For the past nine months, the Obama Administration and Congress
have allowed three free trade agreements (FTAs) negotiated by the
Bush Administration -- Colombia, Panama, and South Korea -- to
languish unapproved. This delay hurts American workers, as each of
the agreements offers its own unique benefit to the U.S. economy.
All three FTAs will spur economic development in both the U.S. and
its trading partners, strengthening each nation economically and
politically.
The U.S.-Panama FTA would enhance U.S. national economic
security and could create thousands of American jobs. It will
encourage expansion and diversification of U.S. trade with Panama
by eliminating trade barriers and facilitating cross-border
movements of goods and services while leveling the playing field
for U.S. businesses that currently face tariffs in Panama. The FTA
will help create a bulwark against the rising tide of
Chávism that threatens to undermine U.S. hemispheric
interests. President Obama would enhance U.S. leadership and
strength in the region by pushing for congressional approval of the
FTA with Panama.
The U.S.-Panama FTA: Good for Both
Countries
Under President George W. Bush, the U.S. and Panama conducted 10
rounds of negotiations and signed a trade promotion agreement in
June 2007. The negotiations focused on the two nations'
longstanding strategic and commercial relationship, accommodating
the concerns of both U.S. and Panamanian sensitive sectors and
industries. The FTA with Panama complements the FTAs with the five
Central American countries (Guatemala, Honduras, El Salvador,
Nicaragua, and Costa Rica) and the Dominican Republic that the U.S.
completed in 2004.[1] Along with the North American Free Trade
Agreement (NAFTA) and FTAs with Chile (2004),[2] Peru (entered into
force in 2009),[3] and Colombia (still pending), the FTA with
Panama is meant to complete a Pacific Rim free trade area from
Alaska to the Antarctic.
Unfortunately, since 2007 the Panama FTA, along with those of
Colombia and South Korea, has languished unapproved before
Congress. Meanwhile, U.S. national economic security suffers in the
midst of the worst downturn since the Great Depression. There is no
reason for the continued delay: Under the Caribbean Basin
Initiativeand through other trade preference programs, almost 96
percent of all Panamanian exports already enter the U.S.
duty-free.[4] Nor does Panama threaten U.S. textile or
agricultural industries, since its economy is largely
service-based; agriculture accounts for only a small share of
Panama's GDP. Nothing in the FTA with Panama hurts U.S. workers --
indeed, they are being hurt by the delay in approving it.
The U.S.-Panama FTA would offer a clear and binding set of rules
and foster stability and predictability. Standardized rules in the
FTA for services, trade, investment, government procurement,
intellectual property rights, and dispute resolution will exceed
World Trade Organization standards. The FTA provides an effective
and expeditious dispute settlement mechanism to ensure that the
rules of trade are fair and that trading partners adhere to these
rules. It guarantees the non-discriminatory treatment of foreign
capital and lays the groundwork to further stimulate the transfer
of technologies and best practices through partnerships.
In 2008, the U.S. had a trade surplus with Panama totaling $4.3
billion, the eighth-largest surplus maintained with any U.S. global
trading partner. The U.S. is Panama's largest trading partner,
accounting for 35 percent of its exports and 33 percent of its
imports. Exports accounted for almost 28 percent of Panama's
economic growth in 2007.[5]
The FTA with Panama would open up attractive possibilities for
U.S. foreign direct investment in Panama and offer U.S. firms an
ideal platform to gain greater access to markets in the Americas.
It would also improve market fundamentals such as intellectual
property rights, the rule of law, and the Panamanian judicial
system while also strengthening Panama's democratic
institutions.
Panama Today: Pro-U.S. and Pro-Free
Trade
In the past few years, Panama has signed trade agreements with
Singapore, Taiwan, Chile, El Salvador, the Dominican Republic,
Costa Rica, Nicaragua, Guatemala, and Honduras. The Panamanian
government also maintains an open trade policy with other major
commercial partners in the region as well as in Europe and
Asia.
This open trade policy has borne fruit: Over the last seven
years, poverty in Panama fell 8.1 percent, lifting 131,000
Panamanians out of poverty, while extreme poverty fell by 7.5
percent.[6] By pursuing an open economy through trade,
Panama intends to cut the proportion of people living in extreme
povertyin half by 2015.
The FTA and the Panama Canal:
Opportunity for American Businesses
Panama is undertaking one of the biggest construction projects
in its history. Total spending to expand the Panama Canal is
expected to exceed $5 billion and, without the FTA in place, U.S.
companies are at a competitive disadvantage. For example, after the
canal "reverted" from the U.S. to Panama in 1999, Hong Kong-based
Hutchison Whampoa, Ltd., signed long-term leases with the
Panamanian government to operate the strategic commercial ports at
both ends of the canal: Cristobal on the Atlantic and Balboa on the
Pacific.[7]
More recently, in July 2009 a $3 billion-plus contract to design
and build a wider, third set of locks for the Panama Canal was
awarded to a Spanish-Italian engineering consortium, which beat out
a bid by a group led by Bechtel of the U.S. Some analysts have
speculated that the continuing failure by Congress to approve the
FTA may have led to the decision by the Panama Canal Authority to
choose the European firms over Bechtel.
With an FTA secured, however, U.S. companies would be better
positioned to win such lucrative construction bids. Much of the
equipment that will be used to build the third set of canal locks,
for example, could be manufactured in the U.S., providing thousands
of good jobs to Americans in places like Peoria, Illinois
(headquarters of Caterpillar). Continued hesitancy over FTA
approval only creates more opportunities for others -- America's
friends as well as geo-political rivals -- to make economic inroads
throughout the hemisphere. For example, Panama signed an FTA in
August 2009 with NAFTA partner Canada.[8]
Washington Just Doesn't Understand
In seeking to justify the continuing delays in approving the
agreement, Obama Administration officials have pointed to concerns
about Panama's labor code as well as its history as an offshore
"tax haven."[9] These concerns may have some merit, but
they pale in comparison to the benefits to the U.S. from the FTA:
stronger relations between the two countries and enhanced security.
The economy and national security of countries in the Western
Hemisphere are inextricably tied. This nexus is underestimated and,
apparently, not well understood by those in power right now in
Washington.
The pending FTAs would spur economic development in all
participating countries, strengthening them economically and
politically. In particular, the Panamanian FTA would help counter
the rising tide of Chávism that has nearly surrounded
Colombia, provoked an ongoing crisis in Honduras, and threatens to
undermine U.S. hemispheric interests. President Obama would
demonstrate U.S. leadership and strength in the region by pushing
for congressional approval of the FTA with Panama as soon as
possible.
James M.
Roberts is Research Fellow for Economic Freedom and Growth in
the Center for International Trade and Economics at The Heritage
Foundation.