On Tuesday, October 11, 2011, the House is scheduled to consider H.R. 3079, the United States-Panama Trade Promotion Agreement Implementation Act, under a rule. The rule provides for 90 minutes of debate with 60 minutes equally divided and controlled by the chair and ranking minority member of the Committee on Ways and Means, and 30 minutes controlled by Rep. Michael Michaud (D-ME) or his designee. H.R. 3080 was introduced by Rep. Eric Cantor (R-VA), by request, on October 3, 2011 and was referred to the Committee on Ways and Means. The committee held a mark-up session on October 5, 2011 and ordered the bill favorably reported without amendment by a vote of 32-3.
H.R. 3079 would implement the agreement establishing a free trade area between the United States and Panama. The following is a sectoral breakdown of the changes that the agreement would provide, as outlined in H. Rept. 112-238 from the Committee on Ways and Means:
Agriculture: U.S. agriculture exports to Panama currently face an average tariff of 15 percent, whereas more than 99 percent of Panamanian agricultural exports to the United States enter duty-free. The Agreement would remedy this by making more than half of current U.S. farm exports to Panama duty-free immediately upon implementation, including U.S. exports of pork, rice, soybeans, cotton, wheat, and most fresh fruit. The Agreement would also address key non-tariff barriers. For example, Panama would recognize the equivalence of the U.S. food safety system for meat, poultry, and processed foods and would provide access for all U.S. beef and beef products consistent with international norms.
Manufacturing: The Agreement would significantly lower both tariff and nontariff barriers to U.S. exports of manufactured goods. Upon implementation, over 87 percent of U.S. exports of consumer and industrial products to Panama would immediately become duty-free, with remaining tariffs phased out over ten years. Key U.S. export sectors that would receive immediate duty-free treatment include aircraft, construction equipment, and medical and scientific equipment. As a result, the International Trade Commission (ITC) estimates significant gains in U.S. exports in key sectors and products. For example, the ITC estimates that exports of cars and light trucks would increase by 43 percent. Similarly, exports of appliances, HVAC equipment, and parts would increase between 9 and 20 percent. Per the Agreement, Panama has also reaffirmed its commitment to fulfill its obligations under the WTO Information Technology Agreement, which would further open Panama’s market to U.S. high-tech exports. The Agreement would provide U.S. firms with lower tariff barriers than major competitors from countries that do not have trade agreements with Panama in effect.
Services: The services sector accounts for nearly 78 percent of Panama’s GDP, making improved market access for U.S. services critical. The Agreement would provide U.S. service firms with market access, national treatment, and regulatory transparency exceeding that afforded by the WTO General Agreement on Services. Under the Agreement, the United States would receive access to key services markets, including retail trade, financial services, and professional services. For example, the agreement would end the current Panamanian restriction allowing only Panamanian nationals to provide professional services. In addition, the Agreement would ban the current requirement of having to open a subsidiary in Panama to do business in Panama. U.S. service providers that establish a local presence in Panama would benefit from strong investor protections included in the Agreement. In addition, the Agreement would lift the cap on foreign direct investment in multi-brand retail in Panama. Overall, the opening of Panama’s services market would allow U.S. service providers to benefit in the region, as well as Panama, because Panama is considered a prime logistical hub for the whole of Latin America.
Government Procurement and Canal Expansion: The government procurement provisions of the Agreement are essential to guaranteeing non-discriminatory access for U.S. goods, services, and suppliers to the Panamanian central and regional governments, as well as to significant government enterprises, including the Panama Canal Authority, particularly because Panama is not a member of the WTO Government Procurement Agreement. The procurement provisions would grant U.S. entities greater access and protection than they currently have. The Canal expansion now underway is expected to double capacity with a third lane and a new set of locks. The expansion will total $5.25 billion in new contract opportunities. In addition to the Canal expansion, upcoming procurement opportunities in Panama are expected to be between $1.5 billion and $2.3 billion.
