Hong Kong-based CK Hutchison Holdings has initiated arbitration after Panama’s Supreme Court of Justice ruled that the long-standing concession held by its Panama Ports Company (PPC) is unconstitutional.

The company filed the case earlier this month under the terms of the concession contract and the arbitration rules of the International Chamber of Commerce.

CK Hutchison stated that the agreement had operated for nearly three decades as a “contract-law,” intended to secure legal and contractual stability for the operation of the Balboa and Cristóbal terminals.

Following the court’s announcement, Panama began activating an operational transition plan designed to maintain activity at both ports. APM Terminals expressed willingness to temporary manage the two facilities while arbitration continues.

The developments created geopolitical tension between the regions, potentially adding to the disruption surrounding the Balboa and Cristóbal terminals.

China has responded to the situation by instructing state-owned firms to halt discussions on new projects in Panama, reports Bloomberg.

It has also encouraged shipping companies to consider routing cargo through alternative ports when costs allow.

Additionally, China’s customs authorities are intensifying inspections of Panamanian imports, including bananas and coffee, while existing projects, such as a fourth canal bridge, a cruise terminal and a metro segment, may face delays.

CK Hutchison continues to pursue arbitration while China maintains that it will defend the rights and interests of its companies. It has warned APM Terminals that it will take legal action if it steps in to run Panama’s terminals.