BIG BENEFITS: The expansion of the Panama Canal (above) will provide major opportunities for Caterpillar, especially if they are exported to Panama duty-free as a result of the US-Panama FTA, the author argues. (Photo: Panama Canal Authority)        Font Size ..... Small Normal Big Very Big

BY THOMAS A. GALES

We believe the Panama Trade Promotion Agreement will be a remarkably beneficial trade agreement for the U.S., Panama, and the region. (...)

Panama is embarking on the biggest public works project since the Three Gorges Dam in China.  For Caterpillar, the world’s largest producer of earthmoving equipment, expanding the Panama Canal is a big deal.  If we can sell our U.S.-produced products to Panama duty-free, it will help our customers and provide us with a competitive edge over products made in other parts of the world.  In practical terms the agreement means that Panama’s ten percent duty on off-highway trucks, motor graders, wheeled scrapers and diesel engines would be eliminated.  The same would be true for other types of Caterpillar products that have tariffs ranging from 3 to 15 percent.

What does the U.S. have to do in return?  As it relates to mining and construction equipment … the answer is nothing.  The U.S. tariff on these products is already at zero, and that won’t change.

For other manufactured products, Panama’s tariffs are even higher.  Panama’s tariff on autos is 15 percent — for furniture, 15 percent — and for computers, from 5-15 percent.  By eliminating these duties, the Free Trade Agreement will provide the average Panamanian consumer with a higher standard of living by offering more product choices at lower prices.

But there are other reasons why a FTA and an expanded Panama Canal will benefit the United States.  Trade barriers can take many forms.  One of the most onerous trade barriers is the lack of infrastructure.  After all, if you can’t physically get your products to market the magnitude of the tariffs doesn’t really matter.

Today, about 5 percent of all world trade passes through the Panama Canal, and much of that trade originates in the ports of Miami, New York City, and Los Angeles.  But with the Canal at capacity and many of the newer, larger ships unable to use the Canal, it takes longer than it should for some U.S. exports to reach overseas markets.  An expanded Canal would help fix that and allow many American manufacturers to be more competitive by shortening their supply chain and reducing inventories. (...)

Of course, in addition to manufacturing, American agriculture and service industries will also benefit from this agreement. Services represent the fastest growing sector of the Panamanian economy and freer trade will further enhance investment opportunities in financial services, real estate, tourism and transportation.  For agriculture, the agreement will allow U.S. exporters to maintain and expand their 50 percent market share in Panama.  The American Farm Bureau Federation expects export gains in excess of $151 million per year by 2027 in items such as wheat, rice, corn, cotton, soybean products and livestock products

In addition, the agreement will enhance the rule of law and bolster implementation of internationally recognized worker’s rights. It will strengthen protection and enforcement of U.S. trademarks, patents and copyrights, creating new opportunities for U.S. innovation and creative industries in Panama.

Intellectual property enforcement mechanisms and penalties will be strengthened as well. And the agreement will provide for investment protections and a transparent dispute settlement procedure.

In part because of these new disciplines, I am confident that Panama will attract more direct foreign investment and enjoy increased economic growth.  (...)

As we all know the Colombia and Peru Free Trade Agreements have compelling economic and national security reasons to be enacted.  But in many ways the Panama agreement may be the trade agreement that most captures the public’s imagination.  After all, with Panama we have a small, reform-minded country, that’s reducing trade barriers that are both natural and man-made.  By doing so, it is allowing free trade to transform the region by improving living standards and bringing us all closer together. (...)

Thomas A. Gales is vice president for Latin America for Caterpillar. This column is based on his recent testimony before the U.S. International Trade Commission.