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immigration, deportations, and a recent pause on federal grants. | |
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| A Senate committee explored the operation, control, and cost to use the Panama Canal. | ||
| We hear from witnesses who raise concerns about possible violations of the 1977 Panama Canal Neutrality Treaty and talk about the extent of China's influence in Panama. | ||
| The hearing was held just over a month after President Trump suggested the U.S. could seize control of the canal. | ||
| This is just under two and a half hours. | ||
| 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 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 take 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 Catwell 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 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 Cantwell. | ||
| 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
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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 Mafei of the Federal Maritime Commission. | ||
| He was also in Panama with Chairman Sola. | ||
| Mr. Mafei, I look forward to your opening statement. | ||
|
unidentified
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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 Louis 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, an 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 a 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 are 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 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. Kramick, you're recognized for your opening statement. | ||
|
unidentified
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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 1.20 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. | ||
| 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
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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, 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 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 removable 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 triggerings. | ||
| The one on the Atlantic is the same as my hometown in 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. | ||
|
unidentified
|
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 NVs 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. | ||
| And 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 cybersecurity 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 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 Mafe, 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 that's the concern. | ||
| I think 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 Fischer, 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. | |
| And it can't be rebid until after that date. | ||
|
unidentified
|
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. | ||
| 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 Blunt 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 Mafe 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
|
Senator Blunt Rochester, I don't have that information on what they considered. | |
| It is clear that the Canal Authority knew that this would have an impact on shipping and that enough hadn't 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, full operation? | ||
|
unidentified
|
So they are back to full operation, as 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. | ||
| 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 could answer that. | ||
|
unidentified
|
Yes, ma'am. | |
| Let me address your question because I'm not sure it's my place to exactly answer it, but you're quite right. | ||
| So one of the complaints that we've heard is from container shippers that 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, 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 aren't valuable, but compared pound for pound to the LNG, and very, very, I mean, it's out, you know, you're losing volume every delay. | ||
| So they would far outbid the container shippers. | ||
| Now, whether or not there's something that can be done specifically to help these container, I'm not sure. | ||
| We've 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 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. | ||
| Thank you for your answer. | ||
| I'll 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'll be submitting questions for the record. | ||
| Thank you, Mr. Chairman, and I yield back. | ||
| Thank you. | ||
| Senator Sullivan. | ||
| Thank you, Mr. Chairman, for this important hearing, and I appreciate the witnesses. | ||
| I have questions for now primarily focus on Chairman Sola and Professor Konaradovich. | ||
| So let's 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? | ||
|
unidentified
|
Yes. | |
| Okay, so it was clearly a sweetheart deal, correct? | ||
|
unidentified
|
According to the press releases, the company paid back taxes of $150 million. | |
| And the Panama Deputy Attorney General has now objected to that. | ||
| That's my understanding. | ||
| Is that correct? | ||
|
unidentified
|
The comptroller of the country has asked for an audit of the Panama. | |
| But someone objected to it when it was going on. | ||
|
unidentified
|
A lot of people objected to it. | |
| 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 don't have the greatest reputation of having officials who aren't 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's assume we find evidence that Chinese Communist Party officials bribe Panama officials for the sweetheart deal. | ||
| Would that be a violation because the Chinese do this everywhere? | ||
