Order Code RL32540
CRS Report for Congress
Received through the CRS Web
The Proposed U.S.-Panama
Free Trade Agreement
August 23, 2004
J. F. Hornbeck
Specialist in International Trade and Finance
Foreign Affairs, Defense and Trade Division
Congressional Research Service ˜ The Library of Congress
The Proposed U.S.-Panama Free Trade Agreement
Summary
On April 26, 2004, the United States began negotiating a bilateral free trade
agreement (FTA) with Panama. By building on the U.S.-Dominican Republic-
Central America Free Trade Agreement (DR-CAFTA) text, the negotiations have
moved quickly and many chapters are nearly completed. A fifth round is scheduled
for October 18-22, 2004, after the inauguration of president-elect Martín Torrijos on
Sept. 1, 2004. As with all free trade agreements, the FTA cannot enter into force
until Congress passes implementing legislation and the President signs it into law.
Panama’s economy is based largely on maritime and related service industries
that developed around its transisthmian canal, once managed by the United States,
but returned to Panama in 1999. Canal operations account for 7% of Panama’s GDP,
with the largest and fastest growing traffic volume generated along the U.S. East
Coast-to-Asia trade route (especially U.S.-China). The canal’s total economic
impact, however, is far greater, supporting income and jobs in various services
industries including warehousing, ship registry and repair, salvage operations,
insurance, banking, and tourism.
Panama is a beneficiary of the Caribbean Basin Initiative’s (CBI) unilateral trade
preferences of the United States and is among the largest recipients of U.S. foreign
direct investment in Latin America. Because of its historical economic dependence
on the United States and the canal, Panama had not elected to pursue trade
liberalization vigorously until 1997 when it joined the World Trade Organization.
Opening the economy further to U.S. competition is a big step and will present more
adjustment challenges. Panama seeks to solidify U.S. market access and investment
benefits in an FTA. The incentive to negotiate is enhanced by the need to keep pace
with other Latin American countries negotiating FTAs with the United States that
may erode CBI preferences. For the United States, Panama has long had a military
and commercial strategic importance, even as a small trading partner, and an FTA
with Panama fits with broader U.S. trade policy.
The United States seeks to reduce tariffs and other barriers to U.S. industrial,
agricultural, and consumer goods. Other important aspects of this agreement will be
defining rules for services trade, investment, government procurement, and dispute
resolution. Market access for agricultural goods has been difficult to negotiate given
both countries have sensitive products. Textile and apparel issues are less critical
given Panama’s relatively small production. Labor and environmental advocates
likely will challenge the relevant chapters in the FTA and Panama’s record on these
issues. Earlier agreements have passed congressional muster only after a majority of
Members have been able to reconcile these provisions with the record of each
country’s labor laws and enforcement efforts. Panama has confidence in its labor
rights record, but concerns have been raised in some reports. Panama may find it
difficult to reach agreement on services, government procurement, and other areas
where U.S. firms are highly competitive. This report will be update periodically.
Related information may be found in 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 . . . . . . . . . . . . . 1
Early U.S.-Panama Economic Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Canal and U.S. Trade Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Panamanian Trade Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
U.S.-Panama Merchandise Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
U.S. Foreign Direct Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Status of Trade Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Trade Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Market Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Maritime Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Government Procurement and Intellectual Property Rights . . . . . . . . . . . . 12
Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Labor and Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Environmental Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Labor Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Appendix 1. Chronology of U.S. Panama FTA Negotiations . . . . . . . . . . . . . . . 19
Appendix 2. Panama: Selected Economic Indicators . . . . . . . . . . . . . . . . . . . . 20
Appendix 3. U.S.-Panama Tariff Rates for Selected Products . . . . . . . . . . . . . . 21
List of Figures
Figure 1. Map of Panama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Figure 2. Panama Direction of Trade, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
List of Tables
Table 1. Panama’s Current Account Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Table 2. U.S.-Panama Merchandise Trade, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . 7
Table 3. U.S. Investment in Panama, Mexico, and Central America . . . . . . . . . . 8
The Proposed U.S.-Panama Free Trade
Agreement
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 four rounds have been completed. A
fifth round is scheduled for October 18-22, 2004, after the inauguration of president-
elect Martin Torrijos on September 1, 2004. The proposed U.S.-Panama FTA likely
will be a stand-alone accord, meaning that unlike the U.S.-Dominican Republic FTA,
it will not be linked to other regional FTAs like the U.S.-Central America Free Trade
Agreement (CAFTA, now the DR-CAFTA), concluded in early 2004.1 As with all
free trade agreements, the U.S.-Panama FTA cannot enter into force until Congress
passes implementing legislation and the President signs it into law. This report will
be updated periodically.
Panama’s Canal and Economic Relations with the
United States
The United States and Panama have entered into many agreements over the past
150 years, the most prominent defining their relative stake in the famous canal the
traverses the Central American isthmus and literally bisects Panamanian territory.
(See Figure 1.) The canal has been a critical factor influencing Panamanian
domestic and foreign affairs, and like earlier U.S.-Panama agreements, the FTA’s
significance is tied to a Panamanian economy that has formed largely around the
canal.
Early U.S.-Panama Economic Relations
Since first explored by the Spanish at the turn of the sixteenth century, Panama
has been prized for its unique geographic characteristic: the slender distance
separating the Atlantic and Pacific Oceans. Because of the transit possibilities this
presented (first for Peruvian gold and other colonial trade), Panama was a natural
crossroads for the movement of commerce, a strategic value that grew as the world
became ever more traveled and integrated. In fact, Panama’s destiny became fused
to its geography and, over time, to the vagaries of foreign interests that sought to take
advantage of it, particularly the United States.
1 For a discussion of CAFTA and a deeper understanding of the regional economic
implications of freer trade, see CRS Report RL31870, The U.S.-Central America Free Trade
Agreement (CAFTA): Challenges to Sub-Regional Integration, by J. F. Hornbeck and CRS
Report RL32322, Central America and the Dominican Republic in the Context of the Free
Trade Agreement (DR-CAFTA) with the United States, K. Larry Storrs coordinator.
