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Trade Update-Key Provisions in Pending Bilateral Agreements

January 31, 2007

Topics in this issue:
U.S. Free-Trade Agreements with Colombia, Peru and Panama
• Market access
• Services and investment
• Labor
• Export growth

Congressional ratification of U.S. trade promotion agreements (TPAs) with Peru and Colombia, both signed in 2006, would put the U.S. on equal footing with countries that currently enjoy duty-free trade preferences through the Andean Trade Promotion and Drug Eradication Act (ATPDEA)—a program launched as the Andean Trade Preference Act in 1991 to reduce illicit drug cultivation through increased trade opportunities. Besides market access, the agreements would promote services trade, investment, intellectual property protection, fair dispute settlement, and labor protection. Peru ratified the U.S.-Peru TPA in June 2006, and the Colombian Congress is scheduled to take up the U.S.-Colombia TPA during the second week of February.

Panama completed free trade negotiations with the U.S. in December 2006. Similar to ATPDEA preferences for Peru and Colombia, many products from Panama already enter the U.S. duty-free—benefits are extended through programs such as the Caribbean Basin Initiative. This agreement would give the U.S. reciprocal access to the Panamanian market.

Market access. The Colombia and Peru TPAs would enable 80 percent of U.S. consumer and industrial products to enter these markets duty-free immediately upon implementation. Within five years of implementation, a further seven percent of U.S. exports would receive duty-free access. After ten years, all remaining tariffs would be erased. Comprehensive rules of origin provisions, along with enhanced customs procedures and a textile safeguard for domestic producers, are designed to ensure a smooth transition to the duty-free treatment for textiles and apparel.

The U.S.-Panama trade agreement would immediately eliminate duties for almost 90 percent of U.S. consumer and industrial product exports to Panama. Four percent more goods would fall into this category within five years, and within ten years, all tariffs would be eliminated. Temporary trade preferences currently extended to Panama would become permanent.

Services and investment. In essence, the FTAs would provide U.S. businesses with the same national legal treatment as domestic companies. With minimal exceptions, the Colombia, Peru and Panama deals would open services in a variety of sectors, even eliminating barriers beyond World Trade Organization commitments. Colombia and Peru agreed to eliminate current practices such as requiring U.S. firms to purchase local goods and compelling the hiring of nationals. In Panama, the agreement would ensure access to contracts related to the Panama Canal (and its $5.25 billion expansion).

By establishing due process and compensation standards, along with granting investors many of the same rights enjoyed by locals, the agreements would create the conditions necessary for increased U.S. investment in partner countries. All three agreements would furnish a predictable, stable legal environment for U.S. business and investment.

Labor provisions are included in the core text of each trade agreement. According to the Congressional Research Service, for each FTA, countries would be required to enforce their own domestic labor laws and must “strive to ensure” compliance with International Labor Organization standards. Enforceable through dispute settlement procedures, the agreements would ensure that workers and employers would have fair, equitable and transparent access to labor tribunals. Governments also would be required to raise public awareness of the country’s labor laws.

In both the Peru and Colombia TPAs (Articles 17.4-17.6) and the Panama agreement (Articles 16.4-16.6), each agreement would establish a Labor Affairs Council. The Council, comprised of cabinet-level officials from the U.S. and its partner country, would publish reports on the progress of labor issues, hear (and if possible, settle) labor complaints, and host cooperative and public consultations. Councils would oversee a Labor Cooperation and Capacity Building Mechanism designed to facilitate information and technical exchanges on labor issues. If a worker believes a party government has not enforced its labor laws, the individual may request a “cooperative labor consultation” supervised by the Labor Affairs Council. Parties are encouraged to resolve complaints within 60 days; if not, binding dispute settlement proceedings may be initiated.

Export Growth. The U.S. Census Bureau notes that in 2006 U.S. exports to Colombia, Panama and Peru totaled over $11.1 billion, with Colombia the largest recipient ($6.0 billion). Tariffs partially inhibit greater U.S. export earnings. Peru applies tariffs ranging from 5 to 20 percent to virtually all U.S. products, while Colombia’s tariffs begin at zero percent but jump to 20 percent on certain sensitive goods. On the flip side, according to 2005 statistics, temporary programs allowed for large shares of exports from Peru (44 percent), Colombia (51 percent) and Panama to enter the U.S. with preferential duty treatment.

This update is published by the Americas Society and Council of the Americas, non-partisan organizations founded to promote better understanding and dialogue in the Western Hemisphere, working in collaboration to advance their respective missions. The Americas Society is a public charity described in I.R.C. Section 501(c)(3), and Council of the Americas, a business league under I.R.C. Section 501(c)(6). The positions and opinions expressed in this publication are those of the authors or guest commentators and speakers and do not represent those of the Americas Society and the Council of the Americas or its members or the Boards of Directors of either organization. No part of this publication may be reproduced in any form without permission in writing from the Americas Society and Council of the Americas.