U.S., Panama to inaugurate free-trade pact next week

WASHINGTON Mon Oct 22, 2012 1:29pm EDT

WASHINGTON (Reuters) - A free-trade agreement between the United States and Panama will go into force at the end of this month after a years-long delay, likely boosting U.S. exports of everything from tractors to chicken legs.

"It is a wonderful capstone on what has been one of the most historic and strongest strategic partnerships, certainly in the Western Hemisphere," U.S. Trade Representative Ron Kirk said at a ceremony where the two countries exchanged letters that allow the pact to take effect on October 31.

The agreement locks in Panama's current duty-free access to the United States, while tearing down most of the Central American nation's barriers to U.S. exports, a boon for U.S. manufacturers.

President Barack Obama has supported new free-trade agreements as a way to boost U.S. exports and create jobs for Americans, even as his Republican challenger, Mitt Romney, has criticized the administration for being too cautious in pressing for trade-opening deals.

The agreement with Panama is the third free-trade pact signed this year, after agreements with Korea and Colombia. Two-thirds of U.S. free-trade partners will now be in the Western Hemisphere, Washington's traditional area of influence.

The United States is already Panama's largest trading partner and the two countries share a long and sometimes rocky history. Their relationship has centered on the Panama Canal, which links the Atlantic and Pacific Oceans and was under U.S. control for much of the twentieth century.

"Panama, thanks to its strategic geographic position at the center of the hemisphere ... can represent a great platform for exports (from) the United States and the best door of access to the continent," said Panamanian Minister of Commerce and Industry Ricardo Quijano.

U.S. manufacturers like Caterpillar (CAT.N) have waited for years for the pact to go into force to boost their spending and exports to the country.

About 10 percent of U.S. imports and exports pass through the Panama Canal, and that percentage could rise as Panama completes a $5.3 billion canal expansion project.

The free trade pact, approved by the U.S. Congress more than a year ago, will support U.S. jobs by immediately eliminating Panama's tariffs on 86 percent of U.S. consumer and industrial goods, including autos, chemicals, electrical equipment, information and medical technology, Kirk said.

Industrial goods tariffs currently average 7 percent, though some are as high as 81 percent.

It will also immediately eliminate Panama's tariffs on roughly half of U.S. agriculture exports and guarantee U.S. companies access to Panama's $22 billion services-dominated market in areas including financial services, telecommunications, energy and professional services.

U.S. agricultural goods now face average tariffs of 15 percent, though the tariff was 260 percent for chicken leg quarters.

Panama's remaining agricultural, industrial and consumer product tariffs will be phased out over longer periods of time.

The Republican administration of former President George W. Bush negotiated the trade deal with Panama and two other pacts with Colombia and South Korea, but could not get Congress to approve them before Bush left office in 2009.

Lawmakers finally approved all three deals in October 2011 after Obama made changes to address concerns raised by fellow Democrats.

(Reporting by Anna Yukhananov; editing by Todd Eastham)

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