Last of a long-pending trio of US FTAs quietly entered into force October 31
by Bill Armbruster, blog anchor
Compared to the Free Trade Agreements with Korea and Colombia that took effect earlier this year, the US-Panama FTA generated little controversy – in part because imports from Panama pose no threats to US industry. US exports, totaling $7.3 billion (including shipments through the Colon Free Trade Zone) in the first nine months of this year, far exceed US imports from Panama, just $337 million through September.
The FTA will likely produce only marginal increases in US trade with Panama, partly because imports for some of the highest priority projects, such as the Panama Canal expansion, mining, and tourism were already duty-free.
Of course, the FTA can still be a big deal for some companies, especially small companies looking for new markets. The trade pact immediately eliminated tariffs on 50% of US agricultural exports, which averaged 15% prior to the FTA. Tariffs on 87% of industrial exports, which had averaged 7%, immediately dropped to zero.
As a result, “US companies will certainly enjoy better margins – they may be able to cut their prices in order to make the sale – and Panamanian companies may be more inclined to seek out suppliers from the US,” Daniel Crocker, senior commercial officer at the US Embassy in Panama, wrote me in an exchange of e-mails. He noted that his office has seen a surge in inquiries from US companies over the past few months. He also outlined several other factors that should cause US companies with an eye to Latin American business opportunities to consider Panama. You can read our complete exchange in “On the Ground in Panama.”
Consumer-oriented products, including snack foods, processed fruits and vegetables, and dairy products are the most important segment of the agricultural market, according to an excellent Commerce Department report on the top export prospects in Panama.
The Commerce Department report identifies building products and construction equipment as other sectors with good growth prospects, partly because of spending on infrastructure.
While the $5.25 billion Canal expansion is the biggest project, a separate Commerce Department analysis states that the government may invest up to $15 billion in public infrastructure over the next five years. Major projects include a $2 billion metro system, hospital construction, and airport renovations.
Despite the tariff reductions, US companies will still have to compete against Asian goods that may be lower priced due to cheaper labor and other costs. The US is by far the largest exporter to Panama, accounting for about 30% of Panama’s imports. China is second, followed by Mexico, Colombia and Japan, according to Datamyne statistics.
The US may face tougher challenges ahead from Canada and the European Union, both of which have completed and signed FTAs with Panama. Once those deals take effect, they will take away some of the edge that US exporters have just gained. Still, the US has considerable other advantages, not the least of which is geographic proximity and cultural affinity.
The next deal on the horizon is the Trans Pacific Partnership. Besides the US, the other participating nations are Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam. The 15th round of negotiations on the potential deal wrapped up in Australia December 12, with participants reporting good progress toward the goal of a final agreement by October 2013, but offering few details. Stay tuned!
Bill Armbruster, the anchor for the Datamyne Blog has covered shipping and trade for 30 years as a reporter and editor with The Journal of Commerce and Shipping Digest. “I’ll be blogging on headline news and current issues in oceangoing commerce, trying to shed some light on the backstories and, wherever I can, supply some sound advice for shippers.” Write Bill care of [email protected]
The opinions expressed in this article are those of its author and do not purport to reflect the opinions or views or Descartes Datamyne. In addition, this article is for general information purposes only and it’s not intended to provide legal advice or opinions of any kind and my not be used for professional or commercial purposes. No one should act, or refrain from acting, based solely on this article without first seeking appropriate legal or other professional advice.
Date posted: December 14, 2012