CRS-2
Figure 1. Map of Panama
Panama
C a r i b b e a n S e a
G
Canal
r e a t e r Antilles
S
Madden
AN B
C a r i b b e a n
Lake
Lago
LA
Gatun
S
Bayano
S e a
Lake
Golfo de los
COLON
Mosquitos
PANAMA
P a c i f i c
BOCAS DEL TORO
O c e a n
Bay of Panama
COLUMBIA
COCLE
CHIRIQUI
ARCHIPIELAGO
VERAGUAS
DE LAS PERLAS
Golfo de Chiriqui
G u l f o f P a n a m a
DARIEN
HERRERA
LOS SANTOS
Panama
Isla de
Coiba
International Boundary
Province Boundary
National Capital
Province Capital
San Blas is a territory (comarca).
0
25
50
75 Kilometers
N O R T H P A C I F I C O C E A N
0
25
50
75 Miles
Source: Map Resources. Adapted by CRS. (K.Yancey 7/27/04)
CRS-3
As a province of Colombia, Panama was swept to independence from Spain in
1821. By then, the United States and European powers openly coveted the prospect
of an inter-oceanic connector. Well before construction of a canal could be realized,
the United States displaced Britain as the dominant foreign influence, completing a
cross-isthmian railroad in 1855. This project was driven by the westward expansion
of the United States, which included an anticipated southern water route to the west
coast. To secure this transit system, as well as the safety of goods and people using
the it, the United States resorted to armed intervention in Panama some 14 times in
the 19th century. By the time the United States sought permission to construct a
canal, a clear precedent had been set for a U.S. presence in Panama that would be
defended, if necessary.2
The initial U.S. effort to build a canal required a concession from Colombia
allowing the United States to finish the bankrupt French project abandoned in 1889.
In early 1903, the details were set down in a treaty ratified by the U.S. Senate, but
unanimously rejected by the Colombian legislature. The United States responded by
reaching out to the growing Panamanian successionist movement. In November
1903, in a quick and bloodless move facilitated by the indispensable aid of U.S.
warships, Panama declared its independence from Colombia. Panama was
immediately recognized by the United States as an independent state, and in return,
signed the Hay-Bunau-Varilla Treaty, thereby conceding to the United States the
rights to construct a canal and to control it “in perpetuity.”3
The opening of the Panama Canal in 1914 led to U.S. dominance in the
commercial and, at times, political life of Panama. Although both countries
benefitted from its operations, the relationship was far from equal, which along with
the perpetual U.S. presence, generated a nagging resentment, periodic protests, and
sometimes violence over the tangible loss of national sovereignty. This tension
remained a dominant feature of U.S.-Panamanian relations until the canal was ceded
back to Panama in 1977 per the Panama Canal Treaty negotiated under President
Jimmy Carter. Although tensions flared again in 1989 with the U.S. incursion into
Panama to arrest chief of state General Manual Noriega on narcotics trafficking,
arguably, the incursion proved to be a catalyst for the return of democracy. Perhaps
not coincidently, Panama’s decision to promote trade liberalization soon followed.4
The Canal and U.S. Trade Policy
The canal solidified Panama as a maritime economy and its return to
Panamanian control raised expectations that Panama would enjoy greater economic
benefits from its ownership. The canal operations by themselves account for
approximately 7% of Panama’s GDP, with the largest and fastest growing traffic
2 Conniff, Michael L. Panama and the United States: The Forced Alliance. Athens: the
University of Georgia Press, second edition. 2001. pp. 30-35.
3 Woodward, Ralph Lee. Central America: A Nation Divided. New York: Oxford
University Press, third edition. 1999, pp.187-91 and ibid., pp. 63-70.
4 Conniff, Panama and the United States, pp. 134-39 and CRS Report RL30981, Panama:
Political and Economic Conditions and U.S. Relations, by Mark P. Sullivan, pp. 12-13.
CRS-4
volume generated along the U.S. East Coast-to-Asia trade route (especially U.S.-
China). The canal’s total economic impact, however, is far greater, supporting
income and jobs in various services industries including warehousing, ship registry
and repair, salvage operations, insurance, banking, and tourism. The two major ports
at either end of the canal have been privatized and modernized, a portion of the canal
(the Gaillard Cut) was widened in 2001, but Panama faces a difficult and expensive
challenge to enhance the capacity of the entire canal to support much larger modern
ships if it is to remain a global shipping hub in the 21st century.5
With transfer of the canal and its operations to Panama, the country also
inherited a substantial amount of land and physical assets. The conversion of these
assets to private use has been a boon to the Panamanian economy, but has entailed
considerable costs as well. Privatization efforts eased the transformation of former
U.S. government facilities to productive Panamanian use, which has included
refurbishing the Panamanian railroad by Kansas City Southern Railways,
transforming the former Albrook base airstrip into the Marcos Gelabert airport, and
developing a foreign processing zone in the former Ft. Davis.6
At the start of the 21st century, the canal and close ties with the United States are
still the defining features of Panama’s economy, but they have also served to limit
Panama’s participation in regional integration efforts. Although part of the Central
American Integration System, a broadly focused political arrangement, Panama has
declined to join the Central American Common Market, relying instead on the canal
and the large U.S. economy as its economic anchors. Panama adopted a fully
dollarized monetary system and is a beneficiary country of U.S. unilateral trade
preferences defined in the Caribbean Basin Initiative (CBI). So, it is no coincidence
that Panama resisted becoming a more open economy, maintaining high tariffs and
other barriers to trade. Only since joining the World Trade Organization (WTO)
relatively recently in 1997 did tariff rates begin to decline, an important step in
preparing for an FTA with the United States.
Panama’s subregional independence and reliance on U.S. economic ties has
suited the United States well in some ways, given its continuing interest in the Canal.
An FTA with Panama may be seen as one way for the United States to support long-
established commercial interests and deepen bilateral relations, particularly if
recognized as a mutually negotiated pact with reasonably balanced political and
economic outcomes. Although many ships have outgrown the canal, its locale and
prospects for enlarging the passageway continue to reinforce Panama’s historic, albeit
diminished, importance for the United States as a strategic trade passage.
A bilateral FTA with Panama is also part of the Bush Administration’s
“competitive liberalization” trade strategy, in which negotiations are taking place on
multilateral, regional, and bilateral levels. This multi-tiered negotiation strategy
is predicated on an expectation that gains at one level of negotiation may encourage,
5 The Economist Intelligence Unit. Panama: Country Profile 2003. London, 2003. pp. 16-
17 and U.S. Department of Energy. Energy Information Administration. Panama: Country
Analysis Briefs. October 2003.
