CRS Report for Congress

The U.S.-Panama Free Trade Agreement

Updated January 4, 2007

J. F. Hornbeck
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Congressional Research Service

Summary

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.