| Speaker | Time | Text |
|---|---|---|
|
unidentified
|
The next president can come in and rescind all this activity, all these actions. | |
| We need to codify them into law. | ||
| That's the next shoe that needs to drop. | ||
| At the Heritage Foundation's Mike Gonzalez joining us for this conversation. | ||
| He serves as a senior fellow. | ||
| Fun fact, in 30 seconds, it says that you were jailed overnight and expelled by Manuel Orton-Oriega. | ||
|
unidentified
|
That's right. | |
| My first foreign assignment in 1988. | ||
| How did that happen? | ||
| For what reason? | ||
|
unidentified
|
I was there as a journalist, and the hotel called me. | |
| They said the police are here looking for you. | ||
| I called my editor and said, what do I do? | ||
| Do I go to the American embassy? | ||
| He said, no, go back. | ||
| We'll get you out. | ||
| They arrested me, put me out of Marc Torijos airport in the prison out of Mar Torijos, where I spend the night, and then they put me on an Air Bolivian, Lloyd Bolivian flight back to Miami. | ||
| It made my career. | ||
| My editor thought it was hot stuff. | ||
| I went to Hong Kong the next year. | ||
| And from that point on, I didn't look back. | ||
| I spent 15 years overseas. | ||
| But yeah, no, it's kind of a fun fact about me. | ||
| Mike Gonzalez, thanks for your time. | ||
| Thank you. | ||
| We're going to take you to a Senate hearing that takes and focus on the Panama Canal and its future. | ||
| They'll look at the strategic importance of the canal and the impact on U.S. trade and national security. | ||
| that hearing is set to start momentarily. | ||
| Good morning, everyone. | ||
| Welcome. | ||
| The Senate Committee on Commerce, Science, and Transportation will come to order. | ||
| We're 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 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 take 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 and the federal Fisk, the Chinese Communist Party advances its global economic contest against the United States and takes a militaristic interest in the canal. | ||
| While President Trump is rightly focused on these key issues, there are additional problems. | ||
| In the last two 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'm 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 on all of those issues. | ||
| I will now turn to Ranking Member Cantwell for her opening statement. | ||
| 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 Manzillo International Terminal in Cologne, 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 1,000 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'm 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 delayed U.S. cargo or increased costs. | ||
| This law also gave the FNC, our two commissioners that are here today, the ability to do better investigations. | ||
| 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, Senator Kelly and Young from the Senate, Representatives Garamindi and Kelly from the House, and they've been working with maritime stakeholders on these larger bills. | ||
| But Mr. Chairman, if this committee doesn't embrace this larger agenda, it's 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 left 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'm 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 last Congress. | ||
| So if we're trying to get them out of U.S. ports and areas, we shouldn't certainly allow them in vessels and back doors in places like Panama. | ||
| Mr. Chairman, I'd 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. | ||
| Without objection. | ||
| These ambassadors, thank you, Mr. Chairman, 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's a crane over the port or a bridge, we cannot tolerate Huawei, TikTok, artificial intelligence, or other adversaries using a government backdoor. | ||
| Mr. Chairman, I'm 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 I don't 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 doesn't 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 don't 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 initiatives 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're coming from a very trade-dependent state. | ||
| But the issue is we didn't have an ambassador there for five 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% 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 Bennett, the Americas Act, is an also 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 backdoors 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. | ||
| Thank you, Senator Catwell. | ||
| Our first witness today is Chairman Luis 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. | ||
|
unidentified
|
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 viligence 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 Roads 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 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 the global economy. | ||
| I look forward to your questions. | ||
| Thank you, Chairman. | ||
| Our next witness is Commissioner Daniel McFay of the Federal Maritime Commission. | ||
| He was also in Panama with Chairman Sola. | ||
| Mr. Mffay, I look forward to your opening statement. | ||
|
unidentified
|
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 Bekich 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 freshwater levels have occurred before in the canal's history, such as in the 1930s when the Madden Dam and Lake Alahuella 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 of 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 the statutory mandate and consistent with FMC's mission, I and then Commissioner Luis Ola 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, actually was in July of 2024, and we met with then recently elected President Jose Molino 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'm 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 light slot allocation procedures, not so much as they are applied right now because transits are not being rationed, but when another low fall rain period occurs, low 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 Solis' chairmanship, and I am extremely pleased that it is a priority for this committee as well. | ||
| Thank you. | ||
| Thank you, Commissioner. | ||
| Our next witness is Law Professor Eugene Kantorovich, who can explain Panama's treaty obligations and the remedies the U.S. might seek for potential violations. | ||
| Professor Kantorovich is appearing virtually, and Professor, you're recognized for your opening statement. | ||
