Free Trade and Other Things in Panama

The United States­–Panama Trade Promotion Agreement came into force today.  Ideally, trade agreements promote free trade by obligating each country involved to remove import barriers for goods coming from the other.  This agreement does just that, and Cato’s trade votes database counts a vote in favor of implementing the agreement as a vote opposing trade barriers.  But the history of this agreement and the current lack of free trade momentum make it difficult to get very excited.

This agreement was signed over five years ago in June of 2007 but was not ratified by Congress until December 2011.  Why did it take so long?  In order to make the deal more palatable to certain interests, Congressional leaders and the Obama administration held up a vote until additional side agreements and assurances were made by Panama.  These included a 2009 labor law that restricts the rights of nonunion workers in Panama, and a 2010 agreement that gives the U.S. government access to bank records of U.S. citizens in Panama.  Even the original agreement contained contentious non-trade obligations designed to further specific special interests; the last bits of implementing legislation that Panama enacted this fall were to expand its copyright laws and to provide patents for plants.

The agreement does lower barriers to trade in goods and services and open up government procurement markets in both countries, but the cost is sweetheart deals and handouts for Hollywood, U.S. agribusiness, and big labor.  The fact that this agreement faced so many obstacles is a bad sign for the future of free trade agreements in the United States, especially considering that Panama’s economy is roughly the size of North Dakota’s.  The obstacles that stalled and frustrated this agreement have very little to do with trade itself and will likely resurface in every free trade negotiation and implementation debate in the near future.

(Even if the goal is only export promotion, the U.S. government has better ways to do that than tinker with Panama’s intellectual property rules.  The long-planned expansion of the Panama Canal will finish in 2014; if Congress seriously wants to promote trade, it could work to make sure U.S. ports are able to accommodate the New Panamax-sized ships that will be traveling through.)

The United States signed 12 free trade agreements with 17 countries between 2000 and 2007, and none since.  President Obama is working on the Trans-Pacific Partnership which currently includes 10 other countries—but we already have agreements with all but four of them.  Governor Romney has proposed signing more agreements with countries in Latin America, but there aren’t a lot of countries left in that region that would be interested.  A genuine free trade agreement with Brazil would be excellent, but it would likely require reform of U.S. agriculture subsidies—a tough sell requiring political courage and a commitment to trade liberalization.

The entry into force of an agreement with Panama today ironically marks a low point in the health of the free trade consensus.  It is quite telling that free trade agreements are now called “trade promotion agreements” or merely “partnerships.”  The language of free trade is in desperate need of revival to ensure that these agreements do not become tools for exporters to pursue their special interests.  Expanding exports, improving American innovation, and creating jobs should be touted as (some of) the benefits of free trade, not as the goals of managed trade policy.  Free trade should be the only goal.