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[105 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]

S. Hrg. 105-672







JUNE 16, 1998

Printed for the use of the Committee on Foreign Relations

Available via the World Wide Web: http://www.access.gpo.gov/congress/senate

49-528 cc WASHINGTON : 1998

JESSE HELMS, North Carolina, Chairman
RICHARD G. LUGAR, Indiana JOSEPH R. BIDEN, Jr., Delaware
GORDON H. SMITH, Oregon JOHN F. KERRY, Massachusetts
BILL FRIST, Tennessee PAUL D. WELLSTONE, Minnesota
James W. Nance, Staff Director
Edwin K. Hall, Minority Staff Director


TUESDAY, JUNE 16, 1998 U.S. Senate,


Replies of Admiral Thomas H. Moorer, (U.S.N. Ret.) to the Comments of Hon. William Hughes, Ambassador to Panama, Upon Adm. Moorer's Testimony Before the Foreign Relations Committee of the United States Senate

[Ambassador Hughes submitted written comments for the consideration of the Committee, which are included in the record by the Chairman.]

Date of Original Testimony: June 16, 1998
Date of Replies: August 20, 1998

(Also included: Comments of William Bright Marine, a Panamanian- American dual citizen and businessman, and a candidate for the presidency of Panama)

Opening Comment of Ambassador Hughes: 
The Chinese and the Ports: A Threat to the Canal? 
In his June 16, testimony before the Senate Foreign Relations Committee, Admiral (ret.) Thomas Moorer asserted that the contract between Panama Ports Company (PPC--a subsidiary of Hong Kong-based Hutchison Whampoa) and the GOP [Government Of Panama] grants PPC rights which could affect the security and operation of the Canal, in conflict with the Panama Canal Treaties. The contract was given legal effect as Panama's Law #5 of January 1997. In assessing the Admiral's concerns, it is useful to note that the Canal and the ports at either end of it are separate and distinct entities, and ships transiting the canal are not required to go through PPC ports. Ships entering PPC ports, however, do transit the Canal channel. Port tugs operate within the ports, in turning basins adjacent to the Canal, but do not disrupt the normal transit of ships through the Canal channel. Many of Admiral Moorer's comments focus on possibilities that could arise in managing the traffic.

Admiral Moorer Replies: 
Any one who has been involved in logistic planning where the time of transit from sources of supply to the deployed forces is so critical, knows the danger faced when choke points are controlled by unfriendly forces. In the case of the Panama Canal any entity that controls the anchorages has the capacity to control and disrupt the flow of shipping. Panama's recent Law #5 does just that. It gives the PPC, closely allied with the commercial arms of the Chinese military, (As has been recognized in the maritime press and by Senator Thompson's committee, among others) control of the anchorages and anchorage area. Thus the distinction made by Ambassador Hughes between the ports and the canal proper is evasive and irrelevant. The capability to interfere with U.S. National Security that was so carefully guarded against by the terms our Senate put into the treaty with Panama is the problem here. It is Law #5 which creates that capability of interference with that security and which, therefore, violates the treaty. In the event of a military confrontation in the Pacific, (e.g. Taiwan Straits or Korea) the large number of logistic ships required to support our deployed forces in the western Pacific must have available to them unfettered transit of the canal from a matter of hours to a maximum of ten days to sustain combat effectiveness. The forward deployed forces in the Eastern Mediterranean (NATO) or the Persian Gulf require the same assurances for logistic resupply from the Pacific to the Atlantic through the Canal. Control by a hostile power of the approaches to the Canal and the anchorages that would interdict the timely transit of those ships could require taking the facilities by force at a high cost in American lives. It is not "managing traffic" under normal circumstances with which I am concerned, it is the ability of a potential enemy to disrupt traffic so as to block military supply, which in times of conflict is 80 to 90 percent dependent upon sea lift capability for there to be any sustained forward effort.

Mr. Marine Comments: 
Law #5 is not only for the ports, but includes other areas as well. The anchorages are located at each end of the Canal and on the Atlantic side ships using the Canal must go through the breakwater and anchorage area. Hutchison Whampoa (PPC) controls the anchorage areas. Law #5 allows PPC to cite interference in the areas that they control and take action to block that interference. The Panama Canal Commission proper (PCC as opposed to PPC) does not take control of a ship until it enters Canal waters. Thus ships that are barred from entering the anchorages are effectively blocked from use of the Canal.

Ambassador Hughes: 
Institutional Framework: 
It is also important to understand the subordinate relationship of Law #5 to the Panama Canal treaties, the Panamanian Constitution, and the Panama Canal Authority (PCA) Organic Law (Law 19 of June 1997). Under Panamanian Law, treaties and international agreements have precedence over Panamanian domestic laws, including Law #5. Article V of the agreement in Implementation of Article III of the Panama Canal Treaty specifies that any changes made in the ports requires PCC review and approval. Furthermore, any conflict between Panama's Constitution and Panamanian law is resolved in favor of the Constitution. Article 310 of the Constitution states that "Any plans for construction, the use of waters, and the utilization, expansion, and development of the ports, or any other work of construction along the banks of the Panama Canal shall require the prior approval of the Panama Canal Authority." Admiral Moorer Replies:

This is hardly reassuring when one considers that Law #5 itself, giving effective control of much of the Canal to a Chinese Communist business front, is itself a violation of the Panamanian Constitution, which requires a plebiscite to enact such a provision affecting the Canal. It is misleading to speak of institutional structures in this regard as well. The only "institutions" that could enforce such a purported violation of the Panamanian Constitution, short of effective enforcement by the U.S. Government for violating the Canal Treaty in the first instance, would be courts. No one would be likely to have standing to enforce such a Panamanian constitutional violation in a U.S. court and there is not a shred of evidence that such a law could be enforced in Panamanian courts, (if that could be done at all given the forcing out of honest judges in recent years in Panama,) within a time frame that would protect our national security. The idea of having to go to court in any country to support our forces world wide (Army, Navy, Air Force and Marines) in the event of a major contingency or attack under our forward deployed strategy is sufficiently unworkable as to only have to be stated to expose its lack of practicality in the world of realpolitik or military conflict.

Mr. Marine Comments: 
Panama's Constitution has not proven to be a deterrent to anything and has been violated often with impunity. A perfect example of this is that Panama's Constitution was violated by giving China Law #5. Under Article 319 of the Panamanian Constitution: "Any treaty or international agreement celebrated between the Executive Branch regarding the Canal, its adjacent areas and the protection of such Canal, also the construction of a sea level canal or the third set of locks, must be approved by the Executive Branch and then must be approved via plebiscite no sooner than 3 months after the Legislative Branch approves such agreement. No agreement having to do with a treaty or international agreement will be valid unless the above article is implemented. This article must also be applied to any contract that the Executive Branch enters into with a public or private company or those that have to do with other nation or nations, regarding the construction of a sea-level Canal or the third set of locks." Obviously this provision was no bar to either Law #5 or the contracts with PPC and the Constitution is paid about as much attention to as the advice in a Chinese fortune cookie.

It is true that Law #19 requires that any major change in the Canal ports be reviewed by the Panama Canal Commission, which is still at present, according to the Canal Treaty, a creature of U.S. law. But despite the presence still of U.S. law, it is not being enforced. The environmental impact statements, for instance, required by U.S. law, are nowhere to be seen in the massive work already done by Hutchison Whampoa companies in building extensive new piers in the ports and creating very large landfills. The reason for the landfills clearly affects U.S. national security. The largest one was allowed when Hutchison, in cooperation with four Panamanian entities, was thwarted by Panamanian popular opinion and outcry in taking over Albrook Station military air field. The Panamanian public rebelled at the idea of a Chinese Communist related company being given a substantial ownership of a huge military airfield when it was supposed to be in the port business. But then, in its place, Hutchison is being allowed to build a huge landfill at the port, a project initiated with no forethought and one which appears to have no relationship to ocean shipping and to be an environmental nightmare. For "giving up" its Albrook participation Hutchison Whampoa got something else in exchange as well, in the form of a 60 million dollar discount on its promised annual payment to the Government of Panama from its concessions, thus causing the Government of Panama to bargain with itself and give up a very large portion of what it supposedly gained in the very large bid it got from the Hutchison Whampoa interests for giving up all of these concessions. This is just one of many steps where the Communist Chinese government appears to be shaving back its overwhelmingly larger monetary bid with which it bought Law #5 and it illustrates how the institutional structure is working against and not for both U.S. and Panamanian national security. For there is nothing to prevent Hutchison Whampoa from participating in owning Albrook, and possibly Howard as well starting when the U.S. leaves in 2000, or, for that matter, from building a military airfield on the landfill later on. The intention has been revealed. It is just a matter of when the Hutchison and its Panamanian allies feel they can get away with it.

