Skip to main content

U.S.-Panama Trade Pact Brings Hope, Controversy

A free trade agreement between the U.S. and Panama takes effect Wednesday, bringing with it the controversy over jobs and taxes that is associated with all tariff-reducing agreements.

Lead image for this article

The final component of a trade pact between the U.S. and three non-border countries is set to launch on Wednesday, with proponents promising that the agreement with Panama will create thousands of jobs and domestic revenue in an economy that can desperately use both.

Opponents of the U.S-Panama trade pact say the agreement — which will gradually eliminate current tariffs on a range of goods — will slash and outsource American jobs, and create tax loopholes for companies looking to pay fewer taxes.

The trade agreement, first negotiated by President George W. Bush, was approved by the U.S. and Panama governments in 2007 and signed into law by President Obama in October 2011. It was negotiated along with the free-trade agreements with Colombia and South Korea, which took effect earlier this year.

Under the agreement, about 90 percent of exports of consumer and industrial goods will become duty-free immediately. The remaining tariffs will be gradually eliminated over 10 years. The pact has the backing of U.S. Sens. John Cornyn and Kay Bailey Hutchison, Agriculture Commissioner Todd Staples and several members of the Texas congressional delegation.

Panama currently ranks as the United States’ 51st trading partner, and trade between the two nations amounted to $6.78 billion from January to August of this calendar year, according to WorldCity, a data clearinghouse that analyzes U.S. census trade figures. That includes exports from the U.S. of $6.5 billion and imports from Panama of $288 million. Though it ranks low compared with other trade partners — total trade between the U.S. and the rest of the world was estimated at $2.54 trillion — Panama is significant to Texas because Houston and Port Arthur are among that nation’s top trade destinations.

The Texas and Southwestern Cattle Raisers Association lauded the pact with Panama as a potential boon to the Texas cattle industry, citing state’s ranking as the No. 1 cattle producer in the country.

The pact is expected to increase national cattle exports by $3 billion, according to the USDA, and eliminate the current 30 percent tariff on prime and choice cuts of beef. Currently, there are no tariffs on cotton, and that will continue. Tariffs on poultry, grain and dairy products will be reduced or eliminated.

“Texas ranchers have worked for nearly five years to see these agreements become reality,” TSCRA President Joe Parker Jr. said in a statement. “Our global competitors are already negotiating agreements with other markets. If we don’t beat these countries to the punch, U.S. producers will be at a severe disadvantage.”

Union leaders and fair trade advocates, though, say the trade pact is another iteration of the North American Free Trade Agreement that will harm the domestic workforce. 

The nonprofit watchdog group Public Citizen said after the first presidential debate between Mitt Romney and Obama that the president was mistaken when he boasted about the successes of the South Korea and Colombian pacts. The group also criticized Romney for advocating for more free trade agreements.

“U.S. exports to Korea have declined, imports from Korea and Colombia have surged, and the Panama deal has not even gone into effect,” said Lori Wallach, director of Public Citizen’s Global Trade Watch.

The group warns that the Colombia and Korea pacts have increased the trade deficit with those countries by 29 percent and will eliminate about 15,000 U.S. jobs.

“In a presidential campaign dominated by the urgent agenda of job creation, it is a sorry statement about the domination of corporate money in American elections that both presidential candidates would tout NAFTA-style deals that most Americans oppose,” Wallach said.

Opponents also call Panama a tax haven, where corporations can dodge tax laws through Panamanian subsidiaries and banks. But the Obama administration argues that Panama is moving toward tax reform after entering in to a Tax Information Exchange Agreement with the U.S. in 2011. Panama also changed its tax laws recently to allow Panamanian officials to obtain and exchange information to comply with international laws. The country is also trying to address the use of anonymous accounts by requiring firms that incorporate corporations to verify the identity of the owners and share information with authorities, according to the Office of the U.S. Trade Representative.

Opponents said the exchange agreement is rife with loopholes that will allow tax evasion to continue.

Still, the Department of Commerce cites the recent success of pacts with other non-NAFTA nations as proof that the Panamanian exchange will mean gains for Texas.

Since the U.S.-Chile trade agreement in 2004, Texas’ exports to Chile have grown by 746 percent. Since the U.S.-Singapore trade agreement that year, Texas’ exports to Singapore have grown by 159 percent.

Texans need truth. Help us report it.

Yes, I'll donate today

Explore related story topics