[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
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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
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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
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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.
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\1\ PIERS, S&P Global
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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\
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\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.
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\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.
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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\
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\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\
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\6\ Panama Canal Authority, Tariff Schedules, available at https://
pancanal.com/en/maritime-services/maritime-tariff/
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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\
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\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
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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\
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\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
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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\
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\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.
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Container Traffic Handled at the Main Panamanian Ports 1995-2023
\12\
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\12\ Id.
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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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