Was the Panama Canal Commission (PCC) involved in the negotiations over these matters? To my knowledge it was not. There is also extensive work being done at Amador, a military base of enormous strategic importance, historically and even today, which is right at the entrance to the Canal. No environmental studies are being done as this work forges ahead. This project is owned and is being managed by private entities controlled by Panama Canal Commission Administrator Aleman Zubieta and came to him after he dropped his initial opposition to Hutchison interests being given the ports they now control and all of the contractual and service rights which they received. The work has an ostensible commercial purpose which appears to be simply a "scam", because at bottom it makes little commercial sense as presently conceived though it makes excellent strategic sense. The idea being publicized is that this will be a resort development with hotels, casinos and other attractions for cruise ships and that the development will include a cruise ship port. This appears to be a pretense because Amador includes a causeway three miles long that protects the Canal entrance. On the other side of the causeway is Panama Bay, where the water is heavily polluted by the raw waste of Panama City, which is pumped directly into it. Though the scenery is magnificent, what kind of resort can you build on the shores of what amounts to an unfiltered, untreated sewage dump? Despite this the first Panamanian administrator of the Panama Canal Commission, Alberto Aleman Zubieta, has made no comment about this project and its commercial impracticality as presently conceived and about its environmental dangers. Why? Surely one of the reasons is that, since these matters began to develop, his private company, CUSA, which he operates in addition to being head of the PCC, has received a 24$ million contract to tear down the existing facilities there, which are valued at several hundred million dollars, a project that again does not make commercial sense. The Panamanian government received a 69$ million loan for the purpose of making Amador a tourist development So the 69$ million covers the 24$ million. In my opinion, based on experience and history, the insiders are going to drain off the 69$ million to themselves and their associates and the project will founder and have to be bailed out. This will increase the security threat not decrease it and it shows how the "institutional structure" is working.

Though the Panama Canal Commission itself is still a joint U.S.- Panamanian project, it also illustrates how the "institutional structure" is operating to make matters worse not better, contrary to the position of Ambassador Hughes, that the Panama Canal Commission will cease to exist as the Treaty reaches its conclusion and will be replaced by the Panama Canal Authority (PCA). Who is the President of the PCA? Jorge Ritter. He is the chief Panamanian negotiator who has purposely torpedoed base talks in Panama, even though 80% of Panamanians want the U.S. to stay. He has been tied by the Panamanian press and the outside press to the highest levels of the drug cartels, and he served as Panama's ambassador to Colombia during the time that the dictator Noriega was doing business with the drug cartels in Colombia. He was more than an ambassador, he was Noriega's point man in Colombia. Another incident involving Jorge Ritter was reported in the Miami Herald about six months ago: Ritter provided Gaucha (Capo of one of the drug cartels) with a Mercedes. It was also reported that when the drug capo Jorge Escobar was killed in Colombia, they found a Panamanian Cedula (ID card) on him. It had been procured for him by Ritter. Escobar was the most violent capo and the enforcer for the drug cartels. It was he who had even blown civilian airliners out of the sky in Colombia. So this is the institutional structure that is in charge, a threat to the security of both Panama and the U.S. Ambassador Hughes:

When Law 5 was being debated by the Panamanian Legislative Assembly, PCC officials arranged, with the complete knowledge of Panama Ports Company, for an override provision ensuring PCA [Panama Canal Authority] authority. Article 2 of Law 5 states: "Pursuant to the provisions of Article 310 of the Constitution, whereby the Panama Canal Authority is established and granted attributes and responsibilities, and also by virtue of the close ties that exist between the activities of the Authority and the operation of the ports adjacent to the Panama Canal, the contract contained in this law is approved under the condition that none of its clauses may be interpreted in a manner that is contrary to the attributes, rights, and responsibilities that are conferred upon the Canal Authority in the referenced constitutional provisions or in the law whereby the Authority is organized, especially in relation to the use of areas and installations, marine traffic control and pilotage of vessels transiting the Canal and its adjacent ports, including its anchorages and moorings. In any case, when a conflict exists between the stipulations of this contract and the law whereby the Canal authority is organized or with the regulations that develop such law, the latter shall prevail over the former." Admiral Moorer Replies:

Again, there is no practical way to enforce this provision if a military confrontation necessitating transit of the canal to support our forward deployed forces should occur. I cannot emphasize too strongly that the national security requirements imposed by the Treaty speak to the allowance by Panama of the existence of the threat in the first place. It is mere capacity that threatens national security and that is barred by the provisions which this body added to the Treaty. Once the threat is in place those provisions of the Treaty are already breached. The violation that is thus created cannot then be cured by some abstract legal right that, as a practical matter, is unenforceable for lack of a timely remedy. Resort to litigation in some judicial or arbitration forum cannot be timely from a military perspective and, from such a perspective, is not sufficiently reliable for military planning. The impingement upon and interference with the operation of the Canal as threat exists by virtue of Law #5. In time of conflict there would be no practical enforcement of this supposed right short of armed seizure at the loss of American lives. I note that in this comment Ambassador Hughes is dropping his opening pretext that the ports and the canal are separate. His argument now shifts to admitting that they are not but that there is a legal right that would suffice for our national security. This shift is misleading. Mr. Marine Comments:

When Law #5 was pushed through, the Administrator of the Panama Canal Alberto Aleman Zubieta freely stated that Law #5 that the agreement in the law should be canceled because it included violations of the Panamanian Constitution and the Panama Canal Treaty. He was quoted as saying this in an article reporting on his opinion about Law #5 in the Panama America (dated 4/15/97) by former Vice President (Christian Democratic Party) Ricardo Arias Calderon. I myself had learned this in a phone conversation with a partner of Aleman Zubieta prior to the publication of that article, i.e., that he was opposed to Law #5. It should be noted also that under the agreement of Law #5, even if the U.S. were to prevail upon Panama to override Law #5 provisions as violating the Panama Canal Treaty, that is a violation of the language of Law #5 which requires Panama must pay the Communist Chinese affiliated PPC and indemnify it for all losses incurred. So that here again the institutional structure behind Law #5 operates against and not for U.S. national security interests. Because this language would force the U.S. to financially damage Panama if it chooses to enforce the treaty over Law #5, in order to enforce the Canal Treaty by protecting its national security interests. Thus, in enforcing its national security interests the U.S., by the language of Law #5, would trigger the requirement that the Panamanian Government pay the front for the Communist Chinese military, engendering ill-will and providing fodder for the Panamanian extreme left. This extremely vocal minority of Panamanians loves to whip up an anti-gringo fever anyway in order to provide cover for its efforts to undermine the sovereignty of Panama in the name of its diehard attachment to its failed ideal of communism. The Panamanian hard left is very pro- communist Chinese despite the current widespread resentment in Panama of the Chinese communist infringement upon Panama's national security. Ambassador Hughes:

This article is specific as to anchorages, traffic control, and pilots, and is also quite sweeping [in] its overall scope. PCC officials are confident that these legal safeguards are adequate to protect future Canal operations. In the event of a conflict or a challenge by PPC, Clause 3.4 of Law 5 provides for arbitration "according to the Rules of Conciliation and Arbitration of the International Chamber of Commerce." Furthermore, "the seat of the Arbitrating Tribunal will be the City of New York, and the arbitration proceedings shall be in English." Admiral Moorer Replies:

I am unable to understand how an American ambassador can assure the United States Senate that concerns of national security are alleviated by the fact that officials of an organization that has become increasingly responsive to the wishes of a commercial entity closely allied to, and virtually part of, the enormous business operations of the Communist Chinese military "are confident that . . . legal safeguards" which they have negotiated without any participation by the United States. or without even keeping the United States informed, for that matter, "are adequate to protect future Canal operations." It is not the question of specificity of reference "to anchorages, traffic control, and pilots" that is significant, it is that the specific references do not change the simple fact that a major strategic opponent is being given the capability to interfere with our unimpeded ability to use the Canal where the national security interests of the United States are concerned. And who gave Panama the authority under the Canal Treaty to agree to have matters arbitrated under the rules of the International Chamber of Commerce? Not only are such arrangements inconsistent with our nation's security, they are inimical to it. The International Chamber of Commerce has historically been disinclined to rule fairly in favor of U.S. interests and for that reason is often avoided by American business in its international dealings. This hardly augers well for our security interests as a nation.

