On June 12, 2017, on the eve of a state visit to the United States, Panama’s President Juan Carlos Varela announced that his government was breaking relations with the Republic of China (Taiwan) and diplomatically recognizing the People’s Republic of China (PRC). This switch challenges Taiwan’s international status and enlarges the PRC’s already increasing scope of influence over Latin America in trade, investment and peacekeeping efforts, to say the least. With a remainder of only 11 countries in the Western Hemisphere, and 20 around the globe recognizing Taiwanese President Tsai Ing-wen’s government, U.S. leaders should be prepared for a significant wave of diplomatic activity and uncertainty as the PRC more actively courts nations of the hemisphere.
For Latin America, the move signals the end to the informal “truce” in the global battle for diplomatic recognition between the rival representatives of Chinese sovereignty that has prevailed since 2008. At the time the then-incoming Taiwanese President Ma Ying-jeou informally agreed with his PRC counterpart Hu Jintao to suspend such competition in order to pursue economic and diplomatic rapprochement between the two claimants to representing China. The truce first showed signs of breaking down with the 2016 election of Taiwanese President Tsai Ing-wen and her more independently oriented Democratic Progressive Party (DPP). Just two months after her election, but prior to her inauguration, the PRC accepted a longstanding request from the African state of Gambia to establish diplomatic relations.
During the truce period, from 2008-2016, leaders and leading political figures in many countries that had recognized Taiwan, including Paraguay, Central America, and the Caribbean, expressed interest to the PRC in establishing diplomatic relations. But the PRC consistently demurred; apparently placing more value on not undermining its relationship with Taiwan, than on any economic or strategic benefit such relations with those countries could yield. Analysts following the PRC-Taiwan relationship generally regarded the PRC’s delayed acceptance of Gambia’s offer as a warning to Tsai Ing-wen not to distance Taiwan too much from the PRC, and certainly not to pursue political independence.
In December 2016, in a more explicit challenge, a second, small African nation, Sao Tome and Principe, also switched relations from the Taiwan to the PRC. However, given the number of nations potentially interested in switching relations from Taiwan to the PRC, the passing of the first half of 2017 without further changes seemed to indicate that if the truce was collapsing, it was doing so in slow motion, and PRC initiatives in Africa did not necessarily translate into diplomatic changes in the Western Hemisphere .
An alternative interpretation of the slow pace for the resumption of the diplomatic competition is that the PRC, consistent with its style in other matters, initially took only limited steps, and then judged the international reaction. After finding no indication of serious push-back from key actors such as the U.S., it concluded that it could move more aggressively. In addition, had the PRC moved too quickly to establish diplomatic relations with other countries recognizing Taiwan, the value to the PRC of the changes by Gambia and Sao Tome and Principe in sending a warning to Taiwan would have been lost. Within this framework, Panama’s recognition of the PRC may be interpreted as a new, stronger message by the PRC, that if Taiwan does not pursue a policy more aligned with the PRC, the PRC will now court the 20 states that still recognize Taiwan in all regions of the world (principally in Africa, Central America, the Caribbean, and small islands in the Pacific).
While Panama’s change may be followed by the lapse of several more months before another state in the Western Hemisphere switches its diplomatic relations to the PRC, more changes are likely to come.
On one hand, Panama’s change initiates a patronage-driven “race to the bottom” for the 11 remaining states in the Hemisphere that recognize Taiwan. Historically, governments switching diplomatic relations to the PRC have been “rewarded” by loans, investments, and facilitated access to the PRC market. Most visibly, states that have switched have received sports stadiums, such as that built for Costa Rica following its May 2007 recognition of the PRC, as well as gifts or special financing for roads, clinics, and other projects.
Among those governments continuing to recognize Taiwan, there is a widely shared, yet empirically unproven belief that those states that switch relations later receive less generous rewards. Hence as the truce breaks down in the region, those still recognizing Taiwan have added motivation not to be “last in line” to change.
Due to such calculations, Costa Rica’s 2007 recognition of the PRC led Taiwan’s then President Chen Shui-bian to travel to Central America to shore up diplomatic support for those still recognizing his country. Following Panama’s June 12, 2017 change in recognition, expect Taiwan’s current president Tsai Ing-wen to take similar action and travel to the remaining countries still in Taiwan’s camp, such as El Salvador, Honduras or Nicaragua.
Panama’s recognition of the PRC has significant implications for the country, for the region, and for the U.S.
While Panama has long been a significant hub for PRC commercial activity in the region, the change in recognition will likely permit an important advance in that position. Less than a week before the change, China Landbridge Group broke ground on a $1 billion investment to build an enormous new deep-water port and logistics complex: the Panama Colon Container Port on Panama’s Margarita Island . China’s Foreign Minister Wang Yi will likely travel to Panama in the near future to pave the way for an exchange of visits by Panama’s President Varela and China’s President Xi. During these visits, Significant PRC loans and investments in Panama, already subject to discussion behind the scenes, will likely be announced. These will probably include projects in the country’s logistics sector, which will be symbolically linked to the PRC “one belt one road” initiative, as well as Chinese warehousing, transformation and region-wide commercial distribution operations in the canal zone, the storage and movement of petroleum, banking, telecommunications, and hotel investments.
Additionally, the PRC will likely strongly promote tourism to the country, highlighting Panama’s significant ethnic Chinese population and the historic role of those Chinese in building the canal. Reciprocally, the PRC will likely provide significant funding for scholarships, as well as incentives for Panamanian Chinese to travel to Mainland China to visit the land of their ancestors (a widely used practice of the PRC government to re-establish its links with the overseas Chinese).