| Would that be a violation of this treaty? | ||
| So in itself, that would not be a violation. | ||
| What would be a violation is actual threats to the operation of the canal. | ||
| However, to the extent that the Chinese government was involved in procuring these contracts, it strongly provides sort of additional support for the notion that these companies are serving some kind of governmental interest. | ||
| So it wouldn't be a violation of itself. | ||
| There would be circumstantial evidence to support it. | ||
| Let me get to the issue of threats. | ||
| Let's 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? | ||
| They're subject all the time. | ||
| They're subject to those laws all the time, by virtue of being Hong Kong companies. | ||
| And they face, of course, consequences for not complying with the wishes of the Chinese company. | ||
| Wouldn't that be a violation of the treaty? | ||
| And isn't that a huge risk to us right now that the Chinese 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? | ||
| I don't know if they'd be obligated, but certainly the People's Republic of China would have many tools of leverage and pressure on these companies. | ||
| That's why the treaty specifically says that we can act not just to end actual obstructions to the canal. | ||
| We don't 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 incohate, incipient level, to threats. | ||
| And then this is up to the President to determine whether this is significantly robust to constitute. | ||
| So, Professor, aren't we kind of walking up to the idea of a suicide pact? | ||
| Because we got two big Chinese companies on both ends of the Panama Canal who, if there's a war in Indo-PayCom, Taiwan that involves us in 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? | ||
| Yeah, certainly there's a threat, and I think what makes the action of the Chinese government sort of difficult to respond to, but important to respond to, is that they conceal this in sort of levels of gray, right, without direct control. | ||
| Well, let me ask you on that topic. | ||
| It's my last question, Professor. | ||
| Let's assume that we find out, and again, it wouldn't 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's assume we found that out. | ||
| Somehow that becomes public. | ||
| But I don't think it's a big assumption. | ||
| It's 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, wouldn't that be a blatant violation of Article 5 of the Neutrality Treaty if that were true? | ||
| Which probably is true? | ||
| What's your reason? | ||
| I do think it would be a clear violation. | ||
| As Dean Rusk, former Secretary of State Dean Rosk, said at the ratification hearings, informal forces can violate Article 5 as well as formal forces. | ||
| And Chairman Sola, do you agree with that? | ||
| Is there any evidence of Chinese spies or other nefarious Chinese actors embedded in these companies? | ||
|
unidentified
|
Senator, we have no information of that. | |
| And that's not under the purview of the federal government. | ||
| Would you agree that would be a violation of Article 5 of the Neutrality Treaty? | ||
|
unidentified
|
I do. | |
| Thank you. | ||
| Thank you, Mr. Chairman. | ||
| Thank you. | ||
| Senator Baldwin. | ||
| Thank you. | ||
| Commissioner Mafei, good to see you. | ||
| Thank you for being here today. | ||
| 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've 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's essential to have a secure and level playing field, which we currently don't. | ||
| Chinese current practices do not allow for that. | ||
| The United States Trade Representative recently investigated China's practices in the commercial shipbuilding sector under Section 301 and recently concluded that their dominance is a burden to United States commerce. | ||
| 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 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? | ||
|
unidentified
|
Answer in less than a minute. | |
| Senator Baldwin, it's 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 a short term is to amen to everything you said. | ||
| And as an illustration, Senator Sullivan was talking about Hutchinson Ports. | ||
| That's actually the same company that runs terminals on both ends of the canal. | ||
| I am concerned about that. | ||
| However, if we want to be concerned about that, all of us should lose a lot more sleep than we're losing. | ||
| Because if that, if there's spies there, then there might be spies at other Hutchinson ports. | ||
| And there are other Hutchinson ports in almost every part of the world. | ||
| They own the largest container port in the United Kingdom, Felix Dowell, 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 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's just one aspect of what you were talking about. | ||
| That doesn't 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're undercutting other things. | ||
| And it's 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 challenges we're 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. | ||
| I thank you for that answer. | ||
| I know my time is now short. | ||
| I will allow Professor Kantorovich to answer this for the record. | ||
| But, Professor, I'd 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'm 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? | ||
| So thank you. | ||
| So my understanding of the Chinese advantage is that to the extent that they're willing to use their government wealth to consistently underbid contracts, they have an advantage that can't be beat. | ||
| And thus leaving these kind 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. | ||
| Thank you. | ||