Intellectual Property Rights: Under the Agreement, Panama would adopt higher and extended standards for the protection of intellectual property rights, such as copyrights, patents, trademarks and trade secrets. The Agreement also provides enhanced means for enforcing those rights. Under the Agreement, each partner country would be required to grant national treatment to nationals of the other, and all laws, regulations, procedures and final judicial decisions would need to be be in writing and published or made publicly available. The Agreement would lengthen terms for copyright protection, cover electronic and digital media, and increase enforcement to go beyond the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights. Both parties would be obliged to provide appropriate civil and criminal remedies for willful violators of intellectual property rights.
Textile and Apparel: Many U.S. textiles and apparel products meeting the Agreement’s rules of origin would immediately become duty-free and quota-free when exported to Panama. The Agreement’s rules of origin are generally based on the “yarn forward” standard. A “de minimis” provision would allow limited amounts of specified third-country content to go into U.S. and Panamanian apparel, giving producers in both countries needed flexibility. The Agreement would allow the use of “short supply” fabrics, yarns, and fibers (that is, fabrics, yarns, and fibers not made in Panama or the United States that have been determined not to be commercially available in either country) as inputs. The Parties agreed to a list of short supply fabrics, yarns, and fibers, and the Agreement includes a process for adding more. Customs cooperation commitments between the United States and Panama would allow for verification of claims of origin or preferential treatment, and denial of preferential treatment or entry if claims cannot be verified. A special textile safeguard would provide for temporary tariff relief if imports under the Agreement prove to cause or threaten serious damage to U.S. producers.
Investment: The Agreement would ensure a stable legal framework for U.S. investors operating in Panama. All forms of investment would be protected under the Agreement, including enterprises, debt, concessions and similar contracts, and intellectual property. With very few exceptions, U.S. investors would be treated as well as Panamanian investors in the establishment, acquisition, and operation of investments in Panama. The Agreement draws from U.S. legal principles and practices to provide U.S. investors in Panama with a basic set of substantive and procedural protections that Panamanian investors currently enjoy under the U.S. legal system. These include due process protections and the right to receive fair market value for property in the event of an expropriation. The Agreement includes recourse to an investor-state dispute settlement mechanism for certain types of claims.
In the preamble, the Parties agree that “foreign investors are not hereby accorded greater substantive rights with respect to investment protections than domestic investors under domestic law where, as in the United States, protections of investor rights under domestic law equal or exceed those set forth in this Agreement.” This provision reflects one of the negotiating objectives of Trade Promotion Authority (TPA) to ensure “that foreign investors in the United States are not accorded greater substantive rights with respect to investment protections than United States investors in the United States.”
Labor: The labor chapter of the Agreement includes the obligation that the Parties adopt and effectively enforce the five core international labor rights as stated in the 1998 International Labor Organization Declaration on Fundamental Principles and Rights at Work. The Agreement would also require each country to enforce its own existing laws concerning acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health. The obligations under the labor chapter would be subject to the same dispute settlement mechanisms and enforcement mechanisms as obligations in other chapters of the Agreement. Neither party would be permitted to waive or otherwise derogate from its laws that implement this obligation in a manner affecting trade or investment between the parties. Procedural guarantees in the Agreement would ensure that workers and employers have fair, equitable, and transparent access to labor tribunals or courts. The Committee notes that Panama has shown a strong commitment to the protection of labor rights for Panamanian workers. Panama has made more than a dozen changes to its Labor Code since 2009. It recently passed legislation addressing worker rights in export processing zones, collective bargaining issues in companies under two years of age, and collective bargaining and temporary worker issues in its Baru District.
Environment: The Agreement would commit the parties to effectively enforce their own domestic environmental laws and adopt, maintain, and implement laws and all other measures to fulfill obligations under covered multilateral environmental agreements. The Agreement also includes a fully enforceable, binding commitment that would prohibit the parties from lowering environmental standards in the future in a manner affecting trade or investment. The Agreement would promote a comprehensive approach to environmental protection by encouraging voluntary, market-based mechanisms to protect the environment and by providing procedural guarantees that ensure fair, equitable and transparent proceedings for the administration and enforcement of environmental laws. The Agreement would call for a public submissions process with an independent secretariat for environmental matters to ensure that views of civil society are appropriately considered. All obligations in the environment chapter would be subject to the same dispute settlement procedures and enforcement mechanisms as obligations in other chapters of the Agreement.
