Business as usual - Two-part review

In the second part of a two-part review, Juan David Morgan, a senior partner at Morgan & Morgan in Panama, looks at the plans and aspirations of the Panama Canal Authority(PCA), which took over administration of the Panama Canal at the beginning of this year

FOR over a century, Panama's destiny has been inextricably bound to the canal. In fact, Panama would probably not have attained its independence had it not been for the US desire to control the canal.

The US resolve to build a waterway that joined the world's two biggest oceans was based on its realisation of the military significance of being able to move its fleets quickly between the Atlantic and Pacific. This inevitably dictated the way in which the US viewed and operated the canal throughout the last hundred years. The Panamanians, however, view the canal and its adjacent areas very differently.

At mid-day on the eve of the new millennium, Panama's first-ever woman president, Mireya Moscoso, received - on behalf of her country - 502 buildings, 1,084 housing units and 891.8 of the 1,474 square kilometers comprising the "canal zone," the territory on both sides of the canal formerly under US administration and jurisdiction.

This opened up a world of opportunities to exploit Panama's maritime potential as the ports of Balboa and Cristobal, the trans?isthmian railroad, the Balboa drydocks and marine fuel complex, among other important installations, were handed over to Panama sovereignty. Substantial foreign investment has already been made in port development, ship supply services, bunkering, shiprepair, hotels, tourism, railroad and industrial development.

The future - a commercial enterprise

From 1979 to 1999, the Panama Canal Commission (PCC) ran the canal on a non?profit basis. The toll charge paid by all the ships that passed through was set at a level that did no more than cover the canal's operating costs. About fifty ships passed through the canal every day. The toll charge was assessed by weight. The highest fee was the $141,344.97 paid on May 2, 1997 by the Crown Princess, the largest passengership ever to transit the canal. The lowest toll, meanwhile, was 36 cents, paid by Richard Halliburton, who swam through in 1928.

The canal is now operated by the PCA, which has a constitutional mandate to be profitable. The mandate to be commercial is the force behind most of the changes that have taken place since the implementation of the canal treaty in 1977, and those that will take place from now on.

Panama is conscious of the great responsibility it has in administering the waterway, but at the same time it regards the canal as its main maritime asset, around which all kinds of related maritime commercial activities should develop. The new element of "profit" will not come from transit operations, i.e., from raising canal tolls, but from the development of new ventures and businesses in other parts of the country which may or may not be related to the operation of the canal. For instance, the PCA plans to become involved in the sale of energy, in drydock and shiprepair services, dredging, tugs and launches, in the telecomunications, hotel and tourism industries, and in sales of potable water. The PCA's idea is to unlock the income-generating potential of the existing infrastructure of the canal, something which the PCC was not allowed to do.

The laws of the canal

The new constitutional title on the Panama Canal establishes that the tonnage fees that the national treasury will receive will not be less than those received by the Republic of Panama as of December 31, 1999. However, it also states that the ships, their cargo or passengers, their owners or operators will not be subject to any national or municipal duties other than the payment of tonnage fees as determined from time to time by the board of directors of the PCA.

This constitutional provision is intended to dispel fears among users of the canal that additional transit charges will be created after 2000. Further, no increases in transit tolls are currently contemplated by the PCA. The last increase in transit charges was effected by the PCC in 1997/1998 to cover the costs of widening the Gaillard Cut, which will allow the simultaneous two-way transit of panamaxes and will enhance the transit capabilities of the canal by twenty per cent.

The PCA is an independent and autonomous entity of the Panamanian government. It is run by an administrator and deputy administrator appointed by the president and ratified by the national assembly. They in turn report to an eleven?member board of directors, nine of whom are chosen by the president and are subject to ratification by the national assembly. One of the remaining two directors is appointed by the president and has the title of minister for canal affairs, while the other is appointed by the national assembly. A similar code of ethics to that of the PCC was adopted by the PCA. Neither the directors nor any PCA employees may directly or indirectly engage in business dealings with the PCA.

The labour code of the Republic of Panama does not apply to labour relations between the PCA and its employees. The PCA has instead adopted its own rules and regulations, which largely mirror the PCC's. The PCA's organic law states that its labour regime will be based on merit and will keep, as a minimum, the salary basis of the PCC as of December 31, 1999. Panamanians will have preference over foreigners in competing for employment positions in the PCA, but foreigners may nonetheless be employed when no Panamanians can be found to fill a given position. Already over 95 per cent of the canal workforce is composed of Panamanians.

Strikes prohibited

Article 92 of the PCA's organic law expressly states that strikes, work slowdowns or any other such form of labour protest are prohibited. This is a controversial provision and is considered unconstitutional by some, because Article 65 of the Panamanian constitution expressly recognises the right to strike. Nonetheless, Article 316 of the new Panama Canal title to the constitution states that, "In consideration of the essential international public service provided by the canal, its functioning could not be interrupted for any cause whatsoever."

One way to reconcile Articles 65 and 316 of the Panamanian constitution may be to use Article 65 to regulate the right of employees of the PCA to strike in such a way as to effectively prevent the functioning of the Panama Canal.