| 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, start with you down the panel. | ||
| Thank you. | ||
|
unidentified
|
I don't have that information as an Industry Trade Association Senator. | |
| Okay. | ||
| All right. | ||
| And we've 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 Colombia 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. | ||
| Shouldn't our investment in Panama be contingent on their adherence to that neutrality committee, ensuring that Panama and Panama alone would control that canal? | ||
| Certainly, that is an action we can take to enforce the treaty and to enforce our understanding of the treaty. | ||
| That's 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 interest, 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 don't even need the treaty. | ||
|
unidentified
|
Certainly, if we consider the treaty to be violated, measures like that far short of the armed force authorized by the treaty would be 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, you know, these exorbitant fees are there unless you're 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. | ||
|
unidentified
|
Thank you, Senator. | |
| The fees that I think we are looking at, or we have been looked at, 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 money maker for them. | ||
| So as they were doing. | ||
| Okay, and let's let me interject here. | ||
| The auctioning of the slots gives these the right to skip the queue? | ||
|
unidentified
|
Yes, ma'am. | |
| Okay, so just for the record there, continue. | ||
|
unidentified
|
So the auctioning of the slot, under maritime law, it's 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 didn't have the money to pay to go through because their goods were going to go down. | ||
| So if you look at the financial statements, I'm 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 concerned to us and for the American shippers. | ||
| And have you seen a tendency to preference the digital yuan over the dollar? | ||
|
unidentified
|
I have heard of the digital one and I've also heard of it used in international shipping as a currency. | |
| It is something that I would say that we have an eye on because we have a digital shipping exchange rule coming up. | ||
| But we will keep monitoring it. | ||
| Okay. | ||
| Thank you, Mr. Chairman. | ||
| Thank you. | ||
| Senator Klobuchar. | ||
| Thank you very much, Mr. Chairman. | ||
| And I can't help but think as we debate this issue of the Panama Canal, while it is important, if you want to look at what's 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 Head Start and people are in a panic in calling our offices, it's 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're 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 this 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'll get to that in a minute. | ||
| But I do want to raise with you, Commissioner McFay, 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? | ||
|
unidentified
|
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. | ||
| Right. | ||
| And that's 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 hasn't 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? | ||
|
unidentified
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At the Panama Canal. | |
| Yes. | ||
|
unidentified
|
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's 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 steerships. | ||
| Thank you. | ||
| Mr. Cromick, in your testimony, you described how drought reduced imports at U.S. ports. | ||
| Do these reductions affect prices for American consumers, or could they? | ||
|
unidentified
|
Yes. | |
| Okay. | ||
| 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. | ||
| By the shippers, of course, you know what I mean. | ||
| I don't mean the carriers themselves. | ||
| I mean the people that are trying to do business and sell their stuff. | ||
|
unidentified
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American exporters, American importance. | |
| American exports. | ||
|
unidentified
|
Absolutely. | |
| Look, I don't have a lot of time, but yes, it has had a tremendous effect. | ||
| We have seen instances of waiving or forgiving detention to merge 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, used to have one administrative law judge, now we have three and they still have too many cases. | ||
| So a huge impact. | ||
| And are you concerned? | ||
| I'll 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? | ||
|
unidentified
|
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 one 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 don't know where, and I don't believe that. | ||
| 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. | ||
| Thank you. | ||
| Senator Budd. | ||
|
unidentified
|
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 okay. | ||
| Without objection. | ||
| Okay. | ||
| 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 CCP's broader efforts to further access Latin America's markets and obstruct American interest in our own backyard. | ||
| Mr. Sola, would you agree with that, that you see the CCP activity hopefully to interrupt America's interest in the region? | ||
| Definitely an economic interest, Senator. | ||
| 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? | ||
| We have a wonderful example because we have a U.S. port there, SSA, out of Washington State. | ||
| I actually worked on the development of that many years ago and helped develop that. | ||
| 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. | ||
| We have one as a major infrastructure footprint and also a container port that is moving 4 million containers a year. | ||
