may be a bigger reason than a particular transit or
    line transit is the fact that it is there in case something
    goes wrong on the other end of the world, say for instance, the
    Suez Canal, right.
        And it is that lack of redundancy right now that has been a
    big problem, and frankly, one of the reasons why shipping costs
    have gone up, because if you have to go all the way around
    Africa, or go all the way around the Americas, you are taking
    fewer ships, so yes.
        Senator Klobuchar. Thank you. Mr. Kramek, in your testimony
    you described how drought reduced imports at U.S. ports. Do
    these reductions affect prices for American consumers, or could
    they?
        Mr. Kramek. Yes.
        Senator Klobuchar. OK, thank you. I love that short answer.
    Ocean Reform Act, I mentioned, back to you, Commissioner, has
    that law improved the ability of shippers to have unreasonable
    charges waived or refunded by ocean carriers? As we know, this
    has been a major problem for our carriers, which can translate
    into prices, and talk about how it has empowered shippers to
    file complaints against unreasonable practices by the carriers.
        Mr. Maffei. Yes.
        Senator Klobuchar. But the shippers, of course, you know
    what I mean. I do not mean the carriers themselves, I mean the
    people that are trying to do business and sell their stuff so--
    --
        Mr. Maffei. American exporters, American importers.
        Senator Klobuchar. American exporters?
        Mr. Maffei. Absolutely. Look, I do not have a lot of time,
    but yes, it has a tremendous effect. We have seen instances of
    waiving or forgiving detention demurrage fees or even refunding
    go way up. We have seen settlements go up with the major
    carriers. We have seen a lot more cases filed. So many, in
    fact, that we have had to take--we have had one--we used to
    have one administrative law judge, now we have three and they
    still have too many cases, so a huge impact.
        Senator Klobuchar. Mm-hmm. And are you concerned--I will
    just end where I started--are you concerned about freezing
    funding that has already been granted for port and
    infrastructure improvement right now, given what we are trying
    to do with American ports so we can make stuff here and ship it
    instead of having it all come to us?
        Mr. Maffei. That is a complicated question. I will just say
    at the Federal Maritime Commission, we try to do an awful lot
    with less. As the New York Times reporter has pointed out, we
    are funded at approximately our entire annual budget, about 1
    hour of the container ship industry's profits during the COVID
    pandemic. Because of that legislation and subsequent
    appropriations, that is more like 68 minutes now, it is still a
    fraction of it. I do not know where, and I do not believe the
    chairman knows where we----
        Senator Klobuchar. Well, of course, we only found this out
    12 hours ago at midnight from an unknown bureaucrat. So our
    hope is that we will be able to give you those numbers to show
    what will happen to infrastructure if we simply freeze funding
    for all of these things across America. Thank you.
        The Chairman. Thank you. Senator Budd.

                      STATEMENT OF HON. TED BUDD,
                    U.S. SENATOR FROM NORTH CAROLINA

        Senator Budd. Thank you, Mr. Chairman. Again, thank the
    panel for being here. It is good to see you all.
        Mr. Sola, the November 2024 report from the U.S.-China
    Economic and Security Review Commission, it details China's
    efforts to deepen ties with countries across Latin America and
    the Caribbean.
        So Mr. Chairman, I would like to ask unanimous consent to
    enter that report into the record. Mr. Chairman, if that is OK.
        The Chairman. Without objection.
        [The report referred to can be found on the www.uscc.gov
    website.]
        Senator Budd. OK, all right. Thank you. All right. I think
    it is important to view the Chinese Communist Party's, CCP,
    activities in the Panama Canal Zone in the context of the CCP's
    broader efforts to further access Latin America's markets, and
    obstruct American interests in our own backyard.
        Mr. Sola, would you agree with that, that you see the CCP
    activity, and hopefully, to interrupt America's interests in
    the region?
        Mr. Sola. Definitely an economic interest, Senator.
        Senator Budd. I was able to travel there a few years ago to
    see this firsthand, and see the CCP's encroachment. So in your
    experience, are there noticeable differences in port operations
    when they are controlled by Chinese companies and financed or
    backed by Chinese loans, and if so would you explain that?
        Mr. Sola. We have a wonderful example because we have a
    U.S. port there, SSA, out of Washington State, and I actually
    worked on the development of many years ago, and helped
    develop. That used to be a former United States Navy Submarine
    Base, and we converted that.
        As far as the two ports that we have, they are completely
    different. One is a major infrastructure footprint and also a
    container port that is moving four million containers a year.
    That is almost--I mean, that is really a phenomenal amount--
    that is more than Miami, Fort Lauderdale, and you probably have
    to add Tampa, and a little bit of Jacksonville in there to get
    that type of volume.
        And on the other side, we have a very small port, but it is
    a very strategic port on the Atlantic. So how are the
    operations done? Yes I--I do not know how they do not make
    money. I mean, if you want to come to--right down to it, is
    that they have been operating port for 20 years, and they say
    that they have not made any money, so they have not been able
    to pay the Government, that is what concerns me. Because I
    believe that we are on a level playing field with the American
    ports.
        Senator Budd. I appreciate that, Mr. Kramek. What would be
    the consequences for U.S. trade and for the U.S. economy if
    access to the Canal was suddenly revoked or significantly
    decreased for U.S. shippers?
        Mr. Kramek. It would be pretty catastrophic, Senator. And
    we have a good example. I mean, we have experienced that with
    the denial of the Red Sea right now being able to use that, and
    as Chairman Maffei said, having to go around, down the
    Continent of Africa 40 percent longer voyages, at significantly
    more costs in crew, maintenance, fuel, and even emissions.
        Senator Budd. Do you have a ballpark on the difference if
    they are able to transit the Canal versus going around South
    America?
        Mr. Kramek. I do not have a figure, but I can tell you in
    days, and it depends.
        Senator Budd. 30 days?
        Mr. Kramek. So it is about 30 days if you can go through
    the Canal, about 40 days right now because we cannot use the
    Suez Canal, if you want to go from, say, Asia, Asia cargo going
    to the U.S. East Coast.
        Senator Budd. Thank you. Mr. Sola, another question. China
    is pouring billions of dollars into infrastructure projects all
    over Central and South America. And one example is in Ecuador,
    China made a deal with them to fund a $3.4 billion
    hydroelectric dam. There are 17,000 cracks already, and there
    is a lot of corruption. Ecuadorian officials have been
    imprisoned on some bribery charges.
        Using that as an example for the region, the strategy of
    China is clear, because to take--and this is in the words of an
    Ecuadorian minister--the strategy of China is clear that they
    want to take economic control of countries. In Panama, for
    instance, it is about 7.7 percent of their GDP, as I understand
    it.
        So using Ecuador as an example, should Congress be
    concerned that China could extract significant leverage over
    Panama, given the outsized role and revenue from the Canal in
    their finances? If you could turn your microphone on.
        Mr. Sola. Yes, Senator, it very well could. And I believe
    that we are in a very fortunate position now with Secretary
    Rubio, who knows the area very well, and also knows China.
        Senator Budd. Thank you very much. Mr. Chairman.
        Mr. Maffei. Senator, can I just say. You should also look
    at the Port of Chancay in Peru. It will fit that pattern----
        Senator Budd. Thank you very much.
        Mr. Maffei.--of Chinese investment.
        Senator Budd. Thank you.
        The Chairman. Thank you. Senator Kim.

