Investigative Report

THE PANAMA CANAL IN TRANSITION: THREATS TO U.S. SECURITY and
CHINA's GROWING ROLE IN LATIN AMERICA

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Introduction:

The Panama Canal, one of the world's key strategic waterways, is
scheduled to be turned over to the Panamanian government on
December 31, 1999. The Canal remains vital to American trade and
defense capabilities.  The Canal remains the vital sea link in
the Western Hemisphere between the Atlantic and Pacific Oceans,
and an economic and logistical bridgehead between North America
and South America. Currently, some 15 to 20 percent of total
U.S. exports/imports pass through the Canal, including some 40%
of all grain exports. It is also a vulnerable "front-line" state
against the spread of narcotics and terrorism that plague its
South American neighbors.  Ironically, the day that the
delegation arrived in Panama, a week after the closure of the
U.S. counter-narcotics center at Howard Air Base, heavily-armed
Colombian narco-terrorist forces operating on Panamanian soil,
dressed in full combat gear, were interviewed on national
television.

Panama has been the only country in Central or South America to
host an active US military presence [SOUTHCOM] and permanent
military training and operations bases. All of the American
military bases, including counter-narcotics operations centers,
are scheduled to close by June 30, 1999. The People's Republic
of China, through the Hong Kong-based Hutchison Whampoa Ltd.
company, which has close ties to the PRC government and People's
Liberation Army (PLA), was granted a 25-year lease, with an
additional 25 year option, for control of the Canals Atlantic
and Pacific Ocean ports of Balboa and Cristobal and adjacent
facilities. The delegation witnessed Hutchison Whampoa
conducting major construction and port facility expansion at
both the Atlantic and Pacific Canal ports.

Hutchison Whampoa will control the stevedoring [loading and
unloading of ship cargo] at the ports. The company also has a
substantial interest in the railroad line that coordinates
transportation of cargo between the ports. In addition, the
Chinese company is a major bidder on construction of a new
suspension bridge that will link "land canal" highways that will
truck oversized cargo containers between the Atlantic and
Pacific coasts.

The war in neighboring Columbia against well-armed
narco-terrorist forces, with a history of ties to Cuba, is
escalating and threatens to spread throughout the region. Panama
does not have an army, navy or air Force, The Panamanian
government has an ongoing reputation for corruption and
mismanagement. Chinese organized crime organizations are active
in drugs, guns and illegal alien smuggling in Panama, and the
Russian mafia is known to be supplying weapons to Columbian
narco-terrorist forces.

On June 1 - 4, 1999, XXXXX, special assistant to XXXXXXXXXXXXX
XXXXXXXXXXXXXXXX, Asia and Pacific specialist on the XXXXXXXXX
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In Panama, the delegation coordinated meetings with XXXXXXXXXX
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In Panama, the delegation met with current and former Panamanian
political leaders, Canal workers, journalists, U.S.  embassy
officials, US military representative and informal American and
Panamanian private citizens. In addition, the delegation drove
the length of the Canal, observing the ports of Balboa and
Cristobal, the Free Trade Zone in Colon and operations of the
important canal locks at Miraflores and Gatun.  In addition, the
delegation visited U.S. military facilities at Fort Clayton
[Pacific Coast] and Fort Sherman Jungle Operations Training
Center [Atlantic Coast],

Mission Goal:

The goal of the mission was to make a cogent assessment of the
developing situation in Panama, including the role of communist
China at the Canal and the growing threat of narco-terrorist
forces in the region. There appears to be a lack of information
or concern on the part of the U.S. Congress and the American
public. The muted debate over the Canal in the United States has
been polarized. Some public interest organizations, warn of
Chinese military bases eventually being created in Panama and
even a future missile threat. On the other hand, the Clinton
administration and a number of professional bureaucrats consider
those fears unfounded and have no qualms about China's growing
role at the Canal. By most accounts, an unfair and corrupt
contractual bidding process, which was protested by the U.S.
ambassador to Panama, enabled the Chinese Hutchison Whampoa
Company to outmaneuver American and Japanese companies for the
long-term lease on the Canal ports.

A new democratically elected government, led by President-elect
Mireya Moscoso, is scheduled to be inaugurated in September.
The delegation attempted to develop recommendations for new
private and governmental American actions to maintain a critical
national security and counter-narcotics presence for the United
States in Panama, as well as to limit the influence of communist
China at the Canal and in the region.

The Geo-Strategic and Narco-terrorism Threat:

The purpose of the mission was to observe first-hand the final
stages of the withdrawal of U.S. military forces in preparation
to hand over the Canal to the government of Panama on December
3I, 1999. The delegation shared the concern of Senate and House
International Relations Chairmen Helms and Gilman, that the
United States is losing vital counter-narcotics bases in Panama,
Although the Clinton administration is attempting to set up
other temporary counter-narcotics bases in the region, the
locations are not as effective as Panama and the cost will run
into hundreds of millions of dollars. In addition, the loss of
U. S. forward operational bases in Panama will have serious
implications for Hemispheric security, including rapid
deployment in times in crisis.

