PANAMA: US-Panama FTA will define bilateral relations
Thomas Cromwell

Panama is bound to the United States through special ties that have made the two nations partners by default for many decades. Last year was the 100th anniversary of bilateral ties, an occasion marked on November 3 by a visit of Secretary of State Colin Powell to Panama. Most important to the bilateral relationship is the Panama Canal, built by the United States in cooperation with Panama early in the last century, and since then literally a lifeline for America, allowing large cargo vessels and warships to move between the Atlantic and Pacific coasts of the continent with relative ease. "Because of the Canal, we have had very strong relations with the United States," says Ambassador Roberto Alfaro Estripeaut, Panama's envoy to Washington for the past year.

On January 1, 2000 Panama assumed full control of the Canal, as stipulated in two treaties signed in 1977 by President Jimmy Carter and Panama's ruler, Omar Torrijos. A reservation introduced by Senator Dennis DeConcini (D-AZ) to the Neutrality Treaty, which covers bilateral relations after the handover, allows the United States to take unilateral military action to protect the Canal against threats. This condition was deemed necessary since Washington not only ended its control of the Canal itself but simultaneously relinquished control of several strategic military bases and other installations in Panama.  

Panama ratified the treaty with the DeConcinci reservation but added a three-paragraph reservation of its own which said in effect that any US intervention would have to be with the agreement of the Panamanian government, a condition that was never agreed to by the US Senate. The different versions of the treaty were never reconciled, but the handover proceeded anyway. The Neutrality Treaty does allow both parties to enter into new security arrangements after the handover, including "agreements or arrangements for the stationing of any United States military forces… in the Republic of Panama that the Republic of Panama and the United States of America may deem necessary or appropriate."

Since Panama assumed control of the operation of the Canal, the Panama Canal Authority, which manages its operations, has been credited with doing a good job of maintaining and upgrading the canal. In fact traffic in the crucial waterway has increased so much, that the governmental Panama Canal Commission is now studying a project to expand it to allow for the transit of ships three times the size of the 3,000-container Panamax vessels, which are the largest that can now transit the Canal. Widening the Canal will avoid a crisis when transit capacity is reached, an eventuality now expected around the year 2010.

Ambassador Alfaro says that studies by the Canal Commission on the feasibility of the expansion project should be completed in July this year, after which time the people of Panama will have to vote for or against expanding the Canal in a national referendum, as required by the constitution. He says the price tag for the expansion of some $8 billion is not beyond reach, with some $3 billion of this expected from Canal revenues and the rest to be raised through an international bond issue. The project will take some 10 years to complete.

But there are several areas of general concern in Washington over the Canal and other security issues in Panama, and these will inevitably be part of the negotiations that are due to start in April on a Free Trade Agreement between the United States and Panama, the ambassador says.  

One of Washington's concerns is that the decades-long civil war in neighboring Columbia has continued to push Marxist FARC rebels onto Panamanian territory seeking refuge. The ambassador says that the US Embassy in Panama has provided some surveillance equipment and vehicles to help the Panamanian police secure the border with Columbia, and the problem has to a large extent been controlled. "We are free of any drug labs in Panama," he says.

Other areas of concern are the continued instability in nearby Venezeula, where the government of Hugo Chavez has pursued decidedly anti-American policies, and the ongoing trade in narcotics, with Panamanian territory (whether land, sea or air) the most direct transit route for Columbian products headed to the United States. The ambassador notes that the US Coast Guard cooperates with Panama in running an air and sea surveillance operation aimed primarily at interdicting drug traffickers.

But for some in Washington, the main concern is the potentially trouble-making role of the People's Republic of China, which has greatly increased its influence in Panama since the United States pulled out. A subsidiary of Hong Kong-based Hutshinson Whampoa, whose owner, Li Ka-Shing, has close ties to Beijing, is the operator of the Cristobal (Atlantic side) and Balboa (Pacific side) ports, which sit at the entrances to the Canal. For Mainland China, America's number one rival in the world, to have a potential chokehold on a waterway of such enormous strategic importance to the United States is cause for ongoing worry and the impetus behind a bill in Congress, sponsored a year ago by Congressman Virgil Goode (R-VA), calling for Washington to re-assert a military presence in Panama to secure the Canal.

However, the ambassador says there has been no US request for a renewed US military presence in Panama, and says he doubts this would occur. "I don't foresee any US military presence in Panama," he says flatly. "We don't want the US military again." He says that security is achieved through mutual economic interests and not a US military presence. Nevertheless, the ambassador says that Panama, which abolished its army in 1989 after former President Manuel Noriega was deposed through a US military operation, would need international military assistance if a crisis threatened the continued operation of the Canal.

Ambassador Alfaro says the contract for the ports was given to Hutchinson-Whampoa because that company made, "by far the best offer," and that US rival in the bidding, Bechtel, "just didn't make a good enough offer." He points out that China is an important customer for the Canal, with most of the made-in-China retail goods sold on the East Coast of the United States passing through it, a much cheaper option than land or air freight.

Interestingly, Panama maintains official relations with Taiwan, making it one of the only countries to still do so, and last year Taiwan signed its first Free Trade Agreement ever with Panama. The ambassador says Panama intends to stick by its commitment to Taiwan, despite pressures from Beijing, which maintains a representative office in Panama. On the ground, a Mainland Chinese community has gained ascendancy over an older Chinese community aligned with Taiwan. There are now some 80,000 Mainland Chinese in Panama, against 50,000 with ties to Taiwan. Ambassador Alfaro stresses that Panama is "a neutral country."

Asked why Panama did not participate in the recently-concluded CAFTA (Central American Free Trade Agreement) negotiated by Washington with the other countries in the region, Ambassador Alfaro points out that Panama not only has a special relationship with the United States because of the Canal, but also has an economy significantly different from that of other Central American states, by virtue of its large services sector, which accounts for some 75 percent of GDP.

Also, different from most Latin American countries, Panama has a trade deficit with Washington. Panama imports some $1.4 billion in goods and services from the US (it's main trading partner) every year, while exporting to the US only $350 million of its own products. (By comparison, all of Latin America has a $9 billion trade surplus with the United States.) As a result, "15-20 percent of Panama's Free Trade Agreement will be different from CAFTA," Ambassador Alfaro says.

With some 2 million containers passing through its ports each year, Panama is the largest trans-shipment location in Latin America. It is currently working with the Homeland Security and Commerce departments in Washington to have all the containers headed to US ports screened and certified safe before leaving Panama, to cut delays and red tape.

The ambassador, who represented Panama in drafting the original framework for an FTA with the US in 1991, says that negotiations should last about six months before an agreement is concluded. Its negotiation and passage through Congress should be speeded by the fact that Panama is not likely to take jobs from American workers through the FTA, and Panamanians are not a growing immigrant population in America. "Panamanians all like to return home," the ambassador points out reassuringly.