                      STATEMENT OF HON. ANDY KIM,
                      U.S. SENATOR FROM NEW JERSEY

        Senator Kim. Thank you, Chairman. Thank you to all of you
    for coming out here.
        I will be honest with you. When I talk to some of my
    constituents in New Jersey about this, they mostly understand
    this issue right now because of the words of President Trump.
    So if you do not mind, I just kind of wanted to start there and
    work backward.
        So Chairman Sola, you know, President Trump said, quote,
    ``China is operating the Panama Canal. We did not give it to
    China, we gave it to Panama, and we are taking it back.'' I
    guess I just wanted your assessment there. Is China operating
    the Panama Canal?
        Mr. Sola. Chairman--I mean, Senator Kim, I never discredit
    anything that President Trump says.
        Senator Kim. Yes, he----
        Mr. Sola. He has a different briefing book than I do.
        Senator Kim. Mm-hmm.
        Mr. Sola. What I can say is that the Panama Canal is
    operated, as far as I know, by the ACP, the Panama Canal
    Authority, and they are very efficient at operating the Canal
    and the throughput that they are able to do.
        Senator Kim. So you are saying from your knowledge, you do
    not know of any reason to believe that China is operating the
    Panama Canal, from the knowledge that you have?
        Mr. Sola. From the knowledge that I have on whether the--
    Senator, what we have here is the Panama Canal Authority is the
    authority where people will pay into the Panama Canal.
        Senator Kim. Mm-hmm.
        Mr. Sola. I think that what--if you will allow me to--if a
    company is able to operate both ports----
        Senator Kim. Oh. I see. So you are talking about Hutchison
    Ports, right?
        Mr. Sola. Yes.
        Senator Kim. So we are talking about like Balboa and
    Cristobal Ports, right.
        Mr. Sola. And they are subsidized. They are subsidized.
        Senator Kim. They are subsidized? I guess my question to
    you is, does Hutchison Port actually control the locks of the
    Canal?
        Mr. Sola. No.
        Senator Kim. Does it control, directly, the entrance to the
    Canal?
        Mr. Sola. Both ports are in operational control of the
    Canal. In order for those ports to operate, the Canal has to
    give them a special permit. And the reason is because when they
    are bringing a ship in or bringing a ship out, they block the
    traffic of the Canal every single time.
        Senator Kim. I see, so----
        Mr. Sola. They have to have pilots, two pilots that are
    going on?
        Senator Kim. Is Balboa or Cristobal Port under the
    jurisdiction of the Panama Canal Authority?
        Mr. Sola. They have been given by the Panama Government,
    the concessions. However, they are in the operational range of
    the Panama Canal, they are reframing.
        Senator Kim. Does that make them--does that make those two
    ports under the jurisdiction of the treaty?
        Mr. Sola. Let me say this, because I was in Panama when the
    treaty--when the Panama Canal was turned over.
        Senator Kim. Mm-hmm.
        Mr. Sola. We did not just give back the Panama Canal. We
    also gave back all the land and all the water on the entryway
    to it, and including what we had was a lot of military bases
    along there. So as soon as you come out of the Panama Canal,
    and I invite you to come there, I will be happy to take you.
        Senator Kim. Well, let us--we do need to have----
        Mr. Sola. But as soon as you come out of the lock you run
    into Corozal, which was a former military base. Corozal is run,
    not by Panama--by the Panama Canal Authorities, it is run by
    the Panama Government. After you pass that, you run into the
    Port of Balboa. So what I am trying to say is when we talk
    about the Panama Canal Authority, they operate only where the
    ships go up, and go down, and come out.
        After that, you have where the pilots--we have where the
    pilots will take you on the boat and take you off. So is it
    operational control of the Panama Canal? Yes, because the
    pilots are the ones that have to bring you in there and bring
    you out. And again, every time a ship goes into one of those
    ports, they block the traffic of the Panama Canal.
        Senator Kim. Yes. Well, look, I guess I wanted to just ask
    you directly then, what is your assessment of the Panama
    Canal's Authority, you know, in terms of their ability to
    administer the Canal?
        Mr. Sola. I think the Panama Canal Authority and their
    independence is, if you read my opening statement and my
    written statement, they have done a fantastic job. And Panama
    has been running the Canal for 25 years. They have promoted--
    they have given $28 billion to the coffers of the Government in
    those 25 years.
        In the 25 years that the two ports that we call--the two
    ports, they have contributed zero. So I do not understand why
    Panama would allow those two ports to operate and take--and put
    into jeopardy what they have and--the operations that they do
    have in the Canal.
        Senator Kim. I want to just end here on this because I
    thought you had a really poignant point in your written
    testimony, where you said, ``We must protect the independence
    of the Panama Canal Authority. Any efforts by other interests
    in Panama to diminish the independence or professionalism of
    the authority must be stopped.''
        And I would just say, venture to say, as we talk about this
    as a committee, as a Government, that we should try to follow
    those same words as well. You know, we try to have nuance and
    precision with the words that we use, otherwise, it very much
    looks like some of what we talk about is going to be perceived
    as undermining the Panama Canal Authority. And you said that
    you warned that would be something that would actually boost up
    China's capacity in the region.
        So I just ask, as we deal with this going forward, that we
    be precise about it and try to make sure we are talking about
    exactly what we are addressing.
        Mr. Sola. And specifically, what I was talking about is the
    Board of Directors of the Panama Canal. I mean, are some of the
    Board of Directors on the Board of Directors of the ports that
    we have in question? So when you look at the annual report of
    those two ports, they have a hidden--or not a hidden, it
    basically says that they have local partners that are not
    identified. So I believe that if we had those identified, we
    would know more.
        Senator Kim. Yes, and more precision there. Thank you so
    much. I yield back, Mr. Chair.
        The Chairman. Thank you. Senator Schmitt.

                    STATEMENT OF HON. ERIC SCHMITT,
                       U.S. SENATOR FROM MISSOURI

        Senator Schmitt. Thank you, Mr. Chairman. I want the
    Committee to just imagine that Taiwan is under siege. The CCP,
    determined to crush Taiwan's resistance and prevent a U.S.
    response, activates a multi-prong strategy, leveraging its
    control over global ports and shipping infrastructure. At the
    Panama Canal, one of America's most vital trade arteries
    handling 40 percent of U.S. container traffic.
        Chinese-controlled ports at both ends suddenly close. Ships
    carrying food, oil, and military supplies are turned away
    because of technical difficulties, paralyzing the global
    economy. Gasoline prices soar, supermarket shelves empty, and
    supply chains collapse within days. China's state-owned ZPMC,
    which supplies 80 percent of U.S. port cranes, has equipped
    their cranes with cellular modems that create explosive
    vulnerabilities--exploitable vulnerabilities.
        These cranes at U.S. ports mysteriously malfunction,
    halting critical operations. Factories close, millions lose
    their jobs, and the economy grinds to a halt. While this
    scenario may seem hypothetical, it is entirely plausible.
        Therefore, the Canal must remain neutral, and the U.S. must
    ensure the CCP does not encroach on our vital economic and
    national security interests. In 2017, Senators Markey, Schatz,
    and Rubio urged President Trump to address China's aggressive
    maritime actions. Their warnings apply today, as China's
    growing control over critical infrastructure, ports, and
    strategic waterways, like the Panama Canal, pose an
    unacceptable threat.
        America is sleepwalking into a carefully laid Chinese trap.
    Fortunately, people like President Trump are not falling for
    it. I am glad he is raised this issue. This dangerous
    complacency must end. That is why, last week, I introduced a
    Senate resolution to safeguard the Panama Canal from Chinese
    influence. It calls on Panama to expel Chinese entities in
    foreign control and honor its neutrality under the 1977
    transfer agreement. The cost of inaction is too great.
        I want, and I will offer this up for anyone, but I think
    the biggest concern here is this Belt and Road Initiative, we
    have talked about it creating a debt trap, which is true, and
    building a bridge in Bangladesh is very different than this. I
    mean, there are reports of the CCP building airports, and then
    when people are critical of the CCP, all of a sudden flights
    are canceled.
        Controlling a grid--they can turn it off, and they can turn
    it off, and there is just no way on God's green earth, that
    China can control the Panama Canal. So however you want to
    define it, and I hope my Democrat colleagues this is an issue
    that affects America, and it should not be partisan. And I hope
    they are not blinded by the fact that President Trump has come
    out so boldly on this. But we should not tolerate this.
        The witnesses have stated they have operational control. We
    can get into the semantics of the Port Authority versus the
    control, but operational control of the Panama Canal is real by
    the CCP. The witnesses have also stated that a Chinese company
    got a sweetheart deal, a no-bid contract for control--
    operational control ultimately of these ports.
        So I guess I want to ask, because I talked too long and do
    not have much time for questions, but Professor Kontorovich, I
    do want to ask you. As it relates to the treaty, I am glad
    Senator Cruz--or Chairman Cruz, has called this up, because
    there are real concerns about treaty violations here.
        What are the most blatant? What are the most obvious? Is it
    the unfair--is the fact that we are being charged more? Is it
    the fact that these are Chinese-owned companies that are
    controlled by the CCP? What are the top two or three reasons
    you would argue that they are, in fact, in violation of the
    treaty?
        Mr. Kontorovich. So again, I think the different--I think
    the charges and fees are less of an issue because they do not
    discriminate across countries. We pay more because we use more,
    but it is not nationally discriminatory. The presence of
    Chinese Government--of Chinese companies, especially Chinese
    State Governments but not limited to them, do raise serious
    issues and concerns for the neutrality of the treaty.
        And I should point out, in relation to some of the earlier
    questioning, the Canal, for purposes of the Neutrality Treaty,
    is not limited just to the actual locks of the Canal and the
    transit of ships through the Canal. According to Annex 1,
    Paragraph 1 of the Treaty, it includes also the entrances of
    the Canal, and the territorial sea of Panama adjacent to it.
        So all of the activities we are talking about are within
    the neutrality regime, the geographic scope of the neutrality
    regime in the treaty.
        Senator Schmitt. So the most--I am out of time--but the
    most dead on hit here is the treaty specifically prevents
    foreign operations, and that is exactly what we have.
        Mr. Kontorovich. Yes. So to the extent these companies are,
    in fact, de facto controlled by China, this is something that
    could threaten the neutrality regime of the treaty.
        Senator Schmitt. OK.
        Mr. Maffei. Senator, may I make a point of clarification?
        Senator Schmitt. Sure.
        Mr. Maffei. You said that we all stated that China had
    operational control. I do not believe that China currently has
    operational control over the Panama Canal. I am not sure if
    any----
        Senator Schmitt. No, I did not say all of you did. I said
    one of the witnesses.
        Mr. Maffei. OK. Well, let me say this: I did agree that
    there was a threat posed by this ownership. I do think, though,
    that if your assumptions are correct, you are way understating
    the problem. That is right, understating the problem, because
    they also control the Suez Canal, and the Mediterranean Sea.
    And I actually have to admit, I am a little confused as to why
    some of the senators asking this question, Senator Blackburn,
    are not more concerned about the biggest port in the United
    Kingdom being run by the Chinese.
        Piraeus in the port nearest Athens, one of the biggest
    ports in the Mediterranean is not just run by a Chinese-linked
    company; it is run directly by a Chinese-owned company. And I
    was there. So you are on to something. But if you are just
    focusing on Panama, that is only part of it.
        Senator Schmitt. No, I agree with you. I think the
    difference here is that we gave it away. Huge mistake. Both
    Missouri Senators voted for it back then, huge mistake. But the
    one thing we got out of it, the one thing we got out of it was
    a guarantee of neutrality. And that is the issue here. Thanks.
        The Chairman. Thank you, Senator Curtis.

