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Supreme Court finds that license terms granted to CK Hutchison breach constitution, dealing a blow to China’s influence in region

The Supreme Court of Panama ruled that terms granted to a Hong Kong company to operate two ports at either end of the Panama Canal breach the country’s constitution, handing President Trump a victory for his security ambitions in the Western Hemisphere and denting China’s influence in the region.

Panama’s high court said in a brief statement that the terms under which CK Hutchison runs the ports of Balboa on the Pacific Coast and Cristóbal on the Atlantic side are unconstitutional, setting the stage for the company’s departure from the port facilities.

For Panama’s Supreme Court justices, the political pressure was significant, as the port operations put Panama on the center stage of the rivalry in the region between the U.S. and China.

The ruling comes a year after Trump set his sights on Panama. He said Chinese infrastructure that has been built up around the canal in the past three decades was a security threat to the U.S.

“China is operating the Panama Canal, and we didn’t give it to China,” Trump said in his inaugural address last year.

Hutchison can’t appeal a Supreme Court ruling, but it can request clarifications that could delay the termination of its operating license.

Once the license is revoked, Panama aims to ensure the continuity of port operations by hiring a company to manage the terminals until it opens a bidding process with new license terms, possibly separating the two ports, according to senior government officials familiar with the legal process.

The high-court decision is a diplomatic defeat for China that comes weeks after the U.S. military’s capture in Caracas of Venezuelan strongman Nicolás Maduro, who was a crucial ally in China’s efforts to secure a strategic foothold in Latin America.

“It’s a diplomatic setback for China, but not an economic setback,” said John Feeley, who served as U.S. Ambassador to Panama from 2015 to 2018. Chinese shippers, which rank among the top users of the canal, will still be able to use the waterway as the ruling won’t have an effect on canal operations, he said.

Private lawyers and Panama’s comptroller filed lawsuits against Hutchison with the Supreme Court, alleging the contracts violated the interests of the government and taxpayers. A government audit showed as much as $1.3 billion in lost government revenue since Hutchison’s arrival in the late 1990s.

Before the ruling, a person close to Hutchison said the company considered the case to be politically driven. The company had agreed to divest itself of operations of the two Panama container terminals and dozens of other ports worldwide to a group led by BlackRock and Mediterranean Shipping Co. for almost $23 billion. China’s government opposed the sale, demanding that Chinese state-run shipping company Cosco have a majority stake and veto power in the firm managing the global port assets.

The person close to the company had said Hutchison was prepared to take the case to international arbitration to protect its investment if justices ruled against the company.

“Panama has a good batting average when it comes to arbitration,” Felipe Chapman, Panama’s finance minister, said in an interview before the ruling was disclosed. “It’s part of doing business and crucial for rule of law.”

Beijing is forming a Latin America task force that will study how to protect its interests in the region, and will likely look for ways to retaliate, said a person familiar with the government’s plans.

China has invested close to $300 billion in infrastructure projects across Latin America, including subway lines, bridges, hydroelectric dams, power plants and stadiums. One flagship project is the Peruvian deepwater megaport of Chancay that Chinese President Xi Jinping inaugurated in November 2024. The $3.5 billion project was developed by Cosco.

While Chinese investment has displaced that of the U.S. in most of Central and South America, the U.S. remains Panama’s top investor and trading partner. The tiny Central American nation is vulnerable to Trump’s pressure because it uses the U.S. dollar as its national currency, and has no central bank or armed forces. In 1989, U.S. troops invaded the country to overthrow then-dictator Manuel Noriega.

Two months before the U.S. handed control of the canal to Panama’s government in late 1999, Hutchison won bidding for the two ports, beating U.S. rivals such as Bechtel. Reagan-era defense secretary Caspar Weinberger said at the time that the “huge spread” between Hutchison’s winning bid and the next nearest one showed that its interest in Panama wasn’t purely commercial. He suggested that China could gain an “enormously important intelligence platform.” The Pentagon, which supervised the canal’s operation before the handover, dismissed such concerns. Hutchison executives called such fears “totally ridiculous.”

Panama’s pro-American president, José Raúl Mulino, who has a master’s degree in maritime law from Tulane University, had grumbled about the terms of the Hutchison deal after taking office in 2024.

Mulino, who has worked with the U.S. on migration and security issues, rejected Trump’s threats to take over the canal as an affront to Panama’s sovereignty. But he withdrew from Xi’s signature “Belt and Road” initiative last year.

Trump’s complaints accelerated the simmering dispute between Hutchison and Panama’s government, officials said, primarily because the Hong Kong company had extracted better license terms from previous administrations even as Panama became a global transshipment hub for container cargo. About 5% of world trade goes through the canal now.

In previous administrations, the Chinese gained a foothold in Panama, said Carlos Ruiz-Hernández, who served as deputy foreign minister during the first months of the Mulino administration. The Chinese didn’t operate the canal or pose a security risk, but there was a symbolic perception.

“The Americans had the notion that the Chinese were closer to the canal than they were,” Ruiz-Hernández said.