6 Ibid.
CRS-5
if not compel, similar breakthroughs in other levels. Because of slow progress at the
WTO and with the Free Trade Area of the Americas (FTAA), the United States has
moved ahead aggressively with bilateral talks, of which the Panama FTA is a part.
Some, however, have questioned the bilateral approach for the asymmetrical
negotiation power the United States wields, the effects it may have on non-
participating countries, and the one-sided trade system that is developing around the
United States as opposed to a truly regional or multilateral system.
For Panama, the FTA may be seen as a way to reinforce its relatively new trade
liberalization policy. This will require considerable adjustment, although Panama
has already made some strides in transforming into a more open economy. The
incentive to negotiate is enhanced by the need to keep pace with other Latin
American countries negotiating FTAs with the United States that may erode CBI
preferences.
Panamanian Trade Relations
Panama’s recent economic trends have been mixed. This country of 3 million
people has a stable, diversified economy and gross domestic product (GDP)
rebounded from two years of tepid growth to expand by 4.1% in 2003 (see Appendix
1 for basic macroeconomic data). Panama also has a higher per capita income than
the Central American countries, with the exception of Costa Rica, but income
distribution is highly skewed, poverty remains a nagging problem, especially among
the indigenous population, and unemployment is high. These disparities could
become more contentious issues in Panama as the country debates the costs and
benefits of an FTA. Unlike any other Latin American country, fully 77% of
Panama’s GDP is in services, developed around the transportation and commerce
generated by canal traffic and the Colón Free Zone (CFZ). Industry is the second
most important sector, contributing 16% of GDP followed by agriculture at 7%. U.S.
firms dominate the foreign presence in Panama, reinforcing arguments for a bilateral
FTA as the next big step in U.S.-Panamanian relations.
Table 1. Panama’s Current Account Balance
2001
2002
2003
Balance on Merchandise Trade ($ million)
-696
-1037
-954
Balance on Services Trade ($ million)
899
979
1097
Current Account Balance (% of GDP)
-1.7
-0.9
-1.2
Data Source: United Nations Economic Commission on Latin America, Preliminary Overview of the
Economies of Latin America, 2003. pp. 143-44.
Despite Panama’s concentration in services, merchandise trade contributes
much to economic output. Exports of goods and services compose 29% of GDP and
Panama tends to run a sizeable trade deficit in goods, which is often balanced by a
large services trade surplus. As seen in Table 1, Panama’s merchandise trade deficits
ranged from $700 million to $1 billion from 2001 to 2003. In each year, the
merchandise deficit was offset by a services trade surplus of between $900 million
to $1.1 billion. This feature is unique among Latin American countries.
CRS-6
The other distinct feature of Panama’s trade regime is its Colón Free Zone, the
largest free trade zone in the world, except for Hong Kong. Goods are imported,
modified or repackaged, and re-exported without being subject to Panamanian
customs regulations or duties, including income tax on earnings from re-exported
sales. In addition, there are numerous government incentives for businesses to locate
in the CFZ. Trade from the CFZ accounts for approximately 7% of net exports, but
only 1% of the Panamanian employment.
Figure 2. Panama Direction of Trade, 2002
In 2002, nearly $5 billion worth of goods were imported into the CFZ, mostly
from Hong Kong, where they were then re-exported to Latin America countries. The
net effect was to add only $400 million to the Panamanian trade balance. CFZ trade
is reported separately in Panama’s trade statistics and is excluded in international
comparisons of trade, such as in Figure 2. Most CFZ imports are luxury and other
consumer goods, including electronic products and clothing.7 The CFZ is a major
distribution center for trade to the Latin American region, allowing businesses to base
themselves in the canal area rather than in each individual country. The vast amount
of commerce done in the CFZ, however, has also presented opportunities for illegal
trading activities (narcotics and money laundering), piracy, and merchandise theft.8
Panama has many trading partners, but the United States has held the dominant
position since before construction of the canal. Even today, as a single country it is
a far larger trading partner than the world’s major regions combined. The United
7 American Chamber of Commerce in Panama. [http://panamcham.com] and EIU. Panama:
Country Profile 2003, p, 32.
8 U.S. Department of State. U.S. and Foreign Commercial Services. Panama Country
Commercial Guide FY 2004. August 19, 2003. pp. 23-24 and 28.
CRS-7
States accounts for some 48% of Panamanian exports and 34% of its imports. The
Latin American countries collectively are Panama’s second largest trading partner,
accounting for 26% of Panamanian exports and 31% of its imports. Panama runs a
sizeable trade deficit with Latin America. The largest Latin American partners for
exports and imports are Costa Rica, the Dominican Republic, and Mexico. Panama
also imports significant quantities of oil from Venezuela and Ecuador. The European
Union is the third largest trading partner, taking 22% of Panama’s exports and
providing 7% of its imports, but accounting for only a small portion of Panama’s
trade deficit. Asia accounts for only 3% of Panama’s exports and 11% of its imports,
dominated by trade with Japan.
U.S.-Panama Merchandise Trade
The value of U.S.-Panamanian merchandise trade is small. In 2003, the United
States exported $1,848 million worth of goods and imported $301 million, producing
a U.S. trade surplus of $1,547 million. Panama ranked as the 42nd largest export
market for U.S. goods and only 92nd for imports. The United States has run a
merchandise trade surplus with Panama for more than twenty years, in part due to the
uneven growth of bilateral trade over the past 12 years. U.S. exports expanded by
73% over this time period, reflecting a 36% increase in refined oil in 2003. This is
a large increase compared to U.S. export growth to the rest of Latin America, which
expanded by only 48% excluding Mexico.9 In addition to refined oil, the major U.S.
exports, as seen in Table 2, are mostly capital- and technology-intensive
manufactured products including aircraft, machinery, pharmaceuticals, and medical
equipment. Cereals, mostly corn and wheat, round out the top seven U.S. exports.10
Table 2. U.S.-Panama Merchandise Trade, 2003
$ Value
% of
$ Value
% of
U.S. Exports
U.S. Imports
million
Total
million
Total
1. Oil
431.7
23.3%
1. Fish/Seafood:
101.8
33.8%
2. Aircraft
260.8
14.1%
2. Repaired Goods
66.1
21.9%
3. Machinery:
173.0
9.4%
3. Precious Metal
16.2
5.4%
- Office mach.