| That is almost, I mean, that's really a phenomenal amount. | ||
| That's more than Miami, Fort Lauderdale, and you probably got to get 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's a very strategic port on the Atlantic. | ||
| So, how are the operations done? | ||
| I don't know how they don't make money. | ||
| I mean, if you want to come to right down to it, is if they've been operating the port for 20 years and they say that they haven't made any money, so they haven't been able to pay the government. | ||
| That's what concerns me, is I don't believe that we are on a level playing field with the American ports. | ||
| I appreciate that. | ||
| Mr. Kramick, 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? | ||
| 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 Muffet said, having to go around the continent of Africa, 40 percent longer voyages, significant more costs, and crew, maintenance, fuel, and even emissions. | ||
| Do you have a ballpark of the difference if they are able to transit the canal versus go around South America? | ||
| I don't have a figure. | ||
| I can tell you it in days, and it depends. | ||
| So, it is about 30 days if you can go through the canal, about 40 days right now, because we can't use the Suez Canal if you want to go and go from, say, Asia cargo going to the U.S. East Coast. | ||
| Thank you. | ||
| Mr. Seoul, 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, they have been imprisoned, sentenced on bribery charges. | ||
| Using that as an example for the region, the strategy of China is clear 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 that it plays in their finances? | ||
| Did you turn your microphone? | ||
| 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. | ||
| Thank you very much, Mr. Chairman. | ||
| Senator, can I just say you should also look at the port of Chansei in Peru? | ||
| It will fit that pattern. | ||
| Thank you very much. | ||
| Thank you. | ||
| Thank you. | ||
| Senator Kim. | ||
|
unidentified
|
Thank you, Chairman. | |
| Thank you to all of you for coming on 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 don't mind, I just kind of want to start there and work backwards. | ||
| So, Chairman Sola, President Trump said, quote, China is operating the Panama Canal. | ||
| We didn't 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? | ||
| Chairman, I mean, Senator Kim, I never discredit anything that President Trump says. | ||
| He has a different briefing book than I do. | ||
| 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 on the throughput that they are able to do. | ||
| So you are saying from your knowledge, you don't know of reasoning to believe that China is operating the Panama Canal, from the knowledge that you have. | ||
| 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. | ||
| I think that what, if you will allow me to, if a company is able to operate both ports. | ||
| Oh, I see what you are. | ||
| So you are talking about Hutchinson ports, right? | ||
| Yes. | ||
| So we are talking about what, Balboa and Crystal Ball ports, right? | ||
| Right. | ||
| And they are subsidized. | ||
| So they are subsidized. | ||
| They are subsidized. | ||
| I guess my question to you is, does Hutchinson port actually control the locks of the canal? | ||
| No. | ||
| Does it control directly the entrance to the canal? | ||
| 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. | ||
| I see. | ||
| So they have to have pilots. | ||
| So pilots. | ||
| Is Balboa or Crystal Ball ports under the jurisdiction of the Panama Canal Authority? | ||
| They have been given by the Panama government the concessions. | ||
| However, they are in the operational range of the Panama Canal. | ||
| Does that make those two ports under the jurisdiction of the treaty? | ||
| Let me say this, because I was in Panama when the treaty, when the Panama Canal was turned over. | ||
| We didn't 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 able to. | ||
| I would love to come. | ||
| As soon as you come out of the locks, you run into Corazol, which was a former military base. | ||
| Corazol is run not by Panama, by the Panama Canal Authority. | ||
| It's run by the Panama government. | ||
| After you pass that, you run into the port of Alboa. | ||
| So what I'm trying to say is that 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. | ||
| Yeah. | ||
| Well, look, I guess I wanted to just ask you kind of directly then, what is your assessment of the Panama Canal's authority, you know, in terms of their ability to administer the canal? | ||
| I think the Panama Canal Authority and their independences, if you read my opening statement and my written statement, they've done a fantastic job. | ||
| And Panama has been running the canal for 25 years. | ||
| They've given $28 billion to the coffers of the government in those 25 years. | ||
| In the 25 years that the two ports that we call two ports, they've contributed zero. | ||
| So I don't understand why Panama would allow those two ports to operate and put into jeopardy what they haven't the operations that they do have in the canal. | ||
| 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 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 term precision with the words that we use. | ||
|
unidentified
|
Otherwise, it very much looks like some of what we talk about is going to be perceived as undermining the Panama Canal Authority. | |
| And then you said that you warned that 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're talking about exactly what we're addressing. | ||
|
unidentified
|
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. | ||
| Yeah. | ||
| And more precision there. | ||
| Thank you so much. | ||