Ambassador Hughes: 
Following is a point-by-point commentary on the issues raised by Admiral Moorer. His first point was that the contract gives the company responsibility for hiring new Canal pilots.

Comment: Article 57 of the PCA Organic law, however, states that the PCA "shall regulate . . . navigation in the Canal, vessel transit, inspection, and control, and all other activities related to navigation in the Canal and adjacent ports, including maritime safety, pilotage, and the issuance of special licenses to pilots, mates, and operators of vessels and other floating equipment to work in the Canal." Implementing regulations, currently in draft, will establish PCA practice with regard to employment of pilots. However the law is implemented, PCA will have the final say.

Since the movement of ships to, within and from a port is critical for any port operator, it was logical for Panama Ports Company under Law 5 to seek to assure access to pilotage services whether from PCC/ PCA of from its own pilots. It also sought guarantees of coordination with the PCC/PCA to assure "efficient" operation. Under current practice, pilots, who are employees of the PCC, board ships at Canal entrances and pilot them either in transit to the other end, or to dockside in the ports. Pilots in the ports, also employees of the PCC, move ships for activities like loading and unloading.

Law 5 establishes PPC's right (Clause 2.10c) "to have and operate, under a separate concession from the National Port Authority . . . pilotage services. It also (Clause 2.12i) obliges the GOP to "guarantee, at the election of the customers of the Company and on a non-discriminatory basis, the services of the pilots appointed by the PCC or its successor [the PCA, headed by Jorge Ritter, Noriega's drug ambassador to Columbia], and to provide such pilotage services in accordance with established standards." But "If service levels are not obtained by the customers of the company, then they will have the right to directly hire the pilots they deem necessary for performance of such services." Since coordination with the PCC/PCA is critical, Panama Ports Company also sought (Clause 23.12j) to oblige the State to coordinate with the PCA/PCC pilotage services in port. Again, if service levels were not obtained, the "the Company may ask the State, and the State must provide to the Canal Commission or its successor agency sufficient additional pilotage resources to allow it to provide efficient service at a reasonable cost." Such services would be provided in accordance with applicable Canal regulations and procedures.

Admiral Moorer Replies: 
It takes a long time to train a pilot for any particular waterway. Piloting skills are irreplaceable in a short span. This is even more critical for a "lock" canal where pilots are normally granted complete control during a ship's passage. The mere power to train its own pilots in an operation so closely tied to the PLA as the PPC is, will be a threat to our national security. But now we learn from William Bright Marine that Panama has agreed in Law #5 to allow Communist Chinese affiliated Hutchison to retain and use its own pilots, thus giving it the right to train pilots. All Hutchison has to do is to state that its (Hutchison's) customers are not satisfied with the performance of pilots provided by the Panama Canal Commission (which will become the Panama Canal Authority once the U.S. leaves.) Hutchison's customers include COSCO and many other arms of the People's Liberation Army, as well as those entities so anxious to do business with Communist China that they are willing to compromise the security of nations to please the Chinese Communists. In the meantime the training of pilots by the PCC is declining as the U.S. departure nears. It is easy to see where this is headed--toward de facto control of pilotage by Hutchison, which is subservient to the interests of the Chinese Communist military and its strategic goals. In the Vietnam conflict the President authorized the mining of Haiphong Harbor with a proviso that mine activation be delayed to allow sufficient time for neutral merchant ships to leave port. The Vietnamese, not wishing to lose the material in the unloaded ships, precluded their timely departure by the simple expedient of moving the qualified pilots up river out of the reach of those ships. The pilot issue is one that should not be avoided or evaded by an American Ambassador. To do so is to place us in a position where hostile action by Communist China, e.g., against Taiwan, could only be dealt with by the use of massive military force under extremely adverse conditions to retake the Canal with a large cost in American lives and extensive collateral damage to non-combatants--to Panamanians, to Americans, to other allies and to ships of other countries.

Mr. Marine Comments: 
It takes six (6) years to train a Canal Pilot. The effect is to grant control of pilotage, along with other crucial services, to the PLA affiliated Hutchison Whampoa operations within the near future. This combines with control of facilities and land which would render U.S. forces incapable of forcing the passage of the Canal and landlocked, so that Panama's national security would be endangered by the high cost the American military would have to pay to open the canal, including having to bring pilots out of retirement or otherwise secure pilot services at a corresponding cost in efficiency of operation. The danger for Panama is that the cost to America to protect the Canal would be raised so high that America might acquiesce in actions which would lead to effective, non-American foreign control of Panama.

It should be noted that in Law #5 paragraphs in 2.12 I and J are identical but for one important omission. Under J the language states "port pilots", under lit just states "pilots." Both sections state, it is true, that the rules must be enforced that the Panama Canal has in place. This was a concern to the U.S. embassy, I grant, and the embassy's copy of Law #5, when it finally got it, shows underlining under these provisions. At present under these regulations, when a ship comes into a port, a Panama Canal Commission brings it in. When the ship then leaves a port to transit the Canal, a Panama Canal Commission also takes it To reach the ports on the other side the ship must travel through Canal waters. But, under this article all the Hutchison company has to do is declare that its clients are unhappy with the existing services and it can name its own pilots. Hence the contracting of the training for the pilots to Hutchison Whampoa. We see in the figures given by Ambassador Hughes that a very large number of communist Chinese ships transit the Canal each year and, of course, these ships are ships of COSCO, another branch of PLA, Inc. So if the ships run by the Communist Chinese military declare that they are unhappy with the pilots from PCC/PCA, under Law #5 the communists can simply train their own. Remember these are the folks that, under a similar system, crashed one of their ships into the shopping center on the New Orleans levee. The PPC pilots could do the same and put the Canal out of commission. Under the guise of privatization, Hugo Torrijos and President Balladares placed in Law #5 this provision to allow themselves and their partners in the Communist Chinese affiliated Hutchison interests the contract for pilotage in the Canal. PCC is presently negotiating a contract with the pilots and has already proposed allowing the ship captains to pilot the boats through the Canal, and privatization of pilot services.

Ambassador Hughes: 
Admiral Moorer maintains that the contract grants the company control over critical Atlantic/Pacific anchorages, including a monopoly on the Pacific side when Rodman Naval Base reverts.

Comment: Since Law 5 is a concession to manage ports, it does give PPC control over areas and facilities needed to that end. However, Article 58 of the PCA Organic Law provides that "all vessels or craft transiting or moving in Canal waters, anchorages, mooring stations, and the ports adjacent to the Canal shall be subject to the orders and supervision of the Traffic Control of the Authority, in accordance with the Regulations." Thus the PCA retains control over anchorages."

Regarding Rodman, Clause 2.1 of Law 5 states: "It is agreed that during a period of three years form the effective date of this contract, the State shall not grant the right to operate quay-side cargo handling businesses (including general cargo, container, passenger, bulk and roll-on/roll-off, but excluding fuel warehousing and supply activities) in the area of Rodman Naval Station to any individual, corporation, or incidental party without first giving the Company the right of first refusal to operate this business in the Rodman Naval Station, on the same terms and conditions no less favorable than those offered by the third party or parties, as the case may be."