(36.3)
- gold
- Computers
(32.7)
- gas turbines
(9.1)
4. Electrical mach.
135.9
7.4%
4. Oil (motor fuel)
14.3
4.8%
5. Pharmaceuticals
96.7
5.2%
5. Sugars
13.4
4.4%
6. Optical/Medical
62.9
3.4%
6. Coffee
12.3
4.1%
Equipment
7. Cereals
56.1
3.0%
7. Elec. machinery
8.5
2.8%
8. Other
630.9
34.2%
8. Other
68.6
22.8%
Total
1,848.0
100.0% Total
301.2
100.0%
Data Source: U.S. Department of Commerce.
9 CRS Report 98-840 E, U.S.-Latin American Trade: Recent Trends, by J. F. Hornbeck.
10 Services trade data are not available for smaller U.S. trading partners, including Panama.
CRS-8
Compared to export growth, the United States imports relatively little from
Panama, accounting for the growing U.S. merchandise trade surplus. Most imports
are primary products; fully one-third is seafood, mostly fresh fish and shrimp.
Repaired goods are number two accounting for 22% of total imports from Panama.11
Precious metal (mostly gold), crude and refined oil products, sugar, and coffee each
account for between 4% and 5% of total imports. Unlike the Central American
countries, U.S. sensitivities to textile/apparel trade may be less pronounced given the
amount of this trade is relatively small. However, Panama’s exports of some
agricultural products, particularly sugar, is a sensitive issue.
U.S. Foreign Direct Investment
Panama has no formal restrictions on capital flows, does not discriminate
between foreign and domestic investment, and maintains bilateral investment treaties
with the United States and many European countries. Critics have pointed out,
however, that the legal environment can be cumbersome and that Panama’s relatively
high labor costs (for the hemisphere) and inflexible labor laws can be a frustration
if not an impediment to U.S. foreign direct investment (FDI).12 Still, U.S. companies
are well represented in Panama, including the largest container port facility in the
region, multiple financial institutions, transportation firms, and manufacturing
facilities from various sectors. Like other countries pursuing an FTA with the United
States, Panama seeks closer ties for the continued FDI that may be generated from
having a predictable economic relationship with a large trading partner.13
Table 3. U.S. Investment in Panama, Mexico, and Central
America
($ millions)
Sector
1999
2000
2001
2002
Panama
33,143
30,758
25,170
20,003
Mexico
32,888
39,352
56,554
58,074
Central America
3,058
3,603
2,826
2,999
Data Source: U.S. Department of Commerce. Bureau of Economic Analysis. Available at the
website at [http://www.bea.doc.gov/bea/di/usdlongcty.htm].
Data are stock of foreign direct investment (FDI) presented on a historical-cost basis.
U.S. FDI represents over a third of total FDI in Panama. Table 3 compares U.S.
FDI in Panama to other regional destinations. U.S. investment is much higher in
Panama than in the five Central American countries combined, although it has
declined in recent years, in part reflecting a tapering off of an extensive privatization
effort in the late 1990s and an outflow of investment. Plans to widen and improve
11 Technically classified as “products of the United States when returned after having been
exported, without having been advanced in value or improved in condition by any process.”
12 U.S. Department of State, Panama Country Commercial Guide FY 2004, August 19,
2003. pp. 30-31.
13 Ibid., pp. 26.
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the canal will provide an opportunity for large amounts of FDI in the future for many
sectors, particularly for U.S. firms.
Status of Trade Negotiations
Panama approached the United States for a stand alone free trade agreement,
eschewing any suggestion that it be linked to the DR-CAFTA. First and foremost,
Panama wanted to maximize the FTA’s potential to win U.S. congressional approval,
leading to a strategy that emphasizes the historical and strategic U.S.-Panamanian
relationship, while separating the negotiations from the DR-CAFTA accord, which
are being slowed by congressional opposition over labor provisions. Panama’s
service economy, relatively small textile/apparel industry, and limited integration
with the Central American economies also bolstered the case for separate
negotiations.14
Negotiations are being conducted by numerous working groups, coordinated by
the Chief Negotiators Group and including a non-negotiating group on trade capacity
building. Four negotiation rounds have been completed, taking place on April 26-29,
June 5-11, July 11-16, and August 9-12, 2004. The talks have relied on the text of
the DR-CAFTA agreement as an overall framework for discussion, which has
accelerated the process. Many chapters are reportedly nearly finished including
market access, customs administration, services, transparency, and dispute resolution.
The FTA may be completed after a fifth round, which is scheduled for October 18-
22, 2004, following the inauguration of president-elect Martín Torrijos on September
1, 2004.
Trade Policy Issues
Proponents of the FTA argue that it supports foreign policy and economic
interests of the United States. U.S. foreign policy strategy goals in the region
include promoting democracy and the rule of law, fighting corruption, the narcotics
trade, and money laundering, and encouraging regional economic integration.
Proponents argue that the FTA is also expected to lend stability to Panama’s
increasingly open economy and benefit the commercial interests of both countries by
promoting easier and more transparent movement of trade and investment, and
helping increase commitments to related social issues such as environment and labor
standards.15
The FTA has detractors as well who oppose it on various political and economic
grounds. Protests have erupted at the University of Panama over the FTA, one
demonstration apparently tied to numerous policy issues, and in part, perhaps an
14 Inside U.S. Trade. Panama FTA Unlikely To Be Docked Into CAFTA as Talks Set to
Begin. April 23, 2004.
15 USTR. Letter of Notification of Intent to Negotiate Panama FTA. November 18, 2004.
Available at [http://www.ustr.gov].
CRS-10
unfocused statement of anti-Americanism.16 Labor and environmental groups in the
United States have also raised concerns over numerous bilateral FTAs and the extent
to which they fail to support fully the enforcement of higher standards abroad.
Import competing businesses in both countries have raised issues related to their
vulnerability, particularly in the agricultural sector. The details, of course, are where
the most difficult challenges emerge and there are numerous specific issues that may
prove tough to conclude. Below, grouped by major negotiation groups, are selected
issues that will have to be resolved for an FTA to be completed. They will be
updated as the negotiations proceed.
