Panama Court Strikes Down Hong Kong Firm’s Canal Contract

President Trump has said he wants American control of the canal, putting the longtime ports operator, CK Hutchison, in the cross-hairs of the U.S.-China trade conflict.

A top court in Panama has ruled that a lucrative port contract held by Hong Kong’s most famous tycoon is unconstitutional, setting the stage for a fresh round of geopolitical tension between the United States and China.

The decision against CK Hutchison, a sprawling conglomerate controlled by Li Ka-shing, was issued in a short statement on Thursday night that sent the company’s Hong Kong-listed shares down by more than 5 percent.

The court said its ruling followed “extensive deliberation” after a lawsuit brought by the Panama government, which claimed audit irregularities.

CK Hutchison has operated the Balboa and Cristobal ports at either end of the Panama Canal since 1997. The canal handles an estimated 5 percent of the world’s seaborne trade.

The ports became a battlefront in the broader showdown between Beijing and Washington when President Trump accused China of controlling the canal last year, thrusting Mr. Li into the geopolitical spotlight. Beijing has in recent years asserted increasing political control over Hong Kong.

CK Hutchinson came back with a deal to sell the two Panama ports as well as 40 others to a consortium of investors led by BlackRock, the world’s largest asset manager. It was not clear how the ruling on Thursday night would affect that deal.

Representatives for BlackRock and CK Hutchison did not immediately respond to requests for comment. In response to an investigation into its business last year by Panama’s comptroller, CK Hutchinson’s Panama Ports Company said that “respect for legal protection and the rule of law are essential in order to provide businesses and investors with the certainty that Panama is a safe country to invest in.”

The decision by Panama’s Supreme Court could, on the face of it, hand Mr. Trump a victory when he has gone to extraordinary lengths to assert American power in Latin America. This month, he seized Nicolás Maduro, Venezuela’s autocratic leader, and imposed a blockade on tankers attempting to transport Venezuelan oil.

Washington has said the Venezuela operation was part of a new Monroe Doctrine — or as Mr. Trump calls it, the “Donroe Doctrine” — where the United States claims the Western Hemisphere as its sphere of influence.

“The Donroe Doctrine seems to be having its intended effect,” said Steve Okun, head of APAC Advisors, a geopolitical consulting firm.

“If you are a business in Asia doing business in the Americas, you must now consider this as part of your scenario planning,” Mr. Okun said.

The ruling will likely be interpreted as a setback by Beijing, which took greater interest in the controversy over the canal as relations between the United States and China deteriorated sharply last year over tariffs.

Initially, CK Hutchison said it would sell the ports to a consortium made up of BlackRock and Terminal Investment Limited, a port operating company controlled by MSC, the Swiss shipping giant.

Beijing called that deal a transaction that “sells out all Chinese people.”

The arrangement would allow the United States to “use it for political purposes and promote its own political agenda,” Ta Kung Pao, a Hong Kong newspaper owned by the Chinese government and widely regarded as a mouthpiece for Beijing, wrote in a commentary.

Later, CK Hutchison announced that it was considering inviting another investor, from China, into the deal.

Chinese media reported that the investor was COSCO, the Chinese state-owned shipping behemoth. Analysts said that decision was most likely a move to appease Beijing.

The court decision itself appeared to rest on technical grounds that the extension of CK Hutchison’s port contracts didn’t follow proper approval process, said Alec Tracy, general counsel and chief operating officer of Admiralty Harbour, a Hong Kong investment firm.

Panama’s Comptroller brought a case last year, alleging that a recent extension of CK Hutchison’s contract cost the country over $1 billion in tax revenue.

CK Hutchison denied allegations that it had underpaid Panama to run the ports, and it noted that the Panama Maritime Authority had certified in 2021 that it was in compliance with its contract.

While COSCO may not have had a direct role in the Panamanian ports under the deal that was being negotiated with BlackRock, analysts said its involvement in the other 40 or so ports in the deal would allow China to be more assertive globally than if CK Hutchison held onto them.

Ryan Berg, a director of the Americas program at Center for Strategic and International Studies, a research organization, said getting CK Hutchison out of Panama while giving COSCO a role in the other ports would be “a Pyrrhic victory for the United States,” because of COSCO’s close ties to China’s navy.

Jack Nicas contributed reporting from Mexico City.

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