| I yield back, Mr. Chair. | ||
| Thank you. | ||
| Senator Schmidt. | ||
| 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-pronged 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. | ||
| And fortunately, people like President Trump aren't falling for it. | ||
| I'm glad he's raised this issue. | ||
| This dangerous complacency must end. | ||
| That's why last week I introduced a Senate resolution to safeguard the Panama Canal from Chinese influence. | ||
| 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'll offer this up for anyone, but I think the biggest concern here is this Belt and Road initiative, we've 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's just no way on God's green earth that China can control the Panama Canal. | ||
| And so however you want to define it, and I hope my Democrat colleagues, this is an issue that affects America that should not be partisan. | ||
| And I hope they're not blinded by the fact that President Trump has come out so boldly on this. | ||
| But we shouldn't 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've talked too long, I don't have much time for questions, but Professor Kantorovich, I do want to ask you, as it relates to the treaty, and I'm 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 it the fact that we're 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 that you would argue that they are in fact in violation of the treaty? | ||
| So again, I think the different, I think the charges and fees are less of an issue because they don't discriminate across countries. | ||
| We pay more because we use more, but it's not nationally discriminatory. | ||
| The presence of Chinese companies, especially Chinese state companies, 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 to 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're talking about are within the neutrality regime, the geographic scope of the neutrality regime in the treaty. | ||
| So the most, I'm out of time, but the most dead-on hit here is the treaty specifically prevents foreign operations, and that's exactly what we have. | ||
| Yeah, 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. | ||
|
unidentified
|
Okay. | |
| Senator, may I make a point of clarification? | ||
| Sure. | ||
| You said that we all said that China had operational control. | ||
| I don't believe that China currently has operational control over the Panama Canal. | ||
| I'm not sure if anyone- No, I didn't say all of you did. | ||
|
unidentified
|
I said one of the witnesses. | |
| But 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's right, understating the problem. | ||
| Because they also then control the Suez Canal and the Mediterranean Sea. | ||
| And I actually have to admit, I'm a little confused as to why some of the senators asking these questions, Senator Blackburn, aren't more concerned about the biggest port in the United Kingdom being run by the Chinese. | ||
| Petraeus, the port nearest Athens, one of the biggest ports in the Mediterranean, is not just run by a Chinese-linked company. | ||
| It's 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. | ||
| 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. | ||
| Thank you. | ||
| Senator Curtis. | ||
| Thank you, Mr. Chairman. | ||
| Great hearing. | ||
| Appreciate this opportunity today. | ||
| I would like to touch on something I haven't 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? | ||
|
unidentified
|
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, what the United States has found, is that Iranian vessels are sometimes flagged by Panama in order to avoid sanctions so that they could sell the fuel that they have and then they can take that money and then they can 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 that 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 have already changed flags to somewhere else. | ||
| So when we went to Panama, we met with the Panamanian President. | ||
| And I must say that we were very impressed because 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 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. | ||
| If you would keep working on that, because that's a big deal, and 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 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? | ||
|
unidentified
|
At the FMC, it is not our area of expertise. | |
| We would leave that to the military experts. | ||
| I will just say that to me, an economic threat is a military threat. | ||
| I mean, directly, but it is. | ||
| It is what you are directly asking. | ||
| At the Federal Maritime Commission don't have that area. | ||
| Chairman? | ||
|
unidentified
|
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 in Panama, for example, they have barbed wire around the camps. | ||
| So we really don't know who's in the camps. | ||
| And I think that, to me, causes me more concern on who's in the camp and what are they doing. | ||
| So these are actually sometimes thousands of workers that are brought in, for example, for the bridge or to do a port or something like this to undercut the local labor. | ||
| 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? | ||
|
unidentified
|
Yes, we definitely need to watch economics. | |
| The United States has left a void there. | ||
| We really have not been competitive in Panama and hopefully that we can be. | ||
| Okay, and I've got just a few seconds. | ||
| So this bridge, we've brought this up a couple of times, the possibility of this bridge being damaged and closing canal. | ||
| But it reminds me of going through TSA at a suitcase going through the TSA. | ||
| Is there any reason that China can't watch or do whatever they want from this bridge to see get the intel from these containers? | ||