Market Access
The market access working group is negotiating the tariff structures and rules
of origin that would govern the movement of commercial, industrial, and agricultural
goods. The text is expected to be similar the DR-CAFTA chapter and specific tariff
schedules are being negotiated on a product-by-product basis defining the “staging
categories” that prescribe the time that each country will be given to reduce tariff
levels to zero. Tariffs on many industrial and commercial goods are expected to go
to zero immediately, although none will be extended beyond ten years. Tariff phase-
outs on sensitive products such as sugar, rice, dairy, pork, poultry, beef, tomatoes,
among others, typically last more than ten years to accommodate either politically
powerful interest groups or sectors deemed in need of more time to adjust to freer
trade. Despite political pressure exerted in both countries, no goods are currently
being considered for exclusion from tariff elimination. Rules of origin define which
goods would be eligible for preferential treatment based on their regional content,
with the intent of preventing transshipment of goods made from materials supplied
by countries outside the agreement.
Panama acceded to the WTO in 1997, and part of its accession agreement
included unilateral reduction of tariff levels. Panama’s average tariff has fallen to
8%, but tariffs on agricultural products are higher, with some reaching the maximum
permitted under Panama’s commitments to the WTO. All imports are subject to a
nondiscriminatory transfer (sales) tax of 5% and other fees, with exceptions for
pharmaceuticals, foods, and school supplies. The WTO further encouraged Panama
to amend its export subsidies (tax credits), but it has delayed a commitment to do so
until 2005. The legislature is considering options for enacting an alternative form of
subsidy after 2005 that will be WTO compatible. Panama uses tax exemptions to
attract foreign investment in certain export-oriented industries, such as shrimp
farming and tourism, and in “export processing zones,” where imports of
manufacturing inputs are duty free as long as they are transformed for re-export.17
Most U.S. imports from Panama enter duty free under the normal trade schedule
or under the CBI, as amended (see Appendix 3 for selected tariff rates). The big
exceptions are sugar, which is subject to a tariff rate quota, and petroleum products.
16 Victoria, David Daniel. Suspendidas Indefinidamente Clases en la Universidad. La
Estrella de Panama. June 11, 2004. p. 1.
17 Office of the United States Trade Representative. 2004 National Trade Estimate Report
on Foreign Trade Barriers. Washington, D.C. March 31, 2004. p. 367-69.
CRS-11
By contrast, U.S. exports face sizable tariffs, with most falling in the range of 3-10%,
plus the additional 5% transfer tax, which applies to domestic goods as well.
Agricultural goods face very high out of quota tariffs to protect Panama’s agriculture
sector. Although agriculture is only 7% of GDP, it accounts for one quarter of total
employment and so exerts considerable political influence, as in the United States.
Panama actually raised tariffs in recent years on rice, pork, poultry, sugar, and
especially milk, to help protect local producers. Panama’s farming interests are
pressing for continued protection in the FTA discussions, fearing that exports from
subsidized U.S. production could easily overwhelm the Panamanian market. The
United States would like to open these markets as soon as possible, but may have to
make tradeoffs to accommodate concerns from U.S. farmers, such as sugar producers
who lobby for maintaining a well-established quota system.18
Sanitary and phytosanitary (SPS) standards and certification measures are
another important aspect of agricultural trade. Although understood as necessary to
ensure the safety of agricultural imports, SPS standards can be cumbersome, and are
often denounced as a veiled form of protectionism. Panama’s SPS standards, on the
whole, meet WTO standards. SPS issues, however, pose a concern for both
countries. Panama requires that U.S. imports of poultry, beef, and pork come from
processing plants that have been individually inspected by Panamanian officials. The
inspection process has been drawn out at times and the United States seeks to work
towards a system-wide certification process in the FTA negotiations.19
Services
Various services trade issues are negotiated separately including financial
services, telecommunications, shipping, and e-commerce. Panama is known for its
“open regulatory environment for services,” but requires local licensing for many
professionals who wish to practice in the country, which the United States would like
to limit. Panama was the first country in Latin America to pass e-commerce
legislation. It recognizes the legal standing of electronic transactions and provides
for the creation of an oversight agency, but the regulatory framework has yet to be
developed.20 The United States is pressing for even greater transparency in
regulatory procedures and U.S. business groups have identified services as a critical
negotiating area given U.S. competitive advantages and the large services sector in
Panama.
Maritime Issues. Cabotage is the transport of cargo or passengers in coastal
waters, or between two points within a country, and is defined in U.S. law in the
Jones Act and 1886 Passenger Vessel Services Act (PVSA). Under the PVSA,
passenger vessels calling on more than one consecutive U.S. port must be U.S.
flagged, crewed, and built. Foreign flag ships may call at a second U.S. port only
after touching a designated “distant foreign port.” Most Caribbean ports, including
Panama, are designated “nearby foreign ports” and so do not qualify. Panama is a
18 EIU, Panama: Country Profile 2003, p. 27.
19 USTR, 2004 Foreign Trade Barriers, p. 367-68.
20 Ibid., p. 370-71.
CRS-12
major flag of convenience and would like to have its status changed in the FTA to be
designated a “distant foreign port,” in expectation that it would increase cruise ship
traffic linked to the U.S. market.21
In the United States, there would be winners and losers should a change to the
PVSA be made. Winners could include cruise ship companies (many foreign owned
and Panamanian flagged), who might generate more business with greater flexibility
to call at U.S. ports. A second group would be U.S. port city businesses, which could
gain from an increase in tourist trade from the additional cruise line traffic, in the
same way that Panama might, if it were designated a “distant foreign port.”
Opponents include U.S. shipbuilding interests, which have argued that they
would “lose the only advantage they enjoy over foreign flag ships.” Some Members
of Congress have conveyed this concern to the USTR and added that passenger
shipbuilding is a vital strategic interest for the United States for the movement of
troops and supplies. Opponents also include organized labor, which represents
various workers in shipping industries and views foreign operators as a threat to U.S.
jobs.22 Previous attempts to amend this act, even slightly, have met with strong
congressional resistence, and the American-flag maritime industry has repeatedly
lobbied against the inclusion of maritime issues in multilateral, regional, and bilateral
free trade agreements, including in the U.S.-Panama FTA.23
Government Procurement and Intellectual Property Rights
These two areas are of particular interest to the United States and a bilateral
FTA is seen as an opportunity to remedy many deficiencies in rules that limit the
opportunities of U.S. companies, and to set the pace for standardized practice in the
region. In the area of government procurement, Panamanian laws require
transparency in the bidding process, a practice generally followed, but concerns have
been raised by U.S. firms not only with respect to the bidding on contracts, but also
the appeals process as well. Panama has not acceded to the WTO Government
Procurement Agreement, which the United States would like to encourage in the
FTA.24 Government procurement is an important negotiation area for the United
States given the prospects for large long-term investments to expand the canal and
21 Such a change would allow foreign flag cruise ships to leave one U.S. port, pass through
Panama, where they could add or disembark passengers, and return to another U.S. port,
which raises concerns over how significantly this might change the Caribbean and U.S. bi-
coastal non-U.S.-flag cruise line traffic. Inside U.S. Trade. Administration Is Warned Over
Maritime Services in Panama FTA. July 16, 2004.