                    STATEMENT OF HON. JOHN CURTIS,
                         U.S. SENATOR FROM UTAH

        Senator Curtis. Thank you, Mr. Chairman. Great hearing. I
    appreciate this opportunity today. I would like to touch on
    something I have not heard discussed today, and that is,
    unfortunately China is not the only hostile country that
    exploits Panama to endanger our national security. Iranian
    vessels under the Panamanian flag registry have been a problem
    for many years.
        Chairman Sola, can you explain how Panama has enabled Iran
    to evade our sanctions?
        Mr. Sola. Yes. Thank you, Senator. About a year ago, when
    we were having this drought issue, there was also a lot of
    focus on Iran and how they were funding Hamas and the Houthis
    because they were attacking the Red Sea. What we found was, or
    what the United States has found is that Iranian vessels are
    sometimes flagged by Panama in order to avoid sanctions so they
    can sell the fuel that they have, and then can have--they can
    take that money and use it as they wish.
        Panama, at the time, had a very complicated process to
    deflag the vessels. There was an investigation. There was an
    appeals process. By the time we would--OFAC or Treasury would
    go ahead and identify one of those vessels, by the time that
    they were doing the appeals, and stuff like this, they had
    already changed flags to somewhere else.
        So when we went to Panama, we met with the Panamanian
    President. And I must say, we were very impressed because
    that--he was 30 minutes late, but he was breaking relations
    with Venezuela at the time because the election was the day
    before.
        We explained to him the situation. The very next day, we
    met with the Maritime Minister, with U.S. Embassy personnel,
    and Panama actually adjusted their appeals process to make it
    more expedient. So if the United States or OFAC would to come
    and say that this Iranian vessel is avoiding sanctions, now we
    have a process in place to go ahead and do that. And 53 vessels
    were deflagged because of that meeting.
        Senator Curtis. OK. If you would, keep working on that,
    because that is a big deal. Thank you for that answer.
        Let me also go to--I mean, we have hammered on this a
    little bit--and I have heard several times some of you
    acknowledge that the interest from China is an economic threat
    to us. But let me come back to this defense. I think we have
    asked a number of times in different ways, but let me go back
    to the analogy of, if China puts a blockade on Taiwan and we
    are trying to move ships into that area quickly, can any of you
    say this is not just an economic threat to the United States
    but a defensive threat as well?
        Mr. Maffei. At the FMC, it is not our area of expertise. We
    will leave that to the military experts. I will just say that
    to me, an economic threat is a military threat.
        Senator Curtis. Sure.
        Mr. Maffei. I mean, indirectly, but it is.
        Senator Curtis. I just, I know there are panels----
        Mr. Maffei. But in terms of--you know, if terms of what you
    are directly asking----
        Senator Curtis.--in reference to economics.
        Mr. Maffei. We at the Federal Maritime Commission do not
    have that area.
        Senator Curtis. Chairman.
        Mr. Sola. I would say that my biggest concern is that when
    a Chinese contractor gets a contract in Latin America, they
    usually put a clause in there that they bring their own workers
    in from China. And these workers are housed in camps outside,
    and these camps will have guards on them, and they will have--
    sometimes they--in Panama, for example, they have barbed wire
    around the camps.
        So we really do not know who is in the camps, and I think
    that, to me, causes me more concern, on who is in the camp and
    what are they doing. These are actually sometimes thousands of
    workers that are brought in, for example, for a bridge or to do
    a port, or something like this, to undercut the local labor.
        Senator Curtis. Along those lines, let me just talk about
    dollars from China spent. We far outspend China in the region,
    yet if you look back on when Panama switched diplomatic
    recognition from Taiwan, and we had comments from the
    President, Taiwan is an inalienable part of Chinese territory,
    it coincided with economic investment from China in the region.
    Is that something, overall, in addition to the Canal, we need
    to watch?
        Mr. Sola. Yes, we definitely need to watch economics, and
    we need to--the United States has left a void there. We really
    have not been competitive in Panama, and hopefully, we can be.
        Senator Curtis. OK. And I have got just a few seconds. So
    this bridge, we have brought this up a couple of times, the
    possibility of this bridge being damaged and closing the Canal.
    But it reminds me of going through TSA, a suitcase going
    through the TSA, is there any reason that China cannot watch or
    do whatever they want from this bridge to get their intel from
    these containers, and does that concern anybody?
        Mr. Sola. Well, it definitely concerns Southern Command
    because they have brought it up on numerous occasions that
    there could be some sort of surveillance or something like that
    on the bridges.
        Senator Curtis. OK. I yield my time. Thanks, Chairman.
        The Chairman. Thank you, Senator Moreno.

                   STATEMENT OF HON. BERNIE MORENO,
                         U.S. SENATOR FROM OHIO

        Senator Moreno. First of all, thank you, Chairman, for
    putting this hearing together. I think it is very timely.
        Mr. Sola, I heard you say, it kind of rang in my head, you
    have navigated the Canal a hundred times. I mean, that is a--
    you have a pretty good experience. I want to turn the testimony
    in a little bit different direction. You obviously have been
    there that much. Tell me, for the testimony, what are the
    people of Panama, you have obviously probably been to my home
    country, where I was born, in Colombia, what is the sentiment
    among the people for how they feel about America?
        Mr. Sola. Senator, I have many friends, family, and
    professional relationships in Panama, and the bond between the
    United States and Panama is very deep. It is almost like the
    United States and Great Britain, for example. The Panamanians
    love baseball. They love basically a lot of the same things
    that we do. The people are absolutely wonderful.
        Senator Moreno. Now, they have suffered through
    catastrophically bad leaders, especially today. The President
    of Colombia, Petro, we do not have to go down that path. But
    here is what I would ask you. Obviously, we understand about
    shipping, we understand the issues of trade, and that has been
    well documented. I think the treaty is clearly in violation,
    there is no question about that.
        In fact, Mr. Chairman, I would like to see us speedily get
    to a point where we get a resolution allowing the President to
    renegotiate or cancel that treaty. But here is my question to
    you. The Darien Gap is a stone's throw away, here to Annapolis,
    maybe not even a little bit further than that. It used to be
    this insurmountable piece of geography that separated Colombia
    from Panama, but it is now used as a massive human and drug
    trafficking operation.
        The presence of multinational gangs, multinational criminal
    organizations in that area, primarily, I will suggest funded by
    the Chinese--you do not have to comment on that--but what is
    the impact of these transnational gangs, this increase in human
    and drug trafficking, doing to maritime activity along the
    Canal?
        Mr. Kramek. Senator, the Darien Gap is one of the most
    dangerous tracks that I think anybody can do. And thank God for
    the new policy that we have on migrants, and people coming into
    the country because countless people have been harmed, died, or
    even--you know, very bad things happen to them through there.
        On transnational gangs, I mean, anytime there is money in a
    black market, they are going to fill that void. So hopefully,
    as I understand it, the Darien Gap is not being utilized very
    much right now because people are coming to the United States
    and now cannot come in.
        Senator Moreno. Right, but the point is: What is the impact
    on maritime activity there? In other words, security, Mr.
    Kramek, has got to be an issue for your members. And having
    that increased presence of transnational gang activity, and
    drug trafficking, you are talking about billions and billions
    of dollars. Cocaine production in Colombia is at an all-time
    high. What impact does that have on your members?
        Mr. Kramek. Senator, it is something we work hard on every
    day. The World Shipping Council has partnered with the World
    Customs Organization and 58 customs agencies throughout the
    world. We ran actual operations to give data that we have on
    our supply chain and where there are anomalies to those customs
    officials and law enforcement authorities so they can act on
    it.
        A lot of the flow for commercial vessels, not into the
    United States, but to the European Union, is coming from the
    transshipment point in Panama, where our containers are being
    exploited and contaminated. And so we are working hard as we
    sit here right now on that problem.
        Senator Moreno. And of course, the point I am making is
    that China's influence there, whether we want to make it a
    technical question as to what control means, it does not
    matter. When you have Chinese companies operating on both sides
    of the Canal, having influence there through drug trafficking,
    they bring basic chemicals into Mexico, which makes its way
    here, as fentanyl, you have enormous Chinese influence in
    Central and South America.
        And Mr. Sola, I go back to you with my final question. Do
    you think, fundamentally, the problem here is that America has
    just failed to engage properly with Latin America?
        Mr. Sola. Yes, I do. I believe that we have not had a
    presence there for long enough. The State Department has
    designated countless past Panamanian presidents for corruption,
    but we have not had the DOJ go ahead and get any convictions on
    those. I think that if we did have a conviction one way or
    another, I think that that would change the narrative quite
    considerably.
        Senator Moreno. And just one quick follow up. So if the
    U.S. took control back of the Canal, if that territory was
    completely controlled and protected by the United States of
    America, what influence could we have in solving a variety of
    problems, the shipping ones that we have talked about, but also
    having a U.S. presence with military backup there in Panama,
    preventing transnational organizations, preventing human
    trafficking, preventing drug trafficking; wouldn't that be
    celebrated among the free world as something that would be
    absolutely a net huge positive to that area?
        Mr. Sola. Well, I can say this--that is probably one of the
    top contraband areas in the world, just because of its
    geographical location and the amount of containers they move.
    So I think anytime we can lower the amount of contraband being
    distributed around the world, we would be doing a good service.
        Senator Moreno. So Mr. Chairman, like I said earlier, we
    ratified that treaty here in the U.S. Senate. I would love to
    see us deratify it.
        The Chairman. Thank you, Senator Capito.

