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The United States-Panama Free Trade Agreement: A Comprehensive Analysis and Review

by | Sep 17, 2023

Introduction

The United States-Panama Free Trade Agreement (FTA) is a testament to the enduring importance of international trade in the modern global economy. Signed on June 28, 2007, and implemented on October 31, 2012, this agreement has significantly shaped the economic relations between the United States and Panama. In this blog, we will delve into the historical context, key provisions, economic impact, and geopolitical implications of the U.S.-Panama FTA, as well as recent calls by the Panamanian President, Laurentino Cortizo Cohen, to review the accord. By examining these aspects, we aim to comprehensively understand the agreement’s significance and assess its outcomes over the years.

Historical Context

To appreciate the importance of the United States-Panama Free Trade Agreement, one must first understand the historical context that led to its negotiation and eventual implementation. Panama’s historical ties with the United States can be traced back to the early 20th century when the U.S. supported Panama’s secession from Colombia and signed the Hay-Bunau-Varilla Treaty in 1903, granting the U.S. control over the Panama Canal Zone.

The Panama Canal, completed in 1914, became a crucial maritime route connecting the Atlantic and Pacific Oceans. For decades, the U.S. maintained a strong military and economic presence in Panama due to its strategic interest in controlling this vital waterway. However, as the 20th century progressed, anti-American sentiment grew in Panama, and calls for the return of the Canal Zone to Panamanian control intensified.

The Torrijos-Carter Treaties of 1977 marked a significant turning point in U.S.-Panama relations. These treaties set the stage for the eventual transfer of the Panama Canal to Panama in 1999. With the canal’s return, Panama gained control over one of the world’s most important trade routes, positioning itself as a critical player in global commerce. This shift in the geopolitical landscape created an opportunity for both countries to deepen their economic ties through a free trade agreement.

Key Provisions of the U.S.-Panama Free Trade Agreement

The U.S.-Panama FTA is a comprehensive trade agreement that covers a wide range of economic sectors. Some of its key provisions include:

Tariff Elimination: The agreement provided for the gradual elimination of tariffs on goods traded between the two countries. This provision of the United States-Panama Free Trade Agreement has benefited American and Panamanian businesses by reducing the cost of imports and exports.

Services and Investment: The FTA promotes trade liberalization in services and encourages foreign investment. It provides a framework for protecting intellectual property rights, which is crucial for innovation and economic development.

Agricultural Trade: The FTA addresses various agricultural issues, including removing trade barriers and establishing quotas for certain agricultural products. This has expanded market access for American farmers and agribusinesses in Panama.

Labor and Environmental Standards: The United States-Panama Free Trade Agreement includes provisions to improve both countries’ labor rights and environmental protections. This reflects a growing recognition of the importance of sustainable and socially responsible trade practices.

Dispute Resolution: The FTA establishes mechanisms for resolving trade disputes between the two countries, ensuring that trade issues are addressed through a structured and transparent process.

Economic Impact

Since the implementation of the U.S.-Panama FTA in 2012, both countries have experienced significant economic benefits.

For the United States, the agreement has opened up new opportunities for American businesses. U.S. exports to Panama have increased substantially, with sectors like machinery, agriculture, and manufacturing benefiting the most. American farmers, in particular, have seen a surge in exports of products such as wheat, soybeans, and poultry. Panama has become a key market for U.S. agricultural goods, significantly boosting the American agricultural sector.

In Panama, the FTA has also positively impacted the economy. The agreement has facilitated increased foreign investment, providing a stable and predictable framework for conducting business. Panama’s regional financial and logistical hub status has attracted American companies seeking to expand their presence in Central and South America. Additionally, eliminating tariffs has made American products more affordable for Panamanian consumers, improving living standards.

Furthermore, the U.S.-Panama FTA has encouraged economic diversification in Panama. The country has expanded its exports beyond traditional sectors like agriculture, including financial services, information technology, and logistics. This diversification has made Panama’s economy more resilient to external shocks and less reliant on a single sector.

Geopolitical Implications

Beyond the economic impact, the United States-Panama Free Trade Agreement has significant geopolitical implications. It underscores the United States’ commitment to strengthening its ties with its neighbors in the Western Hemisphere. By fostering economic integration and cooperation, the agreement promotes stability and prosperity in the region, which is in the interest of both countries.

