>> good morning.

welcome to the senate committee on science, commerce, and transportation. we are here to examine a monument to american ingenuity. the panama canal. senator marino suggested we open the hearing by playing van halen

and panama. we may not do that. between the american construction of the panama canal , the french effort to build a canal, and america's triumphant completion of that canal the major infrastructure projects across panama cost more than 35,000 lives. the final decade of work on the canal the united states spent nearly $400 million, the 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 given away to panama urchins were puzzled, confused, and many outraged.

with the passage of time, many have lost sight of the canals importance 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 stopped. the panama canal was not just given away. president carter struck a bargain, he made a treaty. president trump is making a serious argument 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. the danger of china exploiting or blocking passage through the canal. number two, the exorbitant cost for transit. chinese companies are building a bridge across the canal at a

slow pace so as to take nearly a decade. chinese companies control container ports at either end. the partially completed bridge gives china the ability to block the canal without warning. the ports give china ready observation posts to time that action. this risks for u.s. national security. meanwhile baha'i fees for canal transit disproportionately affect america -- meanwhile the high fees for canal transit disproportionately affect americans. u.s. naval vessels pay fees that apply only to warships. canal profits regularly exceed $3 billion. this money comes from american taxpayers and consumers in the form of higher costs for good. american tourists aboard cruises

, particularly those in the caribbean are captive to any fees panama chooses to levy for canal transit and they have paid unfair prices for fuel bunkering and terminals in panama as a result of government granted monopoly. panama was government relies on these fees. nearly 1/10 of its budget is paid for with for now profits. as those fees cascade through the american economy, the chinese communist party advances its global economic contest against united states and takes a militaristic interest in the canal. while president trump has 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. the only comfort to delayed and overcharged ships as 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 flagged dozens of vessels in the iranian coast fleet, which brought iran tens of billions of dollars in oil profits to fund terror across the world. in chinese companies that won contracts, often with unfair competition. china often engages in debt trap diplomacy to enable economic and political coercion. in panama it seems to have exploited corruption. we have four panelists with us today. at ranking member cantwell's request we also invited the deputy minister of the panama canal to attend. she declined the invitation. the 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 applied to compel her testimony at a future hearing. it will not escape centers notice that a professor is appearing virtually. 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 was unable to because too few american carriers have resumed direct flights to israel's while european airliners willing to flight israel, israel is americans closest ally in the middle east and u.s. carriers are refusing to fly there. delta airlines announced it would finally restart direct flights to tel aviv in april and i hope united airlines and american airlines will 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 can now and the threats to american interests. we cannot afford to let american shippers be extorted, we cannot turn a blind eye of panama exploits an asset of michael commercial and military importance and we cannot stay idled by -- we cannot stay idle while china is on the march in our hemisphere. i expect that hemisphere -- i turned to ranking member campbell for her opening statement. sen. kim: ball -- sen. cantwell: access to the panama canal is essential. ensuring our national security. with about 72% 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 an international terminal in panama is our largest u.s. logistics presence been panama with 3.9 million cargo containers and employing over 1000 people. washington's maritime economy supports 170,000 jobs and $45 billion in revenue and are u.s. maritime economy supports 21 million jobs in almost $3 trillion and america's gdp. anything our committee can do to help grow our maritime economy i am offer. that is why -- i am all for. that is why it is important the committee focus not just on panama but on broader solutions to meet our maritime opportunities and challenges. this committee passed the ocean

shipping reform act led by our colleagues to address shipping costs and stop carriers from practices that delete u.s. cargo or influence cost. this also gave our commissioners here today the ability to do better investigations. i look forward to hearing about their investigation on the panama canal and these cost issues. many member of this committee have worked on the infrastructure bill to do dock replacements in places like alaska, rail improvements, safety improvements, container expansion come and i know my colleagues who represent these maritime investments need a maritime workforce and continued investment. many of our college so great ideas. senator kelly from the senate. the representatives from the house. they've been working with maritime stakeholders on these larger bills. mr. chairman, if this committee does not embrace the larger

agenda it will get decided in the finance committee. i hope we can get some of these issues and show this committee is the committee for maritime jurisdiction. a build up requires a comprehensive strategy to rebuild america supply chain supremacy, sea lift capacity we need to defend our interests in the south china sea and the indo pacific come into revitalize our nation's ports and shipbuilding capacity. a revitalized maritime strategy will 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 the proximity to the canal. i am also deeply concerned about the installation of equipment from chinese companies near the canal. this is why this committee work to get $3 billion at the end of

the last congress. if we are trying to get them out of u.s. ports in areas we should not allow them in vessels in backdoors in places like panama. i would like to ask unanimous consent a letter from the recent u.s. ambassadors to panama who make the case for continued u.s. investment in infrastructure and cybersecurity. chair cruz: without objection. sen. cantwell: these ambassadors know better than anyone that america's ambassadors have built backdoors -- that america's enemies have built backdoors into technology and supply chains in software and hardware. whether it is a crane over the port or a bridge we cannot tolerate huawei, tiktok, other artificial intelligence using a government backdoor. i am a big fan of the five technology interest in basic democracies forming a technology nato.

nobody should be buying technology or equipment that has a government backdoor. these are complex issues and we need solutions. i will be requesting the department of defense provide a classified briefing to all members of our committee about four and seri 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 leaders 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, but the larger issue is we need to understand what other shortfalls of the current agreement that does not get at

this upgraded technology concern. i would hope panama would be very cooperative in discussing these cybersecurity investments and what needs to be made. the panama can now is independent -- the panama canal is independent and the chinese government do not start the shipping rates, but the authority has been grappling with historic rainfalls, climate change, the solution is for us to work together as the army corps did before on solutions and making sure instability in water is not the cause of an increase in rates. mr. chairman, i also believe the larger issue as you mentioned in your statement about belt and wrote initiatives by the chinese and their expansion needs to be met with an aggressive response by the united states. easy for me to say or maybe for texas when you're coming from a trade-dependent state.

the issue is we did not have an ambassador for five years in panama. for all of my colleagues who hold up ambassadors, you should rethink your strategies. holding up ambassadors 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 a like-minded thing of latin america's that we can join together in sort of u.s.-mexico canada free trade agreement and i believe that a free-trade agreement of the americas that link modernization of all of our fdas in latin america and the caribbean would help along with an aggressive strategy on saying no government backdoors on making the kind of invest boards -- investments the export impact

-- making the kind of investments the export impact -- boost exports, lower consumer costs, most importantly protect our national security. thank you. chair cruz: thank you senator cantwell. our first witness is the chairman of the federal maritime commission. he was recently in panama on a fact-finding mission and can speak to concerning abutments i noted in my opening statement. you are recognized for five minutes. >> thank you two distinguished members of the committee. thank you for the opportunity to speak about the critical importance of the panama canal to u.s. trade and global commerce. i bring a unique perspective as someone who is not only served as a maritime regulator but has lived and worked extensively in panama. i have transited the canal over 100 times. this provides me with a profound understanding of the canals significance and challenges.