                STATEMENT OF HON. SHELLEY MOORE CAPITO,
                    U.S. SENATOR FROM WEST VIRGINIA

        Senator Capito. Thank you, Mr. Chairman. Thank you all for
    being here today, really interesting hearing.
        In the year 1913, the West Virginia--or the Governor of
    West Virginia said that the Panama Canal would be critical to
    the state's coal industry. What was then true is still true
    today, 11 percent of the cargo that goes through that canal is
    coal.
        Chairman Sola, thank you for your military service and for
    your great insight into this, into Panama. I know that the
    draft restrictions have been brought up already today, but the
    fact that bulk goods, like West Virginia coal, and other forms
    of energy cannot always be fully loaded to go through the Canal
    is a major problem.
        I know they are investing about $900 million to try to make
    the Canal more resilient, but what ways can we ensure that our
    state's energy exports are actually getting where they need to
    go, when they need to get there?
        Mr. Sola. That is a very good question, Senator, and the
    bulk and the coal are probably the most affected by the draft
    restrictions that we have. The container ships and the
    passenger vessels have a much lighter draft. We talked
    extensively with the Canal Authority and also with the
    Government of Panama on how they need to add water to the--
    fresh water to the system.
        They are losing about one or two percent a year, so if they
    continue this way, the Panama Canal will be severely diminished
    by up to maybe 40 percent by 2050, so fresh water is definitely
    the key to this. I know that they are working with the Army
    Corps of Engineers. We have seen some of those studies, and
    they have put a variety of options out there for the Canal
    Authority to go ahead and take advantage of it.
        Senator Capito. Let me ask, this probably quite simple
    question: Why would they be in opposition to putting more fresh
    water in the Canal?
        Mr. Sola. I do not believe--well, the Canal Authority is
    not----
        Senator Capito. It sounds easy. So maybe it is not quite as
    easy.
        Mr. Sola. The Canal Authority isn't, the issue that they
    have is maybe 10 years ago, environmentalists kind of
    restricted what their watershed was of the Canal, and that law
    has just recently been overturned. So now the Canal actually
    has access to the watershed. What they have to do is a major
    infrastructure project to go ahead and pull that water in. At
    the same time that they are saving up or raising the fees for
    the major infrastructure project, they are giving more and more
    money to the national coffers, so it is up to about $2.4
    billion right now, and they are saving for the infrastructure
    project.
        Senator Capito. Is that the $900 million infrastructure
    package like I referenced? Is that the same project?
        Mr. Sola. I believe it is. Is it the Rio M deal?
        Senator Capito. Yes.
        Mr. Sola. Yes.
        Senator Capito. So along with that, the issue going through
    the Canal, not just the offloading or--I mean, it is hard to
    offload coal out of a bulk container. I mean, that is not an
    easy thing to do if you can even do it. Is this whole thing
    about congestion pricing kind of--nobody here from New York,
    are they; but you know, the congestion pricing at the Canal
    where you can outbid and skip the line, so then the line can be
    like 14 days later even if you were at the front of the line.
        This is probably what Senator Sheehy, is wondering like:
    How did I get in front of him, kind of question.
        So how is that working? And is that fair? And who makes the
    judgment? That, to me--you are talking about corruption, that
    to me sounds like you could really be padding somebody's
    pockets here to be able to jump the line and have a significant
    effect.
        Mr. Maffei. Yes, Senator, it is an auction system. It is
    being utilized more and more, and it is what I was most
    concerned about, and continue to be most concerned about--not
    necessarily right now because the unusual draft restrictions
    are not going on. But if there is another water shortage, the
    regular toll revenue has increased in terms of the Canal.
        But what has really increased is the special revenue that
    they get from various fees and from this auction thing. That
    revenue has gone up about close to 300 percent for other
    transit services, so that is a huge amount. It also, it is
    analogous to me in some ways. I know a lot of the ocean carrier
    companies got a lot of heat when they were making more money
    during the--you know, during the--like the congestion during
    COVID.
        Well, this is sort of similar. They are providing fewer
    transits, and at the same time, they are making more money
    because of a market mechanism. Though, you know, talking about
    the Chinese Communist Party, well, this is the other way, this
    is capitalist, but it is a different way of allocating space
    that they are more--they are utilizing more and more to make
    more and more money.
        Now, I have no idea, to the best of my knowledge the money
    is going back to the Panamanian Government. I do not know of
    any reason to doubt that, but it is--that is a big cost. And as
    I said before, it does disadvantage certain kinds of cargos
    if--because they might feel that they do not--you know, they
    are on a ship which does not prioritize its time passage as
    much as other kinds of cargos. I do not know how that affects
    coal.
        Senator Capito. All right, thank you very much.
        The Chairman. Thank you. Senator Sheehy.

                     STATEMENT OF HON. TIM SHEEHY,
                       U.S. SENATOR FROM MONTANA

        Senator Sheehy. How long would it take China to block the
    Canal for our usage if they decided to do it? I know you are
    not military experts, but I think you have been in the Canal
    100 times, you are all experts on the industry. If they wanted
    to deny our usage of it, how long would it take them to do it?
        Mr. Sola. Senator, I can say that prior to the year 2000,
    the Canal had a quick reaction force that kind of took all
    possibilities into consideration, either a ship be installed in
    the Canal or to be able to move one out. I do not know what
    those capabilities, or what the planning for that would be.
        Senator Sheehy. So effectively, we do not have a ready
    response. But if China----
        Mr. Sola. I am sure Southern Command does.
        Senator Sheehy. I do not like the--I do not like the
    mindset that has kind of pervaded that, there is this far-off
    hypothesis that someone someday could----
        Mr. Maffei. Well, Senator, you are not--you are talking--
    you are not talking military experts. We are here because it is
    commercial reasons, if this is not----
        Senator Sheehy. Yes. But this is not a military question. I
    mean, if he has driven the Canal 100 times, and you are
    maritime experts, you know, a couple of years ago, as you
    remember, I think it was the Ever Given jackknifed in the Suez
    Canal. That is not a military operation. That is a ship that
    turns sideways. So if China chose to, how fast could they close
    the Canal to our usage?
        Mr. Maffei. Well, they could probably do a similar thing,
    but it would more be an act of terrorism than it would be
    because they have facilities there. Most of this discussion has
    involved the economic threats that China is bringing up because
    of the Belt and Road Initiative and having these investments in
    other countries.
        But yes, I mean, it is not hard to close off a waterway.
    The Panama Canal is actually quite vulnerable in terms of
    infrastructure. It is not--you know, this is not a fort or
    militarily reinforced location.
        Now, that is--you are getting to the end of my knowledge of
    that. But no, it would not take long, but I do not know what it
    has to do with--it is not accelerated because they have people
    out of their port unless--I mean, unless you believe that they
    are, in theory, it is easier to infiltrate those ports with
    Chinese spies than it is other kinds of things. But that is
    totally out of my purview. That is more assignment for----
        Senator Sheehy. I do not think it is out of your purview. I
    think the reality is the Canal is an economic engine. It is
    also a national security engine, and I appreciate--I am not
    trying to be combative or setting you in traps. I am just
    trying to ask a commonsense question, which is, we can dance
    around, I am not an expert in this, I am an expert in that, but
    the Canal is vulnerable, as we have stated.
        Mr. Maffei. I guess, Senator, I am just saying why would
    they--why would bother with a military-like operation when they
    can get what they want with non-military means?
        Senator Sheehy. Exactly.
        Mr. Maffei. If they can have influence in other ways.
        Senator Sheehy. That is the point of the question. That is
    point of the question.
        Mr. Maffei. OK.
        Senator Sheehy. As we segregate ourselves artificially in a
    way that they do not. We segregate ourselves. Well, let us talk
    about military, let us talk about intelligence, let us talk
    about economics. They do not--China does not work that way. It
    is a whole-of-government approach. They do not draw delineation
    between an economics discussion and a military one. And their
    attack may not look like Pearl Harbor.
        It may look like an everyday ship that decides, you know,
    it pulls into the locks and blows itself up, and now the locks
    are nonfunctional for our usage and we cannot support an inter-
    ocean fleet transfer. And our ability to defend it, as you
    referred to, Chairman, is now inhibited by the fact that we no
    longer have the military infrastructure around the Canal that
    we did just as recently as 1999.
        So from a commercial perspective, do the shipping companies
    have concerns over the security of the narrow waterways? We
    have got Strait of Malacca, we have got Suez Canal, we have got
    Gibraltar, we have got Panama, is that a concern that is thrown
    around the boardrooms of the largest shipping corporations in
    the world?
        Mr. Kramek. Senator, I think it is something to think about
    every day. I mean, really, it has drawn into sharp relief with
    the Red Sea. That it was, what I call, a pink flamingo. Like,
    there are black swans that just come up, and there is, well,
    there are pink flamingos that you can see, but you do not act.
    But no one really thought a whole lot that one of the most
    important waterways in the world could be denied. And moreover,
    that it could be denied for such a sustained period.
        The good news is that--and denied, I might add, by a
    disaffected non-state actor of Bedouins running around with
    rocket launchers who also managed to beat us in a 20-year war
    in Afghanistan.
        But my point in saying all this is we have--we are just
    debating operational control of the Canal, yet it seems very
    clear to all of us that a very simple act can debilitate the
    Canal and eliminate our ability to use it in a matter of
    minutes, with no warning. And we have no ability to intervene
    or stop that. To me, that means we do not have operational
    control of the Canal.
        Thank you, Chairman.
        The Chairman. Thank you. I am told Senator Young is on his
    way, so I am going to ask a couple of questions and give him a
    few minutes to get here.
        Chairman Sola, you have a deep understanding of Panama and
    the Canal from personal experience, in addition to your work on
    the Federal Maritime Commission. One example of China's
    influence with the Panamanian Government was the effort to
    seize land near the Pacific end of the Canal to build a new
    Chinese embassy, including your land. Can you describe your
    personal experience, including how Panama ignored property
    rights as it sought to appease China with the new embassy?
        Mr. Sola. Yes, Senator. About 10 years ago, the maritime
    business of my family expanded tremendously, and we were given
    a concession to build a marina on the Pacific area of Panama.
    We also incorporated a cruise component to that. We brought the
    cruise companies to Panama. This would have been the very first
    cruise port in the Pacific.
        We spent millions of dollars on consultants with Atkins
    Global, Moffatt and Nichol, all the best consultants in the
    world, and everything was fine. When Panama turned over to Belt
    and Roads, they told us that that concession was going to be
    nationalized.
        Then what they did is they rescinded our concession for the
    property, they--that we were going to build the cruise port for
    $30 million, U.S. private funds. They gave the concession to a
    Chinese competitor and paid the Chinese competitor to date $300
    million to build that cruise port. It is going to take the
    Panamanian people 375 years to get it back. I am from Miami.
    That is the most expensive cruise port in the world by far, by
    passenger.
        In addition to that, they took where our land was going to
    be for the marina, and they designated that to be the embassy
    for the People's Republic of China. So what happened next is
    absolutely appalling, because when I went to the U.S. Embassy
    and I went to the Commerce Department, they told me to fill out
    a complaint.
        When I filled out the complaint, I went to my senator at
    the time, was Bill Nelson, and I remember that I was denied
    being able to even file the complaint, because the land that
    the Chinese embassy, or the land that was going to be used for
    the Chinese embassy, my environmental permit for the marina was
    going to expire in 6 months. So the United States Commerce
    Department would not even allow me to file a complaint.
        So I brought that issue here, and thanks to the good work
    of, at the time, I think it was Chairman Nelson and Chairman
    Wicker, we were able to unwind that. After about 6 years,
    Panama did the right thing and returned the land to my family.
        The Chairman. Very instructive. Senator Young,