| And does that concern anybody? | ||
|
unidentified
|
Well, it definitely concerns Southern Command because they brought it up on numerous occasions that there could be some sort of surveillance or something like that on the bridges. | |
| Okay, I yield my time. | ||
| Thanks, Mr. Chairman. | ||
| Thank you. | ||
| Senator Moreno. | ||
| First of all, thank you, Chairman, for putting this hearing together. | ||
| I think it's very timely. | ||
| Mr. Sola, I heard you say that it kind of rang in my head. | ||
| You've navigated the canal 100 times. | ||
| I mean, you have pretty good experience. | ||
| I want to turn the testimony a little bit different direction. | ||
| You obviously haven't been there that much. | ||
| Tell me for the testimony. | ||
| What are the people of Panama? | ||
| You obviously have 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? | ||
|
unidentified
|
Senator, I have many friends and family and professional relationships in Panama, and the bond between the United States and Panama is very deep. | |
| It's almost like the United States and Great Britain, for example. | ||
| The Panaminians love baseball. | ||
| They love basically a lot of the same things that we do. | ||
| The people are absolutely wonderful. | ||
| Now, they've suffered through catastrophically bad leaders, especially today, the President of Colombia, Petro. | ||
| We don't have to go down that path. | ||
| But here's what I'd ask you: obviously, we understand about shipping. | ||
| We understand the issues of trade, and that's been well documented. | ||
| I think that the treaty is clearly in violation. | ||
| There's no question about that. | ||
| In fact, Mr. Chairman, I'd like to see us speedily get to a point where we get a resolution allowing the President to renegotiate that or cancel that treaty. | ||
| But here's 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's 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 don't 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? | ||
|
unidentified
|
Senator, the Darien Gap is one of the most dangerous treks 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 very bad things happened to them through there. | ||
| On transnational gangs, I mean, anytime that there's money in a black market, they're going to go ahead and they're going to fill that void. | ||
| So hopefully, as I understand, the Darien Gap is not being utilized very much right now because people are coming to the United States and now cannot come in. | ||
| Right. | ||
| But the point of business, what is the impact on maritime activity there? | ||
| In other words, security, Mr. Cramick, has got to be an issue for your members. | ||
| And having that increased presence of transnational gang activity, drug trafficking, you're 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? | ||
|
unidentified
|
Senator, it's something we work hard on every day. | |
| The World Shipping Council is 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's anomalies to those customs officials and law enforcement authorities to action it. | ||
| A lot of it, 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. | ||
| And of course the point I'm making is that China's influence there, whether we want to make it a technical question as to what control means, it doesn't 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. Sol, 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? | ||
|
unidentified
|
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 haven't had the DOJ go ahead and have 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. | ||
| And just one quick follow-up. | ||
| So if the U.S. took control back of the canal, if that territory was completely controlled, protected by the United States of America, what influence could we have in solving a variety of problems, the shipping ones that we've talked about, but also having 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? | ||
|
unidentified
|
Well, I can say this, that that is probably one of the top contraband areas in the world just because of its geographical location and the amount of containers that they move. | |
| So I think any time that we can lower the amount of contraband being distributed around the world, we'd be doing a good service. | ||
| So, Mr. Chairman, like I said earlier, we ratified that treaty here in the United States Senate. | ||
| I'd love to see us de-ratify it. | ||
| Thank you. | ||
| Senator Capito. | ||
| Thank you, Mr. Chairman. | ||
| Thank you all for being here today. | ||
| Really interesting hearing. | ||
| In the year 1913, 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 Sol, 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 assure that our state's energy exports are actually getting where they need to go when they need to get there? | ||
|
unidentified
|
That's 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 1 or 2 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. | ||
| Let me ask this probably quite simple question, is why would they be in opposition to putting more fresh water in the canal? | ||
|
unidentified
|
I don't believe, well, the Canal Authority is awesome. | |
| It sounds easy, so maybe it's not quite as easy. | ||
|
unidentified
|
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. | ||
| So what they have to do is a major infrastructure project to go ahead and pull that water in. | ||
| And 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. | ||
| Is that the $900 million infrastructure package I referenced? | ||
| Is that the same project? | ||
|
unidentified
|
I believe it is, the Rio Indeal? | |
| Yes. | ||
