The Proposed U.S.-Panama Free Trade Agreement

J. F. Hornbeck
Specialist in International Trade and Finance

On June 28, 2007, after two and a half years of negotiation, the United States and Panama signed a reciprocal free trade agreement (FTA). Negotiations were formally concluded on December 16, 2006, with an understanding that further changes to labor, environment, and intellectual property rights (IPR) chapters would be made pursuant to future detailed congressional input. These changes were agreed to in late June 2007, in time for the FTA to be considered under Trade Promotion Authority (TPA) legislation before it expired on July 1, 2007. TPA allows Congress to consider trade implementing bills under expedited procedures. Panama's legislature approved the FTA 58 to 4 on July 11, 2007. The 110th Congress did not take up the agreement, and so far there is little indication that the 111th Congress is ready to act on the FTA. 

The proposed U.S.-Panama FTA is a comprehensive agreement. Some 88% of U.S. commercial and industrial exports would become duty-free upon implementation, with remaining tariffs phased out over a ten-year period. Over 60% of U.S. farms exports to Panama also would achieve immediate duty-free status, with tariffs and tariff rate quotas (TRQs) on select farm products to be phased out by year 17 of the agreement. Panama and the United States signed a separate bilateral agreement on sanitary and phytosanitary (SPS) issues that would recognize U.S. food safety inspection as equivalent to Panamanian standards, which will expedite entry of U.S. meat and poultry exports. The FTA also consummates understandings on telecommunications, services trade, government procurement, investment, and intellectual property rights. 

The circumstances framing the proposed U.S.-Panama FTA differ considerably from those of two others that have yet to be considered by Congress. The deep concerns that Congress has expressed over Colombia's violence have not been an issue in the Panama FTA debate, which is framed more by the positive image of a longstanding strategic bilateral relationship based on Panama's canal. Nor does Panama compare well with the continuing debate over the proposed FTA with South Korea, which as a major U.S. trading partner, can affect key industries such as automobile and beef production. To the contrary, Panama trades little with the United States, even by Latin American standards, and so the FTA cannot have a major effect on the U.S. economy. 

The final text of the proposed U.S.-Panama FTA incorporates specific amendments on key issues at the behest of congressional leadership. The most significant were adoption of enforceable labor standards, compulsory adherence to select multilateral environmental agreements (MEAs), and an easing of restrictions on developing country access to generic drugs. In these cases, the proposed U.S.-Panama FTA goes beyond provisions in existing bilateral FTAs and multilateral trade rules, including those contemplated in the Doha Round.Two other concerns still linger. The first pertains to a Panamanian labor statute, which some Members of Congress would like to see amended so that the minimum number of workers required to start a union would be reduced from 40 to 20, per ILO guidelines. The second relates to questions raised over Panama's status as a "tax haven" and its refusal to enter into a tax information exchange treaty. Currently, the government of Panama is working closely with the USTR to find a mutually acceptable solution to both these issues. The time frame for completing this process is unclear and may depend in part on whether the Obama Administration and Congress signal that they are prepared to move ahead with implementing legislation. For more on Panama, see CRS Report RL30981, Panama: Political and Economic Conditions and U.S. Relations, by Mark P. Sullivan. .


Date of Report: February 22, 2010
Number of Pages: 33
Order Number: RL32540
Price: $29.95

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