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The Nicaragua Canal: The New-Port Arms Race

September 20, 2013

ptopsed canal siteChina has committed to investing $40 billion to begin construction for a new canal in Nicaragua, connecting the Pacific with the Caribbean and its Atlantic-American trade partners. A Chinese billionaire, Wang Jing, has reportedly attracted global investment to begin work on a six-year project slated to start in 2014.

On June 13, the ruling Sandinista National Liberation Front (FSLN) passed the “great inter-oceanic canal law” (Law 840) in Nicaragua’s National Congress.

As reported by Bloomberg, Nicaraguan President Daniel Ortega “signed a 50-year concession that grants Wang’s Hong Kong Nicaragua Canal Development Investment Co. (HKND) rights to develop a $40 billion project that includes a canal, an oil pipeline, two deep-water ports, an inter-oceanic railroad, and two airports.” The International Business Times adds that, “Investment will be distributed in $10 million annual payments from the Chinese company to Nicaragua during the first decade.”

The Financial Times profiled Wang Jing as the CEO of Xinwei, a telecom equipment maker in Beijing, assessing that he was well connected and that the canal is something the Chinese government wants but “cannot be seen as doing, so he does it for them.”

The Infrastructure Committee of Nicaragua’s National Assembly consulted with both public and private institutions, but as reported by El Nuevo Diario, “the Sandinista representative criticized President Ortega for not consulting with the two Northern and Southern autonomous regional councils.”  Additionally, this agreement repeals the environmental protections of Lake Cocibolca, also knows as Lake Nicaragua, the biggest source of freshwater in Central America.

What worries both national and regional environmental groups is that this concession guarantees “access to and navigation rights on rivers, lakes, oceans and other bodies of water in Nicaragua, and the right to extend, expand, dredge, divert or reduce such bodies of water.”

The investment agreement requires that “the state gives up the right to sue the investors in national or international courts for any damage caused to the environment during the studies for and the construction and operation of the canal.”

carribbean territorial waters

Caribbean Territorial Waters

Maritime Dispute

Also making way for this investment agreement, the International Court of Justice has just ruled on the contested territorial dispute between Columbia and Nicaragua over Nicaragua’s constrained maritime boundaries which had previously been signed under duress during US occupation in the 1920s. Columbia has been opposing the new boundaries and is already bullying Nicaragua with thinly veiled threats of military action. The maritime boundaries that were drawn during the U.S. occupation left Nicaragua with unfair maritime access of their 200 nautical mile Exclusive Economic Zone (EEZ), a boundary afforded under the 1982 UN Convention of the Law of the Sea. Technically, one of the controversies is that Columbia is one of the handful of coastal countries that has signed, but not ratified UNCLOS. Regionally, Peru, Venezuela, El Salvador and the U.S. have also either not signed or not ratified the convention.

The latest statistical data available from the U.S. Army Corp of Engineer’s, Institute for Water Resources, reports that 70% of the cargo that goes through the Canal comes from or is going to US ports. Because of the increase in globalization and congestion, it is not uncommon for vessels to wait over a week before transiting the canal, which can cost up to $50,000 a day to sit idle.

Maersk Line, the world’s largest container shipping company announced that some of their ships have stopped going through the Panama Canal transporting goods between Asia and the Atlantic, as they are able to move goods more profitably through the Suez. In part, this is an issue of size and the Panama Canal is already undergoing expansion, but this also has to do with new costs, as fees going through the canal have tripled in the past five years to $450,000 per passage for a vessel carrying 4,500 containers. The new “Post-Panamax” Maersk Triple-E Line is twice the size of conventional vessels and can carry as many as 9,000 containers.