This provision clearly represents an effort by Hutchison to deter competition on the Pacific side, and was controversial because it was not included in the original bidding terms. At the time Law 5 was negotiated, Manzanillo International Terminals (MIT) was negotiating for the right to develop a competitive container port in an area just north of Rodman. However, in a preliminary assessment of MIT's proposal, the PCC noted that MIT might have to dredge a new turning basin at a location acceptable to PCC to avoid interfering with Canal operations. It further noted that the proposed third set of Canal locks, if constructed, would pass through the Rodman area. MIT concluded that its proposal was unfeasible. Subsequent to passage of Law 5, the GOP granted a concession at Rodman to Alireza Mobil Terminals (Operator of Arraijan Tank Farm), which is already using two piers to provide bunkering (fuel) services, and has additional plans to develop the waterfront area, but presumably not in a manner that would trigger Panama Ports Company's right of first refusal.

A study performed by the Japanese International Development Agency found that Farfan, beyond the Bridge of the Americas, on the Pacific side, is the logical area for long-term port expansion, though such development would require considerable investment. Farfan is nowhere mentioned in Law 5, and PPC has no rights vis-a-vis Farfan. Thus, a long-term PPC monopoly on the Pacific side is by no means ensured. The bottom line is that competitors would have to invest considerable sums to compete with PPC's Balboa operations.

With regard to competition at the northern terminus of the canal, Taiwan-owned Evergreen and U.S.-owned Manzanilla International Terminals already compete with Panama Ports Company. Admiral Moorer Replies:

I speak of our national security and the Ambassador answers by speaking of the lack of commercial competition and the possibilities for capital-intensive expansion of port capacity. This does not answer what I have said, it evades it. Granting the right to take over Rodman is a threat to our security because of its location and the facility that it is. If the PLA wants Rodman for strategic reasons, it can have Hutchison Whampoa take it and use it for its strategic purposes, that is the bottom line.

Mr. Marine Comments: 
As a practical matter, and under Law #5, Hutchison Whampoa's company can interfere with ships coming into the anchorages by simply claiming interference. Thus the Panama Canal Commission has lost effective control, regardless of how responsive it might wish to be to U.S. national security interests, if that can be safely presumed.

The effect of the first right of refusal as granted to Hutchison Whampoa's company is to give this affiliate of the PLA control without having to put up any investment. The pattern that is shaping up is that, much in the manner of the shrewd traders of the Soviet Empire in its heyday, Hutchison Whampoa will control the situation, shave back what it is obliged to pay and generate income from controlled Panamanian assets to finance the exercise of options and other avenues of expansion. The degree of PLA control, and the overall giving in to its strategic purposes is revealed by the fact that Rodman was not put on the table for bargaining in the attempts to bargain with other possible licensees of the ports in their negotiations with Panama, but it was not only put on the table, it was negotiated to Hutchison Whampoa.

A Senate report tells how MIT was coerced out of the Law #5 bid by Gabriel Castro, National Security Advisor to President Balladares. It seems that Sr. Castro is not interested in the national security of either Panama or the U.S. but rather the strategic goals of Communist China. Communist Chinese Ambassador Ju stated in an interview in La Prensa that Gabriel Castro was the best friend that the PRC had in Panama. There was protest which resulted in Rodman being offered to MIT, but when the Chinese Communist affiliates learned of this, they threatened to pull out with their payments above and under the table. So the Communist Chinese allied Hutchison Whampoa controls Rodman until after the U.S. leaves, at which point they will use further bribery to keep it under their control. So far the arm of the Communist Chinese has gotten whatever it wanted in implementing the Law #5 agreement. To assist the Chinese Communists, the Balladares gang has thrown other companies out of the ports, raised rents on still others and has allowed the Chinese Communist affiliate to exercise its option on Telfers Island. The Communist Chinese have been allowed to order the Panama Canal Commission out of their ports, thus creating large zones into which anything, including armaments, could be shipped into the sealed port zones in sealed containers and remain there indefinitely without monitoring or examination.

Admiral Moorer Inserts Parenthetically: 
Such sealed containers could contain missiles with nuclear warheads that could be easily launched to reach targets within the continental United States. This is another reason for a continued U.S. presence to prohibit the ability of the Chinese to take control in a military way. Otherwise the Communist Chinese would be on the spot while we would be faced with the need to remove them by moving troops from a distance with attendant loss of life to American soldiers, sailors, marines and airmen.

Mr. Marine's Comments Continue: 
Ambassador Hughes is correct about the expense of developing Farfan, but this illustrates that it is an illusion to maintain that there is much of an opening for competition. The overall effect is clearly to give Hutchison Whampoa interests control of all important strategic areas. We also note that the Communist Chinese affiliated Hutchison Whampoa interests are introducing Communist Chinese labor practices, to further gain a competitive edge to their commercial practices that results in a strategic advantage. Both MIT and Evergreen have created numerous jobs, and, by comparison to Hutchison Whampoa, have made heavy investments. By contrast Hutchison Whampoa's PPC fired 1,500 workers and then hired back only 400 at less than half of their prior wage. This has silenced the employees and effectively made sure that they will not report on any practices engaged in by the communist affiliated Hutchison Whampoa company which might be a threat to U.S. or Panamanian security and would be recognizable as such.

Ambassador Hughes: 
Order of Ships; Denial of Access 
Admiral Moorer stated that the contract gives the company authority to control the order of ships utilizing the entrance to the Canal on the Pacific Side, and the right to deny ships access to the Canal which are deemed to be interfering with Hutchison's business in violation of the 1977 Panama Canal Treaty, which guarantees expeditious passage for the United States Navy.

Comment: There is no provision in Law 5 on the order of ships entering the Canal on the Pacific Side. The only reference to ship priority is found in Clause 2.10G, granting the company the right "to continue the current practice that any vessel in the Port of Cristobal maintains its pre-booked transit slot in the transit schedule of the Panama Canal." Cristobal, of course, is on the Atlantic side. There is no such provision for vessels at Balboa.

Admiral Moorer Replies: 
Precisely, the Ambassador confirms my fears and his conclusion is not justified by what he himself admits. He acknowledges the peril and then denies that it exists. By giving a company that is hand-in-glove with the Communist Chinese military the "right" to do what is now done by the Panama Canal Commission, the scheduling power is taken from the Canal authorities and given to a company which is virtually an arm of Communist Chinese military strategy, along with the ports of Diablo, Balboa, the rights to have and operate the piloting and switching tugs, the work boats, the vessel repair services and, most importantly, the pilot services. It was this control of pilot services that was used effectively against us by the North Vietnamese Communist military in Haiphong Harbor. These "rights" granted to a company strategically allied with the Chinese Communist military, which in turn, is subservient to the party apparatus, are thereby taken away from the Canal Commission. The effect is to erase any distinction between commercial and strategic considerations and place our military needs for the effective preservation of America's national security interests at the disposal of a country that has the potential to become a dangerous strategic enemy.

Mr. Marine Comments: 
The current practice is that the Panama Canal Commission exercises authority to maintain transit reservations. By omitting any deference to that existing practice, the clauses in Law #5 give the right to the Panama Ports Company, which is Hutchison Whampoa, the Chinese Communist military affiliated operations, the power to exercise this authority in the place of the Canal Commission. The absolute control over the port and anchorages on the Pacific side includes the same power. 2.10 of Law #5 gives Hutchison Whampoa's subsidiary the right to close the roads, Diablo, Balboa and the rights to have and operate the tugs, the work boats, the vessel repair service and the pilot services. The combined effect is to wrest the better part of the functions for controlling transit from the Canal Commission and hand them to a Chinese Communist front group. This is a great infringement of Panama's security and sovereignty and effectively creates another Canal Zone under the control of Communist Chinese dominated and allied interests. Given the incompatibility between Panama's republican form of government and Chinese Communism, which is one of world's largest employers of slave labor, the effect is to force Panama out of its democratic leanings modeled on its long association with the U.S. and into the orbit of Communist China and a system of government which most Panamanians oppose.

