*

Rubio says exit from China's plan a boon to U.S.-Panama

ties

*

Top U.S. diplomat's visit contested China's inroads in

Panama

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Audit could be path to undo China's canal concessions

-analyst

(Adds quotes, details after first paragraph)

By Michael Martina and Simon Lewis

WASHINGTON/SAN SALVADOR, Feb 3 (Reuters) - U.S.

Secretary of State Marco Rubio on Monday welcomed Panama's

decision to let its participation in China's global

infrastructure plan expire, calling the move "a great step

forward" for its ties with the United States.

Any move by Panama to distance itself from Chinese President

Xi Jinping's signature Belt and Road Initiative is a win for

Washington, which has argued that Beijing uses the scheme for

"debt trap diplomacy" to cement its global influence.

Rubio this week made his first overseas trip as the top

U.S. diplomat under President Donald Trump to Panama, a close

U.S. partner in Latin America, and pressured the country over

its ties with China.

After talks with Rubio, Panama's President Jose Raul

Mulino said his country's broad agreement to contribute to the

Chinese initiative

will not be renewed

, and could be terminated early. He said the deal was set to

expire in two to three years, but did not elaborate.

"Yesterday's announcement by President @JoseRaulMulino

that Panama will allow its participation in the CCP's Belt and

Road Initiative to expire is a great step forward for

U.S.-Panama relations, a free Panama Canal, and another example

of @POTUS leadership to protect our national security and

deliver prosperity for the American people," Rubio posted on X

after departing the country.

Panama was the first Latin American country to

officially endorse BRI in November 2017, five months after

switching diplomatic ties to China

from Taiwan, the democratically governed island Beijing

claims as its territory.

China rejects Western criticism of the plan, saying well

over one hundred countries have joined it, boosting global

development with new ports, bridges, railway and other projects.

Nonetheless, it has been mired in controversy, with some

partner nations bemoaning the high cost of projects and

struggling to repay loans. Italy withdrew from the initiative in

2023 under U.S. pressure over concerns about Beijing's economic

reach.

Such U.S. concerns have long extended to some Chinese

companies'

operations near the Panama Canal

, including a Hong Kong-based firm operating two ports at

both entrances of the waterway, built by the United States in

the early 20th century and handed over to Panama in 1999.

Two Chinese state-owned firms are separately building a

fourth bridge over one of the canal's entrances.

The U.S. State Department said on Sunday that Rubio

delivered a message from Trump that China's presence there was a

threat to the canal and a violation of the U.S.-Panama treaty.

After talks with Rubio, Mulino signaled a willingness to

review a key 25-year concession to Hong Kong-based CK Hutchison

Holdings ( CKHUF ), renewed in 2021 for the operation of ports

at both entrances of the canal, pending the results of an audit.

The contract has been targeted by U.S. lawmakers and the

government as an example of China's expansion in Panama, which

they claim goes against a neutrality treaty signed by both

countries in 1977.

While Panama has reiterated its sovereignty over the

world's second busiest waterway, Ryan Berg, director of the

Americas Program at Washington's Center for Strategic and

International Studies, said the audit could provide a way to

unwind the concessions if it shows the deals were marred by

corruption.

"That provides more legal framework for Panama to wiggle

out of the concessions and for Panama to reopen them such that

an American company or a European company might come in and win

the bid," Berg said.