Free Trade Agreement between Panama and the United States

Written By: Marissa R. García, Esq.

Quijano & Associates, Attorneys at Law

Panama City, Republic of Panama

After several years of negotiations, the Republic of Panama and the United States of America have just ratified a Free Trade Agreement for the purpose of further developing and strengthening bilateral trade structures and eliminating tariff barriers between the two countries.

Trade agreements constitute liberalization of trade of specific or of all kinds of goods between signatory countries. By becoming a signatory of this type of agreement, countries gain a great reduction or complete elimination of existing tariff and non-tariff barriers. In such scenarios, to the extent determined in the agreement, each country continues to be sovereign in its own commercial policies with the rest of the world.

The negotiations of this agreement are the result of four presidential administrations in Panama, which involved different political parties looking for ways to strengthen and increase the commercial relationship between Panama and the U.S. Such negotiations involved the presence of various sectors of the Panamanian society. Particularly the private sector was constantly making proposals for conditions of the agreements approved and now ratified.

It is important to consider that this Trade Agreement seeks the creation of new opportunities of access to an immensely important international market for the Panamanian private sector, which made important contributions during the negotiations of the Agreement.

Together with the private sector in Panama, the Panamanian Ministry of Commerce and Industry installed a commission called “National Commission of International Commercial Negotiations,” formed by government employees and representatives of the private sector. This Commission took part in all the meetings held for submitting and analyzing proposals during the negotiations of the Agreement.

In addition to the above, the content of the Agreement was submitted to the academic sector, working class leaders, professionals, independent citizens and the civil society in general. During this process these sectors were given the opportunity to submit their proposals and objections during the negotiations.

It was clearly understood that the entire society had to be considered at the time of negotiating this type of Agreement, since it was to affect positively, negatively, directly and/or indirectly every sector of the society. As a matter of fact, from the year 2004 more than 350 consultations have been made for the process of negotiating with the U.S.

As a result of the ratification of this Agreement, Panama and the U.S. will substantially reduce the tariffs applied to the bilateral trade of goods, services and investments, and it will promote higher standards of protection of rights related

to intellectual property, electronic products and related industries, customs, as well as dealing with disputes, among many other things.

It is said that the importance of the Free Trade Agreement between Panama and the U.S. is based on the impact the U.S. has on the economic and commercial transactions conducted in Panamanian territory. The U.S. is our most important commercial partner. In 2010 the U.S. imported $2,518 million USD from Panama and Panama exported $211 million USD to the U.S.

The following should be mentioned concerning commercial transactions between Panama and the U.S.:

• The commercial exchange between Panama and the U.S. is constant. Products are imported and exported from and to both countries constantly. Sugar, coffee and all kinds of products of the sea are some of the popular items which Panama usually exports to the U.S.

• The Colon Free Zone carries on a strong commercial exchange with U.S. companies.

• The U.S. is one of the most important clients of the Panama Canal.

Taking into consideration the above, Panama will enjoy the following advantages once the Agreement is implemented:

• The commercial development possible with a Free Trade Agreement is much stronger than with the multilateral rules established in the World Trade Organization, since a wide space exists in the multilateral framework used for applying undercover restrictions in commercial transactions. Such restrictions may be avoided through a Free Trade Agreement.

• A system of commerce without specific restrictions for investments creates a positive environment for growth and for the expansion of new opportunities for business and related activities.

• As to the expansion of commercial and economic activities between Panama and the U.S., the Free Trade Agreement enables Panama to be in a better position for exporting products to a country with more than 300 million inhabitants, and allows Panamanians the possibility of enjoying products from the U.S. at lower prices.

• Industries of third countries may consider establishing in Panama in order to take advantage of the benefits Panama shall gain by the ratification of this Agreement.

Is this Agreement the solution for problems the countries currently face?

Certainly, a Free Trade Agreement with the U.S. is a valuable tool of commercial policies to promote commerce between the U.S. and Panama and to generate economic growth and development. However, agreements are not by themselves the solution to all the problems; instead, they are an important piece of the macroeconomic politics of the country.

The ratification of this Agreement brings positive expectations to certain sectors of the country; however, the agricultural sector is concerned about the benefits this Agreement may bring since they are not prepared for its implementation in Panama.

They doubt that in a short term they might be able to compare themselves positively to the productivity of the U.S.’s agricultural sector, which enjoys considerable subsidies and other benefits from the government, making many products extremely competitive.

A large amount of products from the U.S. will not have tariffs to pay upon the implementation of the Agreement, leaving Panamanian producers with a short time to manage how they are going to compete with the products imported at more accessible prices.

In reply to such concern, Panamanian authorities have already considered the development of a logistic in ports, airports, streets, customs and migration in order to make the country a place in which products can be manufactured and produced at low prices to be more competitive and for exporting to the U.S. as well.

The Panamanian Government must keep supporting the small entrepreneurs, especially in the agricultural sector, in the areas of finance, education, technology, and development of their processes in order to be able to profit from the advantages of the possible benefits that the Free Trade Agreement creates, increase their possibilities to compete, and access the new market.

The main challenge for Panama will be the adaptation of the agricultural sector to be more competitive and capable of selling quality products at the level of countries that can produce at lower costs.

The implementation of this Agreement has several benefits for Panama as well as several challenges, and the positive or negative form of acceptance of them shall depend on how it is evaluated. The truth is that for the effectiveness of agreements of this type, both countries must receive benefits from them at the same scale or at least at a very similar scale. We will only be in the position to determine if the Agreement was positive or negative for Panama when enough time has passed and the effects of the Agreement can be appreciated in all sectors of the local economy.

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