| Chairman Cruz, Ranking Member Cantwell, Honorable Members of the Committee, I appreciate and regret the opportunity to testify before you remotely. | ||
| I've 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 in the treaty and the actual situation on the ground. | ||
| I have not had any classified intelligence briefings on this subject, so I'm 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 ceding 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's Article 2, equitable tolls and fees, Article 3, and exclusive Panamanian operation, Article 5, the prohibition of any foreign military presence, Article 5. | ||
| Article 5 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 5 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 there's many possible situations in the middle. | ||
| The treaty is silent on the question of how much control is too much. | ||
| And as we'll 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 5. | ||
| 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're 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 the 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 in 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 4 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 to ratification also make clear that Article 5 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. | ||
| Thank you, Professor. | ||
| Our final witness, World Shipping Council CEO Joseph Kramick, can discuss the challenges faced by container lines moving goods to or from America through the Panama Canal. | ||
| Mr. Kramack, you are recognized for your opening statement. | ||
|
unidentified
|
Thank you, Chairman Cruz, Ranking Member Cantwell, and members of the committee. | |
| My name is Joe Cramick. | ||
| I'm President and CEO of the World Shipping Council. | ||
| The World Shipping Council is the global voice of 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've heard, and the Panama Canal is no exception. | ||
| We've talked about the drought in 2023 and the historic low water levels that it caused in Lake Katoon, 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 reduced 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 waterline, 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. 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, it 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. | ||
| Thank you very much. | ||
| We will now move to questioning. | ||
| I want to start, Chairman Solow, Commissioner McFay. | ||
| Are you aware of allegations from some vessel operators of disparate treatment, such as sweetheart deals or favorable rebates by Panama for canal transits? | ||
|
unidentified
|
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. | ||
| And as far as I know, that is the only instance where that exists. | ||
| 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. | ||
| 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? | ||
|
unidentified
|
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, our predecessor at the Federal Maritime Commission was the U.S. Shipping Board, was formed in 1916 in direct result of the Panama Canal. | ||
| The very first chairman of that was George Washington Goethe's, which was the very first administrator of the canal. | ||
| So we look at it as one entity. | ||
| Yeah, I might just add, Mr. Chairman, 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. | ||
| 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 Solow, why should Chinese construction of a bridge near Panama City concern the United States? | ||
|
unidentified
|
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 removover 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. | ||
| 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? | ||
|
unidentified
|
Mr. Chairman, I am a regulator, a competition regulator, and the Chinese ports that you're 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 game-tree cranes. | ||
| The one on the Atlantic is the same as my hometown of Miami. | ||
| They do about 1 million containers. | ||
| So where Roger Gunther in the Port of Houston generates about $1 billion a year and Heidi Webb in Miami does about $200 million, the Panama Ports Company paid zero, zero for 20 years on that concession. | ||
| So it's really hard to compete against zero. | ||
| So I think that's our concern, our economic concern that we would have. | ||
| Commissioner Mafe, anything to add on that? | ||
|
unidentified
|
Yeah, I mean, I do also think it is important. | |
| I would point out that you don't have to stop at either port. | ||
| It's not like these two ports control the entrance to the canal. | ||
| That is the canal authority that does control that. | ||
| However, I think it's of concern. | ||
| I would also point out that the Panamanian government thinks it's of concern too, because they're conducting their own audit of those particular deals. | ||
| But we remain very interested as well. | ||
| So Professor Gontorovich, 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 4 of the neutrality treatment requires both the United States and Panama to establish and maintain, quote, a regime of neutrality. | ||
| Article 5 limits any foreign control by providing, quote, 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 31C requires that, quote, 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? | ||
| So I think, Senator, I think potentially they could, but it's impossible to say definitively without knowing more, in particular about the degree of Chinese control and involvement in these companies. | ||
| I think it's 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 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 form part of the treaty, provide that the United States can, quote, 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. | ||
| 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? | ||
| 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's 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 Panamanians' 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's quite clear that the treaty contemplates that as a remedy for violations. | ||
| Thank you very much. | ||
| Ranking Member Cantlin. | ||
| Thank you, Mr. Chairman. | ||
| Mr. Cramek, I think costs are critical. | ||
| When you think about it, we're here discussing costs. | ||
| Why? | ||
| Because consumers pay more when shipping costs are higher, whether 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 towards our big Ferris wheel in the downtown right next to our ferry terminal. | ||
| Luckily, some ferry 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 aren't that we're 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. Mafe, this audit, will the audit lead to a discussion with Panama about those contracts? | ||
