Chinese-Panama Canal deal draws scrutiny

 By GLENN GARVIN
 Herald Staff Writer

 PANAMA -- The object of bitter contention long before the day of its official birth
 85 years ago, the Panama Canal has touched off one last rancorous dispute
 between the United States and Panama in the final months before it changes
 hands.

 A loose U.S. alliance of congressional Republicans, retired military men and
 conservative think tanks is charging that a Panamanian contract privatizing ports
 at either end of the canal amounts to handing the waterway over to China, which
 many of them expect to be America's main rival for world power in the next
 century.

 Panamanians, meanwhile, accuse Washington of hypocrisy, preaching the
 wonders of the global economy while lashing out at anybody who strikes a deal
 that doesn't involve the United States.

 The dispute is unlikely to be resolved before Panama takes over control of the
 canal on Dec. 31 under the terms of a pair of 1977 treaties that have at long last
 come to fruition. And it may poison what many leaders in both countries hoped
 would be a new and less pugnacious relationship between Panama and the
 United States.

 ``We're not going to invade Panama or renounce the treaties, and they're not
 going to break the port contract,'' said a U.S. congressional staffer who is deeply
 involved in the issue. ``Instead, this thing is just going to sit there and fester.''
 At issue is a contract awarded in 1997, giving the Hong Kong-based shipping
 company Hutchison Whampoa the rights to operate the ports of Balboa, near the
 Pacific entry to the Panama Canal, and Cristobal, near the Atlantic entry.

 Hutchison Whampoa is controlled by Hong Kong tycoon Li Ka-shing, a
 71-year-old billionaire ranked as the ninth most powerful man in Asia by the
 magazine Asia Week. Both his power and his money, financial and political
 analysts say, derive in large part from his intimate connections to the government
 in Beijing.

 Through various interlocking directorates and joint projects, Li and his business
 empire are linked to several companies known as fronts for Chinese military and
 intelligence agencies. One of the companies has been indicted for smuggling
 automatic weapons into the United States for sale to Los Angeles street gangs.
 Li has also been accused of helping to finance several deals in which military
 technology was transferred from American companies to the Chinese army.

 `Given the farm away'

 Although U.S. critics have been complaining for nearly three years about the
 contract giving control of the ports to Hutchison Whampoa, their efforts reached
 critical mass only this month, when -- after several pieces appeared in
 conservative magazines -- Senate Majority Leader Trent Lott wrote Defense
 Secretary William Cohen that ``we have given the farm away without a shot being
 fired.''

 ``This administration is allowing a scenario to develop where U.S. national
 security interests could not be protected without confronting the Chinese
 communists in the Americas,'' Lott wrote. ``U.S. naval ships will be at the mercy
 of Chinese-controlled pilots and could even be denied passage through the
 Panama Canal by the Hutchison, an arm of the [Chinese] People's Liberation
 Army.''

 Lott's letter drew quick denials from the Defense Department, the State
 Department and the White House. ``The United States is satisfied our interests
 will be protected after the canal is turned over this December,'' said David Leavy, a
 White House spokesman. ``We have seen no capability on the part of [China] to
 disrupt the canal's operations.'' Hutchison Whampoa spokeswoman Nora Yong
 called Lott's claims ``untrue and unfounded.''

 Claims overblown

 Indeed, a Herald examination of the 48-page contract between Panama and
 Hutchison Whampoa suggests that many of Lott's specific claims are false. There
 is nothing in the contract giving the company any authority over the canal's pilots
 or the right to determine what ships use the canal.

 Canal officials say that, even if the contract did grant Hutchison Whampoa those
 rights, it would be overruled by Panamanian law and the country's constitution,
 both of which clearly guarantee the canal's neutrality and place it under the
 government's direct authority.

 ``There have been some really gross misrepresentations made in the past few
 weeks,'' said Joseph Cornelison, the canal's deputy administrator, who noted that
 the ports are not part of the canal and have nothing to do with its operation. ``The
 communist Chinese are not taking over the canal. They do not control the canal.
 They have a presence near the opening of the canal, and that's all.''

 But some critics of the deal believe that the mere presence of a company linked
 to Chinese military and intelligence apparatus is a bad deal for the United States,
 regardless of whether it has any legal authority over the canal.

 `China is not our ally'

 ``China is not our ally, no matter what the Clinton administration thinks,'' said
 Kenneth de Graffenreid, who worked at the National Security Council during the
 Reagan administration and now teaches intelligence studies at the Institute of
 World Politics in Washington.

 ``China is working against our interests in the India-Pakistan conflict, in the
 Taiwan Straits, in North Korea, in stealing our nuclear secrets. The Chinese are
 the largest purveyor of arms to bad-guy regimes in the world. . . . The canal may
 not be as strategically important to us as it once was, but it's still important, and
 permitting a Chinese presence there is not prudent statecraft.''

 Other critics of the deal say that Hutchison Whampoa's control of the ports must
 be seen in the context of other Chinese moves in the Western Hemisphere --
 particularly a deal with Brazil to co-develop an imaging satellite, scheduled for
 launch late this year.

 ``The satellite knowledge they'll gain out of that deal will be directly applicable to
 their military space program,'' said one congressional staffer. ``The Chinese are
 trying to establish a military foothold in this hemisphere to divert American
 interests. We have an extensive military presence in Asia -- it simply makes
 sense they create areas of influence in our hemisphere to divert our attention.''
 Panamanian officials admit they know little of Hutchison Whampoa's Chinese
 military connections -- in fact, several members of President Ernesto Perez
 Balladares' Cabinet who played key roles in negotiating the contract originally
 thought the company was British.

 But, they say, U.S. foreign policy concerns are not Panama's problem. ``We look
 at the canal as purely a commercial thing, not a geopolitical thing,'' said Roberto
 Roy, a member of the Panama Canal Authority, which will manage the canal
 when the United States gives up control on Dec. 31.

 ``But even if you look at it as a geopolitical thing, from Panama's perspective, it's
 balanced. We have granted concessions along the canal to companies from
 China, from Taiwan, from the United States. That's economically and politically
 pluralistic.''

 Adds former newspaper publisher Roberto Eisenman, a key advisor to incoming
 President Mireya Moscoso, who takes office Sept. 1: ``What's important to us is
 that Hutchison Whampoa has already spent $100 million renovating those ports.
 We're going to have the most modern ports in the world.''