                     STATEMENT OF HON. TODD YOUNG,
                       U.S. SENATOR FROM INDIANA

        Senator Young. Thank you, Chairman, for holding this
    important hearing. Thank you, gentlemen, for being here.
        The Panama Canal underpins our current economic strength
    and national security. When 40 percent of U.S.-bound container
    traffic depends on a single waterway, we cannot afford
    unilateral toll hikes that choke out competition and leave our
    smaller carriers or our Midwestern exporters on the hook.
        For instance, in my home state of Indiana, manufacturing
    firms and farmers rely on consistent, reasonably priced
    shipping routes to move heavy machinery, auto parts, and ag
    products like corn and soy. If the Canal Authority's auction
    system prices them out, the ripple effects in American jobs and
    supply chains could be devastating.
        Chairman Sola, given our enormous stake in the Canal's
    operation, do you believe Congress or the FMC should more
    aggressively use existing legal authorities, or even create new
    legislative tools to block or penalize toll practices that
    disproportionately harm U.S. shippers and exporters?
        Mr. Sola. Thank you, Senator, for the question. And I grew
    up in Goodland, Indiana, so that you know.
        Senator Young. Fantastic.
        Mr. Sola. I do believe that, you know, we should continue
    to monitor the situation, and if we do need more regulations or
    statutes, that we would come back to Congress because we get
    our marching instructions from you. Moving the agricultural
    products that we get out of the Midwest, and all over the world
    and through the country, not only do we focus on the Panama
    Canal, but we also focus on about $5 trillion worth of goods
    coming in and leaving the United States here at the Federal
    Maritime Commission. So it is definitely one of our main
    concerns.
        Senator Young. Well, thank you. I am not surprised. I
    always tell people Indiana is a maritime state. If you think
    about our dependence on the waterways, and our shipping lines,
    and all the rest, so you are certainly proving that.
        So we will stay in touch, and if you in the future would
    like to outline any mechanisms or measures that you think would
    be effective to help ensure fair treatment for our interests,
    please let me and others on this committee know.
        When the two Panama Canal treaties were signed, we lived in
    a different world, one where Chinese state-backed actors did
    not wield strong influence over global infrastructure, and
    issues like drought were rarely factored into international
    agreements. As we all know, times have certainly changed. But
    the United States is still the Canal's biggest customer, and
    quite frankly, we have every right to expect an operational
    framework that acknowledges our modern security and economic
    challenges. States like Indiana, with robust exports, feel
    these impacts even if we are far from the Canal itself.
        Chairman Sola--and then I will allow others to respond--in
    light of evolving conditions, especially increased foreign
    investment from China, do you believe the U.S. should explore a
    more comprehensive update or supplemental protocols to these
    decades-old treaties?
        Mr. Sola. I definitely believe that we should support U.S.
    investment, and not having an ambassador for so long that has
    been detrimental to us, especially as the case that I just
    mentioned earlier, where we did not have an ambassador and we
    had a U.S. company in need of service.
        So however, we can promote U.S. investment, especially in
    infrastructure. This is where China is definitely beating us
    with the Belt and Road, where they understand that. I believe
    that our EXIM Bank and our DFC is so limited in what they can
    do by the restrictions that they have, that we are not able to
    invest in infrastructure like we should.
        Senator Young. I hope the administration will prioritize
    this Ambassador spot as nominations are made. I hope we will
    prioritize it in the Senate, and my colleagues on the
    Democratic side of the aisle will be warm to that nomination
    and moving it quickly. Something both parties, frankly, have
    fallen short on in recent years is prioritizing these.
        But other comments, Mr. Maffei?
        Mr. Maffei. Yes. Well, Senator, I will not surprise you,
    since you and I served together in the House, that I actually
    am pretty bipartisan and agreed with the Chairman on what he
    said. I will say that certainly we need to look at other kinds
    of ways to get U.S. companies in positions where they can truly
    compete with the Chinese on some of these things. And blaming
    it all on Panama really misses the point.
        I have seen the same thing in Greece, where Greece did not
    want to give the concession of its largest port to a Chinese
    company, but because of its financial difficulties, it was
    getting pressure from international organizations such as the
    IMF, Europe, and even maybe some in the United States to do so.
    So I just ask you to look at that.
        And I do want to say one quick thing. You are right about
    the cost, and as I said before, you were able to get here. The
    Panamanians are making far more on their Canal than they ever
    had before. That is not necessarily a bad thing, as long as it
    is going to the right place. But where they are really making
    the money is on these auctions, and that is why it remains a
    concern of mine. I am sure the Chairman's.
        And that is where we are looking at, potentially, using our
    authority under Section 19 of the Merchant Marine Act, where we
    could, if we can show that it is, basically, a problem with the
    foreign trade of the U.S., it is interfering with foreign trade
    of the U.S. There are certain things that we can do. But I do
    think we need more information before we could make that kind
    of action. But we are certainly working on that, and we do have
    that authority at the FMC.
        Senator Young. Thank you, and good to see you again, sir.
        Mr. Kramek, did you have anything?
        Mr. Kramek. We had discussed, Senator Young, some of the
    infrastructure projects to make the Canal more sustainable and
    viable, and how the United States, on the U.S. Army Corps of
    Engineers has already done some feasibility reviews of those
    projects. So that would certainly be something to take a look
    at to make the Canal viable with additional supplies of fresh
    water.
        Senator Young. Thank you. Chairman?
        Mr. Kontorovich. Senator, if I may?
        Senator Young. Sure.
        Mr. Kontorovich. Sorry, I am on Zoom. You spoke about
    renegotiating the treaties.
        Senator Young. Yes.
        Mr. Kontorovich. And I think one of the things about
    treaties, as an instrument of governance, is they are not very
    flexible and they do not really have automatic processes,
    typically, for easy amendment, and I spent--before this
    hearing, a fair amount of time reviewing the ratification
    hearings in the Senate in 1978. Back then, the principal
    concerns the Senate was concerned with then is the Soviets and
    Cuba, actually, not China and Iran.
        So the world has changed a huge amount, China's role has
    changed a huge amount, and of course, back then, 1999 seemed
    very far off, 2025 seemed a world away. As a result, I think it
    is useful to revisit treaties and seek to renegotiate them to
    update them to sort of current events. Of course, the United
    States has a considerable leverage it can use to seek such
    additional protocols to modernize these treaties to current
    events and current geopolitical realities.
        Senator Young. Makes great sense, and I am glad you spoke
    up. Thank you, Mr. Kontorovich.
        Mr. Chairman.
        The Chairman. Thank you. I want to ask a couple of follow-
    ups, and then we are going to wrap up the hearing.
        Commissioner Maffei you mentioned a minute ago, if a
    determination was made that this was having negative impacts on
    U.S. trade, you said there are a number of remedies that are
    possible, and you did not specify what those were. So I just
    wanted to ask what you were referring to?
        Mr. Maffei. Yes. I mean, there are certain things we can do
    as countermeasures, such as sanctioning Panamanian ships. That
    could be Panamanian flagships. The Panamanian flag is one of
    their major sources of revenue. It is the number one, what we
    call flag of convenience in the world. There are several
    others, and I think I would like to get back to you in writing.
    I mean, I am not trying to avoid the question but----
        The Chairman. Yes. And I would love if----
        Mr. Maffei. That way I can put--you know, we can--and we
    will, if you do not mind, we will get together and do a joint
    answer. We will put where our authority comes from, what we
    think we can do, and maybe even what we are concerned about or
    what the limits to that would be.
        The Chairman. Well, and I will say that this hearing has
    been a nice bipartisan demonstration of a lot of expertise.
    There is a reason you guys have the role you have because you
    know what you are talking about.
        Mr. Maffei. I am hoping my chairmanship, which ended last
    week after a full term, will result in a full, very successful
    term for my good friend and colleague as Chairman, may be the
    friendliest transition in Washington.
        The Chairman. Professor Kontorovich, I want to get back
    also to the exchange you had with Senator Young, and then it
    hearkens back to the opening exchange you and I had. We have
    heard testimony that Panama may well be in violation of this
    treaty in at least two regards: one, with respect to its
    obligation to keeping the Panama Canal neutral; and the major
    concessions to China, the control that China has over ports on
    both ends, and the bridge across the Canal, which has the
    potential to shut down transit.
        We also heard testimony about the degree of revenue that
    Panama is taking, and that is potentially in violation of the
    obligation that tolls and other charges shall be just,
    reasonable, equitable, and consistent with principles of
    international law.
        I want to ask you, Professor, assume that the United States
    makes the determination that Panama is in violation of this
    treaty. I asked about what the remedies were, and you mentioned
    at the time military force. Military force is always one
    potential remedy. What other potential remedies are there?
        And in particular, could a consequence of being in breach
    of the treaty be a determination that the treaty is null and
    void. That the concession of control of the Panama Canal to
    Panama is no longer in force? And could that, under
    international law, result in the United States returning to
    operating the Panama Canal? What is your judgment?
        Mr. Kontorovich. Yes, I think treaties like this
    demonstrate that countries really need to think long and hard
    before they give away strategic assets, because the United
    States is free to cancel this treaty at any time, withdraw from
    the treaty, as it were. But given that the United States has
    transferred control and sovereignty of the Canal Zone to
    Panama, the cancellation of the treaty would not necessarily
    reverse that concession.
        Concessions that have to do with sovereign control are not
    particularly reversible. For example, Israel made a deal with
    Lebanon to give maritime territory to Lebanon in exchange for
    peace just two years ago. It did not get peace. It is not clear
    that it can simply cancel and get that territory back.
        Now, it is the case that America can take all sorts of
    measures to insist on neutrality, and if neutrality means
    putting American firms in operation or otherwise taking other
    steps, that is something that can be done. But a kind of
    territorial control is not a clear remedy unless it is
    something that just accompanies the steps needed to restore the
    regime of neutrality.
        The Chairman. All right, well, I want to thank all the
    witnesses for their important testimony here today.
        Senators will have until the close of business on Tuesday,
    February 4, to submit questions for the record. The witnesses
    will have until the end of the day on Tuesday, February 18, to
    respond to those questions.
        And this concludes today's hearing. The Committee stands
    adjourned.
        [Whereupon, at 12:23 p.m., the hearing was adjourned.]