our long drought conditions last year forced changes, reducing transit slots, restricting vessel types and auctioning slots raising alarm about its resilience. the panama canal is managed by the panama canal authority, an independent agent of the panamanian government. it is a model of safe and reliable transit of vessels critical to the u.s. and global commerce. during my recent visit to panama i the opportunity to meet with leaders of the acp press the ongoing challenges facing the canal. i saw their commitment to maintaining the canals 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 raised concern

about corruption and foreign influence. the broader maritime sector in panama, including the nation's ports, water rights, the world's largest ship registry all serve under the direct purview of the panamanian government. the sector has faced challenges including corruption scandals and foreign influence, particularly from brazil and china. these issues great 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 come under u.s. law both the acp and the government of panama's maritime sector are considered the same. this means any challenges in panama's maritime sector including corruption 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

diligence and monitoring the acp's management and panama governments policies affecting maritime operations. since 2015 chinese companies have increased their presence and influence throughout panama. panama became a member of the belt and road initiative and ended its relations with taiwan. chinese companies have been able to pursue billions of dollars of develop meant contracts in panama, many of which were projects on adjacent to the panama canal. many were no-bid contracts, labor laws were laid -- labor laws were waived come in the panamanian people are waiting to see how they are benefited. it is more concerned many of these companies are state owned and late to the people's liberation army. we must address the growing presence of china throughout the americas and panama city. american company should play a leading role in enhancing the

canals infrastructure by supporting u.s. firms. we reduce reliance on chinese contractors and promote fair competition. confirming a u.s. in panama is critical to advancing our national economic interests. the fmc will continue to monitor the canals pricing practices and consider brought reviews of panama's maritime sector. the fmc has the authority to impose significant revenues, including fines and restrictions on panamanian vessels entering u.s. ports. the panama canal is vital to our economy. 75% of its traffic is bound for our ports. safeguarding the acp's independence in 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. chair cruz: thank you. our next witness is commissioner daniel lafave of the federal

maritime commission. he was also in panama with chairman sola. >> thank you so much chairman cruz and ranking member cantwell. in addition to chairman sola and myself of commissioners here from the federal maritime commission which underscores the importance of the issue to us. where than 110 years after its opening the panama canal remains vital to maintaining resilient supply chains for american importers and exporters. because the canal is essential a waterway bridge over mountainous terrain it does require supplies of freshwater. panama has among the world's largest annual rainfall, nonetheless insufficient freshwater levels have occurred before in the canals history such as in the 1930's when dams built to address water shortages. in the last couple of years a trend of worsening droughts in

the region has forced limits to the operations of the canal. starting in june 2023 the panama canal authority reduce the number of shifts allowed to transit the canal per day. the panama canal limitations in combination with the defective open -- with the fact aero closure of the suez canal to traffic has had impacts on traffic. in the first half of 2024 u.s. importers and exporters expressed upon a mock canal related concerns to the fmc including doubts about the future reliability of the canal and questions about how the panama canal authority would determine which ships transit the canal. the fmc has transit -- has authority to take appropriate counteraction if it finds a foreign country has contributed to conditions unfavorable to shipping in the foreign trade. given the statutory mandate and condition with fmc's mission in

commissioner sola looked into the issues affecting the put out. about what was being done to address these concerns and about whether aspects of the canals operations might result in conditions unfavorable to u.s. shipping that should be addressed under the commission's authority. we traveled to panama in july 2024 and met with the recently elected president and officials in his administration we also met with a panama can now authority as well as private sector stakeholders. we had candid discussions on issues such as panama's plans to ameliorate the water issues, the bidding issues, and our concern the canal authority was bringing in far more revenue during the crisis than it had before it limits were forced by water shortages. both the government of panama at

the canal authority did answer our questions substantively. the canal authority informed us they were already making changes to that allocation system. panama's 2024 rating season has for now alleviated the most acute water supply issues in 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 it is likely at least one more period of reduced transit will occur before the plants can be fully implemented. the fomc has continued to monitor panama's progress on this front. i have continuing concerns about the auction light slot allocation procedures. not as they are applied right now, but when another low fall rain 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 imports and exporters the commission remains position to take appropriate action if warranted. how the panama canal's operations affect american commerce is a high priority for the upper room c under my chairmanship and remains a high priority at the federal maritime commission and i am pleased it is a priority for this committee as well. chair cruz: thank you, commissioner. our next witness is a law professor who can explain panama street he obligations and the remedies the u.s. might seek for potential violations. the professor is appearing virtually and you are recognized for your opening statement. >> chairman cruz, ranking member cantwell, 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 between the two countries in 1977. i should say at the outset that determine whether a station -- whether a situation violates a treaty is a mixed question of law and fact pretending -- depending on the meeting of the treaty. i will speak about the meaning of the treaty. we shall see that under international law each party to the treaty is determined whether a violation has concerned -- has occurred. in exchange the united states ceding control of the canal panama agreed to a special regime of neutrality. the essential feature is the canal must be open to all nations for transit. that is article two. and exclusive panamanian operation and the prohibition of

any foreign military presence. article five provides that only panama shall operate the canal, testifying about the meeting of the treaty and the senate ratification hearings. the carter administration emphasize this prohibits for operation of the canal as well as the garrisoning of foreign troops. article five appears to be concerned about control by foreign sovereigns. panama signed a treaty with the people's republic of china, this would be a clear violation. what if panama contracted for port operations with the chinese state firm or a private firm influenced or controlled by the chinese government? the suez canal company was itself a private firm in which the united kingdom was only a controlling shareholders. this was understood to represent british control over the canal. in other words, a company need

not be owned by the government to be controlled by the government. the real question is the degree of two sure or defective control over a sovereign companies and scenarios range from companies in an authoritarian regime to purely private firms in an open society like the united states where there are many possible situations in the middle. the treaty is silent on the question on how much control is too much and this is one of the many questions committed to the judgment and discretion of each party. turning to foreign security forces, the presence of third country troops would manifestly violate article five, but this does not mean 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 are not representative in open military formations. modern warfare has seen powers seek to evade legal imitations

by disguising their actions in civilian garb. from russia's notorious little green men to hamas terrorists hiding in hospitals or disguised in journalist, bad actors seek to exploit the fact that international treaties focus on sovereign actors. many of china's man-made islands begin a civilian project before being militarized. this issue is discussed in senate ratification hearings. informal forces would be prohibited under the treaty. thus the civilian character of the chinese presence does not mean it cannot represent a violation of the treaty if these companies and their employees involved chinese covert agents or other agencies of chinese security forces. 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, neutrality treaty has no such provision and instead makes clear that each party determines for itself the existence of a violation. article four provides each party to separately authorized to maintain neutrality, making a separate obligation of each party. the senate's understanding accompanying ratification also made clear that article five allows each party to take unilateral action. senator jacob javits at the markup hearing said that while the world -- while the word unilateral is abrasive we can decide that neutrality is being threatened and asked whatever means are necessary to keep the canal neutral and unilateral. i look forward to your questions. thank you -- chair cruz: thank you. our final witness and discuss the challenges faced by

container lines moving goods to or from america through the panama canal. you are recognized for your opening statement. >> thank you chairman cruz, ranking member cantwell, and members of the committee. my name is joe kramek and i am president of the world shipping council. our membership consists of 90% of the worlds shipping tonnage. they operate on fixed schedules to provide our customers with regular service to ship their goods in throughout the world. our focus is on sustainable and secure international ocean transportation. nothing could be more important to the u.s. economy and member lines who carry the trade that supports the u.s. economy than a sustainable and secure panama canal. as you have heard using the panama canal to transit between the atlantic and pacific saves time and money. a typical voyage from asia to

the u.s. east coast to be made in 130 days using the canal while the day can take up to 40 days if they must take alternate routes. the big picture is this. one of the busiest trade lanes is the transpacific. the transpacific is cargo going to asia via the united states. focusing in, cargo from asia and bound for u.s. east coast ports always transits the panama canal. 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 almost always transit the panama canal. 75% of canal traffic originates in or is bound for the united states. examples include the port of houston ships exports, 14 billion in container trade to

asia. new orleans exports 27 billion in trade to asia, not all of which is on container vessels. the port of new york and new jersey exported 16.5 billion in 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 trait. global ocean trade is always facing challenges in the panama canal is no exception. we have talked about the drought in 2023 and the historic low water levels that it caused. a unique system that is a freshwater feed as contrasted to an ocean to ocean system which the french tried and failed which is active in the suez canal. these low water levels reduced transits from 36 a day to as low as 22 per day. additionally the low water levels require the reduction in