| So along with that, the issue going through the canal, not just the offloading or I mean, it's hard to offload coal out of a bulk container. | ||
| I mean, that's not an easy thing to do if you can even do it. | ||
| Is this whole thing about congestion pricing? | ||
| Nobody here from New York, are they, but 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 talk about corruption. | ||
| That to me sounds like you could really be patting somebody's pockets here to be able to jump the line and have a significant effect. | ||
|
unidentified
|
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's a huge amount. | ||
| It also 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 lack of 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. | ||
| 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 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 don't know of any reason to doubt that. | ||
| But that is a big cost. | ||
| And as I said before, it does disadvantage certain kinds of cargoes because they might feel that they are on a ship which doesn't prioritize its time passage as much as other kinds of cargoes. | ||
| I don't know how that affects coal. | ||
| All right. | ||
|
unidentified
|
Thank you very much. | |
| Thank you. | ||
| Senator Shihi. | ||
| 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? | ||
|
unidentified
|
Senator, I could say that prior to the year 2000, the canal had a quick reaction for us 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 don't know what those capabilities or what the planning for that would be. | ||
| So effectively, we don't have a ready response. | ||
|
unidentified
|
But if China or Southern Commando. | |
| I don't like the mindset that's kind of pervaded that there is this far-off hypothesis that you are not talking to military experts. | ||
|
unidentified
|
We are here because it is commercial reasons. | |
| Yeah, but this isn't a military question. | ||
| I mean, if he has driven the canal 100 times and you are a maritime expert, you know, a couple of years ago, as you remember, I think it was the ever-given jackknifed in the Suez Canal. | ||
| That's not a military operation. | ||
| That's a ship that turns sideways. | ||
| So if China chose to, how fast could they close the canal to our usage? | ||
|
unidentified
|
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 Railroad Initiative and having these investments in other countries. | ||
| But yeah, it's not hard to close off a waterway. | ||
| Panama Canal is actually quite vulnerable in terms of infrastructure. | ||
| This is not a fort or militarily reinforced location. | ||
| Now, you are getting to the end of my knowledge of that. | ||
| But no, it would not take long, but I don't know what it has to do with it is not accelerated because they have people at other port, unless you believe that 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's more scientific. | ||
| I don't 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'm not trying to be combative or setting you traps. | ||
| I'm just trying to ask a common sense question, which is we can dance around. | ||
| I'm not an expert in this, I'm an expert in that, but the canal is vulnerable, as we've stated. | ||
|
unidentified
|
I guess, Senator, I'm just sort of saying, why would they bother with a military-like operation when they can get what they want with non-military means? | |
| Exactly. | ||
|
unidentified
|
They can have influence in other ways. | |
| That's the point of the question. | ||
| Is we segregate ourselves artificially in a way that they do not. | ||
| We segregate ourselves. | ||
| Well, let's talk about military. | ||
| Let's talk about intelligence. | ||
| Let's talk about economics. | ||
| China doesn't work that way. | ||
| It's a whole of government approach. | ||
| They don't draw a 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 it pulls into the locks and blows itself up, and now the locks are non-functional for our usage, and we can't support an interocean 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've got Straits of Malacca, we have Suez Canal, we've got Gibraltar, we've got Panama. | ||
| Is that a concern that's thrown around the boardrooms of the largest shipping corporations in the world? | ||
|
unidentified
|
Senator, I think it's something they think about every day. | |
| I mean, really, it's 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's pink flamingos that you can see but you don't 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 to saying all this is we have 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. | ||
| Thank you. | ||
| I'm told Senator Young is on his way, so I'm 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? | ||
|
unidentified
|
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, Moffat and Nichols, all the best consultants in the world. | ||
| And everything was fine. | ||
| When Panama turned over to Belton Roads, they told us that that concession was going to be nationalized. | ||
| Then what they did is they rescinded our concession for the property. | ||
| 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 is going to be for the marina, 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 Commerce Department, they told me to fill out a complaint. | ||
| When I filled out the complaint, I went to my senator at the time, it was Bill Nelson. | ||
| And I remember that I was denied being able to even file a complaint because the land that the Chinese embassy, the land that was going to be used by the Chinese embassy, my environmental permit for the marina, was going to expire in six 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, that we were able to unwind that. | ||
| After about six years, Panama did the right thing and returned the land to my family. | ||
