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China’s New Diplomatic Relations with Panama: Prospect of Future Economic Cooperation and Partnership in Latin America

On June 13, 2017, the People’s Republic of China and the Republic of Panama established diplomatic relations with the foreign ministers of both countries signing a joint communiqué in Beijing. Since both States are contracting parties to the Vienna Convention on Diplomatic Relations (“VCDR”), VCDR becomes applicable to this newly established China-Panama diplomatic relations. In addition to legal implications, the establishment of diplomatic relations would also bring prospect of economic cooperation and partnership between them. As Article 3 of VCDR provides: “The functions of a diplomatic mission consist inter alia in ... promoting friendly relations between the sending State and the receiving State, and developing their economic, cultural and scientific relations,” the prospect of economic cooperation and partnership is certainly an important dimension of what the China-Panama diplomatic relations can bring to both countries. Wang Yi, the Chinese foreign minister, said that China is Panama’s “stable and ever-lasting cooperation partner in economy” and emphasized that “China is willing to [...] comprehensively enhance exchanges and cooperation in various fields, in a bid to benefit the two countries and the two peoples.” Isabel de Saint Malo, the vicepresident and foreign minister of Panama hoped that “the new relationship would lead to trade, investment and tourism opportunities, in particular exporting more goods from Panama to China.” China’s New Diplomatic Relations with Panama: Prospect of Future Economic Cooperation and Partnership in Latin America

have also been signed between relevant governmental agencies of the two countries. 12 This note aims to provide an outlook on the prospect of China-Panama economic partnership in the following three areas: trade, investment, and civil aviation, which are strategically important to both countries and have been subject to the governance of some aspects of international law. The analysis will take into account both the status of current law (lex lata) and possible development of future law (lex ferenda), especially in light of China's "Belt and Road" Initiative.

Trade Cooperation
Trade is a key aspect in the future economic cooperation between China and Panama. In the China-Panama Trade and Investment Forum held on July 24, 2017, Inocencio Galindo De Obarrio -President of the Chamber of Commerce, Industries and Agriculture of Panama (La Cámara de Comercio, Industrias y Agricultura de Panamá) -has said that "diplomatic relations between China and Panama open […] the possibility of negotiating a trade agreement with a country of more than 1,300 million people, which will result in increased exports and imports." 13 Meanwhile, China strives to "boost unimpeded trade cooperation" 14 under the 'Belt and Road' Initiative.
As members of the World Trade Organization ("WTO"), 15 China and Panama enjoy the most-favored-nation treatment under the WTO regime. Despite the central role of the WTO in the world trading system, 16 regional trade agreements ("RTAs") "have […] become the darlings of international trade negotiators" 17 in recent years. Today, "RTAs […] have become a key feature of trade policy for all WTO members." 18 "Following the notification of the RTA between Mongolia and Japan in June 2016, all WTO members now have an RTA in force." 19 The phrasing of 'regional' in RTAs, however, is not exactly accurate, 20 given that many RTAs are bilateral in nature. The following chart by the WTO Secretariat visualizes the number of RTAs that have been notified to the GATT/WTO from 1948 to 2017 ( Figure 1).  Through RTAs, partner States could grant one another more favorable trade conditions than those derived from the legal framework of the WTO. That is why a China-Panama trade agreement might be a means to promote trade cooperation between the two countries. According to the RTA database provided by the WTO, 22 both China and Panama have been parties to some bilateral and plurilateral RTAs.
China currently has bilateral RTAs with three Latin American countries 23 such as Costa Rica, Chile, 24 and Peru. It has also commenced jointly with Panama the study on the feasibility of a China-Panama free trade agreement. 25 Provisions of China's existing RTAs can shed light on what a potential trade agreement in the future with Panama might look like. China's RTAs with Costa Rica, Chile, and Peru provide: "Each party shall accord national treatment to the goods of the other party in accordance with Article III of the GATT 1994" 26 with the exceptions otherwise provided in the RTAs. National treatment is also granted to specifically inscribed sectors of trade in service. 27 If China and Panama decide to enter an RTA in the future, national treatment to selected sectors of trade in goods and services would not only stimulate bilateral trade between the two countries, but also help China "promot[ing] unimpeded trade cooperation along the Belt and Road." 28

