J. F. Hornbeck
Specialist in International Trade and Finance
On June 28, 2007, 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, investment, 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. Neither the 110th nor the 111th Congress took up the agreement.
The 112th Congress conducted multiple hearings on the FTA in the first quarter of 2011. On July 7, 2011, the House Ways and Means and Senate Finance Committees held simultaneous “mock markups,” where they informally approved draft implementing legislation. One issue that had delayed introduction of a final implementing bill was finding a compromise for congressional action on legislation that would reauthorize trade adjustment assistance programs (H.R. 2832). With Senate passage of this bill, and assurances that it would be taken up expeditiously in the House, on October 3, 2011, President Obama formally submitted implementing legislation for the proposed U.S.-Panama FTA (H.R. 3079). On October 5, 2011, the House Ways and Means Committee ordered the bill favorably reported 32-3. It awaits further action in the House and the Senate.
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 10-year period. Over 50% of U.S. farm 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 (year 20 for rice). 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 final text of the proposed U.S.-Panama FTA incorporates changes based on the bipartisan agreement of May 10, 2007, crafted by the Bush Administration and leadership in the 110th Congress. These include adoption of enforceable labor standards, compulsory membership in multilateral environmental agreements, and an easing of restrictions on developing country access to generic drugs, provisions that go beyond those in existing bilateral FTAs and multilateral trade rules. Concerns raised in Congress on labor and tax transparency issues have also been addressed by Panama in statute and by ratification of a Tax Information and Exchange Agreement (TIEA) with the United States. The TIEA provides greater tax transparency in support of curbing illicit financial transactions associated with money laundering activities.
For more on Panama, see CRS Report RL30981, Panama: Political and Economic Conditions and U.S. Relations, by Mark P. Sullivan and Donald J. Marples.
Date of Report: October 6, 2011
Number of Pages: 35
Order Number: RL32540
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