The delegation was also concerned about the growing presence of
communist China directly at the Canal and in the region.  U.S.
and Panamanian security officials stated that Panama has become
the central base of operations for communist China in Latin
America.  Panama is a Pacific Ocean port, and the canal is vital
to commerce between the Asia-Pacific region and the Americas.
[Europe also uses the Canal for a substantial mount of its trade
with Asia] It is also a vital component to emerging Chinese
communist strategy to dominate the Pacific and to undermine and
isolate the United States. The Number Two user of the canal,
after the United Slates is Japan, with China and Taiwan
competing for the third position.

The unofficial representative of the People's Republic of China
[PRC] is believed to be a senior intelligence officer who
operates out of an office on the top floor of a bank building in
Panama City, with a staff of fourteen assistants. The $2 billion
worth of annual business conducted by PRC in the Canal has
rapidly eclipsed the $400 million of business by Taiwan.  Taipai
fears that it will lose diplomatic recognition, similar to its
loss in the Bahamas, where the PRC invested a large amount of
money - over and under the table - to gain control of the ports
and political influence.

Worldwide, China appears to be progressively positioning itself
commercially and militarily along the key naval choke points
between the Indian Ocean [its bases in Burma]; the South China
Sea [Hong Kong]; the Straits of Malacca [the Spratley Islands
and a growing role in Cambodia]; the central Pacific [a major
land satellite tracking station on Tarawa]; the coast of Hawaii
[a major ocean mining tract]; the Caribbean [Cuba and the
Bahamas]; and now the Panama Canal. China's flagship commercial
shipping fleet, China Ocean Shipping Company [COSCO, is directly
connected to the People's Liberation Army and Chinese communist
government. COSCO ships have served as careers for massive
smuggling operations around the world - including the United
States -- of weapons, drugs and illegal aliens. In addition,
COSCO has been used by the Chinese government to ship missiles -
and components of weapons of mass destruction to rogue nations
such as Pakistan and Iran.

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX recently witnessed China's
aggressive Pacific strategy in their growing fortifications in
the strategic SpratLEy Islands and their threats to the
Philippines. A "vacuum-filling" pattern seems to be emerging:
Wherever in the Pacific the U.S. withdraws or is negligent
militarily, politically or economically, the Chinese communists
move in. In addition to a growing commercial prowess in
Caribbean ports such as the Bahamas, China recently completed
military/intelligence agreements with Cuba to build
communications intelligence facilities adjacent to Russia's
massive technical spy center at Loutdes, Cuba..The Lourdes
facility monitors the U-S- Atlantic fleet and elements of U.S.
Pacific fleet operations, as well as domestic commercial and
military communications throughout the Americas.

The growing anti-U.S./NATO "strategic partnership" of China and
Russia poses an increasing threat. There is a well-documented
history of both Russian and Chinese organized crime
organizations working as tools of their governments.  In Panama,
where government corruption is rampant, there is a dangerous
convergence of well-financed Chinese and Russian mobs with Cuban
government operatives and Latin American drug lords, leftists and
narco-terrorist militants. This dark partnership is a threat to
democracy in Panama and in neighboring countries, and is a
direct long-term threat to Mexico and the United States.

Chinese Alien Smuggling:

The massive smuggling of illegal aliens from the People's
Republic of China into Panama's ports is a major security
problem for both Panama and the United States. Government
officials and private Panamanians expressed their concern about
the massive illegal immigration flow from mainland China, and
the corruption among Panamanian officials who permit it.  The
alien smuggling - largely of peasants who have little money of
their own -- is conducted by Chinese triad gangs on commercial
ships. The price for Panamanian residence documents is $10,000
to $20,000 per alien. The new Chinese are visible not only in
Panama City and Colon, but throughout the country, with many
small Chinese businesses springing up, with workers who do not
speak Spanish, in communities throughout the country. Panamanian
officials say that many Chinese aliens final destination is the
United States.

Corruption is viewed as the Number One national problem by
Panamanian voters. It is reported that officials in the
Balladarcs administration have made millions of dollars through
the alien smuggling rackets. An emerging problem is that some
officials in President -elect Moscoso's Arnulfo Party have been
either involved or privy to the alien smuggling system. It is
essential that U.S. officials discuss this matter with President
Moscoso to deter the ongoing alien racket in her administration.
The scale of alien arrivals in Panama strongly suggests that
Chinese communist officials arc involved in the process, as well
as the shipping companies.

