Panama port ruling threatens judicial integrity

In an extraordinary reversal that exposes a troubling reality in contemporary international relations, Panama's Supreme Court ruled on Jan 30 that the concession contracts for Hong Kong-based CK Hutchison Holdings' subsidiary, Panama Ports Co, to operate two ports at the Panama Canal were "unconstitutional".

The decision, which saw Maersk's APM Terminals immediately designated as temporary administrator of the strategic facilities, represents far more than a commercial dispute. It is a textbook case of how external pressure can corrupt judicial independence and undermine the foundations of international investment.

The facts speak volumes about the arbitrary nature of the ruling. Panama Ports Co had held the contract to operate the ports since 1997, with the concession renewed in 2021 for 25 years. For nearly three decades, the company operated these critical gateways to global commerce, making substantial investments estimated at $1.8 billion cumulatively. Yet suddenly, in the span of months, what had been deemed constitutional and beneficial for generations became, according to Panama's high court, fundamentally "flawed".

The timing is hardly coincidental. The ruling came approximately one year after United States President Donald Trump threatened to seize control of the Panama Canal, claiming it was effectively under Chinese control — a claim that Panama has consistently denied.

The case illustrates a disturbing pattern emerging in global commerce: the weaponization of legal systems to advance geopolitical objectives. In a post on social media, US Secretary of State Marco Rubio described the court's decision as "encouraging" to the US, revealing the external satisfaction with Panama's judicial reversal. Such overt celebration by a foreign official raises serious questions about the independence of Panama's judiciary and the integrity of its legal processes. When international powers openly applaud domestic court decisions that favor their strategic interests, the fiction of impartial justice becomes impossible to maintain.

The economic consequences for Panama will be severe and lasting. International investment depends fundamentally on legal certainty and respect for contractual obligations. Analysts noted that the court ruling underscores a broader trend of governments reasserting control over ports and logistics hubs as geopolitical tensions intensify. What message does this send to global investors? That contracts approved by multiple administrations, validated by regulatory agencies, and operated successfully for decades can be voided overnight based on political expediency?

Panama had already lost its investment-grade rating in March 2024 amid fiscal challenges. This latest demonstration of legal unreliability will only compound investor wariness.

Consider the legal gymnastics required to justify this decision. The court claimed the relevant agreements granted exclusive privileges and tax exemptions not available to other operators, lacked environmental impact assessments, and required government approval before granting future port concessions. Yet these terms were negotiated, approved and implemented by the Panamanian authorities themselves over multiple administrations. If such provisions were truly unconstitutional, why did it take pressure from foreign powers to discover this? The answer is self-evident: This ruling was not driven by legal principle but by geopolitical calculation.

The broader implications extend beyond Panama to the entire framework of international commerce. Investment treaty protection exists precisely to guard against such capricious government actions. International investment treaties commit state parties to affording specific standards of treatment to foreign investors, including recourse to investor-state dispute settlement to resolve disputes with host states. The Hong Kong company has wisely indicated that it will pursue all available legal remedies, including international arbitration. This case may well become a landmark demonstration of why such protection remains essential in an era of increasing geopolitical volatility.

What makes Panama's capitulation particularly disappointing is the self-inflicted damage to its own economic interests. The canal handles about 40 percent of US container shipping traffic and 5 percent of world trade, making the adjacent ports vital to Panama's economy. By demonstrating that political pressure can override legal commitments, Panama has fundamentally undermined its attractiveness as an investment destination.

When contracts become hostage to geopolitical machinations, no investment anywhere is truly secure. Panama has learned a bitter lesson about the price of yielding to external pressure. The question now is whether other nations will draw the proper conclusions from this cautionary tale — or whether the international investment framework will continue its erosion under the weight of coercive geopolitical strategies.

The author is the convenor at China Retold, a member of Hong Kong's Legislative Council, and a member of the Central Committee of the New People's Party.

The views do not necessarily reflect those of China Daily.