Ambassador Hughes: 
There is also no reference in Law 5 to denial of entry of ships to the Canal. Only the PCA [Panama Canal Authority], under Article 59 of the Organic Law, has the right "to deny entry to the Canal of any vessel not abiding by the rules and regulations for navigational safety established in their Law and Regulations."

Admiral Moorer Replies: 
As a former Commander-in-Chief of our Pacific Fleet, Supreme Allied Commander, Atlantic and Commander-in-Chief Atlantic Fleet, Chief of Naval Operations, and Chairman, Joint Chiefs of Staff, where an enemy's capabilities--not an estimate of his intentions--are the basis for strategic planning, I consider the Ambassador's answer to my testimony in this regard most unresponsive. The point is that, regardless of what the Canal Authority has the right to do or not do, the practical power of controlling anchorages, scheduling, pilotage and services is placed in the hands of a commercial affiliate of a strategic foe that is already on the spot and functioning, one that operates under a system that makes no difference between commercial and strategic planning, because the bulk of its commerce is, in the last analysis, controlled by its military and party apparatus, not by private merchants or entrepreneurs, however wealthy they may become from the monopolies which this apparatus bestows upon them. The Canal Treaty gives us the right to preserve our National Security in connection with the Canal. The operational capacity of an entity which is so closely tied to the Chinese Communist military to impede our passage through the canal by practical control of services and facilities essential to that passage is by its mere existence a threat and a violation of national security, regardless of the rights of the Canal Authority.

Mr. Marine Comments: 
Once again, if the ships cannot enter the anchorage area, they cannot transit the canal. Hutchison Whampoa controls the anchorages; the Canal Commission does not.

Ambassador Hughes: 
Regarding access to ports, Clause 2.11D of Law 5 obliges PPC [Panama Ports Company, the Hutchison Whampoa subsidiary company] to "permit the use of installations in the Existing Ports to US Army vessels, as established in the Panama Canal Treaty, until the expiration of such Treaty in the year 2000 . . . provided that such use does not interfere with the daily operation of the Company in the Existing Port, but the Company will have the right to charge for the services it provides at commercial rates similar to those applied to the customers of the Company."

It should be stressed that Clause 2.11D refers to vessels' access to port services in installations adjacent to the Canal, and not to Canal use. This provision is intended as a specific limitation on the Company's operations during the Treaty period. Thereafter, US military vessels are free to contract on a commercial basis with PPC for access to ports and needed port services.

Admiral Moorer Replies: 
The Ambassador's statements are made as if they refuted my testimony when in fact they make it clear that the Hutchison Whampoa company is being given control over U.S. National Security. For example, this supposed refutation of my concerns admits that, even in this legalistic world of the Ambassador, all Hutchison Whampoa and its head Li Ka Sheng, who is closely allied to the Chinese military, would have to do after the Treaty expires, is to jack up the rates on everyone to prohibitive levels on everyone and the U.S. military could be included, and that's apart from Hutchison's control of the services essential to passage through the canal. All I can say is that, when the Nazis, in the years leading up to our entry into World War II, were attempting to expand their influence in Latin America, President Roosevelt made his concerns about the Canal known in no uncertain terms in speeches that were broadcast on radio and shown in newsreels all over the country. Any ambassador to Panama at that time who had shown this degree of apologetic cooperation with the totalitarians would have found himself recalled in short order and would have enjoyed a considerable degree of opprobrium from the President and the American public.

Mr. Marine Comments: 
Just read what Law #5 actually says, as the Ambassador urges: all that matters is that the use by the U.S. military does not interfere with the daily operation of the company in the Existing Ports. Then read what Law #5 includes, by options and extensions, in the Existing Ports, virtually everything. It includes, for example, Telfers Island, which is strategically placed right in the middle of Canal waters. Once the U.S. gives up Rodman, the U.S. forces will be landlocked and virtually neutralized. Neither Panama nor the U.S. will be secure. Even today, before the options are exercised and the additions to Existing Ports made, the company simply has to declare that the U.S. military is interfering with its daily operation of its present ports.

Ambassador Hughes: 
Transfer of Company's Rights 
Admiral Moorer suggested that the contract gives the company the right to unilaterally transfer its rights to a third party--any company or nation of their choosing.

Comment: Clause 2.8 of Law 5 gives PPC [Hutchison Whampoa, the Communist military affiliate] the right to "assign or transfer its rights and obligations under the present concession agreement or the activities derived herein, as long as it is to Panamanian corporations or to foreign corporations duly registered to conduct business in the Republic of Panama . . . When the assignment or transfer be in favor of a subsidiary or affiliate of the Company, it shall suffice for the Company to communicate this fact in writing to the State. When the assignment or transfer be in favor of third parties which are not subsidiaries or affiliates of the Company, prior authorization will be required in writing from the Cabinet Council, such authorization not to be unreasonably withheld." Subsidiary or affiliate is defined as including, without limitation, "those which, although maintaining corporate individuality, are dedicated to the same activities to which the Company devotes itself, or to complementary activities related to the operation of the Ports." Any entity to whom the company might transfer its rights would be subject to the same conditions and restrictions now in place, and the GoP [Government of Panama] would retain its 10 percent equity stake.

Later in his testimony, Admiral Moorer noted that the contract permits Panama to assign its rights under the agreement "with no further ado." Embassy is unclear about Admiral's intent in making this statement. He may be referring to the Clause 2.8 provision explained in the preceding paragraph.

Admiral Moorer Replies: 
Well, precisely. The Hutchison Whampoa conglomeration of companies controlled by Li Ka Sheng includes over 50 entities, in many of which there is participation either overt or covert by the various commercial arms of the PLA. COSCO, for example, the enormous shipping company run by the Communists which has been aggressively attempting to use the leverage of the Chinese Communist government to take market share from Western private ocean carriers, could be considered an affiliate of PPC. Any entity can either register to do business in Panama or incorporate a subsidiary in Panama. Thus the PLA and the Communist functionaries that control it can gain control of the Canal at any time. It is this capability, not the formalities of the legal entities as presently structured that must rule any consideration of what our security means under the Treaty provisions. What the U.S. Ambassador is putting forward here does not belie my contentions.

Mr. Marine Comments: 
Panama Ports Company (PPC) as a subsidiary operation of Hutchison Whampoa, can transfer or cede all or part of the rights and obligations arising from the concession contract or from the activities derived from the contract, as long as it is to a Panamanian corporation or a foreign corporation properly registered to do business in Panama. It costs $1,000 to incorporate or register in Panama. That's all there is to it.

When the ceding or transfer is made in favor of a subsidiary or affiliate of the Company, a written communication of said action from the Company to the State will suffice. This means with a written note Hutchison Whampoa, and behind it the PLA and the Communist Party of China, can transfer any rights to subsidiaries or affiliates which could include the China Overseas Shipping Corporation (COSCO), China Resource Enterprises, the Red Army's direct commercial front, or any of their thousands of subsidiaries and affiliates, the largest conglomerate in communist China, larger than all of its other enterprises combined. The United State Senate investigations have established that Hutchison International Terminals, for example, is in fact a 50 percent affiliate of the communist Chinese military operations.

Ambassador Hughes: 
Cutoff of Strategic Areas 
Fifth, Admiral Moorer stated that under the contract, some public roads become private, cutting off strategic areas of the Canal.

Comment: Clause 2.10e gives the company "the right to redesignate Diablo Road as a private service road instead of a public street, and the right to divert that road at the expense of the Company, as well as the right to divert Galliard Avenue (a public thoroughfare) at the expense of the Company, if it becomes necessary for the efficient operation of the Port of Balboa, said cost to be determined by the Company and subject to prior approval by the State. The State shall reimburse the Company for the referenced costs."

Following passage of Law 5, a major land dispute developed over areas granted to the port concessionaire but needed to operate the new civilian airport being developed at Albrook as well as the trans- isthmian railroad being revived by Kansas City Southern Railway, an American company. PPC is dealing with Kansas City Southern on implementation of their respective concessions. The PCC has approved the port and railroad operations, and maintains overall authority because the installations are within a Canal Operating Area. The redesignation or rerouting of these roads does not render the Canal inaccessible, and certainly not in a strategic context.