maximum allowable draft levels or the depth of the ship below the waterline which for our members reduce the amount of containers that can carry through the canal. this resulted in a 10% reduction in import volumes for u.s. golf and east coast ports with the port of houston experiencing a 26.7% reduction. looking forward, the volume of container trade into the united states remains a near record levels and continues to expand. train 24 numbers are just out at the impound trait to the 15%, which is second only to 17.5% inbound traffic we experienced during the pandemic driven demand. just yesterday the port of houston reported record-breaking trade volumes with an 8% increase. wse member lines have transported goods to and from u.s. ports which represents 60% of all seaborne trade and

contributed to trillion dollars in economic outputs to the united states, supported 6.4 million u.s. jobs and over 440 $2 million in wages and salaries. these goods are the clothes on your back, the shoes on your feet, and the phones in your hands. wsc members work with the committee. the record number of cargo our members continued to. demonstrates our commitment. we appreciate the committee's continued support and commitment to the liner shipping industry, the u.s. maritime industry, and i look forward to answering your questions. thank you. chair cruz: we will now move to questioning. are you aware of allocations from some vessel operations of disparate treatment, such a sweetheart deals or favorable rebates by panama for canal transits?

mr. sola: we have become aware through complaints by cruise lines who said they were not getting a refund of the canal tolls. when we looked into this we found an executive order that specifically says if a cruise line would stop at a certain port they could be refunded 100% of the fees. as far as ido that is the only instance -- as far as i know that is the only instance where that exists. mr. maffei: we continue to look into it. cruise ships is the one area where we have something that did that. chair cruz: 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, can you describe how the fmc views the canal in the panamanian government? are they distinct entities or a

single government apparatus? mr. sola: our law is clear and comes from the reading act of 1920 that there is only one entity. it addition to that our predecessor at the federal maritime commission was formed in 1916 in direct result of the panama canal. the very first chairman of that was the first administrator of the canal. we look at it as one entity. mr. maffei: i might just add it is like the georgia ports authority in the state of georgia. the georgia ports of party is clearly -- the georgia ports authority is fully independent but ultimately georgia is responsible. chair cruz: panama was the 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 part traffic and light rail. chairman sola, why should

chinese construction of a bridge near panama city concerned the united states? mr. sola: we all saw the tragedy that happened at the francis scott key bridge incident and the devastation that happened to baltimore. we also saw what happened in the suez canal when we had a ship get stuck. it is not only the construction of the bridge by the removal of a bridge called the bridge of the americas built in 1961 and that would paralyze cargo traffic. chair cruz: panama also recently renewed the concessions for two container ports to a chinese company. chinese companies are controlled by the communist party. how does china use control of those ports for economic gain? mr. sola: i am a regulator in the chinese ports you are referring to, let me put them in the scope, the one on the

pacific is the same size as the port of houston and they do about 4 million containers a year. the one on the atlantic is the same as my hometown of miami. they do it by one million containers. where the port of houston generates $1 billion a year in miami does about $200 million the panama ports company paid zero for 20 years on that concession. it is hard to compete against zero. that is our economic concern we would have. chair cruz: anything to add on that? mr. maffei: i also think it is important. i would point out you do not have to stop in either port. it is not like the ports control the entrance to the canal. however i think it is of concern. i would also point out that the panamanian government thinks it is of concern because they are

conducting their own audit. we remain interested as well. chair cruz: kontorovich professor kontorovich i want to turn to the treaty. president trump has made important arguments that chinese control over canal infrastructure and exorbitant fees charged for canal transits are violations of neutrality treaty. i want to highlight three specific provisions. article four requires united states and panama to establish and maintain "a regime of neutrality." article five 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 territory." an article 31 c requires that "tolls and other charges he just, reasonable, equity and consistent with the principles of international law."

in your opinion could the facts discussed here because her violations of the neutrality treaty enforce right now between the united states and panama? prof. kontorovich: i think potentially they could. it is impossible to say definitively without knowing more, in particular about the degree of chinese control and involvement in these companies. it is important to note that these port operation companies that operate the ports, when they receive their first contract it was just a few months before hong kong was handed over to china. they received them as british companies a few months before the handover. since then hong kong has incorporated -- has been incorporated into china and placed under a special national security regime and the independence of those companies have been greatly abridged, to say nothing of state owned companies involved elsewhere in the canal area which raises

significantly greater questions. additionally i should point out the understanding between president carter and the panamanian leader which were attached to the treaty and form parts of the treaty provide the united states can defend of 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 closed by some act of sabotage or aggression which would be devastating to the united states. there is some incipient ability to address potential violations. chair cruz: your final point leads to my last question which is that if the united states determines panama is in violation of the treaty, what is the range of remedies united states would have for that treaty violation? prof. kontorovich: i think it may be shocking to people think here today, but when one goes over the ratification history

and the debates and discussions in this body over the treaty it is clear the treaty was understood over giving both sides the right to use armed force to enforce the provisions of the treaty. it is not surprising when one understands the united states made an extra ordinary concession to panama by transferring this canal which the united states built and maintained and operated to panama gratis and in exchange it received a permanent limitation on panamanians sovereignty that panama agreed the united states could enforce this regime of neutrality by force. armed force should never be the first recourse for any kind of international dispute and should not be arrived at rashly or before negotiations are exhausted. it is clear that the treaty

counterpoints that as a remedy for violations. chair cruz: thank you very much. ranking member cantwell. sen. cantwell: thank you chairman. i think costs are critical. we are discussing costs. consumers pay more when shipping costs are higher, whether our farmers are trying to export products as we saw during covid or our products are getting left on the docks. importers are paying more if shipping costs are too high. when we look at these incidents we now see in our supply chain and we had our own incident in seattle where the container ship lost power and was careening towards our big ferris wheel in the downtown right next to our terminal. luckily the passenger friendly vessels were able to push the tug from out of the direct path

of severe devastation. now we mention the suez canal, we mention baltimore, we have our seattle experience, what do we need to do to make sure on the cost side that we are not -- that we are making the right investments from a security level to make sure these kinds of incidents that can do great harm to not happen. commissioner sola, since you are at u.s. southern command, what you think we need to do to renegotiate or have a conversation with the panamanians about the security level we think needs to exist in panama with this close proximity and mr. maffei, will the audit lead to a discussion with panama about those contracts? 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. we should engage to get this right on the cost side and the security side. if i can just hear your comments on each of those? mr. kramek: even one incident is unacceptable. our members work from initially heart of the international maritime association and the u.s. and other entities to try to have the safest operations possible. accidents do occur. they are rare if you count the number of port visits a year. what is unacceptable. continued investment in u.s. infrastructure and a review. we have a lot of old infrastructure as the tragic incident in baltimore illustrated. we have these bridges that need a look as to whether or not they

need additional federate systems and the like -- additional fetterign systems and the like. our members continue to invest in the latest technology. we have over 600 new ships on order with some of the latest technology in the world. we are playing our role. sen. cantwell: and i want the u.s. to get a big portion of that. commissioner sola, what about a new u.s. southern command, u.s. government conversation with the canal authorities and the government about the security level we seek? mr. sola: thank you very much. the airborne weighing i am wearing his decorative. i've not worn a uniform and 35 years. this is my personal experience. i believe the security of the canal has always been understood

to be provided by the united states. panama models not have a military and i believe there is 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 do not believe it is in the treaty at all. sen. cantwell: so formalization of a cybersecurity agreement. you have accidents and then you have larger cybersecurity issues you have to be on top of. what i did not like about anybody that has a backdoor is i am for the united states advocating to not buy from people who have a government backdoor. what will you do? at some point you will regret that. commissioner maffei, what about this audit and could we push panama on these issues of looking at closer u.s. infrastructure instead, particularly since the seachange

is what everybody said. everybody thought this was hong kong and then it turned into china, we do not have an ambassador after that and when they made more aggressive postures, they are aggressive postures everywhere and that is why the united states is saying no government backdoor is in china and getting five other democracies to say the same thing and evangelize that every day will help us. what about getting the business or some of that back in a proximity under the audit? mr. maffei: the panama comptroller's office is investigating contracts at panamanian warts. we do not have jurisdiction over panamanian boards -- overpay dominion ports per se. both of us heard many times that the panamanians would welcome u.s. companies coming in and doing a lot of this work. their bids are not competitive with the chinese bids.