22 Inside U.S. Trade. Administration Warned Over Maritime Services in Panama FTA and
Letters to USTR Robert Zoellick from Representatives Duncan Hunter and Ike Skelton, and
Senators Trent Lott and John Breaux. July 16, 2004. [http://www.insidetrade.com]
23 Letter from the Transportation Institute to USTR Robert Zoellick, June 10, 2004.
Interestingly, the U.S. Chamber of Commerce in Panama, which represents a wide spectrum
of U.S. commercial interests in the country, has listed flag protection as among the least
important issues. See Panamcham. Issues of Importance in the U.S.-Panama FTA
Negotiations, March 12, 2004. [http://www.panamcham.com/business_center/FTA.asp].
24 USTR, 2004 Foreign Trade Barriers, p. 368.
CRS-13
related facilities. Transparency in the bidding process for government contracts was
listed as one of the most important issues by the U.S. Chamber of Commerce in
Panama.25
The United States emphasizes intellectual property rights (IPR) protection in
bilateral agreements, and seeks to have Panama’s standards more closely
approximate those of the United States. The USTR reports that Panama’s IPR laws
and legal institutional support have improved, with courts dedicated specifically to
hear IPR cases. Panama has signed on to the World Intellectual Property
Organization (WIPO) Copyright Treaty and Performances and Phonographs Treaty.
The 1994 copyright law improved protection and increased the options to prosecute
violators. The United States is negotiating to have Panama sign more IPR treaties
as part of the FTA. Piracy violations are common, however, in part because Panama
is such a large transshipment point, and the capacity to monitor violations is
inadequate. Panama updated its patent law in 1996 and also has a law enforcing
trademark protection.26
Investment
Panama has actively encouraged foreign direct investment, has a well-developed
financial services industry to support the flow of capital, and is a regional financial
center in its own right. U.S. firms are heavily invested in Panama relative to other
Latin American countries. Panama already has a bilateral investment treaty with the
United States and further guarantees of the free flow of transfers under a 1998 law.
Although the Panamanian government has been responsive to U.S. foreign
investment interests, concerns have arisen in particular cases involving investment
in highly regulated industries. Resolution of these concerns apparently facilitated
proceeding with the FTA negotiations.27
Although the privatization process has dwindled, there is much potential for
further significant foreign investment in Panama, including the so-called reverted
areas of the former canal zone and enhancements to the canal itself to meet 21st
century shipping needs. This, in turn, could spur investment in related services
industries. How government procurement and investment rules are treated in the
FTA negotiations may have a big effect on the U.S. competitive position in Panama’s
investment future.
Labor and Environment
Labor and environmental provisions are contentious issues in trade agreements,
and there is considerable disagreement in Congress and elsewhere over how
aggressive language in trade agreements should be in accommodating these concerns.
25 Panamcham. Issues of Importance in the U.S.-Panama FTA Negotiations, March 12,
2004. [http://www.panamcham.com/business_center/FTA.asp].
26 USTR, 2004 Foreign Trade Barriers, pp. 369-70 and U.S. and Foreign Commercial
Service, Panama Country Commercial Guide FY2004, pp. 28-29.
27 USTR, 2004 Foreign Trade Barriers, p. 370.
CRS-14
From an economic perspective, labor and environment advocates in the United States
argue that developing countries may have an “unfair” competitive advantage because
their lower standards are a basis for their lower costs, which in turn are reflected in
lower prices for goods that compete with those produced in developed countries.28
It follows from this argument that the difference in costs is an inducement to move
U.S. investment and jobs abroad.
On the other hand, studies suggest that these cost differentials are usually not
high enough to determine business location alone, and that productivity is the more
important factor.29 Further, many economists view trade liberalization as part of the
overall development process that, in and off itself, can promote social development.30
Developing countries are concerned with the loss of sovereignty should specific
standards be defined in trade agreements, as well as, with the possibility that such
provisions can be misused as a disguised form of protectionism.
Environmental Issues. For environment advocates, major goals include
protecting and assuring strong enforcement of existing domestic environmental
standards, ensuring that multilateral environmental agreements are not undermined
by trade rules, promoting strong environmental initiatives to evaluate and raise
environmental performance, developing a systematic program of capacity-building
assistance, and assuring that environmental provisions in FTAs are subject to the
same dispute resolution and enforcement mechanisms as are other aspects of the
agreements.31
Environmental provisions in the U.S.-Panama FTA are likely to be similar to
those in the DR-CAFTA. These emphasize: 1) encouraging high levels of
environmental protection; 2) not failing “to enforce environmental laws,” and 3)
recognizing that it is inappropriate weaken or reduce protections as an
28 The difference is that the social costs associated with environmental degradation,
pollution, poor working conditions, and low wages are not captured in the production
process. Through legal and regulatory measures, developed countries require that
businesses bear many of these costs, which are then reflected in the final (relatively higher)
price of the good or service in the market place.
29 See CRS Report 98-742 E, Trade with Developing Countries: Effects on U.S. Workers,
by J.F. Hornbeck. September 2, 1998, pp 11-13. Productivity and wage levels are highly
correlated, suggesting that lower productivity jobs gravitate toward countries with a relative
abundance of low-skilled (and hence low-wage) workers. Rodrik, Dani. Sense and
Nonsense in the Globalization Debate. Foreign Policy. Summer 1997. pp. 30-33.
30 Some broader evidence suggests that FTAs have not “forced a race to the bottom of
regulatory standards,” but rather to the contrary, that policy convergence is affected more
by countries agreeing to “norms of governance” via cooperation through international
agreements. See Drezner, Daniel W. Globalization and Policy Convergence. International
Studies Review. Vol. 3, Issue 1, Spring 2001. pp. 75 and 78.
31 See [http://www.sierraclub.org/trade/fasttrack/letter.asp], Principles for Environmentally
Responsible Trade. Another important issue for the United States is ensuring that its higher
environmental standards defined in law and regulation not be compromised by challenges
of protectionism. See CRS Report RS20904, International Investor Protection: “Indirect
Expropriation” Claims Under NAFTA Chapter 11, by Robert Meltz.
