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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
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Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
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Congressional Research Service (CRS)

The Proposed U.S.-Panama Free Trade Agreement

J. F. Hornbeck, Specialist in International Trade and Finance

March 1, 2011

http://www.opencrs.com/document/RL32540/2011-03-01/download/1005/

[full-text, 36 pages]

Summary

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. Neither the 110th nor the 111th Congress took up the agreement.

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 10-year period. Over 60% of U.S. farm 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 (year 20 for rice). 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

other signed FTAs 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 long-standing 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 although particular industries may be affected to some

degree, and U.S. investment is relatively important in Panama, the FTA cannot have a major

effect on the U.S. economy as a whole.

The final text of the proposed U.S.-Panama FTA incorporates amendments on key issues based on

congressional input in 2007. 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.

Congress is still debating two major issues: labor and tax transparency. Concerns over Panama’s

labor code have been addressed by legislation in Panama, yet to be enacted. One issue on

minimum workers needed to form a union has not been addressed for the apparent lack of support

even among labor groups in Panama. Congress also requires that Panama amend its tax laws to

incorporate changes necessary to implement the recently signed Tax Information and Exchange

Agreement (TIEA), which would provide greater transparency in support of curbing money

laundering related to drug trafficking. Legislation has been passed, but work remains to be done

on a few bills, including a final vote on approving the TIEA. It remains to be seen if these final

changes will be sufficient for the FTA to be approved by a majority in the U.S. Congress.

For more on Panama, see CRS Report RL30981, Panama: Political and Economic Conditions

and U.S. Relations, by Mark P. Sullivan.

Contents

Background and Recent Developments .......................................................................................1

Labor Code Amendments ......................................................................................................2

Tax Transparency..................................................................................................................2

Panama’s Canal and Economic Relations with the United States..................................................4

Early U.S.-Panama Economic Relations ................................................................................4

The Canal and U.S. Trade Policy...........................................................................................7

Panamanian Trade Relations .......................................................................................................9

Structure and Direction of Panamanian Trade........................................................................9

The Colón Free Zone .................................................................................................... 11

U.S.-Panama Merchandise Trade......................................................................................... 11

U.S. Foreign Direct Investment ...........................................................................................12

Summary of Trade Negotiations and the Proposed U.S.-Panama FTA........................................13

Market Access.....................................................................................................................15

Agricultural Trade.........................................................................................................15

Sanitary and Phytosanitary Standards (SPS) ..................................................................17

Textiles and Apparel......................................................................................................18

Government Procurement....................................................................................................19

Investment ..........................................................................................................................19

Services ..............................................................................................................................21

Intellectual Property Rights .................................................................................................21

Pharmaceutical Issues ...................................................................................................22

Labor and Environment.......................................................................................................24

Labor Issues..................................................................................................................25

Panama’s Labor Code and Conditions ...........................................................................26

Environmental Issues ....................................................................................................26

Trade Capacity Building......................................................................................................28

Outlook....................................................................................................................................29

Figures

Figure 1. Map of Panama ............................................................................................................6

Figure 2. Panama Direction of Trade, 2009................................................................................10

Tables

Table 1. Legislative Status of Double Taxation Agreements Entered Into by Panama ...................4

Table 2. Panama’s Current Account Balance................................................................................9

Table 3. U.S.-Panama Merchandise Trade, 2009........................................................................12

Table 4. U.S. Foreign Direct Investment in Panama, Mexico, and Central America....................13

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