| As I've 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 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. | ||
|
unidentified
|
Thank you, Senator Countwell. | |
| Well, certainly even one incident is unacceptable from a safety perspective that you're citing. | ||
| Our members work tremendously hard with the International Maritime Organization, the U.S. Coast Guard, and other NBs to try to have the safest operations possible. | ||
| But accidents do occur. | ||
| They are rare if you really 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. | ||
| 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're playing our role. | ||
| I want the U.S. to get a big portion of that. | ||
| That's why we need to reinvigorate. | ||
| Mr. 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? | ||
|
unidentified
|
Thank you very much, Senator. | |
| First of all, the airborne wing that I'm 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 don't believe that it's in the treaty at all. | ||
| Okay. | ||
| So formalization of maybe a cyber security agreement. | ||
| See, I'm 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 don't like about anybody that has a back door is I'm for the United States advocating don't buy it from people who have a government back door. | ||
| Don't do it. | ||
| Because what are you going to do? | ||
| At some point in time, you're going to regret that. | ||
| Mr. Commissioner Mafei, what about this audit and could we push Panama on these issues of looking at closer U.S. infrastructure instead, particularly since the sea change here is like what everybody said. | ||
| Everybody thought this was Hong Kong, then it turned into China. | ||
| We didn't have an ambassador after that. | ||
| Next thing you know, they've made more aggressive postures. | ||
| They're making aggressive postures everywhere. | ||
| That's why the United States saying no government backdoors 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. | ||
| And so is the investment. | ||
| But what about getting the stevedoring business or some of that back into proximity under the audit? | ||
|
unidentified
|
Well, it is the Panama Comptroller's Office, and they are investigating contracts at Panamanian ports. | |
| And we don't 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're not that existent because 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're absolutely right. | ||
| This is a problem and it's a problem in many, many other areas of the world that we can get into if you want in subsequent questions. | ||
| But let's say that. | ||
| My time has expired, but I think my major point is let's be a big maritime powerhouse. | ||
| Let's reinvitalize our supply chains, drive down costs for consumers, and secure what we need to secure. | ||
| Thank you, Mr. Chairman. | ||
| Thank you, Senator Cantwell. | ||
| And very quickly, Commissioner McFay, 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? | ||
|
unidentified
|
Yeah, it's 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's 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's 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. | ||
| Senator Fisher. | ||
| It's important to ours, too. | ||
| 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 rebid those terminal concession contracts? | ||
| And perhaps, Mr. Kontorovich, that's more in your purview. | ||
|
unidentified
|
Senator Carter. | |
| Senator Fisher, both of those ports were redone for 25 years until 2047, 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. | ||
| And it can't be rebid until after that date? | ||
|
unidentified
|
Well, I believe that that's 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. | ||
| Mr. McVeigh, you were talking about how to incentivize, perhaps incentivize companies from the United States to be able to participate in a bid process that doesn't seem to be reasonable. | ||
| And do you think that the Panamanians would welcome viable alternatives? | ||
| Are we in that position yet? | ||
|
unidentified
|
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 is very important. | |
| It was mentioned actually, Senator Cantwell just mentioned ex-Imbank programs. | ||
| So it's not like this doesn't 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'm 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 yeah, I think if you're 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've been doing it for 20 years, and it is a cow that has long left the barn. | ||
| 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. | ||
| Freshwater is vital to the workings with the canal. | ||
| How effective do you think investments in increasing that freshwater 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? | ||
|
unidentified
|
Yeah, that's 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's 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 things 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 viable. | ||
| In that part of the world, you can make more freshwater 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. | ||
| Thank you. | ||
| Thank you, Mr. Chair. | ||
| Thank you. | ||
| 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'm proud to have joined Senators Cantwell and Blackburn to reintroduce the Bipartisan Promoting Resilient Supply Chains Act, 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'd like to shift to my first line of questioning, and it is for you, Captain Kramick. | ||
| It's no secret that the canal has had issues due to droughts, nor is increasingly frequent drought a new phenomenon. | ||
| Do you believe the Panama Canal Authority did enough to anticipate the issues impacting the canal's operation? | ||
|
unidentified
|
Senator Bill and Rochester, thanks for your question. | |
| They did the best, I guess, with the information that they had. | ||
| I don't know that they anticipated a drought of that magnitude. | ||
| I would say going forward, what Commissioner McFay just discussed about the development of a second reservoir to feed into Lake Gatoun 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 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. | ||
| 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? | ||
|
unidentified
|
We are going to break away from this hearing briefly for live coverage of the U.S. House. | |
| You can continue watching, though, if you go to our website, cspan.org, or c-span now, a free video app. | ||
| Today, House lawmakers are holding a brief session. | ||
| No votes are expected. |