they are not that existed because the u.s. companies can make more money doing things other places. even if they were existed it is difficult to put into competitive bids when the chinese bids are subsidized by china. this is a problem and a problem in many areas of the world we could get into if you want. sen. cantwell: my time is expired but my major point is let's be a big maritime powerhouse, let's re-invite allies -- let's revitalize our supply chains, drive down costs for consumers comments appear what we need to secure. chair cruz: thank you senator cantwell. commissioner maffei, you said the chinese bids were heavily subsidized by the chinese government. what with the chinese government incentive to be to subsidize those bids? mr. maffei: china has made no secret of its ambitious policy to gain influence imports

throughout the globe. it runs a majority of 17 ports. that does not include this hong kong company. that is just direct chinese owned ports. it is been a part of their belt and road strategy, the maritime silk road for decades. they believe this influence, this investment in owning maritime ports is important to their economy. chair cruz: senator fischer? sen. fischer: 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. did 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 is more your purview. mr. sola: both of those ports were redone for 25 years until 2047. they have to pay $7 million is what the rate is for the port of houston and the port of miami sized concessions. sen. fisher: can it can't be rebid until after that date? mr. sola: i believe 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 called for an audit for that immediately. sen. fisher: but you are talking

about how to incentivize companies from the united states to participate in a bid process that does not seem to be reasonable and do you think the panamanians would welcome viable alternatives? are we in that position? mr. maffei: this is outside this though before the federal does. having looked at this issue carefully it is very important. senator cantwell just mentioned xm bank programs. this is not been a huge priority of the united states to try to match these bids and create programs widely available to u.s. firms in order to put together more competitive bids

and these companies where some of the domestic laws require you go to the lowest bidder sometimes. 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 would be investing in infrastructure at 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. sen. fisher: you mentioned invested in infrastructure. i was at the panama canal in 2023 and i learned about the loss of freshwater with each ship movement through the canal. you talked about the drought in your opening comments. freshwater is vital to the

workings with the canal. how effective do you think investment increasing that freshwater storage are? are they happening, are they viable? you touched on it in your opening comments. how do we see those investments happening so we can have operational stability? mr. maffei: it is a good question. there are several investments, there is water reclamation. the main player the u.s. army corps of engineers has helped the panamanian authority development involves another basic expansion of bringing in more water and an elevation you could then use to continue the canal. there are 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. it is viable. in that part of the world you can make more freshwater available to make the canal not be limited. it takes time and there'll be one more incident of severe limitations before that occurs then we get really likely. there could be more than that. sen. fisher: thank you, mr. chair. >> 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 am proud to have

joint senators cantwell and blackburn to reintroduce the bipartisan promoting resilience supply chain act, legislation i led and authored in the house. this bill ensures 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. i have grave concerns about china's global infrastructure investments in any cyber threats to the u.s..

addressing these are our national security interests. with that i would like to shift to my first line of questioning for you, captain kramek. it is no secret the canal has had issues due to droughts nor is the increasingly frequent trout a new phenomenon. do you believe the canal authority did enough to anticipate the issues impacting the canal's operation? mr. kramek: thanks for your question. they did the best with the information they had. i do not know they anticipated a trout of that magnitude. i would say going forward as commissioner maffei just discussed about the developing of a second reservoir and the u.s. army corps of engineers doing a feasibility review of that project as well as other

projects that were mentioned, that seems to be a good path that seems to be a good the pan.

>> we got two big chinese companies on both ends of the panama canal who if there is a war and it involves us and china, these companies would be obligated to do the bidding of the chinese communist party. aren't we kinda walking up to a very significant national security threat already? >> certainly there is a threat

and what makes the action of the chinese government difficult to respond to but important to respond to is that they can this in levels of gray without direct control. >> let me ask you on that topic, professor, let's assume that these two companies have 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 is a big assumption, it is probably true anyway. so you have spies and military personnel within the ranks of these two companies controlling both ends of the panama canal. wouldn't that be a blatant violation of article five of the neutrality treaty if that were true? and it probably is true.

prof. kontorovich: yes, i do think it would be a clear violation. as dean ross said at the ratification hearings, informal forces can violate article five. >> but you agree with that and is there any evidence of chinese spies or other nefarious chinese actors embedded in these companies? >> we have no information. that is not under the purview. >> but you agree that would be a violation of article five? >> i do. chairman cruz: senator vulnerable. senator balter: commissioner, thank you for being here today. i'm very concerned about china's large and growing influence in the world infrastructure network, a company from hong kong operates two ports in the panama canal, one on each end.

while the company is not chinese state owned, it is subject to china's national intelligence law as we have been discussing. a chinese state owned entity is building a bridge over the panama canal. the panama canal is just one example of how far china's influence stretches. their dominance in maritime, logistics, and shipbuilding sectors lessons competition, creates supply chain risks, and creates opportunities for surveillance and information gathering. in order to facilitate the movement of goods through the world, it is 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. in 2023, we built five commercial ships and china built over 1700 according to that investigation. 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? >> it is very good to see you again, senator baldwin. i think the best i can answer is amen to everything you said.

as an illustration, senator sullivan was talking about hutchison port. they run the terminal on both ends of the canal. i'm concerned about that. if we want to be concerned about that, all of us should lose a lot more sleep then we are losing. if there are spies there, there might be spies at other hutchinson ports and there are hutchinson ports in almost every part of the world. they owned the largest container port in the united kingdom responsible for nearly half of britain's container trade. they control major maritime terminals in argentina, australia, the bahama knees, me and mark, the netherlands, south korea, and tanzania. if it means china has operational control or strategic control, they have it over the suez, the straits, the mediterranean sea, and the english channel. that is one aspect of what you are talking about.

that does not include the shipbuilding heavily subsidized such that half of new ships that are in the companies that belong to the world shipping council coming from china. not because these are bad companies, but because they are undercutting other things. it is a problem that has been going on 20 years which makes it difficult to answer your question. this is not a problem that occurred last week, this was going on all of president biden's term, all the president trump's first term, it has been going on through decades and decades through u.s. republicans and democrats as president. i echo what ranking member cantwell said and i think others of both parties have echoed, that we need some sort of overall maritime strategy. we have to acknowledge this is part of our national security, that economic resilience is extraordinarily important and i believe this is the greatest country in the world. if we start countering some of these efforts, we can do it, but it has to become a national

priority. we are talking about outside investing the borders of the u.s. which doesn't make a good campaign ad, but it may be necessary due to this aggressive strategy china has had. sen. baldwin: thank you for that answer. i know my time is short. i will allow professor to answer this for the record. professor, i would 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 we can find bipartisan solutions to pursue. it is my view 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. 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 and dominance? prof. kontorovich: thank you. my understanding of the chinese advantage is to the extent they are willing to use their government wealth to consistently underbid contracts. they have an advantage that can't be beat. thus leading these kind of issues to contracting. it will put american companies perpetually at a disadvantage. i think one potential action

would be to make clear to panama that based on the changes that have occurred over the years, increasing chinese control over hong kong, the passage of the national security law, the military civilian integration doctrine of china, that contracts with chinese-based companies are considered suspect and incompatible with a neutrality regime of the treaty. that would at least give american companies and other truly private companies a fighting chance. chairman cruz: thank you. senator blackburn. senator blackburn: thank you, mr. chairman. yes or no for the record. is the china investment into the panama canal a direct threat to u.s. national security? we will start with you. down the panel. chair sola: yes. -- i don't have that information.

