Congressional Investigation into Canal Zone

[Ed. Note: A one-line statement in last month's article, "Behold a Red Horse," stated that China would gain control over the Panama Canal by the end of this year. This brought a flurry of concerned questions from many of our readers. To answer these concerns, we offer an update of a report issued to K-Rations subscribers earlier this year.]

The Panama Canal is once again a point of controversy in Congress. Senate Majority Leader Trent Lott has called for a congressional investigation into allegations that the operations of the Panama Canal will, by the end of this year, come under the control of a company which is said to be closely tied to the Chinese government. In essence, it has been alleged that the Chinese will be able to control who can enter the canal and who will be given priority. This control issue is critical to U.S. naval operations, as well as to private commercial shipping.

In order to understand the current controversy, it is important to review the trail of events leading to the present situation. In 1977 President Jimmy Carter agreed to return the control of the Panama Canal to the Panamanian government in 1999. The Senate ratified the treaty with what was called the Deconcini Reservation, which guaranteed the U.S. the right to use military force, with or without Panamanian permission, if necessary to keep the canal open.¹ However, the Panamanian government agreed to the treaty only if any use of military force were used in cooperation with Panama. What this means is that terms of the treaty were not mutually acceptable, and each country signed different versions of the agreement.

In keeping our end of the bargain, the U.S. military is in the process of withdrawing from the Canal Zone, which should be completed by the end of this year. The withdrawal is being conducted with the now uncertain understanding that the 1977 Panama Canal Treaty guaranteed the safe passage of U.S. military and commercial ships in perpetuity. It is critical that American access to the canal be maintained, as 40% of our grain exports and 15% of all exports pass through the canal each year. In fact, one-third of the world's shipping travels through the Panama Canal.² Militarily speaking, the canal provides the navy with quick access to either the Pacific or the Atlantic Ocean.

To complicate matters further, continued U.S. access could be at risk due to a deal struck between the Panamanian government and a Chinese-based company named Hutchinson Whampoa, Ltd. On March 19, 1997, in a $22.2 million/year deal, the government of Panama gave the Hong Kong company 50-year rights to two prime American-built port facilities flanking the canal zone at Balboa and Cristobal: both ends of the canal. Hutchinson Whampoa has worked closely in the past with the China Ocean Shipping Co. (COSCO) on shipping deals in Asia even before Hong Kong reverted to Beijing's control in 1997. COSCO is the Peoples Liberation Army (PLA) controlled company that almost gained control of the abandoned naval station at Long Beach, California.³

Hutchinson Whampoa is owned by Chinese billionaire Li Ka Shing, who has such favorable ties to the Beijing government that he was at one time offered the governorship of Hong Kong.⁴ Li also has served on the board of directors of the China International Trust and Investment Corporation, a PLA- affiliated giant run by the same Wang Jun who enjoyed coffee at the White House in exchange for a modest donation to the Clinton-Gore 1996 slush fund. ⁵

The agreement with the Chinese was enacted by secret Panamanian legislation, passed on January 16, 1997. It provided to Hutchinson Whampoa "first option" in taking over the Rodman naval station, rights to operate piloting and tugboat services for the canal and private roads near the two ports, as well as authority to deny ships access to the ports and entrances to the canal if the ships are interfering with Hutchinson's business. This is a direct violation of the 1977 Panama Canal Treaty, which guarantees expeditious passage for the United States Navy. There is also another troubling report that a U.S.-based company had submitted a higher bid on the ports' lease than did the Chinese. This has lead many Americans, including U.S. Senator Trent Lott and former Reagan Defense Secretary Caspar Weinberger, to seek answers from the Clinton administration and the Secretary of Defense as to why a company with possible ties to the Chinese military was allowed to assume control over these former U.S. military installations.⁶ (Both the Panama Canal authority and Hutchinson Whampoa have denied the allegations, calling them preposterous, and the reported control of canal traffic, impossible. For its part, the Hong Kong-based business is contacting various lobbying groups in Washington to help take the heat off its Panama dealings.⁷ )

The House of Representatives will also be considering both a resolution (H.Con.Res. 186) and a bill (H.R. 2244 - "The Panama Security Act of 1999") calling for a review of the contract between Panama and Hutchinson Whampoa for possible improprieties.⁸