Investment Cooperation
China's active participation in international investment governance in recent decades has a great impact in shaping the global economy and international investment law. 29 Currently, China has more than 100 bilateral investment treaties ("BITs") in force with other States. 30 Table 1 shows China's existing BITs with Latin American and Caribbean countries. Some commentators predict an increase of Chinese investment projects in Panama after the establishment of China-Panama diplomatic relations. 31  BIT] tended to be more restrictive." 33 Commentators have suggested that "a new generation of BITs for China should strike a balance between the protection of investors and the right to regulate, between capital importing and capital-exporting interests, and should embody an improved dispute settlement mechanism." 34 Such balances are likely to be taken into account by decision-makers in both China and Panama in envisaging legal governance frameworks to further bilateral investment cooperation in the future.

Civil Aviation Cooperation
Civil aviation is another sector with great potential for economic cooperation and partnership between China and Panama. Since "every State has complete and exclusive sovereignty over the airspace above its territory," 35 there is no inherent right for airlines to fly over let alone carry passengers and cargo from or to the territory of a foreign State. By default, there is no freedom of the air. Since "[n] on-freedom of the air can be turned into freedoms of the air pursuant to the terms of bilateral or other international air services agreements," 36 an air transport agreement ("ATA") is crucial for China and Panama to build future bilateral cooperation in civil aviation.
On November 17, 2017, during President Varela's visit to China, China and Panama signed a bilateral ATA in Beijing. 37 Although the text of the China-Panama ATA is not yet publicized, 38 it has been confirmed that "Air China will begin direct flights to the Republic of Panama from March 2018." 39 According to a news piece on the website of the government of Panama, the newly signed China-Panama ATA "grants traffic rights to open flights to and from Panama or the People's Republic of China, laying the foundations for any designated airline to enter into cooperative marketing agreements." 40 Traffic rights, which are often referred to by the jargon of the "nine freedoms of the air," 41 "lie […] at the core of all aviation trade agreements and remain […] a contentious element in air services negotiations." 42 China and Panama are both parties to the International Air Services Transit Agreement 43 which grants the first freedom ("[t]he privilege to fly across its territory without landing") and the second freedom ("[t]he privilege to land for non-traffic purposes") among parties. 44 Since direct flights between China and Panama are expected to be launched in 2018, the ATA should also contain the third and fourth freedoms which "grant permission to pick up and discharge passengers and cargo." 45 It is not clear if additional traffic rights are granted under the China-Panama ATA. A 2009 study showed that some of Panama's ATAs are more liberalized than others in terms of the grant of the fifth freedom and the restrictions on authorization, capacity, and pricing. 46 In any case, the China-Panama ATA is a good starting point for both countries to initiate cooperation in civil aviation and, if both China and Panama deem it desirable, to explore more liberalized forms of partnership in the future.

Conclusion and Prospect
Given the mutual economic interests that China  (1) sincerity and mutual trust in the political field; (2) win-win cooperation on the economic front; (3) mutual learning in culture; (4) close coordination in international affairs; and (5) mutual reinforcement between China's cooperation with the region as a whole and its bilateral relations with individual countries in the region. 48 Based on the strategic goal of "establishing a comprehensive and cooperative partnership featuring equality, mutual benefit and common development with Latin American and Caribbean countries" set in China's first policy paper on Latin America and the Carribean of 2008, China is now seeking to enter into the "new stage of comprehensive cooperation" with the region. 49 As is clear from the abovementioned five features of China's goal, China would envision the comprehensive cooperation to take place in political, economic, and cultural areas with both individual countries and the region as a whole. The ongoing development of China-Panama cooperation and partnership after the establishment of diplomatic relations can be an important example to see how China's strategic and policy initiative is carried out in practice and translated into the development of international law. As previous parts of this note have demonstrated, possible bilateral legal arrangements between China and Panama in the future regarding the trade, investment, and civil aviation cooperation would bring new considerations and factors into account thereby providing a unique chance for China to develop a new generation of international law practice under the 'Belt and Road' Initiative. If this new generation of international legal arrangements is fully realized in the future, it may also go beyond the bilateral scope to form plurilateral treaties or arrangements. Such regimes would not only enhance the legal structure of China's "Belt and Road" Initiative, but also bring new dynamics to the development of international law.