Global South Benefits

The opening of a new Nicaraguan canal would certainly be a welcome and long-sought opportunity for Global South economies.  The Bolivarian Alliance for the Americas (ALBA) of which Venezuela, Cuba, Bolivia, Nicaragua, the Commonwealth of Dominica, Antigua and Barbuda, Ecuador, and Saint Vincent and the Grenadines; as well as MERCOSUR which includes Argentina, Brazil, Uruguay, Paraguay, Venezuela and Bolivia have increased trade as a result of China’s growth.  In terms of BRICS economies, this increased trade could motivate a stronger trade currency against the dollar’s hegemony as the international trade currency. I should add that the opening of these new trade advantages to the Global South does not necessarily conclude that this will alienate the U.S., rather, I’d argue, it has the potential of reducing U.S. economic control in the region.

In a 2008 hearing before the House Committee on Foreign Affairs, “The New Challenge: China in the Western Hemisphere,” Daniel Erikson testified that “the pace of trade between China and the region has skyrocketed from $10 billion in 2000 to over $100 billion in 2007.” In 2012, China exceeded $200 billion in trade, doubling the 2007 figure and has moved in front of the EU as Latin America’s second largest trading partner after the United States.

During the House hearings, U.S. representatives were expressing concerns that Latin American countries were beginning to see China’s investment in Latin America as alienating the U.S.  In 2000 and 2005, respectively, Hutchison Whampoa Limited (HWL) the world’s leading port investor, another Chinese company registered in Hong Kong, took over both the Port of Balboa on the Pacific, as well as the Port of Cristobal on the Atlantic end of the Panama Canal.

Regarding the growing economic presence of China in Latin America, I think an argument can also be made that this is, in fact, in the interest of the United States, because what this country, the U.S., faces south of it border is the most unequal region in the world. And while this fact should not necessarily represent a problem, inequality has been strongly politicized throughout Latin America since the early 2000s in a way that has produced a backlash. This backlash has been characterized by the rise of democratically elected governments that promise short-term redress and redistribution by undoing the free-market policies that the U.S. and the international multilateral institutions recommended in the 1980s and 1990s, the so-called Washington Consensus. The fact remains that majorities or big minorities of voters throughout Latin America think the outward-oriented model did not deliver on its promises and therefore must be changed.
–Statement of Francisco E. Gonzalez, PH.D., Hearing before the Committee on Foreign Affairs, “The New Challenge: China in the Western Hemisphere”

Panama Expansion

U.S. investment is now looking to significantly expand the Panama canal. In 2010, two years after the 2008 economic downturn, a special series report published by the Southern Legislative Conference (SLC) on the Panama Canal Expansion, reviewed Obama’s new National Export Initiative and concluded that the United States needed to invest in the Panama Canal to create 1) a new lane of traffic along the canal; 2) new access channels to new locks and widening existing navigation channels; and 3) deepening the navigation channels and elevating the maximum operating level.

The SLC argued that investing in the canal widening project will benefit US-Asia trade and maintain U.S. regional economic advantages, which coincides with what the Brookings Institute called a “port-related arms race.”

These economic advantages factors into the formation of the Pacific Alliance (Mexico, Columbia, Peru and Chile), which are all engaged in either the Trans-Pacific Partnership (TPP) or are US-FTA countries. The Pacific Alliance represents a geographical trade wall between China and the Atlantic side of South and Central America, some who have stronger political ties with China and the BRICS economy. Breaking through this geopolitical fold will create new opportunites for countries who are geographically just over the rim of the TPP.

For the United States, the opening of a new canal will likely be perceived with a lot of suspicion and controversy. On the one hand, economic and military hawks may see this as a potential threat to national security and will call for greater militarization in the region, but on the other, they will also support greater access to Asian markets. Liquid Natural Gas (LNG) exports, for example, are already playing a substantial role, of which the Dept. of Energy predicts will help boost the U.S. economy. A recent NERA study shows that the demand for export of LNG will increase production by about 40% by 2040 and that fracking and shale gas production will account for most of that. In the April 2013 study, “Macroeconomic Impacts of LNG Exports,” NERA reports that US exports are dependent on Asian market demands and the US’s ability to remain competitive in the global LNG market.