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Hutchison Whampoa and Li Ka Shing's ties to the communist
Chinese government:

The Chinese Hong Kong company that was awarded the 25 year lease
of the Canal's ports, Hutchison Whampoa, through its HIT
subsidiary or Panama Ports Company, has substantial links to the
Chinese communist government and the People's Liberation Army in
its worldwide operations. The Panama Ports Company is 10 percent
owned by China Resources Enterprise [CRE], which is the
commercial arm of China's Ministry of Trade and Economic
Co-operation [MOFTEC]. In its investigation into China's
attempts to influence the 1996 U.S. presidential campaign, the
U.S. Senate Government Affairs Committee identified CRE as a
conduit for "espionage - economic, political and military - for
China." Committee Chairman, Senator Fred Thompson said that CRE
has "geopolitical purposes. Kind of like a smiling tiger; it
might look friendly, but its very dangerous."

The Senate Committee also revealed that Hutchison Whampoa's
subsidiary, HIT has business ventures with the China Ocean
Shipping Company, COSCO, which is owned by the People's
Liberation Army. COSCO has been criticized for shipping Chinese
missiles, missile components jet fighters and other weapons
technologies to nations such as Libya, Iraq, Iran and Pakistan.
In 1996, the U.S. Customs Service seized a shipment of 2,000
automatic weapons aboard a COSCO ship at the pot of Oakland,
California. The man identified as the arms dealer, Wang Jun, is
the head of China's Polytechnologies Company, the international
outlet for Chinese weapons sales. Jun also sits on the Board of
CITIC, the China International Trust and Investment Corporation,
the chief investment arm of the Chinese central government. It
is also the bank of the People's Liberation Army, providing
financing for Chinese Army weapons sales and for the purchase of
Western technology. Jun's fellow CITIC Board member is Mr. Li Ka
Shing, chairman of Hutchison Whampoa Ltd.

Li Ka Shing who has profound ties to the Beijing regime. Li has
invested more than a billion dollars in China and owns most of
the dock space in Hong Kong.  In an exclusive deal with the
People's Republic of China's communist government, Li has the
right of first refusal over all PRC ports south of the Yangtze
river, which involves a close working relationship with the
Chinese military and businesses controlled by the People's
Liberation Army.

Li has served as a middle man for PLA business dealings with the
West. For example, Li financed several satellite deals between
the U.S. Hughes Corporation and China Hong Kong Satellite
(CHINASAT), a company owned by the People's Liberation Army. In
1997, Li Ka Shing and the Chinese Navy nearly obtained four huge
roll-on/roll-off container ships, which can be used for
transporting military cargo, in a deal that would have been
financed by U.S. taxpayers.

A June 1997 Rand report, "Chinese Military Commerce and U.S.,
National Security," stated, "Hutchison Whampoa of Hong Kong,
controlled by Hong Kong billionaire Li Ka Shing, is also
negotiating for PLA wireless system contracts, which would build
upon his equity interest in Poly-owned Yangpu Land Development
Company, which is building infrastructure on China's Hainan
Island." In 1998, Li Ka Shing attempted to issue $2 billion in
bonds, through his Hutchison company, in the United States.
According to the Dow Jones Newswire, Hutchison revealed that 50
percent of the bonds would be used through a subsidiary known as
Chung Kiu Communications Ltd., which had signed agreements to
provide cellular services and equipment to joint ventures between
the People's Liberation Army and the Chinese Ministry of Posts
and Telecommunications.

Panama's Controversial Law Number 5:

The port business in Panama has both commercial and strategic
importance. With its strength, Hutchison Whampoa is becoming the
dominant force in Panama. Hutchison, through its operations in
Hong Kong, will control the movement of merchandise From Japan,
Korea and other Asian exporters headed for the U.S. and Europe.
In addition, under the quietly implemented and controversial
Panamanian Law Number 5 that was secretly implemented by the
Balladarcs regime, the Chinese Hutchison Whampoa company has the
right of first refusal on other Canal facilities, including
former strategic facilities, including former U .S. bases, such
as the Rodman Naval Station port.

Some of the measures harmful to U.S. security and economic
interests under Law Number 5, include:

Article 2.1 grants Hutchison Whampoa "first option" to take over
the ports at Rodman Naval Station. U.S. warships could be shut
out.

Article 2.8 authorizes Hutchison Whampoa to "transfer contract
rights" to any third party "registered" in Panama, This could be
Cuba, Iraq, Iran or Libya or another country who is hostile to
the United States.

Article 2.12a, grants Hutchison Whampoa priority to all piers,
including private piers, at Balboa and Cristobal, plus an
operating area at Albrook Air Force Station.

Article 2. 12i, guarantees Hutchison Whampoa the "right" to
designate their own Canal pilots, change the rules for boarding
vessels and add additional pilots - if clients claim
dissatisfaction.

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