Trump demands a re-examination of the Panama Canal's 'neutrality'.

REPORT ARS 2025 / [ Version in English, and pdf in Spanish ].

√ After his first official trip to Panama, framework Rubio said he had agreed to toll-free transit for the Navy, something denied by the Panamanian government.

√ The free passage for US warships could be justified by the mandate that the US and Panama have to guarantee the safety of navigation.

√ Other exceptions, such as a lower price for goods linked to the US, would not fit into the current Treaty, which only provides exceptions for Colombia and Costa Rica.

Since his re-election, Donald Trump has set his sights on the Panama Canal. At his inauguration, on January 21, 2025, the US president made it clear: "Panama's promise to us has been broken. The purpose of our deal and the spirit of our treaty has been totally violated. American ships are being severely overcharged and not treated fairly in any way, shape, or form. And that includes the United States Navy. And above all, China is operating the Panama Canal. And we didn't give it to China. We gave it to Panama, and we're taking it back."

The fact that, after some concessions made by the Panamanian government (such as facilitating a change of management in the canal's two main ports, until now operated by a Chinese company, and the Central American country's withdrawal from the Silk Road agreement that bound it to Beijing), Trump continues to persist with his threat (as he did before the joint sessionof Congress on March 4), raises doubts about whether the maximalism of recovering the canal is merely rhetorical or whether the US president truly intends to go all the way (an end that would not be peaceful). It has been reported that the White House has asked the Pentagon to develop plans to ensure US 'access' to the Canal.

It is foreseeable that Panama, just as it has sought to satisfy the United States regarding the Chinese presence, will also take some steps to grant preferential treatment to Americans transiting the canal. The question is how to achieve this considering the current treaties.

The Torrijos-Carter Treaties signed between Panamanian President Omar Torrijos and US President Jimmy Carter in 1977 included two treaties, the Panama Canal Treaty and the Neutrality Treaty (Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal). The former set the terms and date for the transfer of control of the Canal from the United States to Panama while the latter reinforced the concept of permanent neutrality of the Canal, ensuring that it shall remain accessible to all ships under fair and equitable conditions. These agreements, fully consummated with the transfer of sovereignty over the canal to Panama at the end of 1999, marked a milestone in the history, politics, and foreign relations between the two countries.

The Neutrality Treaty establishes in its first article that, "the Canal, as an international transit waterway, shall be permanently neutral in accordance with the regime established in this Treaty". Ever since the ratification, both signatory countries have fully respected its rights and obligations under the treaty. Washington had never accused Panama of failing to respect a neutrality that the US now suggests is threatened by the presence of Chinese interests in that country. Although there was no legal basis for the White House to denounce non-compliance with the agreement and demand the return of the canal, the Panamanian government's distancing itself from China eliminates any such pretext.

Exception for Colombia and Costa Rica

Although neutrality refers to security issues, it could also be understood as a commitment not to favor any nation over others. Article II of the Neutrality Treaty states: "The Republic of Panama declares the neutrality of the Canal in order that both in time or peace and in time of war it shall remain secure and open to peaceful transit by the vessels of all nations on terms of entire equality, so that there will be no discrimination against any nation, or its citizens or subjects, concerning the conditions or charges of transit, or for any other reason".

However, the same treaty grants preferential treatment to Colombia and Costa Rica, Panama's neighbors to the south and north. Colombia, of which Panama was a part of the territory until 1903, had already obtained free use of the canal from the United States for its warships and products from the outset. The Torrijos-Carter Treaty expressly left the door open for Panama to maintain this privilege for Colombia and introduced the possibility of doing the same for Costa Rica.

Specifically, Article VI, paragraph 2, of the Neutrality Treaty states, "The United States of America, so long as it has responsibility for the operation of the Canal, may continue to provide the Republic of Colombia toll-free transit through the Canal for its troops, vessels and materials of war. Thereafter, the Republic of Panama may provide the Republic of Colombia and the Republic of Costa Rica with the right of toll-free transit". Both countries signed bilateral treaties with Panama (Colombia in 1979 and Costa Rica in 1980) addressing this issue, which includes both military and commercial transport.

The only exceptions contemplated in the Treaty apply to those two countries, so any advantage Panama may ultimately grant the United States regarding the price of canal transit tolls-particularly with regard to the transport of goods-would likely have to be addressed in a new treaty. The fact that the current treaty discriminates against some countries for historical and proximity reasons constitutes a rationale that could very well be extended to the United States if such an agreement were reached in a new document.

War ships

However, based on the current treaty, without the need for reform, it might be appropriate for Panama to stop collecting tolls from US warships, as Article VI, paragraph 1, gives the US the responsibility of ensuring the security of the Canal: "In recognition of the important contributions of the Republic of Panama and the United States of America to the construction, operation, maintenance, protection, and defense of the Canal, warships and auxiliary vessels of these nations, notwithstanding any other provisions of this Treaty, shall have the right to transit the Canal regardless of their internal operation, means of propulsion, origin, destination, armament, or position. Such warships and auxiliary vessels shall have the right to transit the Canal expeditiously."

This is precisely what U.S. Secretary of State framework Rubio requested during his visit to Panama in early March 2025, his first official trip abroad. The State Department later announced to have reached that goal-Rubio argued that it is "absurd that we would have to pay fees to transit a zone that we are obligated to protect in a time of conflict"-but Panamanian president José Raul Mulino rejected these claims by asserting that there had not been such a deal.

According to the Trump Administration, if the exemption was applied, the US would save millions of dollars annually. However, in the last 26 years, only 994 passages correspond to the passing of US Navy ships and submarines which accounts for 25.4 million dollars collected from tolls (less than one million dollars a year.)

Good management and own investment

Over the last 25 years, the administration of the Canal under Panamanian sovereignty has shown utmost efficiency. Under the Panama Canal Authority (ACP), operations have improved significantly, with reduced transit times, fewer accidents, and a major expansion in 2016. The US, as the primary canal user, has reaped these benefits without bearing the costs of maintaining colonial control and allowing it to show good will with the Americas. The problems caused by the drought in 2023, which forced a reduction in the volume of position in transit, have been overcome with proposals for improvements in case the negative effects of climate change become more pronounced.

The expansion of the Panama Canal, completed in 2016, cost approximately 5.25 billion dollars, contributed by Panama and the investors it managed to involve, making it the largest infrastructure project in the country's history since the original construction of the Canal. This expansion significantly increased Panama's revenues and global trade influence.

When Trump demands the return of the Canal to the United States, the response could be that the canal the US once handed over to Panama no longer exists. Would the United States take over all the new infrastructure that the Panamanians subsequently built, without any input from Washington?