CRS-15
encouragement for trade and investment. DR-CAFTA also provides for formal
cooperation among governments on environmental issues and a dispute resolution
mechanism.32
Advocates still raise the issue of the environmental effects of trade, particularly
in developing countries that may have weak laws and lax enforcement mechanisms.
Many of these same advocates, however, would agree that thus far trade agreements
have not led to catastrophic pollution nor encouraged a “regulatory race to the
bottom.” There has also been a certain acknowledged degree of success in having
environmental issues addressed in the body of FTAs, in side agreements on
environmental cooperation, and through technical assistance programs, the latter of
which developing countries can use to respond to specific problems. Advocates still
note that much can be improved, such as tightening enforcement language and
ensuring that the United States allocates financial resources to back up promises of
technical assistance.33
As required under TPA, the USTR conducted an environmental review of the
potential environmental effects possibly attributable to the FTA. It noted that
Panama “faces a number of challenges in protecting its environment as it supports
its economic and population growth.” Deforestation, land degradation, loss of
wildlife, threats to water quality and wetlands, among other problems are serious
issues for Panama. The Panama canal also places severe water use requirements on
the country. Panama has responded through the public policy process, establishing
environmental standards in law and entering into international and U.S. bilateral
environmental cooperation agreements.34
These issues were already factors in Panama’s development process prior to the
negotiation of the FTA. Thus, the environmental review maintains that the marginal
effects of the FTA on environmental standards will be small, whether in terms of
projected impacts on the United States or on Panama. The review argues that
Panama’s service-oriented economy and the small trade volume with the United
States are unlikely to be greatly affected by the proposed FTA and so will change
marginal production and trade little. The FTA, however, may have both positive and
negative effects. The negative effects of pollution, environmental degradation, and
endangering wildlife would come mostly from increased agricultural trade and
production, which might be addressed with increased environmental oversight and
policies. The positive effect of the FTA could include improvements in
environmental standards that may be encouraged by the provisions of the agreement
and the consultative and cooperation agreements attached to the FTA.35
32 U.S.-Dominican Republic Free Trade Agreement. Chapter 17. Environment.
33 See Audley, John. Environment and Trade: The Linchpin to Successful CAFTA
Negotiations? Carnegie Endowment for International Peace. Washington, D.C. July 2003.
34 Office of the United States Trade Representative. Interim Environmental Review: U.S.-
Panama Free Trade Agreement. June 2004. pp. 7-9.
35 Ibid., pp. 15-20.
CRS-16
Labor Issues. Labor provisions are also likely to mirror provisions in the
DR-CAFTA. At issue for the U.S. Congress has been the extent to which the dispute
settlement provisions are effective in requiring countries to meet certain standards,
and also to meet congressional trade negotiating objectives defined in Trade
Promotion Authority (TPA) legislation. Labor advocates argue that the DR-CAFTA-
like provisions are a step backward from those allowing for the suspension of trade
benefits found in the U.S. unilateral trade arrangements like the Generalized System
of Preferences (GSP) and CBI, which currently govern much of the U.S. trade with
Latin America.
Specifically, there are three provisions in the DR-CAFTA given different
weight: 1) the effective enforcement of domestic labor laws; 2) the reaffirmation of
commitments to International Labor Organization (ILO) basic principles;36 and 3)
“non-derogation” from domestic standards (not weakening or reducing protections
to encourage trade and investment). In previously negotiated bilateral agreements,
such as the DR-CAFTA, failure to enforce domestic labor laws can be formally
challenged in the dispute resolution process. In the case of the other two provisions,
which are supported in principle, such recourse is not available and labor advocates
argue that unless all three are enforceable, an FTA does not provide a meaningful
trade discipline.37
In addition, for labor and environmental issues, the dispute resolution process
in other FTAs has operated differently than for commercial issues. In the DR-
CAFTA, for example, if a commercial dispute remains unsettled, the country faces
the possibility of suspension of benefits under the FTA “of equivalent effect” (Article
20.16), resulting in the raising of tariffs or payment of a monetary assessment equal
to 50% of what a dispute panel determines is “of equivalent effect.” This article does
not apply to the disputable labor (or environmental) provision. The difference is that
the option for failing to resolve a labor dispute is a fine that would be capped at $15
million per year, with recourse to an equivalent dollar value of suspended benefits
(higher tariffs) if the monetary assessment is not paid. The monetary assessment
would also be paid by the government into a government fund and expended for
“appropriate labor initiatives.” Labor advocates argue that by capping the assessment
at $15 million and having the assessment paid into a fund in the offending country,
the labor provisions are rendered ineffective. The USTR argues that for small
countries, such a fine would be significant relative to the dollar value of the trade
benefits it would receive.38
36 The 1998 Declaration on Fundamental Principles and Rights at Work identifies four
fundamental principles and rights: freedom of association and the right to bargain
collectively; abolition of forced labor; equal opportunity and treatment in employment; and
elimination of child labor. ILO. Promoting Better Working Conditions: A Guide to the
International Labor Standards System. Washington, D.C. 2003. pp. 33-34.
37 Lee, Thea M. Assistant Director for International Economics, AFL-CIO. Comments on
the Proposed U.S.-Central American Free Trade Agreement, before the USTR Trade Policy
Committee, November 19, 2002.
38 Lee, op. cit., and Labor Advisory Committee Report.
CRS-17
From a congressional perspective, there is some debate over whether differences
in the treatment of the three labor provisions fail to meet the principal negotiating
objectives as outlined in TPA legislation, which is largely a matter of interpretation.
Further, unlike environmental advocates, labor groups have not agreed that a proper
balance has been more or less struck in previous agreements. Practical issues have
also been raised. For example, support for core labor rights is one thing, but actually
monitoring them, identifying violations, and resolving disputes in a uniform way
would create immense measurement and interpretive challenges for dispute
arbitration panels. This raises two thorny questions, the first being, if the core ILO
labor standards are enforceable in a bilateral FTA, could the United States be
challenged over failure of some firms to meet these standards? The second question
addresses equity in practice. Would all countries be subject to the same standards
irrespective of economic size and strategic importance?39
In recently passed bilateral FTAs, Congress has agreed to adopt the
implementing legislation because a majority of Members have been reconciled to the
labor issues by assurances that the labor laws of the countries in question cover basic
ILO commitments and are being reasonably enforced. The exception so far has been
the DR-CAFTA.
