The U.S. –Panama Trade Promotion Agreement

By Beatriz R. Poloney, Free Trade Agreement Specialist,
Illinois SBDC International Trade Center, Bradley University

The recently signed free trade agreement with Panama can be summarized in three words: expansion, trade, and benefits.  Exporters need to be aware of the significant opportunities available in this fast-growing regional neighbor of the U.S.

Expansion: Expansion of the Panama Canal was inevitable.  Less than 20 years ago, the canal handled 200,000 containers annually.  When the New Panama Canal is completed, an estimated 4.6 million containers will use this critical ‘short-cut’ for trans-Pacific trade.  The canal’s expansion has led to more manufacturing and more jobs in both countries.

Completion of the canal is set for 2014 and all indications are that it will be completed on time and within the $5.4 billion budget.  Most importantly, it will lower transit costs for U.S. freight to and from Asia.

Trade: Panama’s economy is growing at 6.2 percent and is forecasted to remain the same through 2015.  The Trade Promotion Agreement (TPA) allows the U.S. to protect and increase its export market share to Panama due to the lower import taxes.  Duties on industrial goods will eventually be duty-free.  This compares with duty rates today of between 7% and 81%.  U.S. exporters can also expect greater tax transparency due to a Tax Information Exchange Agreement with the U.S.  Another related benefit is stronger protection of intellectual property rights including patents and copyrights.

Panama is also increasing its role as a regional trading hub.  For example, the Colon Free Trade Zone (CFTZ) port is located on the Caribbean sea coast of Panama. It is the second largest commercial distribution center after Hong Kong. The CFTZ houses more than 2,500 merchants serving Central America, South America, and the Caribbean. The CFTZ has access to three ports in the Atlantic and one on the Pacific. There are no duties in the CFTZ, no taxation on dividends, and generally no corporate income tax.

Trading with and between Panama is also facilitated by Panama’s use of the U.S. dollar as its currency. This offers the advantage of access to easier financing and stability for buyers and sellers.

Benefits:  This all leads to significant benefits for U.S. companies.  Panama offers a growing and stable economy, excellent logistical position, and a straight-forward business environment.  The signing of the free trade agreement is leveling the playing field with Canada who already signed a trade agreement with Panama in 2010. Now, the U. S. and Canada are competing equally.  From agriculture products to manufactured products, the U.S. will be more competitive.

If you would like further information on the agreement, or most importantly, how to qualify for preferential treatment and duty reduction under the U.S. – Panama TPA, please contact our Free Trade Agreement Specialist Beatriz R. Poloney at (309) 677-3075 or by e-mail.