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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
________________________________________________________________________

 

Congressional Research Service (CRS)

 

The Proposed U.S.-Panama Free Trade Agreement

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

February 22, 2010

http://opencrs.com/document/RL32540/2010-02-22/download/1013/

[full-text, 33 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. 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.

 

Contents

Panama’s Canal and Economic Relations with the United States..................................................2

Early U.S.-Panama Economic Relations ................................................................................2

The Canal and U.S. Trade Policy...........................................................................................4

Panamanian Trade Relations .......................................................................................................6

Structure and Direction of Panamanian Trade........................................................................6

The Colón Free Zone ......................................................................................................8

U.S.-Panama Merchandise Trade...........................................................................................9

U.S. Foreign Direct Investment ...........................................................................................10

Summary of Trade Negotiations and the Proposed U.S.-Panama FTA........................................ 11

Market Access.....................................................................................................................12

Agricultural Trade.........................................................................................................13

Sanitary and Phytosanitary Standards (SPS) ..................................................................14

Textiles and Apparel......................................................................................................15

Government Procurement....................................................................................................16

Investment ..........................................................................................................................16

Services ..............................................................................................................................18

Intellectual Property Rights .................................................................................................18

Pharmaceutical Issues ...................................................................................................19

Labor and Environment.......................................................................................................20

Labor Issues..................................................................................................................21

Panama’s Labor Conditions...........................................................................................23

Environmental Issues ....................................................................................................23

Trade Capacity Building......................................................................................................25

Outlook....................................................................................................................................26

 

Figures

Figure 1. Map of Panama ............................................................................................................3

Figure 2. Panama Direction of Trade, 2008..................................................................................8

 

Tables

Table 1. Panama’s Current Account Balance................................................................................7

Table 2. U.S.-Panama Merchandise Trade, 2008..........................................................................9

Table 3. U.S. Foreign Direct Investment in Panama, Mexico, and Central America....................10

Appendixes

Appendix A. Chronology of U.S.-Panama FTA.........................................................................28

Appendix B. Panama: Selected Economic Indicators .................................................................29

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This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.

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Stuart Basefsky                   
Director, IWS News Bureau                
Institute for Workplace Studies 
Cornell/ILR School                        
16 E. 34th Street, 4th Floor             
New York, NY 10016                        
                                   
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