HONG KONG, Feb 4 (Reuters) – CK Hutchison from Hong Kong announced on Wednesday that its subsidiary, Panama Ports Company, has started international arbitration against Panama. This comes after Panama's Supreme Court canceled its licenses to run two ports in the Panama Canal, a situation that may take years to resolve.
Last week, the Supreme Court in Panama ruled that the contracts were unconstitutional because they gave CK Hutchison exclusive rights and tax breaks.
Analysts believe the arbitration could take a long time, considering the political issues between the U.S. and China and the complexity of the case.
Jason Karas, an international disputes expert and managing partner at Karas So LLP, noted, “This highlights the growing links between international trade, geopolitics, and legal matters.”
CK Hutchison's future with the two ports is now uncertain. The company has operated them for almost thirty years and had plans to sell its port businesses for $23 billion.
In a statement to the Hong Kong Stock Exchange, CK Hutchison said, “The board strongly disagrees with the ruling and actions taken in Panama.” They also mentioned they are consulting with legal experts and preserving all rights for possible further legal action.
The Panamanian government has not yet replied to requests for comment.
Ja Ian Chong, a political science associate professor at the National University of Singapore, stated that international arbitration can often take several years, and it is up to the state whether to honor the outcome. “Panama can simply choose to ignore CK Hutchison, which they likely understand. They probably want to demonstrate to shareholders that they are taking all possible legal actions,” he said.
CK Hutchison's shares increased by 2% in early trading on Wednesday, while the Hang Seng Index fell by 0.4%.
'SHAMEFUL AND PATHETIC' COURT RULING
This Tuesday, China warned Panama about “heavy prices” for the court decision, labeling it “absurd,” as well as “shameful and pathetic.”
On Wednesday, Panamanian President Jose Raul Mulino dismissed China's statement, asserting on social media that “Panama is a state governed by the rule of law and respects the decisions made by the independent judicial branch.” He also indicated that the foreign ministry would provide a statement and make the necessary responses.
The two Panama Canal ports are crucial to a $23 billion buyout led by BlackRock and Mediterranean Shipping Company for CK Hutchison's 43 ports in 23 countries. BlackRock and MSC have yet to comment on the situation.
After receiving criticism from Beijing regarding the deal, CK Hutchison mentioned in July it was in discussions to include a significant Chinese investor in the consortium.
Reports suggest that the Chinese investor might be COSCO, looking for a large stake, while the other parties prefer it to have a minority share, which has become a point of contention in negotiations.
The court's ruling has left the future of the deal uncertain, but some analysts believe it could proceed without including the two Panama Canal ports in the portfolio. “The deal may still go ahead with the other ports. With the Supreme Court's clarification on the situation regarding the two key ports, it could actually make the ports deal easier to complete legally,” stated Winston Ma, adjunct professor at New York University School of Law.
He explained that CK Hutchison could use arbitration to seek damages due to its contracts being voided.
The deal has also opened a new front in the ongoing struggle for influence over crucial global trade routes between the U.S. and China.
CK Hutchison's Balboa and Cristobal ports are considered strategic assets in the Panama Canal, serving as the main sea route for trade into the U.S. Balboa is located at the Pacific entrance, while Cristobal is at the Atlantic entrance.
Some U.S. lawmakers view the court ruling as a “win for America.” Former President Donald Trump, who initially praised the $23 billion ports sale, has suggested that the U.S. should “take back” control of the Panama Canal in light of Chinese involvement.
APM Terminals Panama, a subsidiary of Maersk, has stated that it is prepared to temporarily operate the Balboa and Cristobal terminals to ensure regional and global trade remains unaffected.