US-China ties to see another rift as CK Hutchison warns legal action against Maersk over Panama ports

Hong Kong-based CK Hutchison Holdings, a leading port investor, developer, and operator, on Thursday (local time), has warned of legal action against Danish shipping giant AP Moller-Maersk, CNBC reported.

AP Moller-Maersk has been threatened with legal action after the Panama authorities tapped the group to take over the operations of two critical ports, the Port of Balboa on the Pacific Coast and Cristóbal on the Atlantic side, at both ends of the Panama Canal, from the Hong Kong-based company.

In a statement released on Thursday, CK Hutchison warned the Danish group that "any steps" the group or its subsidiary takes to operate the ports without an agreement can "result in legal recourse."

In late January, Panama's Supreme Court ruled that the contract held by a subsidiary of Hutchison to operate the ports was unconstitutional. Before a contract could be bid and awarded, the court ordered the Danish shipping giant to take charge of the ports in the interim, AP reported.

Panama Ports Co is a subsidiary of the Hong Kong-based firm, which has operated the two Panama ports since 1997. In 2021, the company received a renewal of its contract for 25 years.

The Panama Canal has served as a key trade passage that links the Pacific and the Atlantic. The Canal handles roughly 40% of all of Washington's container traffic each year. Built by Washington in the early 20th century, it was operated by the U.S. authorities for decades before they handed over full control to Panama in 1999.

On Thursday (local time), the Hong Kong-based firm said that Panama was notified of the dispute under an investment protection treaty, and added that it would pursue "all available recourse, including additional national and international legal proceedings.”

Panamanian President José Raúl Mulino previously promised that after the Supreme Court's decision, the two ports would be able to operate without any interruption. However, CK Hutchison said the continued operation of the ports “depends solely on actions of the Panama Supreme Court and the Panamanian State,” which it can’t control.

In a statement, the company also said that it will consider and explore all available recourse, which includes additional national and international legal proceedings over the Panama ports.

Beijing also directed state firms to pause talks over new projects in the region and has asked shipping companies to consider rerouting their cargoes via other ports.

Further, theCNBC report suggests that the standoff between Beijing and Washington could prove more manageable for the latter than it appears, according to Reva Goujon, a director at advisory firm Rhodium Group. She said that the U.S. has significant leverage because of its treaty with Panama, which could help it to defend any intervention on grounds of national security.

Will the dispute bring an end to the recent thaw in U.S.–China bilateral ties, or will both sides seek to prevent it from escalating into a broader diplomatic rift?