sen. blackburn: ok. and we have 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. we have heard a good bit about this, looking at what happens coming out of the port of memphis. i think that the government of columbia learned a lesson, 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, 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. 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 the neutrality committee ensuring panama and panama alone would control that canal? prof. kontorovich: certainly that is an action we can take to enforce the treaty and enforce our understanding of the treaty.

that is an action we can take even without the treaty. to the extent the united states considers the chinese operation facilities around the canal to be against its interests, it can certainly condition aid and economic relationships on the exclusion of china. the united states has typically not work to way and that may be one of the reasons why china has basically made inroads everywhere. but for that we don't even need the treaty. certainly it could consider the treaty to be violated. measures like that are short of the armed forces authorized by the treaty. sen. blackburn: let me interrupt you because i do want to move on. i think that as you look at how china has used the belt and wrote initiative and we have talked some about that this morning, we know that they have pushed the digital yuan. i'm 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 rode initiative. chairman sola, could you speak about the potential for fee manipulation with the ccp? 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 that these fees put many bulk shippers in an adverse position and they have a huge impact on ports along the lower

mississippi river. you know, these exorbitant fees are there unless you are going to face delays at the canal and then the impact of hearing these chinese companies would preference of the yuan as opposed to the dollar. chair sola: thank you you, senator. the fees we have looked at was because of the auctioning of the slots. what panama did is they had a smaller percentage, maybe 20% allocation and then moved it up to 30% and 40% because it became a moneymaker for them. sen. blackburn: let me interject here. the auctioning of the slots gives these the right to skip the queue. chair sola: yes. under maritime law, it is first

come, first serve. but panama has always put a certain percentage aside and they started to put more and more. we have gotten a lot of complaints. from lng and from agriculture who didn't have the money to go through. if you look at the financial standards side of it, but the canal increased the amount of revenue they had from about $500 million to about $1.8 billion in the last three years because of those fees. this is what is very concerning to us and for the american shippers. sen. blackburn: have you seen a tendency to preference the digital yuan over the dollar? chair sola: i have heard of it and i have heard it is used in international shipping as a currency. it is something i say we have an eye on because we have the digital ship exchange rule coming up, but we will keep

monitoring it. sen. blackburn: thank, mr. chairman. chairman cruz: thank you. senator klobuchar. senator klobuchar: 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 is happening right now as in the middle of the night last night when an executive order was issued -- will 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 and calling our offices, it is 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 be a major problem we should be addressing. when we are 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 and other businesses to reach international customers. i care a lot about this shipping issue. senator thune and i joined forces to pass a very important bill that took on the international shippers to take on the rates they were charging businesses and farmers and manufacturers and it immediately had an impact. i will get to that in a minute. i do want to raise with you, comm. maffei, 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? comm. maffei: i do not. i would add one of the reasons why the u.s. is disproportionately affected by raises and fees and other kinds of fees at the canal is because the united states proportionally utilizes the canal. sen. klobuchar: that is something that would affect the total number of fees and we know it is a 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 of the canal, which we know have occurred, like we saw with last year's drought, can delayed shipments, increase costs potentially leading to higher consumer prices. commissioner, what steps can be taken to minimize disruptions that prevent cascading costs for

consumers during periods of operational strain? comm. maffei: at the panama canal? sen. klobuchar: yes. comm. maffei: the main thing is that companies need to make sure they have very resilient supply chains. depending on anyone ceiling is often risky in this difficult to predict world. it is one reasons why the panama canal is so important. it may be a bigger reason that a particular 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. that lack of redundancy has been a big problem and frankly one of the reasons why shipping costs have gone up. if you have to go all the way after -- around africa or the americas. sen. klobuchar: thank you. mr. kramek, you described how drought reduced imports at u.s. ports. to these reductions affect prices for american consumers or could they? mr. kramek: yes. sen. klobuchar: thank you, i

love that short answer. back to you, commissioner, has the law improved the ability of shippers to have unreasonable charges waived or refunded by ocean carriers? we know this has been a major problem for air 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, you know what i mean, i don't mean the carriers themselves, i mean the people trying to do business and sell their stuff. comm. maffei: american exporters and importers, absolutely. i don't have a lot of time, but it has tremendous effect. we have seen instances of waiving or forgiving fees or funding go way up. we have seen settlements go up with major carriers. we have seen a lot more cases.

a huge impact. sen. klobuchar: 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 rather than having it all come to us? comm. maffei: just to say we try to do an awful lot with less. as the new york times reporter has pointed out, we are funded, our entire annual budget at about one hour of the profits during the covid pandemic. because of that legislation and subsequent appropriations, that is more like 68 minutes now. it is still a fraction. sen. klobuchar: of course, we only found this out 12 hours ago at midnight from an unknown bureaucrat.

our hope is 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. chairman cruz: thank you. senator budd. senator budd: thank the panel for being here. good to see you are. the november 2024 report from the u.s. china security and review commission, it details china's efforts to deepen ties with countries across latin america and the caribbean. i would like you -- to ask unanimous consent to enter that into the record. without objection, ok. thank you, all right. i think it is important to view the chinese communist party's activities in the panama canal zone in the context of ccp's broader efforts. to further access latin american markets and obstruct american interests in our own backyard. would you agree with that? that you see the ccp activity

and hopefully to interrupt america's interests in the region? chair sola: definitely, the economic interests, senator. sen. budd: i was able to travel there a few years ago to see this firsthand and see the ccp's encroachment. in your experience, are there noticeable differences in port operations when they are controlled by chinese companies and financed are backed by chinese loans? would you explain that? chair sola: we have a wonderful example because we have a u.s. port there, but i actually worked on the development of that many years ago. it used to be a united states navy submarine base and we converted that. as far as the two ports that we have, they are completely different. one is a major infrastructure footprint and a container -- and

moving a phenomenal amount of containers, more than miami, fort lauderdale, jacksonville for that type of volume. on the other side, we have a very small, but strategic port on the atlantic. i don't know how they don't make money. right down to it, it has been operating for 20 years and they haven't made money, so they haven't been able to pay the government. that is what concerns me. sen. budd: appreciate that. what would be the consequences for u.s. trade and the u.s. economy if access to the canal was suddenly revoked or significantly decreased for u.s. shippers? mr. kramek: it would be pretty catastrophic, senator. we have experienced that with the denial of the red sea right now being able to use that and

as the chairman said, having to go around the continent of africa, 40% longer voyages, significant more costs, crew, maintenance, fuel. sen. budd: do you have a ballpark on the difference to transit the canal versus go around south america? mr. kramek: i don't have a figure, i can tell you in days and it depends. it is about 30 days if you can go through the canal. it is about 40 days right now if you want to go from asia to u.s. east coast. sen. budd: thank you. another question, china is pouring billions of dollars into infrastructure projects over central and south america. one example is in could or. china made a deal to fund a $3.4 billion hydroelectric dam.

there are 17,000 cracks already and there is a lot of corruption. ecuadorian officials have been put in prison and sentenced for bribery charges. using that as an example for the region, the strategy of china is clear. and this is in the words of dorian minister, the strategy is that they want to take economic control of countries. in panama for instance, it is about 7.7% of their gdp as i understand. using ecuador, should congress be concerned that china could extract significant leverage over panama given the outsized role in revenue from the canal that it plays in their finances? chair sola: yes, senator. it very well could. i believe that we are in a very fortunate position with secretary rubio who knows the area very well. sen. budd: thank you very much. chairman cruz: senator, we

should also look at the port in peru. sen. budd: thank you very much. chairman cruz: thank you. senator kim. senator kim: thank you to all of you for coming out here. when i talked to some of my constituents in new jersey about this, they mostly understand this issue right now because of the words of president trump. i just want to start there and work backwards. chairman, president trump said, china is operating the panama canal. we didn't give it to china, we gave it to panama and we are taking it back. is china operating the panama canal? chair sola: senator, i never discredit anything 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 panama canal authority.