Admiral Moorer Replies: 
It would be interesting to know what the Ambassador relies upon when he states at the very end of this comment that "The redesignation or rerouting of these roads does not render the Canal inaccessible, and certainly not in a strategic context." There does not appear to have been any strategic analysis. Nor does it appear that there is any expertise that is being drawn upon. Everything that precedes this statement in this portion of the Ambassador's comments is about what appears to be a concern about excessive monopolization. There is a connection between monopolization by an entity controlled by or working in close cooperation with the military of a strategic opponent and national security but it does not appear that the Ambassador is giving it any serious consideration. One only has to look at a map to see that the power to control and reroute the roads in question would affect military operations in the Canal area. The Ambassador does not make any point that would alleviate these concerns.

Mr. Marine Comments: 
On one side of the Diablo/Galliard Road are the ports and on the other side is Albrook Station Air Field. When the agreement under Law #5 was first written the Hutchison Whampoa company, as an ally of the PLA, was given this up to date military air field and other facilities crucial to controlling the air space above the Canal and Panama generally. That arrangement was only abandoned in large part because of public outcry against such a concession to an organization so close to the Communist Chinese military. But even with that strategic withdrawal by those attempting to assist the Communist commercial fronts the question of the roads remains. If you close the roads down, it would then be necessary to go all the way around this area to reach the present, remaining U.S. military bases, seriously impeding logistics and resupply as well as troop movement out of these bases. The effect would be to cut off from easy access by U.S. forces critical areas in the port of Balboa which is presently 100% under the control of Hutchison Whampoa. From this choke point in the port of Balboa shipping could easily be controlled with only light artillery, or for that matter missiles. Both of these armaments could easily be present in the port of Balboa today and neither the U.S. or the Panamanians would have any way of knowing it. The sealed container operations of Li Ka Sheng into the sealed port under Hutchison Whampoa control gives that capability to the PLA, which I take it, is the Admiral's point

Ambassador Hughes: 
Inclusion of "Strategic" Facilities in Concession 
Admiral Moorer noted that the contract includes U.S. Naval Station Rodman; a portion of U.S. Air Force Station Albrook, Diablo, Balboa, a Pacific U.S. built port; Cristobal, a U.S.-built Atlantic port; the island of Telfers, which is strategically located adjacent to Galeta Island, a critical communications center. Admiral Moorer has been told that Telfers Island is the home of the Chinese-planned export Zone called the Great Wall of China Project.

Comment: The PPC concession does include the ports of Balboa and Cristobal, with a 15-year option on Diablo and Telfers. The company may exercise its option on these latter two areas by providing written notice to the State. As noted above, Albrook, which reverted to Panama in September 1997, has been the subject of a dispute between PPC, Kansas City Southern, and civil aviation authorities. The company has right of first refusal over cargo and container port development for a portion of Rodman for three years, as previously noted, but port development at Rodman is considered unfeasible. Telfers Island is four miles from Galeta Island at the closest point, and is another area where the port, if developed, would have to coexist with the railroad. There is a proposed project called "Gran Muralla" (Great Wall) to develop an export processing zone on two sites on Telfers, which the PCC is studying to determine whether it is compatible with Canal operations. Again, the PCC/PCA will have the final word over activities at Telfers because it is in a Canal Operating Area. From a strategic perspective, it is not clear that this arrangement is potentially any more dangerous than the daily passage of Chinese flag vessels, which has been going on for years. There were 237 PRC ship transits in FY 96, and 215 in FY 97.

Admiral Moorer Replies: 
Any one who cannot see where a sealed off port into which any armament can be delivered undetected in sealed containers (in the same manner that automatic weapons were shipped into this country by PLA affiliates) is different from the passage of flagged vessels cannot seriously have analyzed the strategic considerations involved. By the same token any one who thinks four miles is a deterrent distance strategically is clearly not aware of realistic strategic considerations. There the ambassador goes again, admitting the strategic vulnerability and then making irrelevant statements such as that "development at Rodman is considered unfeasible." The question is not one of commercial feasibility, but one of strategic vulnerability, to which the Ambassador does not seem willing, or able, to make an actual response to my statement.

Mr. Marine Comments: 
The Albrook fiasco was that in their anxiety, those that were so anxious to help Hutchison Whampoa gave away to this affiliate of the Communist Chinese military not only Albrook Air Field but also other lands that included those adjacent to Panama's FAA and those around two private Panamanian companies. Thus, the effect was to extend the land control of Hutchison Whampoa five miles into the Zone rather than one and to include strategic stretches of the transiting railroad and both highways, a tactical disaster from a national security standpoint. One of the two private companies whose lands were given to Hutchison Whampoa was a company that is co-owned by the present president, President Balladares, and Mayor Alfredo Aleman. Mayor Alfredo Aleman, it is important to note, was forced by the U.S. to resign as the president of Panama's Central Bank before the U.S. would certify Panama as a country that was carrying out its responsibility to help in fighting the drug problem. The degree to which he is involved in these matters is ominous for Panama from two perspectives. It is a threat to Panamanian and also U.S. security just because of the power and corrupting influence of the narcotics traffickers, but it is also a threat to the security of both nations because of the cooperation it indicates between the drug traffickers and the Chinese Communist commercial front operations. Significantly, the annex to Law #5 which revealed this information for the first time was not disclosed until one year after the law was pushed through. I have also talked to people at Bechtel who were involved in its attempts to obtain rights as a result of the privatization of the air field. They told me that not only were they not to be given the air field, but that Bechtel, as a major U.S. company, would only be allowed, by comparison, a small amount of land in the port area. In the package that they were told was the only possibility for Bechtel there was no inclusion of any option or extension for Rodman and Tellers Island as has been given to the Chinese Communist affiliated Hutchison Whampoa. There were other sundry differences as well that demonstrated a greater willingness to assist Hutchison Whampoa in obtaining rights that threaten Panamanian and U.S. security that were not offered, even as a possibility to Bechtel, which would have tended to protect the security interests of both countries by comparison if they had come under the control of a major U.S. concern such as Bechtel.

Under the present arrangements between Balladares and his cronies and Hutchison Whampoa, if Panama and the U.S. were to reach a deal on maintaining some American military bases after the Treaty runs its course, Chinese Communist interests could match the U.S. offer for Rodman and preemptively take the bases in the stead of the U.S. In 1995 and 1996, while the Ambassador and then Foreign Minister Gabriel Lewis Galindo were close to concluding a base agreement in which Rodman was part of the deal. Suddenly, however, in late 1996, Rodman was taken off the table as a possibility for a continuing U.S. base and the reason given was that it was to go instead to the Chinese Communist affiliated Hutchison Whampoa. This is a concrete illustration that there are strategic and not just purely commercial interests driving these things and that in fact the commercial goals are subsidiary to the strategic interests.

If we are to take Ambassador Hughes at his word, then the Hutchison Whampoa/PLA interests might not get Tellers Island for development, but in fact, what he does not reveal, is that they already have. In June of this year, 1998, the Government of Panama under this agreement, and Hutchison Whampoa/PLA signed an agreement that would allow Hutchison Whampoa interests to start developing Telfers. It is incredible that Ambassador Hughes cites the fact that Tellers and Galeta are four miles apart as if that were a protection rather than an exposure. Both Admiral Moorer and Ambassador Hughes acknowledge that this project is known as the Gran Muralla or Great Wall. Obviously the Admiral, from his knowledge and experience, and the importance of Galeta as a strategic communications center, does not share the Ambassadors rosy view of the symbolic significance of this name. Perhaps he has in mind how the Soviets gave the U.S. a bugged embassy in Moscow while the Soviets in turn took the best sites in Washington for monitoring all U.S. military and strategic communications in and out of the capital. Another disturbing aspect of this deal from the perspective of Panama is how, again, the Communist Chinese are taking back with the left hand what they appeared to have given with the right. Panama will have to give an additional discount to the Hutchison Whampoa interests of $60 million over 6 years. This means another reduction, in the amount of $10 million in each of those six years, from the $22 million per year which Hutchison Whampoa bid to beat out the other bidders for the port concessions. If Telfers is worth $60 million and generates revenues, then the Chinese military will have succeeded in making Panama, in effect, pay for the excess which it bid to win the concessions while expanding its revenues from the acquired concessions and at the same time increasing its strategic advantage and its threat to the security of Panama and the U.S. And if the agreement is interfered with by the U.S. in order to protect its security interests and violations of the Treaty then Panama is required to indemnify the commercial arms of the Chinese military for the U.S.'s having caught out the Balladares gang violating the treaty for gain. After all the above figures only refer to moneys above the table. The Panamanian press has exposed the existence of considerations under the table.