| Very instructive. | ||
| 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? | ||
|
unidentified
|
Thank you, Senator, for the question. | |
| And I grew up in Goodland, Indiana, so that you know. | ||
| Fantastic. | ||
|
unidentified
|
I do believe that 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 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's definitely one of our main concerns. | ||
| Well, thank you. | ||
| I'm 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. | ||
| 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 didn't 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? | ||
|
unidentified
|
I definitely believe that we should support U.S. investment. | |
| And not having an ambassador for so long has been detrimental to us, especially as the case that I just mentioned earlier, where we didn't 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 Roads, where they understand that. | ||
| And I believe that our Ex-M 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 into infrastructure like we should. | ||
| I hope the administration will prioritize this ambassador spot as nominations are made. | ||
| I hope we will prioritize it in the Senate. | ||
| 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. McFay? | ||
|
unidentified
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Yeah, well, Senator, I won't surprise you since you and I served together in the House that I actually am pretty by parson. | |
| I agree 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. | ||
| Blaming it all on Panama really misses the point. | ||
| I've seen the same thing in Greece, where Greece didn't 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 of 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's not necessarily a bad thing, as long as it's 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 are 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's 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're certainly working on that, and we do have that authority at the FMC. | ||
| Thank you, and good to see you again, sir. | ||
| Mr. Kremek, did you have anything? | ||
|
unidentified
|
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. | ||
| Thank you. | ||
| Chairman? | ||
| If I may. | ||
| Sure. | ||
| Sorry. | ||
| I'm on Zoom. | ||
| You spoke about renegotiating the treaties. | ||
| And I think one of the things about treaties as an instrument of governance is they're not very flexible and they don't really have automatic processes typically for easy amendment. | ||
| And I spent before this hearing, I spent a fair amount of time reviewing the ratification hearings in the Senate in 1978. | ||
| And 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. | ||
|
unidentified
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And of course, back then, 1999 seemed very far off. | |
| 2025 seemed a world away. | ||
| And as a result, I think it is useful to revisit treaties and seek to renegotiate them, to update them to sort of current events. | ||
| And of course, the United States has a considerable amount of leverage it can use to seek such additional protocols to modernize these treaties to current events and current geopolitical realities. | ||
| Makes great sense. | ||
| And I'm glad you spoke up. | ||
| Thank you, Mr. Kantorovich. | ||
| Mr. Chairman. | ||
| Thank you. | ||
| I want to ask a couple of follow-ups, and then we're going to wrap up the hearing. | ||
| Commissioner McFay, 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 didn't specify what those were, so I just wanted to ask what you were referring to. | ||
|
unidentified
|
Yeah, I mean, there are certain things we can do as countermeasures, such as sanction Panamanian ships. | |
| They could be Panamanian flagships. | ||
| 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'd like to get back to you in writing. | ||
| I mean, I'm not trying to avoid the question, but I can put the, you know, we can, well, if you don't mind, we'll get together and do a joint answer. | ||
| We'll put where our authority comes from, what we think we can do, and maybe even what we're concerned about or what the limits to that would be. | ||
| Well, and I'll say that this hearing has been a nice bipartisan demonstration of a lot of expertise. | ||
| There's a reason you guys have the role you have because you know what you're talking about. | ||
|
unidentified
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I'm 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. | |
| Maybe the friendliest transition in Washington this week. | ||
| Professor Kontorovich, I want to get back also to the exchange you had with Senator Young, and it harkens back to the opening exchange you and I had. | ||
| We've 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's 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? | ||
|
unidentified
|
What's your judgment? | |
| Yeah, 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 or 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, did not get peace. | ||
| It's 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. | ||
| 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 4th, to submit questions for the record. | ||
| The witnesses will have until the end of the day on Tuesday, February 18th, to respond to those questions. | ||
| And this concludes today's hearing. | ||
| The committee stands adjourned. | ||
|
unidentified
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On Wednesday, President Trump's nominee for Commerce Secretary, businessman Howard Lutnick, will appear on Capitol Hill for his confirmation hearing. | |
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