they are very efficient at operating the canal. sen. kim: so you are saying from your knowledge you don't know of reason to believe that china is operating the panama canal. in the knowledge you have. chair sola: from the knowledge i have -- 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. sen. kim: so you are talking about hutchinson ports. so we are talking about balboa and cristobal ports. chair sola: and they are subsidized. sen. kim: i guess my question to you is does hutchinson port control the locks of the canal? chair sola: no. sen. kim: does the controlling entrance to the canal? chair sola: 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. the reason is because when they are bringing a ship in, they bring a ship out, they block the traffic of the canal every time. they have to have pilots. mr. kramek: is balboa or cristobal ports under the jurisdiction of the panama canal authority? chair sola: they have been given by the panama government the concessions. however, they are in the operational range of the panama canal. sen. kim: does that make those two ports under the jurisdiction of the treaty? chair sola: let me say this because i was in panama when the panama canal was turned over, we didn't just give back the panama canal, we get 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. as soon as you come out of the panama canal and i invite you to come.

sen. kim: i would love to come. chair sola: you run into a former military base that is run not by panama, it is run by the panama government. after you pass that, you run into the porta balboa. 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 will take you on the boat and take you off. is it operational control of the panama canal? yes because the pilots after bring you in and bring you out. every time a ship goes into one of those ports, they block the traffic of the panama canal. sen. kim: look, i guess i wanted to just ask you kind of directly then, what is your assessment of the panama canal's authority in terms of their ability to administer the canal? chair sola: i think their

authority if you read my opening statement and written statement, they have done a fantastic job and panama has been running the canal 25 years. they have given $28 billion to the coffers of the government in those 25 years. in the 25 years that the two ports, they have contributed zero. so i don't understand why panama would allow those two ports to operate and put into jeopardy the operations that they do have. sen. kim: i want to end on this. 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 and the efforts by other interests in panama to diminish the professionalism of the authority. i would 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. we try to have nuance and precision with words that we use , otherwise it very much looks like some of what we talked about is going to be perceived as undermining the panama canal authority and you said you warned that would be something that would boost china's capacity in the region. i ask as we deal with this going forward that we be precise about it and try to make sure we are talking about exactly what we are addressing. chair sola: specifically what i was talking about was the board of directors on the panama canal. they are on the board of directors of the ports in question. when you look at the annual report of those two ports, they have not a hidden basically says they have local partners that are not identified. i believe that if we had those identified we would know more. sen. kim: more precision there. thank you. i yelled back, mr. chairman. chairman cruz: senator schmitt. senator schmitt: i want the committee to imagine that taiwan

is under siege, the ccp determined to crush taiwan's resistance and prevent a u.s. response activates a multipronged strategy leveraging its control over global words and shipping infrastructure. at the panama canal, one of america's most vital trade arteries handling 40% of the 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, supermarkets empty and supply chains collapse within days. china's state-owned zpmc, which supplies 80% of u.s. 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. while this scenario may seem hypothetical, it is entirely plausible. 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 urged president trump to address china's aggressive maritime actions. there warning supply today is china's growing control over infrastructure ports and strategic waterways like the panama canal pose an unacceptable threat. america is sleepwalking into a carefully laid chinese trap. this complacency must end. that is why i introduced

safeguarding the canal from chinese influence. to honor its neutrality under the transfer agreement. the cost of inaction is too great. i want to offer this up for anyone. i think the biggest concern for anyone is the belt and road initiative, we 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 the grid, they can turn it off and they can turn it off. there is just no way on god's green earth that china can control the panama canal.

however you want to define it and i hope my democratic colleagues, this should not be partisan and i hope they are 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 operational control ultimately of these ports. i guess i want to ask, i have talked to long -- [laughter] i don't have too much time for questions, but professor, i do want to ask you as it relates to the treaty and i'm glad 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 that the fact that we are being charged more? is that the fact that these are chinese owned companies that are controlled by the ccp? what are the top two or three reasons you would argue they are in violation of the treaty? prof. kontorovich: so, again, 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. the presence of chinese companies, especially chinese state companies, do raise serious issues and concerns for the neutrality of the treaty. in relation to some of the earlier questions, the canal is not limited to the actual locks of the canal and the transit of the ships. according to annex one,

paragraph one, it includes the entrances of the canal and the territorial sea of panama adjacent to it. all of the activities we are talking about are within the neutrality regime in the treaty. sen. schmitt: i'm out of time, but the most dead on hit here is the treaty specifically prevents foreign operations and that is exactly what we have. prof. kontorovich: yes, 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. >> you said we all said china has operational control. i don't believe china currently has operational control. sen. schmitt: i didn't say all of you did, i said one of the witnesses. >> i did agree there is a threat by this ownership. if your assumptions are correct, you are way understating the problem.

they also then control the suez canal and the mediterranean sea. i actually have to admit i'm a little confused as to why some of the senators aren't more concerned about the biggest port in the united kingdom being run by the chinese. the port nearest athens is not just run by chinese linked company, it is run by a chinese owned company. i was there. you are onto something, but if you are just focusing on panama, that is only part of it. sen. schmitt: i agree with you. the difference here is 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. chairman cruz: thank you. senator curtis. senator curtis: great hearing, appreciate the opportunity. i would like to touch on 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, can you explain how panama has enabled iran to evade our sanctions? chair sola: thank you, senator. about a year ago, when we were having this drought issue, there was a lot of focus on iran and how they were funding to mosque. what the united states have found is that iranian vessels are flagged by panama to avoid sanctions so they can sell that and use the money as they wish. panama at the time had a complicated process to d flag

the vessels. by the time that treasury would identify one of those vessels. they had already changed flags to someone else. we met with the panamanian president. he was breaking relations with venezuela at the time. we met with the maritime minister and panama actually adjusted their appeals process to make it more expedient. if they say this iranian vessel is avoiding sanctions, now we have a process in place to do

that. sen. curtis: thank you for that answer. let me also go to, we have also hammered on this and i have heard some of you acknowledge that the interest from china is an economic threat to us, but let me come back to this defense . 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? >> it is not our area of expertise, we leave that to the military experts. i would say an economic threat is a military threat. we don't have that area of expertise. sen. curtis: chairman?

chair sola: i would say my biggest concern is that when a chinese contractor gets a contract in latin america, they put a clause in that they bring their own workers and from china. these workers are housed in camps outside in these camps will have guards on them and in panama for example, so we really don't know who is in the camps. that to me causes more concern on who is in the camp and what are they doing? these are sometimes thousands of workers that are brought in for example for the bridge or to do a port or something like that to undercut the local labor. sen. curtis: along those lines, let me talk about dollars from china spend. 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 in addition to the canal we need to watch? chair sola: yes, we definitely need to watch -- the united states has left a void there. we have not been competitive in panama. sen. curtis: i've got just a few seconds, so this bridge, we brought this up a couple of times, the possibility of a being damaged and closing the canal. it reminds me of going through tsa, the suitcase going through the tsa. is there any reason china can't watch or do whatever they want from this bridge to get the intel for these containers and does that concern anybody? chair sola: it definitely concerns southern command because they brought it up on numerous occasions that there could be some sort of surveillance like that on the bridge.