                                A P P E N D I X

         Response to Written Questions Submitted by Hon. John Thune to
                               Hon. Louis E. Sola
        Question 1. Under the Foreign Shipping Practices Act, the Federal
    Maritime Commission (FMC) has the ability to investigate unfair
    shipping practices. Based on what you saw on your trip to the Panama in
    the summer of 2024, do you believe that Panama is treating the United
    States unfairly?
        Answer. The Federal Maritime Commission's ongoing monitoring of the
    operational and business practices of the Canal enables the agency to
    examine whether the practices, including pricing and the new
    reservation system, of the Panama Canal Authority create unfavorable
    shipping conditions in the U.S. foreign trade. If the Commission finds
    that such conditions exist and are due to the Canal Authority's
    practices and decisions, it can impose countervailing penalties,
    including port visit fees on Panamanian-flagged vessels. Panama's ship
    registry is among the largest in the world.
        The actions of the Government of the Republic of Panama, separate
    from the Canal Authority, should also be considered. Under Presidential
    administrations that preceded President Mulino, Chinese companies made
    notable commercial and diplomatic inroads to Panama. This came at the
    expense of other nations and parties that were not Panamanian or
    Chinese. Prevalent corruption at the highest levels of Panamanian
    society creates conditions favorable to the sort of checkbook
    ``diplomacy'' routinely conducted by the People's Republic of China.
    The welcome reception previous Panamanian Presidential administrations
    gave the Chinese provided benefits to a strategic and economic
    competitor to the United States. In my opinion, this situation merits
    further engagement by the United States, including the Federal Maritime
    Commission.

        Question 2. Can you describe the relationship between Panama and
    China as it relates to the canal and associated infrastructure?
        Answer. The relationship between the Republic of Panama and the
    People's Republic of China grew closer under the administrations of
    previous Panamanian Presidents. While President Mulino does not seem to
    share the same intention as some of his predecessors to build closer
    ties to Beijing, over the years, the Chinese presence in Panama has
    become more deeply rooted across a number of critical sectors.
        Chinese companies involved in the transportation, terminal,
    telecommunications, construction, and logistics sectors are active in
    Panama and in many cases pursuing development deals. Chinese companies
    involved in trade and commerce have a significant presence in the Colon
    Free Trade Zone.
        While the Chinese presence in and around the Panama Canal should
    concern U.S. policymakers, the broad extent to which the People's
    Republic of China has made inroads throughout the Western Hemisphere
    must command our attention. Panama is but one of many nations
    throughout the Americas where the Chinese are building a stronger
    influence and gaining a surer foothold in port, bridge, rail, and other
    infrastructure projects.

        Question 3. Do you have reason to believe that Panama's unfair
    treatment is motivated by the country's increasingly close ties with
    China?
        Answer. There are several issues of concern to the Federal Maritime
    Commission.
        The first is the business practices of the Panama Canal Authority.
    The United States ran the Panama Canal on a model akin to a public
    utility. In recent years, the Panama Canal Authority appears to be
    treating the Panama Canal as a for-profit entity and seeking to
    maximize revenue production. The Commission has questions regarding how
    the Panama Canal Authority prices its services, its use of ancillary
    fees, and the use of an auction system during the recent drought and
    what appears to be continuing to today in some form. The Commission is
    continuing its monitoring of the practices of the Canal Authority and
    could initiate more formal proceedings.
        The second matter of concern to the Commission is what steps the
    Panama Canal Authority will take to mitigate against future droughts.
    Major infrastructure projects are necessary to increase water reserves
    necessary to operate the Panama Canal in dry years. The United States
    must be vigilant in making certain that engineering, design,
    construction, and related contracts for this project are awarded
    properly and free from both corruption and influence from China.
        A third matter of concern relates to potential rebating of fees
    paid to transit the Panama Canal. The Commission has reports that
    agencies within the Government of Panama (and separate from the Panama
    Canal Authority) have offered to rebate or refund Canal fees in
    exchange for stopping at certain facilities in Panama. Some of these
    facilities have direct or indirect ties to the People's Republic of
    China. These allegations deserve further review and if proven could
    raise questions about whether the Government of the Republic of Panama
    is engaging in conditions unfavorable to shipping.
        The cause of the matters commanding our attention are more likely
    driven by money. Considering circumstances in Panama beyond the limits
    of Commission authorities, however, should give one concern about the
    strong foothold the People's Republic of China and its proxies have
    established in a part of the world critical to the economic,
    diplomatic, and security interests of the United States.

        Question 4. Based on the various experiences you have had over your
    career working in Panama, can you explain how Panama's treatment
    towards the United States has changed over time?
        Answer. Bilateral relationships are never static, but the Republic
    of Panama and the United States of America have enjoyed close,
    favorable, and mutually beneficial relations for most of the past 122
    years.
        The decade between 2015 and 2025 was aberrant in that Presidential
    administrations of that era took deliberate steps toward the People's
    Republic of China. Beijing made many promises to the government and
    people of Panama and delivered on very few of them. To the extent
    anyone benefitted from any of the development promised by China, it was
    Chinese companies and citizens and not local populations. That access
    to Chinese largesse was at least in part contingent upon the Republic
    of Panama severing relations with the Republic of Taiwan, which makes
    the improved relations between Panama and the PRC all the more
    distasteful.
        President Mulino seems to desire cordial relations with the United
    States. Additionally, he does not seem to share the same instincts as
    some of his predecessors when it comes to relations with China.
        On a much more personal note, despite how the relationships between
    nations might wax and wane, I have never noticed anything less than
    good will among the Panamanian people toward the United States. Our two
    nations have more that binds us in common than sets us apart; the
    average Panamanian knows this.