Tax Transparency: The Committee notes Panama’s significant steps to address concerns raised by certain critics that the country has tax transparency issues, although these steps are distinct from the Agreement. Panama and the United States now have an operational Tax Information Exchange Agreement (“TIEA”) in force. Signed in November 2010, the TIEA was touted by Treasury Secretary Geithner as an agreement that “usher[s] in a new era of openness and transparency for tax information between the United States and Panama.” Panama ratified the TIEA in April and had already passed the necessary implementing legislation. Moreover, the OECD has recently added Panama to the list of those countries, including the United States, that meet internationally agreed upon tax standards. The OECD Secretary General praised Panama’s efforts, stating that “Panama has worked hard to achieve this milestone, making remarkable strides toward complying with the international standards in a very short time.”
For budgetary offset purposes, Section V of the bill would also make revisions to certain tax and customs fee statutes. The revenue effects of these provisions are discussed in more detail in the CBO analysis linked below.
The United States-Panama Trade Promotion Agreement was signed on June 28, 2007. The Agreement covers all agricultural and industrial sectors, provides for greatly expanded market access for U.S. services, contains robust protections for U.S. intellectual property rights holders, and includes strong labor and environment provisions.
U.S. industrial goods currently face an average tariff of 7 percent in Panama, with some tariffs as high as 81 percent. Conversely, almost all Panamanian exports enter the United States duty free due to low U.S. tariffs and U.S. trade preference programs. The Agreement would transition the U.S.-Panama trading relationship from one-way preferences to full partnership and reciprocal commitments, helping U.S. exporters gain greater access to the Panamanian market, one of the fastest growing in Latin America. The International Trade Commissions (“ITC”) estimates that U.S. exports to Panama for certain sectors would increase up to 145 percent.
Trade Act of 2002 procedures:
H.R. 3079 is being considered by Congress under the procedures of the Bipartisan Trade Promotion Authority Act of 2002, included in the Trade Act of 2002. Pursuant to these requirements, the President is required to provide written notice to Congress of the President’s intention to enter into the negotiations. Throughout the negotiating process, and prior to entering into an agreement, the President is required to consult with Congress regarding the ongoing negotiations.
The President must notify Congress of his intent to enter into a trade agreement at least 90 calendar days before the agreement is signed. Within 60 days after entering in the Agreement, the President must submit to Congress a description of those changes to existing laws that the President considers would be required to bring the United States into compliance with the Agreement. After entering into the Agreement, the President must also submit to Congress the formal legal text of the agreement, draft implementing legislation, a statement of administrative action proposed to implement the Agreement, and other related supporting information as required under section 2105(a) of the Trade Act of 2002.
Following submission of these documents, the implementing bill is introduced, by request, by the Majority Leader and the Minority Leader in each chamber. The House then has up to 60 legislative days to consider implementing legislation for the Agreement, and the Senate has up to an additional 30 legislative days. No amendments to the legislation are allowed under TPA requirements.
According to estimates by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT), enacting H.R. 3079 would increase revenues by $118 million in 2012 and reduce revenues by about $6.0 billion over the 2012-2021 period. CBO estimates that enacting H.R. 3079 would increase direct spending by $1 million in 2012 but would decrease direct spending by about $8.0 million over the 2012-2021 period. The net impact of those effects is an estimated reduction in deficits of $2.0 million over the 2012-2021 period. Pay-as-you-go procedures apply because enacting the legislation would affect direct spending and revenues.
Further, CBO estimates that implementing the legislation would cost $4 million over the 2012-2016 period, assuming the availability of appropriated funds. CBO has determined that the non-tax provisions of H.R. 3079 contain no intergovernmental mandates as defined in the Unfunded Mandates Reform Act (UMRA), and would impose no costs on state, local, or tribal governments.
CBO has determined that the non-tax provisions of the bill contain private-sector mandates with costs that would exceed the annual threshold established in UMRA for private-sector mandates ($142 million in 2011, adjusted annually for inflation).
JCT has determined that the tax provisions of H.R. 3079 contain no intergovernmental or private-sector mandates as defined in UMRA.
More information on the CBO/JCT score can be found here.