sen. curtis: i yield my time. chairman cruz: thank you, senator marino. senator marino: thank you for putting this hearing together. i heard you say and it rang in my head that you have navigated the canal a hundred times, you have pretty good experience. i want to turn to testimony a little bit in a different direction. you haven't been there that much, tell me for the testimony, what are the people of panama, you have probably been to my home country in colombia, what is the sentiment of the people for how they feel about america? chair sola: 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 is almost like the united states and great britain for example. the panamanians love baseball and basically a lot of the same things we do.

sen. moreno: they have suffered through catastrophically bad leaders, especially today. we don't have to go down that path, but here is what i would ask you. we understand about shipping and the issues of trade that have been well documented, i think the treaty is in clear violation, there is no question about that. i would like this to get to a point allowing the president to renegotiate or cancel that treaty. from here to annapolis, may be a little bit further than that, it used to be this insurmountable piece of geography that separated colombia from panama, but it is now used as a massive human and drug trafficking operation. the presence of multinational gangs, multinational criminal organization 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? chair sola: senator, it is one of the most dangerous treks i think anyone can do. think about it for the new policy we have on migrants and people coming into the country. countless people have been harmed, died or even very bad things happen to them. on transnational gangs, any time there is money on the black market, they will fill that void. hopefully, as i understand the dari and gap is not been utilized very much right now. sen. moreno: but the point is what is the impact on maritime

activity there? in other words, security has got to be an issue for your members and having that increased presence of transnational gang activity, drug trafficking. you are 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? mr. kramek: it is something we work hard on every day at the world shipping council partnering up with the world customs organization. 58 customs agencies through the world. we ran operations on our supply chain. a lot of it, the flow for commercial vessels not in the united states but to the european union is coming from panama where our containers are being exploited and contaminated. so we are working hard as we sit

here right now. sen. moreno: 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 through drug trafficking, they bring basic chemicals into mexico which makes its way here is fentanyl. you have you nor missed chinese influence in central and south america. 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? chair sola: yes, i do. i believe 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 have any convictions on those. if we did have a conviction one

way or another, i think that would change the narrative quite considerably. sen. moreno: one quick follow-up. 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, but also having u.s. presents with military backup there in panama preventing transnational organizations, preventing human trafficking, drug trafficking, wouldn't that be celebrated among the free world as something that would be absolutely a net huge positive to that area? chair sola: i can say this, that is probably one of the top contraband areas in the world just because of its geographical location and the amount of containers they move. i think any time we can lower the amount of contraband being distributed around the world, we would be doing a good service.

sen. moreno: mr. chairman, we ratified that treaty in the united states senate, i would love to cs de-ratify it. chairman cruz: senator o. senator o: in the year 1913, the governor of west virginia said the governor -- the government of hannah waddingham would be critical to the coal industry. 11% of the cargo that goes through the canal is cold. thank you for your military service and your great insight into panama. i know the draft restrictions have been brought up, but the fact that all goods cannot always be fully loaded to go through the canal is a major problem. i know they are investing 900 million dollars to make the canal more resilient. what ways can we ensure that our states energy exports are actually getting where they need

to go when they need to get there? >> that's a very good question, senator. the bulk and the coal are restricted by the draft restrictions we have. we talked extensively with the canal authority in the government of panama on how they need to add fresh water to the system. they are losing about 1% or 2% a year. if they continue this way, the panama canal will be severely diminished by 2050. freshwater is definitely the key .i know they are working with the army corps of engineers on studies and they put a variety of options out there for the canal authority to take advantage of. sen. capito: this is probably a quite simple question, why would they be in opposition to putting more freshwater in the canal? chair sola: the canal authority

-- sen. capito: it sounds easy. chair sola: the issue that they have is maybe 10 years ago environmentalists restricted what the watershed was of the canal and that law has recently beennow the canal has access toe watershed. what they have to do is a major infrastructure project to pull that water in. at the same time they are saving up and raising the fees, they are giving more money to the national coffers. so, it is about $2.4 billion right now and saving for the infrastructure project. sen. moore capito: is that the $900 billion infrastructure package, is at the same project? chair sola: i believe it is. sen. moore capito: so, along with that, the issue going through the canal not just the offloading or i mean it is hard to offload coal out of a bulk

container, that is not an easy thing to do with you can do it. it is this whole thing about congestion pricing. nobody here is from new york but the congestion pricing at the canal where you can outbid and skip the line so the line can be 14 days later even if you were at the front. this is what the senator is wondering, how did i get in front of him kind of question. so, how is that working and is that fair? who makes the judgment? that to me sounds like it could really be patting someone's pockets to jump the line and have a significant effect. comm. maffei: it is an auction system being utilized more and more and is what i was most concerned about and continue to be most concerned about right now because of the unusual draft restrictions are going on. but if there is another water shortage. the regular total revenue has

increased in terms of the canal. what has really increased is the special revenue that they get from various fees and from this auction. that revenue has gone up about close to 300% for other transit services. that is a huge amount. it is also 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 congestion during covid. this is similar, they are providing fewer transit and making more money because of the party mechanism. this is the other way. this is capitalist but a different way of allocating space that they are utilizing more and more to make more and more money. i have no idea, to the best of my knowledge they are going to the panamanian government and i

do not have any reason to go -- to doubt that. that is a big cost and it does disadvantage certain kinds of cargoes because they might feel like they are on a ship which does not prioritize its time passage as much as other kinds of cargoes and i'm not sure how that affects coal. sen. moore capito: thank you. chair cruz: thank you. senator she -- sheehy. sen. sheehy: how long would it take china to block the usage. i know you are not military experts but you have been on the canal. if they wanted to deny our usage of it, how long would it take for them to do it? chair sola: senator, i can say that prior to the year 2000 the canal had a creek rate -- quick reaction force that took all possibilities into consideration, either a ship being stalled or to be able to move one out. i do not know what those

capabilities are or what the planning for that would be. sen. sheehy: so effectively, we do not have ready response. i do not like the mindset that has pervaded that there is this far-off hypothesis. prof. kontorovich: you are not talk -- comm. maffei: you are talking military experts. sen. sheehy: if he has driven the canal and i think the ever given jackknifed in the suez canal. that is a ship that turned sideways so if china chose to, how fast could they closed the canal to our usage? chair sola: they would do a similar thing but it would be an active terrorism because they have facilities. most of this discussion is the economic threats because of the belton road initiative and having these investments. i mean, it is not hard to close

off a waterway. the panama canal is 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. it would not take long, that i do not know what it has to do with not -- it is not accelerated because they have people at the port unless you believe that they are in theory, easier to infiltrate those ports with chinese spies and it is other kinds of things that is out of my purview. sen. sheehy: i do not think it is. i think the reality is that canal is an economic engine and it is also a national security engine. i appreciate and i am not trying to be combative and i am trying asked a common sense question. i we can dance around but that canal is vulnerable as we have stated. comm. maffei: i am saying why would they bother with the military like operation when they could get what they want

with nonmilitary means and have influence in other ways. sen. sheehy: we segregate ourselves artificially in a way that we -- they do not. that is talked about military and intelligence and economics, china does not work that way it is a whole government approach and they do not draw delineation between economics and a military discussion. their attack might not look like pearl harbor, it might look like a ship that decides or pulls into the lcoks and blows itself up and we cannot support a fleet transfer. and our ability to defend it, as you referred to is now inhibited by the fact that we no longer have the military infrastructure around the canal that we did as recently as 1999. so from a commercial perspective, the shipment companies have concerns over the security of the narrow waterway. we have suez, gibraltar and panama. is that thrown around the

boardrooms? mr. kramek: it is something they think about every day. really it is thrown into sharp relief with the red sea that it was what i call a pink flamingo. there is black swans that just come up and then there's pink flamingos that you can see that you do not act. 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 -- sen. sheehy: and denied by a disaffected nonstate actor of bedouins running around with rocket launchers which also managed to beat us in afghanistan. my point is that we are debating operation control of the canal and it seems very clear to all of us that a very simple act can debilitate the canal and eliminate our ability to use it with no warning and we have no