In the flurry of such initiatives, the political fate of the Varela government will become closely tied to the perceived payoff of the diplomatic change. PRC leverage over the Panamanian government, and informally, over the administration of the Canal Zone, will grow significantly.
Panama’s establishment of diplomatic relations is also likely to give new impetus to the nation’s incorporation as a full member in the Pacific Alliance, along with the political capital for President Varela to push through the legal requisites of doing so. The incorporation of Panama into the Pacific Alliance will also be a tempting achievement for the government of Juan Manuel Santos in Colombia; this month, his government inherits the rotating leadership of the Pacific Alliance from Chile. Being able to add Panama to the Pacific Alliance during Colombia’s leadership period would be a significant achievement for the Santos government, helping to distract attention in his own country away from the significant controversy generated by his signing and implementation of a peace accord with the Revolutionary Armed Forces of Colombia (FARC) terrorist group.
On the other hand, since the Pacific Alliance facilitates the coordination of institutionally strong Latin American governments (Chile, Mexico, Colombia and Peru) towards China, it is not clear that the PRC would welcome Panama’s joining it, and thus strengthening this avenue for the region’s multilateral engagement with China. Without PRC support, it is not clear that the Varela government will pursue membership.
Beyond the country, Panama’s diplomatic change is probably bad news for the Nicaraguan government of Daniel Ortega. Nicaragua, which recognized the PRC in 1979, the last time President Ortega was in power, will probably re-establish relations in the coming years. Yet it is unlikely that, as the PRC consolidates its new relationship with Panama, it would embrace Nicaragua’s flagship project, a new canal that would compete with that of Panama.
Elsewhere in Central America, all three northern triangle governments are candidates for switching relations from Taiwan to China. The government of former leftist guerrilla leader Salvador Sánchez Cerén in El Salvador has delicately distanced itself from the U.S. to work more closely with Russia. As with other left-oriented governments in the region such as Venezuela, Ecuador and Bolivia, recognizing the PRC would help Sánchez Cerén consolidate an economic support base as he moves further from the U.S.
In Honduras and Guatemala, while both governments are solidly pro-U.S., recognition of the PRC would provide both important business opportunities and a counterweight to Western pressures on issues of corruption and human rights, such as the Commission on Impunity (CICIG) in Guatemala, which have generated resentment among some elites. In addition, key political figures, such as Porfirio Lobo Sosa (known as Pepe Lobo), Honduras’ previous president and mentor to its current president, have previously advocated recognition of the PRC. While those same elites are often deeply distrustful of the PRC, the prospect of expanded deportations of Central Americans from the U.S., combined with cuts in aid for those countries through the U.S. Department of State, further expands the short-term appeal of recognizing the PRC to some within the beleaguered governments of Guatemala and Honduras.
In Paraguay, the last South American country still diplomatically recognizing Taiwan, close advisors to President Horacio Cartes, such as Diogenes Martinez, are long-time advocates of recognizing the PRC. Pursuing the issue could allow President Cartes to re-define the political agenda after his failed attempt to circumvent the Paraguayan constitution to be re-elected. Yet it would also risk accentuating the divide within his long-dominant Colorado Party, which split over the issue of Cartes’ re-election.
In the Caribbean, Panama’s switch will probably re-ignite the recognition debate in both Haiti and the Dominican Republic, on both sides of Hispaniola. For Haiti, where PRC military police served as peacekeepers from 2004 through 2012, establishing relations with the PRC could tempt the fledgling government of Jovenel Moïse with short-term benefits as it struggles to prepare for the end of the MINUSTAH peacekeeping force. On the other hand, the Dominican Republic would be a tempting target for the PRC, given its relatively large internal market and access to the U.S. market through the CAFTA-DR trade agreement, particularly as Chinese access to the U.S. market through Cuba continues to remain blocked due to sanctions.
While a switch en masse of countries shifting their recognition from Taiwan to the PRC is not a foregone conclusion, U.S. leaders should be prepared for a significant wave of diplomatic activity and uncertainty as the PRC more actively courts nations of the hemisphere, and Taiwan employs all available means to defend its strategic diplomatic position.
For the U.S. military, the change in Panama, and those likely to follow, may be accompanied by a new wave of military sales on credit by PRC-based defense companies such as NORINCO, as well as expanded visits by Chinese military leaders to the region, trips to the PRC by Latin American military leaders who had previously had contact only in Taiwan, and training by Chinese Peoples’ Liberation Army (PLA) members in countries where they have not heretofore been present. For the U.S., such expanded competition strongly argues for re-considering announced reductions in funding for development and security cooperation programs in the region.
Similarly, the U.S. should be prepared for expanded instability in Asia, since Taiwan’s loss of its remaining partners could push its DPP government into a political crisis, or towards a path such as declaring political independence. Such a move, while extreme would risk potentially provoking a military response from a PRC filled with confidence from its diplomatic victories.
In 1999, the Panamanian government’s award of port concessions to the Hong Kong-based company Hutchison Whampoa became a defining event for expanding PRC engagement with Latin America. On June 12, Panama’s government established yet another milestone in that advance. U.S. President Donald Trump will have much to discuss with his Panamanian counterpart during his visit to Washington D.C.
Dr. R. Evan Ellis is Research Professor of Latin American studies at the Strategic Studies Institute of the U.S. Army War College. The views expressed in this article are strictly his own.