Moreover, the United States-Panama Free Trade Agreement has bolstered Panama’s regional trade and logistics hub role. Its strategic location at the crossroads of North and South America, coupled with the expanded Panama Canal, has made the country a linchpin in global trade routes. As Panama continues to develop its infrastructure and logistics capabilities, it becomes an increasingly important partner for the United States in facilitating the flow of goods between the Atlantic and Pacific Oceans.

The FTA has also helped to strengthen diplomatic ties between the two countries. By engaging in a mutually beneficial economic partnership, the United States and Panama have built a foundation for cooperation in other areas, such as security, counterterrorism, and environmental conservation.

Challenges and Future Prospects

While the U.S.-Panama FTA has delivered numerous benefits, it has been challenging. One of the key challenges has been ensuring that trade benefits are distributed equitably within both countries. Critics argue that the agreement has primarily benefited large corporations and multinational firms, while smaller businesses and workers may not have reaped the same rewards. Addressing these disparities and promoting inclusive economic growth remains an ongoing challenge for both governments.

The FTA’s success is also contingent on maintaining a stable and predictable trade environment. Changes in political leadership, shifts in public opinion, or alterations to trade policies could disrupt the gains achieved through the agreement. Therefore, both countries must continue to commit to free trade and open markets to ensure the agreement’s longevity.

Looking to the future, there are opportunities to expand and deepen the U.S.-Panama economic relationship. One potential growth area is the digital economy, where both countries could work together to facilitate e-commerce and digital trade. Panama’s strong financial and technological infrastructure positions make it an attractive partner for American tech companies looking to expand in the region.

Furthermore, the United States and Panama can collaborate on addressing common challenges such as climate change and environmental conservation. By incorporating sustainable practices into their trade relationship, they can demonstrate leadership in promoting environmentally responsible trade.

Calls to review the United States-Panama Free Trade Agreement

The President of the Republic, Laurentino Cortizo Cohen, recently announced that the Panamanian Government formally requested the United States ( USA ) to review five sensitive products covered under the free trade agreement with that country.

Cortizo Cohen, who announced before hundreds of producers gathered at the National Livestock Congress held in La Villa de Los Santos, announced that this review was requested during a recent visit of the U.S. Secretary of Commerce, Gina Raimondo.

He highlighted that in that meeting, he expressed to the U.S. Government official his interest in engaging with the Secretary of Agriculture of that nation and other authorities of the U.S. Government to discuss this request from the Panamanian Government.

Cortizo Cohen reported that Panama has made progress in efforts to expedite health equivalence with the U.S., which would facilitate the export of Panamanian meat to the U.S. market.

Cortizo met on July 20 with the United States Secretary of Commerce, Gina Raimondo, to strengthen the ties of collaboration between both countries.

Raimondo’s visit came after the announcement made by the United States Department of State, in which the selection of Panama was announced as one of the seven countries worldwide with which a collaboration will be established to strengthen the semiconductor global value chain.

The Government of Panama requests a specific review of the terms and conditions of the Tariff Reduction Program agreed upon in the United States-Panama Free Trade Agreement for certain agricultural products sensitive to Panama, specifically rice, milk and dairy derivatives, beef, chicken, and pork.

Panama maintains that “the current TPC is not a rigid instrument, since in addition to establishing an institutional framework to monitor and ensure faithful compliance with the established standards and commitments, it also provides for spaces and mechanisms to make adjustments, taking into account conditions that were unforeseen at the time of its negotiation.”

Conclusion

The United States-Panama Free Trade Agreement represents a significant milestone in the economic and diplomatic relations between the two countries. Over the years, it has delivered substantial economic benefits, facilitated the diversification of Panama’s economy, and solidified Panama’s position as a regional trade hub. Furthermore, it has strengthened diplomatic ties and promoted stability in the Western Hemisphere.

However, challenges remain in ensuring that trade benefits are distributed equitably and maintaining a stable trade environment. To build on the successes of the FTA, both the United States and Panama must continue to work together, foster innovation, and explore new avenues.

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