ability to intervene or stop it. to me that means we do not have operational control of the canal. chair cruz: thank you. i am told senator young is on his way so i will give him a few minutes to get here. chairman, 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 was the effort to seize land near the pacific end land of the canal to build a chinese embassy. can you describe your personal experience including how panama ignored property rights as it sought to appease china with a new embassy? chair sola: yes. 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 coup -- the cruise companies to panama, and this would've been the first cruise port in the pacific. we spent millions of dollars on consultants with all of the best in the world. and everything was fine. when panama turned over to belt and road, they told us that that concession was going to be nationalized. and then what they did was they rescinded our concession for the property. they -- 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 take $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 a passenger. in addition to that, they took where our land is going to be for the marina and designated that to be the embassy for the people's republic. so, what happened next is appalling. because when i went to the u.s. embassy and i went to the commerce department and they told me to fill out a complaint. when i filled out the complaint, i went to my senator at the time who was ill nelson. and i remember that i was denied being able to even file a complaint because the land that was going to be used by the chinese embassy, my

environmental permit for the arena was going to expire in six months. so, the united states commerce department would not even allow me to file a complaint. i brought that issue here. and thanks to the good work and at the time i think it was chairman nelson and chairman wicker, we were unable -- we were able to unwind that and after six years panama returned the land to my family. sen. sheehy: there -- chair cruz: very instructive. senator ron -- senator young. sen. young: thank you for being here. the panama canal underpins our current economic strength and national security. when 40% of u.s. bound container traffic depends on a single waterway we cannot afford unilateral toll hikes that choke out of -- competition and leave smaller carriers or midwestern exporters on the hook. for instance in indiana,

manufacturing firms and farmers rely on consistent, recently priced shipping routes to move heavy machinery, auto parts and agricultural products. if the canal authority's auction system prices them out the ripple effects in american jobs and supply chains could be devastating. chairman, given the enormous state in canal operations, do you believe congress or the fmc should 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? chair sola: thank you for the question and i grew up in indiana. sen. young: fantastic. chair sola: i believe 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 are marching to instructions from you. moving the agricultural products that we get out of the midwest and all over the world and through the country not only do we focus on the panama canal but about $5 trillion worth of goods coming in and leaving the united states. that is definitely one of our main concerns. sen. young: thank you. i am not surprised. i tell people indiana is a maritime state, if you think about our dependence on the waterways and shipping lines and all of the wet -- all of the rest. so, you are certainly proving that. we will stay in touch. and in the future if you 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 no. when the two panama canal

treaties were signed, we lived in a different world, one where chinese state backed actors did not wield strong influence over global infrastructure and issues like drought where where -- were rarely factored into international agreements. times have certainly changed, but the united states is still the canal's biggest customer and 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. chairman, and then i will allow others to respond. in light of evolving conditions, especially increased foreign investment from china, do you believe that the u.s. should explore a more comprehensive update or supplemental protocols to these decades-old treaties? chair sola: i believe that we

should support u.s. investment and not have an ambassador for so long has been detrimental to us, especially the case that i just mentioned earlier where we did not have an ambassador and we had a u.s. company in need of service. however we can promote u.s. investment, especially in infrastructure. this is where china is beating us. they understand, and i believe that our bank and dfc is so limited in what they can do by the restrictions that they have that we are not able to invest in infrastructure like we should. sen. young: i hope the administration will prioritize the ambassador spot as nominations are made. i hope that we will prioritize it in the senate. my colleagues on the democratic side of the aisle will be warm said that nomination moving it quickly. something that both parties frankly have fallen short on in

recent years is prioritizing needs. other comments? comm. maffei: senator, you and i served together in the house that i am pretty bipartisan and i agree on the chairman with 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 truly compete with the chinese on some of these things. laming it all on panama misses the point. i have seen the same thing in greece where greece did not 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 like europe and the united states to do so. i just ask you to look at that. one quick thing. you are right about the cost and as i said, the panamanians are making far more on their canal

that they had before. it is not a bad thing. where they are really making money on these auctions is an -- and that is why it remains a concern of mine and the chairman's. and that is where we are looking at our potential authority under section 19 where we could, if we could show it is basically a problem with the foreign trade in the u.s. and interfering with foreign trade. there are certain things we can do. i think we need more information before we can make that action. we are working on that and we do have that authority. sen. young: thank you and good to see you. did you have anything? mr. kramek: we had discussed some of the infrastructure projects to make the canal more sustainable and viable and how the united states and u.s. army corps of engineers have done some feasibility reviews. so that would be something to take a look at to make the canal

viable with additional supplies of fresh water. sen. young: thank you. chairman. prof. kontorovich: senator, if i may? chair cruz: sure. prof. kontorovich: sorry, i am on zoom. you spoke about renegotiating the treaties. and one of the things about treaties, as an instrument of governance is that they are not flexible and they do not have automatic processes for easy amendment. and i spent before this hearing a fair amount of time reviewing the ratification hearings in the senate in 1978. back then the principal concerns , the senate was concerned about was the soviets and cuba, not china and iran. the world has changed. china's role has changed. and back then 1995 seem far off in 2025 a world away.

as a result i think it is useful to revisit treaties and seek to update them to current events. and of course the united states has a considerable amount of leverage that it can use to seek such additional protocols to modernize these treaties to current events and geopolitical realities. sen. young: makes great sense and i am glad you spoke up. thank you. mr. chairman. chair cruz: thank you. i want to ask a couple of follow-ups and then we will wrap up. you mentioned a minute ago that the determination was made that this was having negative impacts on u.s. trade. you said that there are a number of remedy is possible and you did not specify what those were and i would ask what you are referring to? comm. maffei: there are things we can do as counter managers such as sanctioning panamanian flagships, that is one of their major sources of revenue and it

is the number one we call flag of convenience in the world. there are several others. and i think i would like to get back to you in writing and i am not trying to avoid the question. we can -- if you do not mind we can get together for a joint answer. we will put where our authority comes from and what we can do and what we are concerned about and the limits. chair cruz: this hearing has been a nice bipartisan demonstration of a lot of expertise and there is a reason why you guys have the role you have because you know what you are talking about. comm. maffei: i am hoping my chairmanship will result in a full and very successful term for my good friend in carly. maybe the -- colleague. -- maybe the friendliest transition in washington. chair cruz: i want to get back to the exchange with senator young harkening back to the opening exchange. we have heard testimony that hannah mom -- panama might be in

violation of this treaty in violation of this treaty and at least two regards. one, with respect to its obligation to keeping the panama canal neutral and the major concessions to china and the control that china has on both ends and the bridge across the canal that has the possibility to shut down transit. we heard testimony about the degree of revenue that panama is taking and that is potentially in violation of the obligation that tolls and other charter should be equitable and consistent with international law. assume that the united states makes the determination that panama is in violation of the treaty. i asked about what the remedies were. and you mentioned at the time military force. military force was always one potential remedy.

what other potential remedies in particular could be a consequence of being in breach of the treaty be at the determination of the treaty is null and void and that the concession of control of the panama canal to panama is no longer in force, and said that, under international law, result in the united states to operating the panama canal. what is your judgment? prof. kontorovich: 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. or withdraw from the treaty as it were. 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. israel made a deal with lebanon to give maritime territory in exchange for peace two years ago. it is not clear that it can simply get that territory back. it is a case that america can take all sorts of measures to insist on neutrality. and 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 in less it is something that accompanies the steps needed to restore the regime of neutrality. chair cruz: i want to thank all of the witnesses are there important testimony today. the senators will have until the close of business on tuesday, february 4 to submit questions for the record. the witnesses have until the end of the day of february 18 to respond.

this concludes the hearing and the committee stands adjourned. [captions copyright national cable satellite corp. 2025] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org]