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Critical Topics and Their Significance for the UPSC CSE Examination on January 03, 2025

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Why has Trump called the Panama treaty ‘foolish’?

For Preliminary Examination:  Current events of national and international importance

For Mains Examination: GS II - International relations and treaties

Context:

On December 22, 2024, Donald Trump threatened to take back the Panama canal, calling the transfer treaty “foolish”. He said, “Our Navy and Commerce have been treated in a very unfair and injudicious way....we will demand that the Panama canal be returned to us, in full, and without question.” Panama’s President José Raúl Mulino rejected Trump’s threat, and said, “I want to express precisely that every square metre of the Panama canal and its adjacent area belong to Panama, and will continue to belong to Panama.”

Read about:

Panama Canal

US-Panama treaty

Key takeaways:

Why is Trump concerned about Panama?

• The main source of the U.S. President-elect's frustration lies in the steep transit fees charged by the Panama Canal Authority (ACP) for American vessels. In 2023, severe droughts affected the water levels in Lakes Gatun and Alhajuela, which are critical to the canal's lock operations. This led the ACP to reduce the number of crossing slots for ships by 36%, resulting in higher transit costs.
• Another significant concern is the growing Chinese influence in the region. Since Panama signed onto the Belt and Road Initiative (BRI) in 2017, Chinese investments in the area have surged. Hutchison Ports PPC, a subsidiary of a Hong Kong-based firm, now manages two ports near the canal’s entrances. This has raised alarm about China's potential control over logistical operations and its capacity to monitor U.S. naval activities.

What is the U.S.-Panama Treaty?

• The Panama Canal, an 80-kilometer artificial waterway connecting the Atlantic and Pacific Oceans, is vital for global trade, facilitating 6% of the world's maritime commerce. Constructed by the United States and opened in 1914, the canal symbolized U.S. technological achievement and economic influence.
• Control of the canal was transferred to Panama on December 31, 1999, under the Torrijos-Carter Treaties. The first agreement, the Panama Canal Treaty, annulled the Panama Canal Zone and officially handed over canal operations to Panama. The second, the Permanent Neutrality Treaty, designated the canal as a neutral waterway open to all nations, while granting the U.S. the right to safeguard its neutrality and priority access in military emergencies.

How has Panama responded?

President José Raúl Mulino has refuted Trump’s allegations, defending Panama’s transit rates and the operational independence of the canal. He explained that transit fees are determined through a formal process based on international standards. Mulino also denied any foreign interference, including from China or the European community, emphasizing Panama’s sovereignty. Addressing claims of Chinese soldiers operating in the canal, he categorically stated, “There is not a single Chinese soldier in the canal, nor will there ever be.”

What lies ahead?

Despite Mr. Trump’s threats, the issues related to fee increases and logistical challenges are expected to be resolved through diplomatic negotiations. While the U.S. might exert pressure on Panama to renegotiate, Panama is likely to seek international support to reinforce its sovereignty. Meanwhile, China has responded to the controversy, with Foreign Ministry spokesperson Mao Ning describing the canal as a remarkable accomplishment for the Panamanian people and reiterating China’s respect for Panama’s sovereignty