8045 COHA Report, Free Trade’s Not So Free: The Panamanian Case

Eight years after Panama’s original free trade agreement (FTA) negotiations were carried out, October 12, 2011 witnessed the approval by the Houses with relatively little opposition from either the Democrats or Republicans.  Both countries hailed the passing of the agreement with enthusiasm, and calls for continued economic progress and integration have resulted from the now-ratified agreement. Panama’s development in recent years has been all but unprecedented. In comparison to its regional neighbors, including El Salvador, Honduras, and Guatemala, which have undergone pandemic violence and relentless economic and social chaos in recent years, Panama’s evolution has proven to be stable and productive, if driven by unhesitating corruption. This expensively-bought stability has prompted the U.S. to negotiate an FTA with Panama since 2003 out of the certain knowledge that so much would illicitly be earned by so few. There was no mystery that the Panamanian FTA with the U.S. would be passed by a definitive vote. Previous FTA pacts between the U.S. and such Latin American countries as Peru and Chile have exposed the susceptibility of countries with small and fragile markets. Panama will be no exception to this rule and stands to have its own economy significantly warped and reorganized by its FTA once it becomes operational.

According to financial figures drawn up by the U.S. Commerce and State Departments, the Panama FTA would generally tend to be beneficial to U.S. trade while proving detrimental to certain sectors of Panama’s economy.  Currently, twenty-seven percent of all Panamanian imports come from the U.S., with these being limited to consumer goods and agricultural products. With the ratification of the FTA, tariffs on eighty-seven percent of all U.S-made goods heading for Panama will be removed immediately and the rest will be phased out over a ten-year period.  The FTA also opens Panama’s service and financial sectors to U.S. investment firms and corporations. In contrast to the apparent advantages the U.S. will now receive, Panama is scheduled to obtain limited benefits from the FTA other than those derived from its small agricultural export sector, the products of which will enter the U.S. free of all excises.  Overall, as demonstrated above, Washington is destined to be the primary benefactor from the FTA.