        Question 5. From your analysis, does the Panama Canal pose a
    significant security threat to the United States?
        Answer. The Panama Canal itself does not pose a significant
    security threat to the United States, but the risk of loss of access to
    the Canal, caused either by weather conditions or the increased
    presence and influence of the People's Republic of China in and around
    the Canal, and throughout Panama, certainly does.
        The Chinese have for decades engaged in a comprehensive and
    integrated level of investment and overtures to increase their
    influence and presence globally. Beijing dangles increased trade
    coupled with infrastructure development projects to lure other nations
    into the Sinosphere. Many of the development projects the Chinese are
    most interested in pursuing are related to ports, railroads, and other
    infrastructure associated with trade and logistics. Many of China's
    projects are ``dual use'' in nature, meaning that they can be easily
    repurposed to support Chinese military operations. In the case of some
    telecommunications, research, and space related developments, including
    in the Americas, it is not unreasonable to assume that those facilities
    could be involved in intelligence gathering operations, activities
    designed to improve capabilities of the Chinese missile forces, or
    towards the further militarization of space.
        What is happening in Panama is an alarm bell for U.S. policymakers
    to look north and south from the Isthmus and see the extent to which
    the People's Republic of China has embedded itself on the American
    continents.
        I believe it is worth noting that Panama Canal Authority essential
    personnel, such as marine traffic controllers and the pilots who
    transit the ships through the Canal, are forced to pass through Chinese
    security on the Atlantic side as the facility they use, the Panama
    Canal Port Captain's Office, is located within the Hutchison ports
    complex. This is clearly visible on Google Maps.
                                     ______

        Response to Written Questions Submitted by Hon. Roger Wicker to
                               Hon. Louis E. Sola
        Question 1. In 1996, a U.S. marine terminal operator bid and was
    awarded a terminal lease contract by Panamanian authorities. Panamanian
    authorities re-bid the contract in a process determined by the Federal
    Maritime Commission (FMC) to be commercially ``irregular.''
    Subsequently, that contract was awarded to a PRC-controlled marine
    terminal operator. Another terminal lease contract was awarded to the
    PRC-controlled marine terminal operator on the other coast. Those lease
    agreements continue to this day.
        Given national security concerns, would it be in the United States'
    national security interest for Panamanian authorities to reevaluate the
    propriety of extending those PRC-controlled marine terminal operators
    additional lease options?
        Answer. Yes.
        The Comptroller General of Panama initiated an audit of the
    Panamanian-based operations of Hutchison Ports in January.

        Question 1a. Of even more urgent concern than terminals in Panama
    is terminals in the United States. Has the FMC assessed the PRC-
    controlled investment and levels of operational control at US-based
    marine terminals? Would you provide the Committee with an assessment of
    PRC investment and control of U.S. marine terminals?
        Answer. The Federal Maritime Commission has not to date conducted
    an assessment of investment by the People's Republic of China, or
    companies based in China in marine terminals based in the United
    States. I will task the Commission's Bureau of Trade Analysis to
    conduct such a survey and commit to sharing the results of their review
    with you immediately upon conclusion.
                                     ______

        Response to Written Question Submitted by Hon. Dan Sullivan to
                               Hon. Louis E. Sola
        Question. Chairman Sola, congratulations on your appointment as
    chair of the Commission. The Commission has an important role to play
    in ocean commerce, and we look forward to working with you on those
    issues. Over the past several years, we've witnessed the Commission's
    efforts to expand its jurisdiction over chassis and rail terminals.
    I've expressed my concern over that expansive approach, preferring
    market-based solutions to regulatory overreach. So, as it relates to
    the Panama Canal, can you please explain to the committee the FMC's
    jurisdiction over Panama or operations of the canal? I'm asking so that
    the committee not only has a clearer understanding of your jurisdiction
    but also of the tools at our disposal to addressing matters involving
    the Panama Canal.
        Answer. I am grateful for your well wishes and honored to have this
    opportunity to serve.
        I share your concern about any government agency exceeding its
    statutory authorities and I am mindful of the limits of the laws we
    administer.
        The Commission authorities applicable to how the Panama Canal
    Authority operates the Panama Canal are 46 U.S.C. 421 and 46 U.S.C.
    423.
        The Commission began its examination of how the Panama Canal
    Authority was managing through drought conditions, as well as changes
    to its pricing structure, following repeated reports from shippers,
    cargo owners, shipping lines, forwarders, and even officials of other
    governments expressing frustrations of the conduct of the Canal
    Authority.
                                     ______

        Response to Written Questions Submitted by Hon. Eric Schmitt to
                               Hon. Louis E. Sola
        Question 1. In 2021, the Ever Given container ship was grounded in
    the Suez Canal, for 6 days. It resulted in $9.6 billion of trade
    delayed each day. If the Panama Canal were blocked and ships were
    forced to circumnavigate Cape Horn, what would be the economic
    repercussions?
        Answer. Although the Federal Maritime Commission has not conducted
    an economic modeling analysis on the increased costs if all vessels
    were forced to go around Cape Horn instead of using the Panama Canal,
    it is safe to say that this would be a significant shock to the freight
    delivery system. Such effects would not be limited to the value of
    goods in transit taking the longer route. Shipping companies, shippers,
    and consumers would be faced with higher costs related to increased
    crew requirements, higher insurance, more fuel necessary to make the
    longer voyage, disrupted supply chains, and loss of business
    opportunities for commodities with short shelf lives.
        Closures of the Suez Canal resulting from the grounding of the Ever
    Given or Houthi attacks on commercial shipping in the Red Sea provide
    useful examples to make informed presumptions about the consequences of
    a closed Panama Canal. The Commission held a hearing on February 7,
    2024, to examine the effects of Houthi attacks in the Red Sea, and
    heard evidence that the Houthi attacks on merchant shipping in the Red
    Sea and Gulf of Aden had serious consequences for ocean commerce.
        Moreover, recent experience has demonstrated that the Panama Canal
    does not have to shut down entirely for U.S. supply chains to feel the
    consequences. The Panama Canal's service level was significantly
    reduced in 2024 as the result of drought conditions, which in turn
    caused significant operational and commercial impacts. The Panama Canal
    Authority was forced to reduce the overall number of transits by almost
    40 percent. Some ships were not permitted to transit the Canal, the
    carrying capacity of other vessels had to be reduced, and some
    companies explored land bridging the Isthmus. The cost to transit the
    Canal rose as the Panama Canal Authority auctioned off transit
    reservations to the highest bidder, causing companies transporting high
    value time sensitive cargoes to pay record rates to jump the queue of
    ships. Other shipping companies paid higher operating costs in both
    having to loiter for a transit slot to open and disruptions to vessel
    schedules. In other words, a loss of less than half of the operational
    capacity of the Panama Canal led to fewer ships carrying less cargo for
    higher costs and at opportunities lost.
        Finally, there is one crucial impact to the American economy and
    consumers from a closure of the Panama Canal that we can be sure of--
    the economic impact would disproportionately affect American companies
    and interests. In excess of 70 percent of the traffic transiting the
    Panama Canal is either U.S. origin or destined, whereas the majority of
    the traffic through the Suez Canal serves European markets.
    Irrespective of the value of the trade having to go around Cape Horn,
    or the added costs and time from such a journey, the United States
    would endure any disruption to the operations of the Panama Canal more
    than any other nation.

        Question 1a. Are there contingency plans in place to mitigate the
    economic fallout if the Panama Canal were blocked, similar to the
    disruption caused by the Ever Given incident in the Suez Canal?
        Answer. The Commission does not have jurisdiction over the
    contingency plans of the commercial shipping companies that use the
    Canal. It seems likely that their experiences during the drought that
    caused significant cutbacks in Canal passages would inform their future
    risk assessments.

        Question 2. How does the presence of Chinese-affiliated entities at
    critical Canal infrastructure, like Balboa and Cristobal, compromise
    the neutrality mandated by the 1977 Neutrality Treaty? In your
    assessment, should we consider Hong Kong-based companies subject to the
    PRC's national security laws as purely commercial? How does the PRC's
    civil-military fusion model pose a risk to the neutrality mandated in
    the 1977 Neutrality Treaty?
        Answer. I cannot speak to how actions of the Republic of Panama
    and/or the Panama Canal Authority might compromise the neutrality
    requirements of the 1977 Neutrality Treaty. I will note that
    circumstances have established sufficient doubt that some experts now
    argue that the Panamanians are in breach of their commitments. As
    Chairman of the Federal Maritime Commission, I am interested in how the
    Government of the Republic of Panama and the Panama Canal Authority
    treat maritime commerce and charge for use of the Canal. I note that
    the Commission also regulates common carriers that are owned or
    controlled by the PRC. The Commission scrutinizes these government-
    controlled carriers under 46 U.S.C. Chapter 407 to ensure that they do
    not use their state-sponsored position to distort the commercial
    shipping market. One such company is COSCO, which was recently found by
    the U.S. Department of Defense to be a Chinese military company under
    Section 1260H of the William M. (``Mac'') Thornberry National Defense
    Authorization Act for Fiscal Year 2021.
                                     ______

        Response to Written Questions Submitted by Hon. Jacky Rosen to
                                Daniel B. Maffei
        Question 1. It is critical for us to maintain strong diplomatic
    relations with Panama, which has been a close and longstanding U.S.
    ally. Since his inauguration last year, President Mulino's government
    has been a partner on major U.S. foreign policy and national security
    objectives, including regional approaches to addressing migration,
    standing up to the Maduro regime in Venezuela, leading on the Alliance
    for Development in Democracy (ADD), and much more. Panama also
    works closely with other U.S. allies, having been one of Israel's
    staunchest supporters in Latin America for years. I also share my
    colleagues' concerns with increased presence from China in and around
    the canal, but we must ensure our actions do not have the unintended
    consequence of pushing our allies away from collaboration with the U.S.
    and closer to the PRC.
        Do you have concerns that aggressive, unilateral statements about
    ``taking back the canal'' could inadvertently push Panama to deepen
    ties with China?
        Answer. The PRC's diplomatic, military, or economic advancement
    with any of the United States' allies is always concerning to me. In
    the case of Panama, I too share the concerns of you, Senator Rosen, and
    your colleagues that companies linked with the PRC are making inroads
    in or around the Panama Canal. When Chairman Sola and I visited Panama
    last year, however, President Mulino and Canal officials were very
    receptive to our presence and appeared, to me at least, to be eager to
    engage in continued cooperation with the Federal Maritime Commission
    and the U.S. overall with regards to the operation of the Canal. Since
    that time, I have not received any indication from Panamanian officials
    that their cooperation with our agency in particular or the U.S.
    government in general is in jeopardy. Certainly, the Canal remains of
    vital importance to the United States' economy and global maritime
    commerce and efficient and predictable access to the Canal for ships
    making port calls in the United States remains a high priority for the
    Federal Maritime Commission.