Ambassador Hughes: 
The Admiral's Call for Action 
Admiral Moorer noted that a clause was inserted at the end of Law 5 which states that if a conflict between provisions of Law 5 and provisions of the Panama Canal Treaty occur, the Canal Treaty prevails. He asserted that this clause is "meaningless if the U.S. Government doesn't act now."

The relationship between Law 5, the Treaties, and the PCA Organic Law was outlined above. The Admiral does not explain why he thinks the safeguards are meaningless, and Embassy and PPC do not agree with this assertion.

Admiral Moorer Replies: 
Ambassador Hughes' comments are evasive inasmuch as they assume that the only considerations of importance are commercial and economic which can be addressed somehow in some vague way through the internal laws of Panama, options to intervene, and, in one instance, through arbitration procedures under the rules of the International Chamber of Commerce. This is to ignore the strategic considerations which we as a nation are entitled to invoke under the Treaty, particularly as modified by the United States Senate. As I have stated, we are talking about a time frame of from hours to days in which to move a vast number of support ships through the Canal to meet a major contingency or outright hostilities to support our forward deployed forces. The phrasing of that language in the Treaty which addresses our national security concerns is to be interpreted as applied in a military and strategic sense if it is not to be meaningless. The Ambassador is engaged in a process of denial which has been embraced by all who are attempting to shift attention away from the violations of the Treaty which appear to be occurring and require immediate investigation and analysis, followed quickly by swift and effective remedial action. At the heart of this denial is an unwillingness to face the reality of a totalitarian government such as that of Communist China and how it operates in a much more monolithic fashion than a Republic such as ours does. There is no separation between commercial and strategic considerations on the part of the controlling party elite of Communist China, any more than there was in the former Soviet Empire. The Party elites in turn, through operatives in all units of the armed forces, control the armed forces of Communist China. The armed forces of Communist China, in turn, and in this they are slightly different than the Soviet model, control the biggest business operation in Communist China. As a business, the military is bigger than all of the other businesses of Communist China combined. Some of its operations, and there are literally thousands, such as COSCO, and China Resources, have become known to committees of this Senate and through reports in the maritime and Asian business press. But we seem in the grips of a paralysis as far as fully analyzing the strategic implications of this operation.

The Chinese military has studied and learned from all of our military actions since Korea. Its operatives, under this administration have, believe it or not, been brought into the Pentagon itself and into all branches of our military operations, where their aggressive gathering of intelligence on our military operations have become legendary. Under a system such as theirs, moreover, all "students" in this country, and there are thousands, also are assigned to the care of party or government overseers and are used to gather intelligence. Correspondingly, however, our studies of the strategy and tactics of the Chinese Communist military appear to have had artificial restrictions and to have been dominated in some cases by ideas that appear faddish. Preoccupations in recent years, for example, with information warfare and such things as urban warfare appear to have resulted in a blindness to the obvious.

The architect of our present Naval superiority was Alfred Thayer Mahan who, in the late 19th Century began to point out the importance of the interaction of commercial and strategic considerations in the Pacific in particular. Ironically, as we come to the end of this century we seem to have forgotten those lessons. Our "nodal analysis" of key strategic points in ocean shipping underlying and necessary to the operation of our two ocean and forward deployed strategy in times of conflict seems to have been neglected even as the Chinese have increased their study of these matters and quietly moved to cut off our ability to support our technical Naval and military superiority where they realize they could not confront it directly for a number of years yet. This should come as no surprise. For, it is a concept which they have successfully employed for literally thousands of years. The principle of their great military strategist. Sun Tzu, in his famous work, The Art of War, is that the surest way to defeat an enemy is to make sure that you do not have to actually go to war to defeat him. This is to be done, under the lessons of this master of strategy, by rendering us unable to support our technically superior fighting capacity through a control of the ocean commerce necessary to support it in actual conflict. In times of actual conflict 80 percent and more of our supplies and weaponry and personnel must move by ocean commerce. We are only as strong as our weakest link in this vital commerce. That weakest link is the Panama Canal. It is astonishing to hear a man who is an ambassador of the United States of America standing together with an arm of the commercial operations of the Chinese military, the Panama Ports Company (PPC), against the carefully weighed considerations of those who, by education, training , and experience, have spent a lifetime learning how best to preserve our national security under any and all circumstances and have been repeatedly called upon to do so. Truly the misrepresentation and evasion in these comments of the Ambassador constitute a type of "information warfare", with which many in government have been preoccupied in recent years, but it is being directed not against, but in cooperation with, the principal strategic enemy seeking to employ it against us, and thus is directed not to those whose intent it is ultimately to dominate us in the coming century if they can but rather against the interests of our own national security.

Mr. Marine Comments: 
If having the Communist Chinese government via China Resource Enterprises, COSCO and Hutchison control the access to the Panama Canal is not enough, what is? If having such entities control U.S. ports, U.S. bases, including Naval stations and military airfields is not enough, then what is? Maintaining the ability to cooperate with the majority of Panamanians to protect and defend the Canal, which is in the national security interests of Panama as much as it is in the national security interests of the United States, is one thing. Having to take the Canal by force to protect the national security interests of both Panama and the United States is quite another. If the United States is excluded from appropriate security access and has to retake the Canal by force then in order to do so it has to first take the ports. This was shown in 1989 when the U.S. had to liberate Panama from the control of the dictator Noriega (by whom I was imprisoned and tortured) and the drug lords. When there were attacks upon the liberating forces by the "dignity battalions", where did they come from? They came from at the entrance of the Canal. The best defense for the Canal is to have 10,000 troops stationed there full time, with full tactical access to all necessary points of defense connected with the Canal and the ability to maintain landing facilities for the quick placement of an additional 100,000 ground troops into the Canal and its approaches.

Ambassador Hughes: 
Other Points 
Admiral Moorer states that Law 5 is illegal because it runs counter to the Panama Canal Treaty, and that the Treaty, "calling for a neutrality provision," is illegal because Panama did not sign it, nor ratify it via the plebiscite. Panama signed the Treaty Concerning Permanent Neutrality and Operation of the Panama Canal on September 7, 1977 and submitted it to plebiscite along with the Panama Canal Treaty in late September 1977; it was ratified. The U.S. Senate also ratified it. Article V of the Neutrality Treaty states that after the termination of the Panama Canal Treaty, "only the Republic of Panama shall operate the Canal," but does not address the issue of port operations.

Admiral Moorer expressed dismay and bewilderment that the U.S. Government "passively permitted" Law 5 to happen. In principle, USG supports privatization of state-owned facilities as a valuable tool in rationalizing and modernizing economies. Unfortunately, the GOP mishandled the process to the disadvantage of interested U.S. companies. Ambassador Hughes, officials of the Departments of State and Commerce, and the President's Special Envoy for Latin America made repeated and forceful public and private protests over the lack of transparency and a level playing field. Congressional delegations visiting Panama expressed their concern to GoP officials. Certain scheduled initiatives in Panama were canceled as a form of protest. The privatization process and ports contract became a major issue in our bilateral relations. It is inaccurate to assert that the USG "passively permitted" Law 5 to be passed That said, it is not clear what legal authority the USG would have to impede the GoP from privatizing its ports in this manner, or from agreeing to the terms contained in Law 5.

