The U.S.-Panama Free Trade Agreement

Publication Date: January 2007

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Trade

Type:

Coverage: Panama

Abstract:

On November 16, 2003, President George W. Bush formally notified Congress of his intention to negotiate a bilateral free trade agreement (FTA) with Panama. Negotiations commenced in April 2004 and concluded on December 19, 2006 at the close of the tenth round. As with all free trade agreements, the U.S.-Panama FTA enters into force only after the President signs into law implementing legislation passed by both Houses of Congress.

Panama is a small U.S. trade partner, but benefits from significant U.S. investment and unilateral trade preferences (the Caribbean Basin Initiative and some that require congressional renewal -- the Caribbean Basin Trade Partnership Act and the Generalized System of Preferences). These preferences would be replaced and made permanent by the reciprocal FTA. The FTA had to reconcile the requirements of a relatively small developing country with those of a large developed one. For Panama, this meant addressing multiple trade liberalization goals, including expanding its globally competitive services sector, repositioning its much smaller manufacturing sector, and easing slowly into the international market its more protected and less competitive agricultural sector. For the United States, it meant building on a long-standing strategic military and commercial relationship, while accommodating the concerns of sensitive domestic sectors and industries.

The U.S.-Panama FTA is a comprehensive agreement similar to other bilateral FTAs negotiated by the United States. According to the United States Trade Representative (USTR), 88% of U.S. commercial and industrial exports would become duty-free right away, with remaining tariffs phased out over a ten-year period. Approximately half of U.S. farms exports to Panama would achieve dutyfree status immediately, with many products restricted by tariff-rate quotas (TRQs) winning additional market access, as would Panamanian sugar exports to the United States. Tariffs and TRQs on other farm products are to be phased out over 9-19 years. Panama and the United States agreed to a separate bilateral agreement on SPS issues, a key to concluding the FTA. Panama would recognize U.S. food safety inspection as equivalent to Panamanian standards, which would expedite entry of U.S. meat and poultry exports. The FTA also consummates understandings on services trade, telecommunications, intellectual property rights, labor, environment, and government procurement, while including support for trade capacity building.

The labor and environmental provisions in the U.S.-Panama FTA are similar to those in other bilateral FTAs. Panama has agreed, however, to keep open the discussion on labor while the USTR seeks bipartisan support for the FTA through additional consultations on labor issues with the 110th Congress. In the past, Panama has alluded to being amenable to stricter labor provisions, including the possibility of accepting enforceable minimal standards. It is possible that this could lead to an amended understanding of the labor commitments as currently conveyed in the FTA. This report will be updated as the congressional debate unfolds.

Related information may be found in CRS Report RL30981, Panama: Political and Economic Conditions and U.S. Relations, by Mark P. Sullivan.