If a free trade agreement signed by the U.S. and Panama last year is ratified by the U.S. Congress, American suppliers would be at a cost advantage when pitching their goods and services to consortia bidding for projects on the $5.25 billion expansion of the Panama Canal.

The massive project includes, among other dredging and land-clearing projects, construction of a new set of locks that will allow the canal to handle the world’s largest ocean vessels.

The free trade pact would sharply reduce tariffs on American equipment exported to Panama, giving U.S. suppliers a significant edge in pricing, said Ilya Espino de Marotta, executive manager of resources and project control for the Panama Canal Authority.

The authority, a semi-autonomous government agency, will entertain bids by December from the four consortia selected to vie for the contract.

Negotiations on the agreement started in 2004. It took 10 rounds of exhaustive discussions before satisfying both sides, William Eaton, the U.S. ambassador to Panama, told GlobalAtlanta in a recent video interview at his residence in Panama City.

GlobalAtlanta traveled to Panama as part of a logistics delegation to learn about the impact of the Panama Canal expansion on East Coast ports, principally Savannah.

After the agreement’s signing in June 2007, it quickly passed Panama’s legislature with a 58-3 vote, showing the Panama government’s favorable disposition toward the pact.

“A lot of times free trade agreements are controversial, but Panama—as a trading nation—they love free trade and especially with the United States, their largest trading partner,” Mr. Eaton said.

Looking at numbers alone, the trade relationship doesn’t seem hugely important for the U.S.

Panama’s 3.2 million people represent a relatively small market for U.S. goods, and the $3.1 billion in goods traded bilaterally in 2006 is a tiny portion of what’s traded in the U.S. every day.

But Mr. Eaton focused less on the direct transfer of goods and more on Panama’s strategic importance as an ally and integral piece of the U.S. trade policy in the Americas.

“With the United States, our goal is to have a string of free-trading countries from Alaska down to the tip of Argentina and Chile, and Panama is obviously an important link in that chain,” he said.

Because of the U.S. trade interests associated with the canal, stability in Panama is also key.

The agreement will create jobs for Panamanians and give them the incentive to build stronger, more predictable commercial structures and institutions. Food prices will decrease, and the stability level will go up, Mr. Eaton said.

But there are tangible commercial benefits too. Mr. Eaton echoed Ms. Espino’s prediction that the agreement would increase U.S.’ companies competitiveness in bidding for contracts in the canal expansion process.

Also, without the agreement, U.S. goods face tariffs coming into Panama, while 96 percent of Panamanian goods enter the U.S. duty-free.

The pact’s ratification would immediately give 88 percent of U.S. exports to Panama duty-free status, Mr. Eaton said.

Despite appeals by President Bush and proponents like Mr. Eaton, the agreement has languished in the U.S. Congress, awaiting a vote as rhetoric in the primary presidential elections has darkened the legislative climate toward free trade.

As Democratic candidates assailed Nafta, Mr. Bush attempted to force a vote on a controversial agreement with Colombia, only to have House Democrats override his request.

South Korea recently dropped a ban on U.S. beef, eliminating a barrier that has repelled many outspoken congressional opponents of a huge free trade agreement with that country.

Given the U.S.’ long history of predominately friendly involvement in Panama, there seems to be little opposition to expanding commercial interaction between the two countries.

David Hunt, CEO of the American Chamber of Commerce and Industry of Panama, said that as a small country, Panama relies on foreign investment for much of its business, and its history with the U.S. means American products are held in very high regard.

That’s one reason passing the free trade agreement quickly is so important, said Carlos Urriola, head of the Manzanillo International Terminal, or MIT, the largest of three ports on Panama’s Atlantic coast.

“We can export there, but you cannot export this way (without tariffs). That’s why we need that agreement,” Mr. Urriola said.

Even companies that wouldn’t see direct benefits are rooting for the agreement, conceivably because it adds to the already favorable business climate between the two countries.

Martin Alvarez, general manager of Dell Computer Corp.’s Panama communications center, spent five years with the American chamber in Panama, which lobbied for the agreement in Washington before it was even drafted.

Even though Dell’s 1,500-employee Latin American support hub wouldn’t see direct business from the agreement, Mr. Alvarez believes it’s vital for the macro-level relationship.

“It’s an absolute resounding ‘yes’ that we want to make this a reality,” he said.

Even with such optimism in Panama, the future of the agreement remains in question. Mr. Bush met with Panamanian President Martin Torrijos at the White House on May 6 and reiterated his administration’s desire to pass the agreement before the end of his term.

Nicholas Kuchova, senior commercial officer for the U.S. in Panama, said the months before Mr. Bush leaves office will be a crucial time for the agreement.

“If you have a strong opinion one way or another, now would be a good time to talk to your congressman about it,” he said.

Mr. Kuchova recently moved to Panama from Savannah, where he was the director for the port city’s U.S. Commercial Service office.

As managing editor of Global Atlanta, Trevor has spent 15+ years reporting on Atlanta’s ties with the world. An avid traveler, he has undertaken trips to 30+ countries to uncover stories on the perils...