Panama has higher wage rates compared to the region and the Panamanian
government believes existing labor laws and enforcement mechanisms are adequate.
The U.S. Department of State has pointed out that some problems exist with
restrictions on union formation, the wide use of temporary workers, the lack of labor
rights in export processing zones, and the trafficking of women and children.
Panama’s government has criticized this report and it remains for Members of
Congress to determine if Panama’s labor conditions and laws merit supporting a
bilateral FTA.40
Outlook
Negotiations are proceeding at a quick pace, with some expectation that they
could be concluded in the fall after the new administration of president-elect Martín
Torrijos takes office on September 1, 2004. The Torrijos administration
representatives have been witnessing the trade discussions and may be prepared to
continue negotiating expeditiously. Both Panama and the United States appear eager
to move quickly. The FTA would be the next step of the U.S. regional building
block strategy as well as support for Panama’s broader trade liberalization policy.
Progress has apparently been made by working with key elements of the DR-
CAFTA text. This appears to have accelerated dramatically the negotiation process.
39 These issues were explored in a report prepared by the National Academy of Sciences.
A summary of the key issues is provided in: Moran, Theodore H. Trade Agreements and
Labor Standards. The Brookings Institution. Policy Brief #133. May 2004.
40 U.S. Department of State. Panama: Country Report on Human Rights Practices - 2003.
Washington, D.C. February 25, 2004. pp. 13-16 and the Economist Intelligence Unit.
Country Report - Panama. London, June 2004. p. 14.
CRS-18
As is typically the case, the most difficult issues will be dealt with last, including
market access for agricultural goods and fine tuning language covering services
issues. Maritime issues have yet to be discussed. Panama does not seem to have
taken issue with the labor and environmental provisions, but they will likely receive
criticism in the United States as have earlier FTAs. It is too early to know when or
if the U.S.-Panama FTA can be completed, but given built-in statutory time tables for
notifying the U.S. Congress and providing supporting documentation, its seems
improbable that it could be ready for a vote in the 108th Congress.
CRS-19
Appendix 1. Chronology of U.S. Panama FTA
Negotiations
Date
Milestone
November 18, 2003
The USTR notifies Congress of President George W. Bush’s
intent to enter into negotiations on a free trade agreement
(FTA) with the Republic of Panama.
April 26-29, 2004
First round of negotiations occurs in Panama City.
June 11-15, 2004
Second round of negotiations takes place in Los Angeles.
July 12-16, 2004
Third round of negotiations held in Panama City.
August 9-12, 2004
Fourth round of negotiations held in Tampa.
October 18-22, 2004 Fifth round of negotiations scheduled to be held in Panama
City.
CRS-20
Appendix 2. Panama: Selected Economic
Indicators
1994
1996
1998
2000
2002
2003
GDP Growth (%)
3.1
2.7
4.6
2.6
0.8
4.1
Per Capita GDP Growth (%)
1.0
0.6
2.6
0.6
-1.1
1.1
Urban Unemploy Rate (%)
16.0
16.9
15.2
15.2
16.5
15.6
Inflation (%)
1.4
23
1.4
0.7
1.9
1.3
Current Account Balance
0.2
-2.5
-10.9
-6.9
-0.9
-1.2
(% of GDP)
Terms of Trade (Indices,
106.5
98.0
99.9
96.5
96.0
94.0
1997=100)
Foreign Direct Investment
402
416
1,203
267
204
214
($ millions)*
Source: United Nations Economic Commission on Latin America and the Caribbean. Preliminary
Overview of the Economies of Latin American and the Caribbean, 2003. pp. 140-58.
*Net investment = direct foreign investment in Panama minus Panamanian direct investment abroad.
CRS-21
Appendix 3. U.S.-Panama Tariff Rates for Selected
Products
(% of total dollar value)
NTR
Free
Major U.S.
% of
Tariff
Major U.S.
% of
Tariff
under
Exports*
Total
Rate
Imports*
Total
Rate**
CBI#
Oil (2710)
23.3
5%+
Fish/Seafood
33.8
Free
(0302)
Aircraft (8802)
14.1
10%
Repaired
21.9
Free
Goods (9801)
Machinery
9.4
Precious
5.4
Free
- ADP (8473)
(2.0)
3%
Metals (7112)
- computers (8471)
(1.8)
5%
- gold/scrap
- gas
(0.5)
3%
turbines(8411)
Electrical
7.4
5%
Oil (2710)
4.8
Machinery (8517)
- gasoline
.525/bbl
- crude
.105/bbl
Pharmaceuticals
5.2
Free
Sugar (1701)
4.4
varies
(3004)
- raw cane
& TRQ
Optical/Medical
3.4
10%
Coffee
4.1
Free
Instruments
- cameras (9006)
(0.8)
5%
- parts (9009)
(0.7)
15%
- medical (9018)
(0.5)
10%
Cereals
3.0
Electrical
2.8
Free
Free
- corn (1005)
(1.8)
Machinery
- under quota
3%
(8519-28)
- out of quota
58%
- sound
- mesline (1001)
Free
reproducing
- rice (1006)
(1.0)
- under quota
15%
- out of quota
(0.2)
103%
Other
34.2
Other 22.8
Total
100%
Total
100%
Data Source: U.S. Department of Commerce.
Note: all Panamanian imports are subject to a 5% transfer tax, which is also collected on domestic
products. This tax is considered similar to a nondiscriminatory sales or value added tax (VAT) by the
U.S. negotiators and apparently will not be eliminated as part of the FTA.
* By HTS number = Harmonized Tariff Schedule of the United States.
** NTR is the general or normal tariff rates (also known as most favored nation rates) applied to
products not given preferential tariff treatment.
#CBI = Caribbean Basin Initiative, which provides unilateral preferential tariff treatment to selected
Caribbean and Central American country products as codified most recently in the Caribbean
Basin Trade Partnership Act (CBTPA). P.L. 106-200.
+ Tariffs on oil vary depending on end use. Discussions with U.S. Department of Commerce officials
suggest most U.S. oil exports to Panama (for automotive use) face a 5% tariff. Some oil for
maritime use has tariffs as high as 30%.
Sugar is subject to tariff rate quotas in which tariffs become high if imports exceed the quota.