US official pressures Panama over Chinese businesses near the canal

By Simon Lewis and Elida Moreno

PANAMA CITY (Reuters) - U.S. top diplomat Marco Rubio warned Panama to immediately take steps to address U.S. concerns over Chinese businesses operating ports near the canal, which President Donald Trump has said represent a threat to U.S. national security.

The U.S. and Panama made progress on key migration and business issues during Rubio's visit in Panama City, but failed to find common ground over the Panama Canal's operations, with President Jose Mulino saying his country's sovereignty over the world's second busiest waterway is not up for discussion.

"Trump has made a preliminary determination that the current position of influence and control of the Chinese Communist Party over the Panama Canal area is a threat to the canal," said U.S. State Department spokesperson Tammy Bruce.

Trump has refused to rule out use of military force over Panama, drawing criticism from Washington's Latin American friends and foes alike. In a senate hearing last week, U.S. officials said fines and restrictions on Panamanian-flag vessels entering U.S. ports could be imposed due to the dispute over the canal.

Following his meeting with Rubio, which he said was respectful and cordial, Mulino announced that a memorandum of understanding signed in July with the U.S. Department of Homeland security could be expanded so Venezuelans, Colombians and Ecuadoreans can be returned from the perilous Darien Gap at U.S. cost, through an airstrip in Panama.

Mulino also showed willingness to review some Chinese businesses in Panama, including a key 25-year concession to Hong Kong-based CK Hutchison Holdings, renewed in 2021 for the operation of ports at both entrances of the canal, pending the results of an audit.

The contract has been targeted by U.S. lawmakers and the government as an example of China's expansion in Panama, which they claim goes against a neutrality treaty signed by both countries in 1977.

Panama's government and some experts reject that assertion, mainly because the ports are not part of the canal's operations and have not represented a security issue.

A broad agreement between Panama and China to contribute to China's silk road program, under which the Asian country expanded investment in Panama during previous administrations, will not be renewed, Mulino said.

"We'll study the possibility of terminating it early," he added.

Mulino also said it will be "important" to have face-to-face talks with Trump over key issues.

FIRST TOUR

The U.S. secretary of state is touring Central America and the Caribbean on his first foray in the post as he seeks to refocus U.S. diplomacy on the Western Hemisphere - in part to recruit help in stemming migration toward the U.S. southern border.

The visit also reflects a U.S. desire to counter China's growing economic and political influence in Latin America.

Trump upon returning to office threatened to take control of Panama Canal, built by the United States in the early 20th century and handed over to Panama in 1999, claiming the canal is being operated by China.

China has said it plays no part in operating the canal and that it respects Panama's sovereignty and independence over the waterway.

The canal is operated by the Panama Canal Authority, an autonomous agency overseen by the Panamanian government.

Rubio, a longtime China hawk during his Senate career, said last week that China could use the ports to shut down the canal, a vital route for U.S. shipping, in the event of a conflict between Beijing and Washington.

Rubio has ordered the State Department to put migration issues at the center of its diplomacy with countries in the region. Officials have said Rubio will use the trip to smooth the acceptance of U.S. deportation flights to the region.

(Reporting by Simon Lewis, Elida Moreno and Marianna Parraga; Editing by Will Dunham and David Alire)