Admiral Moorer Replies: 
The bottom line is that the U.S. did not encourage the "privatization of state-owned facilities as a valuable tool in rationalizing and modernizing economies." By promoting a false and misleading conception that for a communist military apparatus such as that of Communist China "commercial" and "trade" considerations are somehow separate from, and not inextricably connected with and dominated by, strategic considerations, the administration promotes and protects the transfer to control of the communist dictatorial government of the People's Republic of China the ports and other strategic choke points endangering our free passage through the Panama Canal, which was built and has been defended with American and Panamanian sweat and blood. There is nothing "rationalizing or modernizing" about the PLA, Inc. Already its treatment of Panamanian labor shows that. It is a dictatorial throwback that is out of synch with modern free market economies on which the future of a world that is free and secure depends. In China itself it is a massive user of slave labor. Its military strategies are centuries old and we are not even paying proper attention to their use against us on our very doorstep. The Canal under PLA control is a dagger pointed at the industrial heartland of America, particularly at the ports of the Gulf Coast and the vast system of waterways that feeds into them, carrying much of our heavy manufactures and materials and strategic materials. Franklin Delano Roosevelt, prior to and leading into World War II, in which I participated as a young Naval aviator, starting with the bombing attack on Pearl Harbor, was particularly outspoken in the newsreels and broadcasts of the day about just this very type of attempt to control the Canal, as attempted by Nazi Germany and the totalitarian empire of Japan and its Greater East Asia Co-prosperity sphere. It is indeed unfortunate that today, not only do we not enjoy such leadership, we have officers of our own government assisting the strategic designs of the leaders of Communist China as they implement them through their complex of commercial entities.

It is a serious misrepresentation to say that the Canal Treaty was adopted. What the United States Senate adopted contained the DeConcini amendments, specifically designed to strengthen our national security in order to in turn secure that of Panama and to correct problems with the Treaty as it came to the Senate which could have threatened our security. The version that was put to plebiscite in Panama was not the same Treaty and did not contain those essential provisions. Not only that, a provision was slipped into the version that was submitted to the Panamanian plebiscite which was specifically designed to destroy our ability to intervene to protect our national security and render the DeConcini amendments inoperable if allowed. There are other problems with its supposed adoption. For example, President Lakas of Panama was required to sign it and did not do so. I knew him and hunted with him. He was a fine man and specifically would not sign it because he knew of the intentions of the now departed dictators and their drug lord friends with regard to it. Further, there is considerable evidence that the plebiscite was fatally flawed with so much fraud as to not represent the actual vote of the majority of Panamanians and their true feelings on the issues it ostensibly embraced, even in the version which was put to plebiscite. The corruption in the process, and the differences in the two versions, go directly to concerns of our National security. The blind posturing and "business as usual" protests to which the Ambassador refers are the very definition of passivity in strategic matters, and, unfortunately, U.S. military personnel will some day have to pay an unnecessary price for this passivity unless we act now to correct it.

Mr. Marine Comments: 
Actually, the evidence shows that Panamanians rejected the version of the Panama Canal Treaty which was put to them in the 1977 plebiscite. The results were falsified to obtain the result desired by a minority of Panamanians in league with the drug interests, and other interests inimical to Panama's long term security. Similar frauds were perpetrated in the 1984 and 1989 elections. The only reason that the United States Senate ratified the treaty was the fact that the DeConcini Amendments were added, and that they were not presented to the Panamanian people because the Panamanian people would have overwhelmingly favored them, perhaps to the point where they might have mitigated or overcome the fraud. As a result the votes in the two countries were on different treaties and there never was any one agreed upon treaty that was voted upon in both countries and adopted.

As to the denial of "passivity" by the U.S. administration as Law #5 went forward: The Department of Commerce is mentioned. Yet the only contact by the U.S. Department of Commerce while Law #5 was going forward was during the week that the bids were actually received, and that was an unsuccessful attempt by Secretary Kantor to make a phone call. According to the Panamanian press his call never got through.

The only protests by the American Department of State involved a protest about corruption involving which was proven concerning associates of Torrijos and Villareal taking a $50K bribe for a lot on the ports for an American company, Saybolt. The President of Saybolt was arrested and faces charges in Boston for violating the Foreign Corrupt Practices Act. Yet the enormously larger corruption involving the Chinese Communists interests was not taken note of by the U.S. administration. Even Panamanian Senator Leopoldo Bennedetti has stated that bucket loads of money were paid for the port. The Saybolt bribe was only a drop in those buckets. The U.S. minor corruption was exposed but the much greater corruption involving the Communist Chinese was unremarked by the U.S. administration even though its purposes were clearly strategic as well as commercial. For two years Saybolt, an American company from Massachusetts, tried to get the small lots without paying bribes but was told pay if you want to play and get the lots. Finally they caved and paid and were very quickly exposed and caught. In the meantime, Torrijos and Villareal, taking the Saybolt money only to expose them, were involved in the receipt of much greater amounts as they were writing into Law #5 for the Communist Chinese Hutchison affiliate that these arms of PLA, Inc. could raise the rent on contracts with companies like Saybolt or cancel them altogether.

The picture given by Ambassador Hughes to the U.S. congressmen coming down to Panama to check on things has omitted essential details. He has consistently told them that Hutchison Whampoa is a Hong Kong British company without revealing that is a former and old British Hong Kong trading company that has been totally taken over by Li Ka Sheng and the interests of PLA, Inc., recast, and used as the hub of a conglomerate empire of some 50 companies with many interlinks with PLA entities, which number in the thousands. If an accurate picture had been given to visiting members of the Congress, it is unlikely that this quiet takeover would have gone virtually unrecognized for the threat which it presents as long as it has. How much faith can we in Panama have in U.S. administration spokesmen that have covered up what has gone on in Panama, and prevented even those officially in charge in its own State Department from knowing about these matters as they have progressed? The fact that Ambassador Hughes now states that the administration knew of what was going on all along is more like a confession than a contradiction of the Admiral's assertion of passivity. It is to admit that the administration knows of the ever increasing Chinese Communist influence and control and prefers to seek to divert attention from the alarming reality of the situation by its absurd pretension that in a communist country such as the PRC the commercial and trade interests are divorced from and totally separate from strategic considerations and military influence and control. The bottom line is that these Chinese communist entities have effective control of former U.S. bases as ports, and of bases and, as a practical matter, the functions of the Canal.

As to what the U.S. could do: it could order Panama to remove all Chinese Communist commercial front influence from the ports as a violation of the Treaty, if it has the will. Such decisive action would be welcome in Panama and the U.S. Panamanians, except for a small but vocal minority, are fervidly anti-dictator and anti-communist. The U.S. should never forget that in the 1989 liberation of Panama 24 U.S. soldiers died. There was also the murder of U.S. Sgt. Zak Hernandez, by a member of the same corrupt group that is in league with the drug lords and the communists.

At present such will is lacking. Ambassador Hughes has not responded to Admiral Moorer's national security concerns. Instead he is trying to change the subject. In a familiar technique in this administration, he is "compartmentalizing", and attempting to focus all attention on commercial aspects of the PLA Inc. as if they were separate private commercial entities divorced from the strategic considerations of the PLA and communist party controlling entities. The bottom line is that affiliates of the Chinese Communist military control the most important and strategic ports, and effectively control the U.S. bases and the functions of the Canal itself. Li Ka Sheng was offered the governorship of Hong Kong as the PRC moved in but turned the offer down in order to keep on working with them through his monopoly leverage as a chosen instrument of the PLA, Inc. Control of the ports is control of the Canal. Li Ka Sheng, strategically, is the PLA.

Why was the ambassador not aware of what was in the Law #5 treaty and agreement until 8 days before the Chinese Communist affiliated Hutchison Whampoa company physically took over? Why has he not disclosed to visiting Congressmen the true nature of Hutchison Whampoa and its connections to the PLA commercial/strategic conglomerate empire? Why does he defend the enemies of Panamanian and U.S. democracies, even after the revelations I have described? This is not an accident, this is policy. In Spanish there is a saying: A otro perro con ese hueso ! "To some other dog with that old bone !" The Ambassador evades too loudly. This is not just passivity; it is purposeful passivity.

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