Claims

The right to claim for any injuries caused to vessels, their cargo, crew or passengers when such injury is proximately caused by the negligence of canal employees acting within the scope of their employment will be kept intact after 2000. In fact, US provisions dealing with this subject have been included almost verbatim in the PCA's organic law. The PCA will entertain claims for the same categories of damages as the PCC, excepting incidental expenses or any indefinite or speculative items. Claims will not be considered for certain types of delays resulting from causes which include landslides or other natural causes, necessary maintenance works, obstructions resulting from accident, traffic congestion, and the investigation of marine accidents.

Marine investigations

A board of local inspectors (BLI) will continue to investigate marine accidents. The BLI will have the power to summon witnesses and require the production of the necessary documents to complete investigations. One aspect of the BLI investigations under the PCA which is still undetermined is the language in which the BLI hearings will be conducted. Panama's official language is Spanish but, given the international nature of shipping and the practical considerations involved, it is expected that the BLI hearings (or at least the taking of statements from witnesses) will continue to be conducted in English rather than Spanish. Nonetheless, if an administrative settlement of the claim with the PCA proves impossible, the transcript of the BLI hearing, as well as its findings and opinion, will eventually have to be translated into Spanish for any judicial proceedings which the aggrieved party may want to file against the PCA.

The US viewed the canal and its adjacent lands as a strategical military position. The Panamanians plan to operate the canal purely on a commercial basis.

Time-bars

The time-bar to submit an administrative claim to the PCA will be two years from the date of the accident ? in contrast to the one-year time-bar period for claims against the PCC . As with the PCC, the PCA will not consider a claim unless an investigation of the accident by the BLI is completed prior to the vessel's departure from the canal. For vessels operating on a liner service this requirement will continue to be particularly burdensome.

Jurisdiction

One of the main differences in claiming against the PCA as opposed to the PCC will be the jurisdiction for judicial claims. Judicial claims against the PCC had to be filed in the federal district court for the eastern district of Louisiana. The PCA's organic law provides that the maritime courts of Panama will have exclusive jurisdiction over all judicial claims. The time-bar period for filing claims will stay at one year from the date of notification to the claimant of the PCA's final indemnity determination.

Today, there is only one maritime court in Panama. This was created in 1982 to replace the US district court operating in the former canal zone, and it occupies the same premises as its predecessor. One cause for concern is the capacity of the maritime court of Panama to efficiently resolve the new claims that will begin to be filed against the PCA. It is hoped that the Panamanian government will create other maritime courts to allow its jurisdiction to handle the anticipated increase in the number of cases.

PCA power to impose fines

The PCA will also be able to claim for any damages to canal property or employees caused by the negligence of a vessel, its crew or its owner. But, unlike the PCC, the PCA will have the power to impose fines on vessels which violate canal navigational safety. These fines and the procedure to impose them are distinct and separate from any indemnity for damages which may have been caused by navigational safety violations. The violations, fines and the sanctioning procedure are contained in Chapter 10 of the PCA's canal rules & regulations. Included in these rules is the prevention of pollution in the canal, which constitutes an "administrative violation".

The fines that may be imposed by the PCA will be assessed in accordance with the seriousness of the violation and may vary from $10,000 for minor violations to a maximum of $1,000,000 for very serious violations. The procedure to determine whether a violation has been committed and, if so, to impose the corresponding fine, is separate and distinct from the investigation of marine accidents to be performed by the BLI.

Proceedings will be commenced by the PCA on its own motion upon receiving an order to do so from a superior, by any government entity or a by a complaint from any interested party. The proceedings will aim at establishing whether a violation has been committed and its degree of seriousness, and will assess the corresponding fine. The party (vessel, shipowner, operator, etc) alleged to have committed the violation will have a period of ten days after being notified of the proceedings to file exculpatory evidence and argue in its defence. If the violation has been committed by a vessel, notification of proceedings may be effected on the master of the vessel. The PCA's resolution establishing that a violation has been committed, and imposing the corresponding fine, may be appealed to the board of directors of the PCA if the fine imposed exceeds $100,000 or, if it is less than this amount, it may be the subject of reconsideration before the administrator of the PCA.

Besides vessels, shipowners and operators, the new regulations state that third parties, either natural or juridical persons, not involved in the operation or transit of ships through the canal may also be fined. This provision has been tailor?made to prevent demonstrations or other acts by activists of associations such as Greenpeace that may interfere with or endanger the safety of ships transiting the canal.

The PCA's framework to impose fines is very broad under Chapter 10 of its regulations, but it remains to be seen how the regulations will be applied. They may be used primarily to penalise ships engaged in activities causing pollution of canal waters, and in acts of reckless navigation.

Business as usual

In conclusion, most operational aspects of the Panama Canal will remain the same now that Panama has full control, including the procedure to claim for damages resulting from damage to ships during transit. So, in one sense, it is business as usual, and a seamless transition appears to have taken place. Most changes that will occur from now on will be entirely due to the fact that the canal will no longer run on a non-profit basis. The canal in the 21st century will become an integral profit zone within the Panamanian economy.