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Panama Accuses U.S. of Lying About Deal for Free Navy Canal Passage
State Department has been trying to negotiate concessions after Trump said he wants the U.S. to control the waterway
By Vera Bergengruen, Costas Paris and Santiago Pérez, WSJ
Updated Feb. 6, 2025 6:16 pm ET
Panama’s president accused the Trump administration on Thursday of lying about a deal that would give the U.S. Navy free access to the Panama Canal, intensifying tensions around negotiations about the future of the canal following President Trump’s threats to seize it.
The diplomatic rupture began Wednesday night when the State Department issued a post on X declaring that Panama had agreed to give U.S. government vessels free passage through the canal, surprising Panama. The statement came after Secretary of State Marco Rubio held talks with Panamanian President José Raúl Mulino in Panama City this week to hammer out concessions for Trump.
By Thursday morning, Mulino fired back that there was no deal, calling the U.S. statement full of “lies and falsehoods.” Later that day, Rubio said the U.S. had made its expectations “clearly understood” in conversations this week, though he conceded that Panama had a legal process to work through. Now, Trump and Mulino are expected to continue the talks in a phone call Friday afternoon.
The extraordinary diplomatic volleys highlight how Panama is trying to address Trump’s demands while contending with knotty political and legal issues at home. Panama is working on several fronts, but officials are sensitive and prefer the cover of secrecy to carry out negotiations in a country where the canal is a source of national pride and generates much of its government revenue.
Wednesday’s State Department statement jumped the gun on Panama’s legal deliberations, and was seen by Panamanian officials as a way to back them into a corner, said people familiar with the discussions. Such a deal—which would be a significant concession from Panama—would usually be announced at a bilateral meeting with statements from both sides.
The U.S. built the Panama Canal, which opened in 1914 as one of the most expensive and complex infrastructure projects ever. It relinquished it to Panama in late 1999 under a treaty negotiated more than 20 years earlier with President Jimmy Carter. Trump has long said the deal was bad for the U.S.
Among the other potential concessions Panama is considering, said people familiar with the matter, is finding new operators for two port terminals at either end of the canal, which are currently run by a Hong Kong port operator, Hutchison Whampoa. The Trump administration sees the Chinese infrastructure around the canal as a national-security threat.
Panama denies that the container terminals interfere with the management of the canal or that it represents a security threat. But officials began to look closely at the contracts, the people said.
Panama’s government, which has a 10% stake in the two terminals, has long complained about dividend payouts. It recently launched an audit that could serve as a vehicle for a license termination, the people said.
‘We’re Taking It Back’: Trump Renews Threat to Seize Panama Canal
President Trump appeared to double down on his threats to seize the Panama Canal, as Secretary of State Marco Rubio arrived in Panama with an ultimatum from the White House. Photo: Ben Curtis/Associated Press
Louis Sola, chairman of the Federal Maritime Commission, the U.S. shipping regulator, said Panama extended Hutchison’s concessions for 25 years in 2021 without a competitive bidding process. “The Panama Canal should buy these terminals and lease them to other operators,” he said.
Hutchison didn’t respond to requests for comment.
Panama also sought to distance itself from China by opting out of Beijing’s Belt and Road infrastructure program in a public announcement during Rubio’s visit.
Another contentious issue this week is access for U.S. ships. Trump has called the fees that Panama charges for U.S. ships “ridiculous,” while Panama has said it treats all ships and countries the same.
Rubio told reporters that he held talks with Mulino about passage for American ships and reiterated Washington’s expectation that U.S. vessels would have fees waived. “I would just say that the United States has a treaty obligation to protect the Panama Canal should it come under attack,” he said. “I find it absurd that we would have to pay fees to transit a zone that we are obligated to protect in a time of conflict.”
But the State Department post on X caught Panamanian officials off guard. The post said: “The government of Panama has agreed to no longer charge fees for U.S. government vessels to transit the Panama Canal. This saves the U.S. government millions of dollars a year.”
Mulino called an early-morning news conference Thursday to deny it.
“I am incredibly surprised by yesterday’s statement,” Mulino told a news conference in Panama City. “They’re making an important, institutional statement from the entity that governs U.S. foreign policy…based on a falsity. And that’s intolerable.”
Trump on Friday, Mulino plans to lay out how Panama has already agreed to everything Trump has asked for, a person familiar with the situation said. He will mention how Panama has agreed to curtail Chinese influence in the country, expand cooperation with the Department of Homeland Security in the Darién Gap, work with the Drug Enforcement Administration to fight drug cartels, and give preferential treatment to Navy ships through a legal workaround.
Mulino planned to spend Thursday afternoon and Friday morning preparing how to approach the famously mercurial U.S. president, whether he is open to listening to him or it becomes a “yelling fest,” the person said. “You never know which Trump you’re going to get,” the person said.
During Rubio’s visit, both governments had agreed to study the possibility of giving free passage to U.S. Navy vessels, said people familiar with the discussions. But Panamanian officials cautioned that such a measure would require legal analysis to ensure that it wouldn’t violate the 1977 canal treaty, which includes a clause that requires Panama to provide equal treatment to all canal users.
Mulino said he had told U.S. Defense Secretary Pete Hegseth that he doesn’t have the legal authority to waive transit fees unilaterally for anyone. He said he had asked Panama’s ambassador in Washington to dispute the State Department’s claim.
Canal officials said giving free passage to some ships is unprecedented and could bring about scores of lawsuits by other canal users claiming preferential treatment for U.S. ships. Several Panamanian officials said they were baffled by Trump’s fixation with the issue, and how far the State Department went to claim a victory given the small size of the financial benefit for the U.S.
Large U.S. Navy vessels, like aircraft carriers, can’t cross the canal because they are too wide to fit. Canal officials said Navy crossings are uncommon with an average of 40 vessels going through the waterway each year or less than 0.5% of the total number of ships transiting. The offer would reportedly allow the U.S. Navy to save up to $13 million annually, in a Department of Defense budget of $850 billion.
Officials said the visit in Panama was cordial, with Rubio speaking in Spanish. The Panama Canal Authority announced after Rubio’s visit that it would “optimize transit priority” of U.S. Navy ships through the waterway—a veiled promise.
Ryan Dubé and Alexander Ward contributed to this article.
Write to Vera Bergengruen at vera.bergengruen@wsj.com and Costas Paris at costas.paris@wsj.com
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