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 U.S. Congress did not consider implementing legislation for over four years after the FTA was signed, an unprecedented delay reflecting multiple concerns of Congress. In time, the 112th Congress took up the free trade agreement when congressional leaders and the Obama Administration came to an understanding on how to proceed. On July 7, 2011, the House Ways and Means and Senate Finance Committees both held simultaneous “mock markups,” where they informally approved draft implementing bills. On October 3, 2011, the Obama Administration transmitted to both houses of Congress final implementing legislation and supporting documents, as required under TPA. Following committee action, on October 12, 2011, the House agreed to the implementing bill (H.R. 3079) 300-129, followed by the Senate 77-22. President Obama signed the bill into law on October 21, 2011 (P.L. 112-43, 125 Stat. 427). The FTA enters into force by presidential proclamation when Panama completes all legal and regulatory changes required to meet the obligations of the agreement.
The U.S.-Panama FTA is a comprehensive agreement. Some 88% of U.S. commercial and industrial exports will 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 will 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 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 previous U.S. 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 27, 2011
Number of Pages:35
Order Number: RL32540
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