        Question 2. Despite facing robust sanctions from the U.S. and
    others, Iran has managed to build a vast network of tankers to
    facilitate its illicit oil exports, raising around $54 billion in oil
    revenues in 2023 alone. Iran uses these revenues to fund its terrorist
    proxies, its nuclear program, and other destabilizing behavior around
    the world. In recent years, the U.S. has deepened its cooperation with
    Panama to put a stop to Iran's tanker fleet, and continuing this
    cooperation is a national security imperative.
        How could President Trump's unilateral actions with respect to the
    canal undermine our partnership with the government of Panama to
    crackdown on the illicit transport of Iranian oil?
        Answer. This is not an area where I have any access to classified
    national security information. My answer is only informed by the
    discussions Chairman Sola and I had with Panamanian government
    officials concerning the issue of Iranian ships bearing Panamanian
    flags being granted passage through the Canal last summer. At that
    time, the Panamanian authorities were taking decisive action to address
    this issue through an aggressive program to de-flag Iranian vessels
    having connections to the funding of terrorist organizations and other
    illicit causes. The Panamanians reported to us that they would continue
    to de-flag any such vessels to thwart the Iranian's efforts in the
    future. I have no knowledge beyond that given to us by Panamanian
    authorities and have received no information that their position on the
    issue has changed.
                                     ______

          Response to Written Questions Submitted by Hon. Andy Kim to
                                Daniel B. Maffei
        Question 1. Is China operating the Panama Canal?
        Answer. Based on the materials available to me, which does not
    include any classified national security information related to this
    topic, from my personal observations and knowledge gained while in
    Panama, and as reported in open sources, I have no information or
    knowledge that the Panama Canal is being operated by anyone other than
    the Panama Canal Authority, which is an independent agency of the
    Panamanian government.

        Question 2. Does CK Hutchison Holdings, the Hong Kong-based
    conglomerate that received the contract to manage the Balboa and
    Cristobal ports, control the locks or entrance to the canal?
        Answer. Based on the materials available to me, which does not
    include any classified national security information related to this
    topic, from my personal observations and knowledge while in Panama, and
    as reported in open sources, I have no information or knowledge that
    the Panama Canal, including its entrances and locks, is being operated
    by anyone other than the Panama Canal Authority, which is an
    independent agency of the Panamanian government. Certainly, however,
    the Ports of Balboa and Cristobal are operated by CK Hutchison
    Holdings. These ports are geographically proximate, but currently do
    not exert control over the waters that ships traverse to approach and
    exit the Canal.

        Question 3. Is Balboa or Cristobal Canal under the jurisdiction of
    the Panama Canal Authority? And what is your assessment of the Panama
    Canal Authority and their ability to administer the Canal?
        Answer. Based on the materials available to me, which does not
    include any classified national security information related to this
    topic, and as reported in open sources, it is my understanding that the
    Panama Maritime Authority (a separate agency from the Panama Canal
    Authority) has primary jurisdiction over the Ports of Balboa and
    Cristobal.
        Based on the materials available to me, which does not include any
    classified national security information related to this topic, from my
    personal observations and knowledge gained while in Panama, and as
    reported in open sources, the Panama Canal Authority has competently
    run the Canal. As discussed during the hearing, the low water levels at
    the Canal have presented capacity issues. That said, I believe the
    Canal Authority has, and continues, to take steps towards implementing
    short-and long-term solutions to these issues, including working with
    the U.S. Army Corps of Engineers to plan new infrastructure projects
    geared at alleviating the Canal's water supply. In terms of a business,
    the Canal Authority generally makes a profit on the Canal, which they
    maintain goes to improvements, administrative costs at the Canal, and
    payments back to the government of Panama. In contrast, when the United
    States managed the Canal through the U.S. Canal Authority, the Canal
    was often operated at a deficit.
                                     ______

        Response to Written Questions Submitted by Hon. Eric Schmitt to
                               Eugene Kontorovich
        Question 1. How do Chinese national security laws ensure that even
    ``private'' companies that are based in China remain beholden to the
    CCP?
        Answer. China's law requires that ``all organizations and citizens
    shall support, assist, and cooperate with national intelligence
    efforts.''

        Question 2. Some critics of President Trump's rhetoric around the
    Panama Canal argue that the companies in question, like CK Hutchinson,
    are Hong Kong-based, and therefore outside of the scope of Beijing
    influence. However, Hong Kong's 2019 national security laws effectively
    ended the ``one country, two systems'' framework that the CCP had
    committed to. Now Hong Kong companies are just as beholden to the CCP
    as mainland companies. Do you see a meaningful distinction between Hong
    Kong and the mainland in terms of subjection to draconian CCP state
    control?
        Answer. Even if Hong Kong companies are somewhat less subject to
    CCP control, this does not mean the degree of control would not be
    enough to raise questions under the Neutrality Treaty. In any case, the
    Hong Kong national security law is only one way a communist regime with
    absolute power can extract compliance from nominally private entities.
    The power to arrest, confiscate, etc., without serious legal recourse
    create a relationship of subservience unlike private companies in free
    countries.
                                     ______

         Response to Written Question Submitted by Hon. John Thune to
                                 Joseph Kramek
        Question. Since the Panama Canal's dynamic pricing model was
    unveiled in 2016, how have production costs been impacted and how does
    this hurt producers and consumers?
        Answer. WSC does not have access to information on how U.S.
    production costs for exporters and importers have been impacted by the
    Panama Canal Authority (PCA) pricing model.
        WSC member lines, like other carriers, pay the PCA's published
    rates to transit the Canal. If the published rates change, there are
    often contingency provisions in the contracts between the carrier and
    the shipper customer (i.e., the exporter or importer) that can
    accommodate the change in rates or surcharges.
                                     ______

        Response to Written Questions Submitted by Hon. Jacky Rosen to
                                 Joseph Kramek
        Question 1. The Panama Canal is essential for international supply
    chains, handling about forty percent of all U.S. seaborne container
    trade. However, the number of ships that are permitted to travel
    through the Panama Canal has significantly fallen in recent years due
    to drought, which has increased costs for shipping companies and raised
    concerns about the Canal's aging infrastructure and Panama's ability to
    manage the water supply. Without increased water supply, the canal
    could lose significant amounts of business, affecting shipping costs
    and the supply chain and eventually raising prices on consumers.
        How are American companies adjusting to the concern about reduced
    traffic at the Panama Canal? What has been the impact on the costs for
    shipping companies using the canal, and are you concerned that these
    costs will be passed along to consumers?
        Answer. Liner shipping experienced the least impact from the
    drought of all vessel sectors, because liners know their schedules
    often up to a year in advance--and therefore will typically book canal
    transit reservations in advance. The reservations made by our members
    were honored by the Panama Canal Authority (PCA) during the drought.
    Notably, there was an increased wait time for vessels transiting the
    Panama Canal during the drought; that said the average wait time for
    container vessels transiting from North to South (Atlantic Ocean to the
    Pacific Ocean) did not exceed 1.5 days, and for container vessels
    transiting from South to the North (Pacific to Atlantic) the average
    wait time did not exceed 1.8 days.
        Water levels in the Panama Canal have recovered since the drought,
    and the Panama Canal is currently operating without the restrictions
    implemented during the drought.
        WSC member lines pay the PCA's published tariff rate for canal
    transits. If the published rates change, many liners' contracts with
    their shipper customers (i.e., the importers and exporters) contain
    contingency provisions that can accommodate changes in rates.

        Question 2. What can the U.S. do to partner with Panama to address
    water shortages, and to ensure resilience to climate change?
        Answer. WSC understands that the Panama Canal Authority has a
    longstanding relationship with the U.S. Army Corps of Engineers (ACOE)
    and has previously signed contracts with the ACOE for consultation and
    technical advisory services for the Water Projects Program--which
    consists of a portfolio of projects to supply additional water sources
    to make the Canal's operations more sustainable during future periods
    of droughts. More broadly, the ACOE has a long history of working with
    Panama and the PCA.
        Continued agreements with the ACOE and other U.S. government
    agencies with expertise in this area, as well as U.S. private entities
    supporting this work, could have the dual benefit of enhancing the
    partnership between the U.S. and Panama, and protecting this vital
    trade artery.

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