U.S. Farmers Rapidly Losing Market Share in Panama

International trade is my beat for Business and Economics Reporting class. This is an enterprise piece on the U.S.-Panama FTA.

For American farmers, the pending trade agreement with Panama is no longer about potential gains but about preventing the loss of existing export markets.

Since 2007, when the agreement was signed, U.S. share of Panama’s agricultural imports has steadily declined, to 38 percent last year from 60 percent, according to the Department of Commerce. The figure is expected to steadily erode as other countries, like Canada last year, finalize their trade agreements to lower trade barriers and make their products more competitive in Panama.

“It’s amazing that it hasn’t been passed yet. Out of the three bills, Panama is the least controversial,” said Charlotte Hebebrand, chief executive of the International Food and Agricultural Trade Policy Council. “We stand only to gain from these agreements.”

Panama mostly imports industrial goods, pork, beef and grains from the U.S. while exporting salmon, tuna and fruits. It is a small trading partner for the U.S., ranking only 56th in trade value, but the partnership has resulted in regular surpluses for the U.S. Last year, it amounted to $5.7 billion.

This is despite 99 percent of Panamanian agricultural exports entering the U.S. duty-free because of the Caribbean Basin Initiative and other trade preference programs, compared to less than 40 percent of U.S. agricultural exports to Panama. Once the trade agreement is implemented, 88 percent of U.S. exports will enter Panama duty-free.

The Chamber of Commerce predicted that the agreement would result in exponential increases in exports to Panama, starting from $263 million in the first year and growing to $2.8 billion in the fifth year. Imports from Panama would not increase substantially.

“Speaking for the grains industry, we are keen to get into the rice industry in Panama, which is highly protected,” said Hebebrand.

The International Trade Commission predicted that the agreement would result in 43 percent increase of auto exports to Panama, 96 percent of pork, 94 percent of beef and 145 percent of rice. The country maintains low tariff-rate quotas (TRQ) for rice exports that may enter duty-free and exacts high tariffs if the quotas are exceeded. The tariffs would be phased out over the course of 20 years from the agreement’s implementation.

“While Panama has been successful in getting a long phase-out period, we gain these TRQs in return,” said Bob Cummings, senior vice president of the USA Rice Federation.

In the first year after the agreement is finalized, more than 12,000 metric tons of rice exports from the U.S. can enter Panama duty-free. The amount will increase by 6 percent each year until the twentieth year, when all rice exports from the U.S. will enter duty-free.

“Competitiveness will ultimately be about price and quality, but if we can get our rice in duty-free then that helps make the U.S. more competitive,” said Cummings. “It will remove the tariffs and allow us to compete on an even playing ground.”

Other sectors of the agricultural industry will also benefit from the increase of pork and beef exports to Panama since it will mean more demand for feeds.

The sugar sector is the only agricultural sector that is wary about surging imports from Panama, though the actual effect on the industry is slight due to the U.S. Sugar Program passed in a 2008 farm bill. The Program requires 85 percent of sugar sold in the U.S. to be produced domestically, so lifting the TRQs for sugar imports from Panama will have little actual effect.

“We’re not giving much access to Panama,” said Jack Roney, economist for the American Sugar Alliance. “It’s not because we’re protecting our sugar industry. In the past, the consumers have been dissatisfied with the quality and reliability of imported sugar, so this Program is there to serve our consumers.”

Sugar consumer and owner of Reinwald’s Bakery in Huntington, New York, Rich Reinwald strongly disagrees. “Consumers, businesses that use sugar, are the losers,” he said. “What’s happening is that Main Street bakeries and confectioneries are being hit on every front and hardest punch comes from sugar.”

Reinwald is hopeful that raising TRQs for sugar imports might nudge the price down, but he is not convinced that it will.

“I hope it does too, but the sugar growers are very apt politically, so for the next farm bill, they will make sure that the trade agreements will have as little impact as possible on actual imports,” said Cory Martin, senior manager of government relations at the American Bakers Association. “The Sugar Program is their bread and butter, so they’ll be sure to protect it.”

Aside from economics, main opposition against the U.S.-Panama trade agreement comes from labor unions and environmental activists. They want to see more tax transparency, more freedom for workers to form unions and stricter environmental safety standards.

But Nathaniel Karp, chief economist for BBVA Group, thinks that trade agreements have little to do with these issues. “Labor and environmental issues have more to do with regulations and political systems. They don’t have a direct relation with trade agreements themselves.”

Nevertheless, since U.S. trade representatives have met with leaders from Panama this February, the country has agreed to address all of these issues, although the U.S. still waits to see concrete changes.

“We will not be left behind as others open markets and take our market share,” said U.S. Trade Representative Ron Kirk in a statement. “But the President has made one thing abundantly clear: we will not sign agreements for agreements’ sake.”

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