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Friday, November 16, 2012

The U.S.-Panama Free Trade Agreement

J. F. Hornbeck
Specialist in International Trade and Finance

On June 28, 2007, the United States and Panama signed a free trade agreement (FTA) after two and a half years and 10 rounds of negotiations. Negotiations formally concluded on December 16, 2006, with an understanding that changes to labor, environment, and intellectual property rights chapters would be made pursuant to future congressional input. These changes were agreed to and the FTA was signed in time to be considered under Trade Promotion Authority (TPA) legislation, which expired on July 1, 2007. TPA allows Congress to consider certain trade agreement implementing bills under expedited procedures. Panama’s legislature ratified the FTA 58 to 4 on July 11, 2007, but neither the 110th nor the 111th Congress took up the agreement.

Eventually, the 112th Congress considered the FTA implementing bill. On July 7, 2011, the House Ways and Means and Senate Finance Committees held simultaneous “mock markups,” where they informally approved draft implementing bills. On October 3, 2011, the Obama Administration transmitted final implementing legislation and supporting documents to both houses, 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 implementing bill into law on October 21, 2011 (P.L. 112-43, 125 Stat. 427), but the FTA would not enter into force for another year. Panama required that time to complete changes in law necessary to bring it into compliance with the provisions of the FTA. On October 22, 2012, the United States Trade Representative (USTR) exchanged notes with Panama providing for entry into force of the FTA. President Obama implemented the agreement by proclamation on October 29, 2012, and the FTA entered into force on October 31, 2012.

The U.S.-Panama FTA is a comprehensive and reciprocal trade agreement, replacing U.S. unilateral preferential trade treatment extended under the Caribbean Basin Economic Recovery Act (CBERA), the Caribbean Basin Trade Partnership Act (CBTPA), and the Generalized System of Preferences (GSP). Some 88% of U.S. commercial and industrial exports will become dutyfree 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). 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 were also 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.

This report covers issues related to the U.S.-Panama FTA from the beginning of the negotiations in April 2004 until the FTA entered into force on October 31, 2012.

Date of Report: November 8, 2012
Number of Pages: 35
Order Number: RL32540
Price: $29.95

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