In 2017, six months after formally establishing diplomatic relations with China, then-Panamanian President Juan Carlos Varela said in Beijing that Panama wanted to become China’s “commercial arm” in Latin America. The declaration served to legitimize Panama’s new partnership with the authoritarian People’s Republic, which had severed ties with democratic Taiwan.
Six years later, a chiaroscuro-filled bilateral trip shows the gap between good intentions and actions taken. Although China occupies a dominant position in the current relationship, Panama’s interests are not secondary to it. This relationship is not contributing to the development of the country.
The Chinese government has achieved several strategic goals in Panama. It has isolated Taiwan diplomatically and defended its “one China” policy while strengthening its position in the Colon Free Zone (CFZ), a commercial hub for re-exports and regional headquarters for 18 Chinese companies. There is. China has also secured Panamanian copper and moved forward with construction of infrastructure projects, including a fourth bridge across the interoceanic canal.
On the Panamanian side, it has accumulated around $1 billion in equity through direct investment from China, but this is not focused on the sectors that create the production chain. In terms of trade, Panama’s exports were concentrated solely on copper from 2019 to 2023, accounting for more than 95% of total shipments.
The mine provided China with $1.55 billion worth of copper in 2023, so a definitive halt to copper mining at the country’s main deposits would significantly change the balance of trade. Sales of other products beyond this “monoculture” barely exceeded $ 61 million.
Providing natural resources is not necessarily bad business, but it does not create wealth in the long run and forces countries to “prioritize” their economies. At the same time, Panama imports Chinese products that incorporate significant added value, such as mobile phones, cars, and parts.
The Panamanian government failed by not proposing strategies to promote agricultural and livestock diversification. Remember, one of the reasons China is present in Latin America is to ensure food security. This small export volume can also be explained by the non-tariff barriers favored by the Chinese government. Since 2018, only six food phytosanitary licenses have been granted.
There is no official explanation for these delays, but everyone can’t escape that they could be a form of pressure from China to get other concessions. So, with the numbers in hand, Panama not only pretends to be China’s “commercial arm” in Latin America; do not have Although it was effective, it did not even help persuade the Chinese government to open its market to Panamanian products.
After establishing diplomatic relations, Varela’s government signed 47 agreements with Beijing, most of them related to investment promotion and protection, laying the foundation for favorable political ties for China. As a result of this closeness, China has undertaken several infrastructure projects and five rounds of free trade agreement (FTA) negotiations have been held.
This relationship caused anxiety in the United States. Not only does China not abide by the Protocol to the Treaty on Perpetual Neutrality and the Management of the Panama Canal, signed by more than 40 countries, but Panama is both a strategic enclave and a geopolitical ally of the United States. The Barrera model was uncomfortable for Washington, so his successor, President Laurentino Cortizo, sought a balance.
Mr. Cortizo did not prevent Chinese companies from participating in the CFZ, which guarantees income from the use of the interoceanic canal, nor did he restrict copper exports. He even tried to encourage such exports by enacting concession renewal laws. But unlike his predecessor, he did not paralyze FTA negotiations, halt construction of the Panama David Railroad, or oppose the Panama Maritime Authority’s termination of the Chinese container terminal contract in Colon.
Cortizo bet on a triangular plan between Panama, China, and the United States, seeking to exploit his country’s geographic location and logistical value to greater advantage. However, relations with China inevitably deteriorated, with delays in approval of new phytosanitary permits.
The eternal debate regarding China remains: move forward or tread carefully? After the May 5 presidential election, Panama’s next president will need to address this dilemma against the backdrop of geopolitical competition between China and the United States. The “Barela model” did not guarantee the development of the country’s productive capacity and strained relations with the United States. And despite the political honeymoon, the gains for Panama were minimal.
The new administration must leverage Panama’s strategic location and bet on policies that maximize benefits for both China and the United States. At the same time, we must build a framework of trust with our partners so that China’s activities are not perceived as a threat. Although Panama was the first regional country to join the Belt and Road Initiative, this does not mean it should sacrifice its democratic efforts.
Furthermore, the next government must prioritize medium- and long-term strategies, diversifying the export basket, and creating conditions for Chinese investment in fields other than finance and logistics. While the candidates agree on the desire for friendly relations with the Chinese government, it is surprising that none of them has presented their own strategy. Breaking away from current dynamics that move closer and further away from China and the United States (as the case may be) and establishing a stable position that provides long-term benefits for Panama should be the nation’s top priority. .
This article was originally published in Spanish here.