3/31/2023 - Economy and Finance

Panama Canal: The dispute between the United States and Panama How it works and why is it so relevant to international trade?

By Agustín Alejandro Cattaneo

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Imagen de portada
Imagen de portada

What is PANAMA CANAL?

The Panama Canal is an artificial maritime navigation route built between the eastern end of the Pacific Ocean and the Caribbean Sea, which crosses the geographic accident that presupposes the Isthmus of Panama. The work was inaugurated on August 15, 1914, being considered as one of the greatest engineering works of the 20th century, from which it allows to cut the operational costs, the distances and the time it assumes the task of crossing the Atlantic Ocean to the Pacific, and vice versa. Regardless of their successive expansions over the years, it is estimated that approximately, it is necessary only between eight and ten hours to achieve the crossroads that presupposes transiting from one point to another. In relation to its operational operation, the process is carried out by using slopes located at the extremes of the route. The purpose of these is to form a functional enclosure, in a way that ships can transit the passage from one point to another where a difference is told in terms of maritime depth.

WHY RELEVANT RESULTS FOR THE INTERNATIONAL COMERCIUM?

Since its enlargement in 2016, the Panama Canal has not ceased to amaze its statistics, consolidating itself as one of the most preeminent geostrategic points worldwide. First of all, it is estimated that only for its enlargement a quantity of concrete was used to build 2.2 pyramids of Keops and 22 Eiffel Towers[1]. The majestic work required the work together of more than 10,000 people, accumulating a total investment to date – including both its construction and its large – of more than 5450 million dollars.[2].

The results are in sight. For the year 2019, as a reflection of its expansion and consequent improvements, the mercantile activity inherent in the Canal represents per se 6% of the total mass of international trade in the world, being plasmaized in 0.6% of Panama's GDP[3]. In that calendar year, total earnings accounted for $3,365 million. This is the magnitude of commercial operations carried out, which can only be overcome by the Suez Canal on a global scale.

What are you talking about?

The administration and management of the Panama Canal was instigated in a political dispute between the United States and Panama, which leads over a hundred years of discussion. Prior to the official inauguration of the Panama Canal in 1914, to 1903, the signing of the Hay-Bunau Varilla Treaty was imposed by the United States, which established the legal bases for the U.S. nation to claim as its own all rights concerning the maintenance, management, exploitation and defense of the Canal in the years to come. Social and political frictions that have occurred over time[4] for 1977, they were signed together – after long rounds of negotiation – the Torrijos Carter Treaty, in honor of the heads of state of both nations[5].

The treaty meant a bisagra moment in history, thus seating the environmental bases to how the Panama Canal would be administered in the face of contemporaneity. As a preamble and point of greatest relevance, the Treaty aims to recognize, finally, the sovereignty of the Republic of Panama over the homonymous Channel, understanding the same as part of its territory. In this sense, the US committed itself to putting into effect a number of conditions from 31 December 1999. On the day of the day, Panama is recognized as the territorial sovereign of the Panama Canal, donating the United States of the concession to be in charge of “managing, operating and maintaining the Panama Canal, its works, installations and auxiliary equipment and providing the necessary for the fluid transit of ships”, as stated in Article III of the repeated treaty. The American agency established for its management must be the Panama Canal Commission.

In terms of security, the protection and defense of the above sea route was stipulated as a joint competition by both nations. In this sense, if an armed threat occurs or any co-faction that meets the activity inherent in the Channel must be repelled by the armed forces of both states in a coordinated and joint manner. With regard to tax requisition and state customs revenue, Panama is responsible for the collection of taxes and must receive thirty hundredths of U.S. dollars for each net ton of the Panama Canal, supplemented by annualities established with the Panama Canal Commission, due to the operational costs incurred.

What do we do?

The Panama Canal trade is of high importance worldwide, meaning a transit point that unites the Pacific Ocean with the Atlantic. Its proliferation saw the creation of thousands of jobs and millionaire investments in the regional area, representing one of the most relevant geostrategic points in the world in foreign trade. Its main utility and added value lies in the substantial reduction of operational costs arising from the exchange of goods by sea to merchant vessels carrying their waters.

In its administration, a long-standing political dispute between the United States and the Republic of Panama, which decanted in the celebration of the Torrijos-Carter Treaty the bases and conditions of which the responsibilities and assignments that each of the two parties may address at the time of its management. Although, from that treaty, the United States has yielded sovereignty in the hands of Panama – as well as the ability to collect tax – the U.S. nation continues to be present as the manager and supervisor of the Canal, and is also one of the States in charge of the defense and protection of the maritime trading route.

[1] Data obtained from the writer's research for the newspaper El País de España, Ramón Muñoz (2016).

[2] Data obtained from the report of the year 2016 prepared by the research team of Revista Forbes (2016).

[3] Cecilia Barría Report, BBC International Trade Expert (2019).

[4] In addition to a Cold War context and Jimmy Carter's foreign policy to attenuate the proposed communist strand in Central America.

[5] Omar Torrijos was the then highest official of the Panamanian armed forces and later dictator in the Panamanian national administration; while Jimmy Carter was the thirty-nine president of the United States, representative of the U.S. Democratic Party.

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agustin cattaneo

Agustín Alejandro Cattaneo

I am a Bachelor of International Relations at the University of Salvador. In turn, I finished my Master in International Policy and Economics at the University of San Andrés in 2022, detracting only the presentation of my thesis. I serve as a professional advisor in foreign trade within the framework of the Secretariat of Industry and Productive Development of the Argentine Nation. Advising Argentine companies in the field of International Trade, promoting policies to prevent unfair practices such as international dumping, State subsidies and circumvention. In the past, I worked as an accounting adviser at the Ministry of Homeland Security and received two scholarships abroad, one in Italy and one in China.

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