US Military presence

Despite the environmental costs for the construction of this canal, it is difficult to convey the canal’s symbolic national importance, particularly against the U.S.’s long-held hegemony in the region. Nicaragua has held the dream of opening an inter-oceanic canal since the the late 19th century, even before the U.S completed the Panama Canal in 1914, taking over the work that the French had started in the 1880s.  Controlling the region and the canal has been a primary strategic focus for the United States, and from 1903-1979, the Panama Canal Zone was a territory occupied by the United States military. Beginning in the 1920s, the U.S. intervened and occupied Nicaragua as a means to prevent a competing inter-ocean throughway.

In 1947, the U.S. opened the School of the Americas (SOA) a training ground for Latin American soldiers, now located at Fort Benning, Georgia, which in 2001 was renamed the Western Hemisphere Institute for Security Cooperation (WHINSEC). The school was originally established in Panama, but expelled in 1984 under the terms of the Panama Canal Treaty. The U.S. fully withdrew in 1999, but not before amending Article IV of the treaty which states that the U.S. shall have primary responsibility protecting and defending the canal…to move military forces within the Republic of Panama… planning and conducting of military exercises…giving American warships the right to jump the queue of ships waiting to go through…and other matters of mutual interest with respect to the protection and defense of the Canal.

According to SOA Watch,” Since 1946, the SOA has trained over 64,000 Latin American soldiers in counterinsurgency techniques, sniper training, commando and psychological warfare, military intelligence and interrogation tactics. These graduates have consistently used their skills to wage a war against their own people. Among those targeted by SOA graduates are educators, union organizers, religious workers, student leaders, and others who work for the rights of the poor. Hundreds of thousands of Latin Americans have been tortured, raped, assassinated, “disappeared,” massacred, and forced into refugee by those trained at the School of Assassins.”

In 1979, after the people’s 50-year struggle against U.S. backed occupation, the FSLN won control of Nicaragua and overturned the U.S. funded Somoza regime, who were responsible for human rights abuses, torture and disappearances against the people of Nicaragua. Fearing another Marxist-led, Cuban-inspired government in the region, in 1981, President Reagan authorized CIA funding for the Contras, counter-revolutionaries and foreign mercenaries employed to overthrow the Sandinista government which resulted in 30-50,000 casualties and a devastated economic infrastructure.

Following the Iran-Contra hearings and testimony during the International Court of Justice proceedings, it was confirmed that these human rights violations were directed by many attending the School of the Americas, citing that the United States was responsible for the publication and dissemination of the manual on “Psychological Operations in Guerrilla Warfare.”

Given the U.S’s naval dominance in the Caribbean, it is within reason to suggest that any new canal giving right-of-passage to vessels without US jurisdiction or oversight may be met with resistance. As it stands today, in 2009, the Russian State News Agency, Ria Nosti, announced that the US and Panama signed an agreement on the deployment or two naval bases on Panama’s Pacific Coast to combat drug trafficking, and in 2012, reports surfaced of a new U.S.-Columbia base in Panama to “combat undocumented people.”

Also, for example, a canal through Nicaragua opens greater trade cooperation between Asia and Cuba, and might allow ships greater freedom of passage. Within a week of Nicaragua’s announcement of the canal, on July 18, 2013, a North Korean ship was seized by Panama authorities. After an inspection, it was found that “outdated” Cuban weapons were hidden under 200,000 sacks of raw sugar reportedly to be sent to North Korea for repair. Despite the age and “ineffectiveness” of these weapons, Cuba was accused of breaking an arms embargo against North Korea by the US authorities looking to flex it’s muscle as a warning of things to come.

Call for Ecological Regulations

In summary, although the creation of a new canal would likely benefit trade and global South economies, deep ecological regulations need to be enforced.  The Nicaragua-China potential for shifting the geopolitical balance in this hemisphere needs to be met with progressive resistance from both indigenous and ecological communities. For those who’ve stood in solidarity with the FSLN during the last thirty years, we need to put our voice forward and demand that the international investment regime not capitalize on the canal as a pretext for shifting the global supply chain into hyper-drive.

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