How Will The Bilateral Free Trade Agreement Between The USA and Panama Help Panamanians?
Thursday, October 13 2011 @ 01:35 PM UTC
Contributed by: Don Winner
Free Trade Is Better All Around: Right now if a Panamanian is in the Rey supermarket shopping for groceries to put food on the table, many of those US products are taxed with a stiff "import tariff" when they are imported into Panama. Obviously the supermarket simply passes the additional cost on to the consumer, so the products on the shelf are presented to the consumer at a higher end cost. Under this new bilateral Free Trade Agreement, Panama will simply eliminate many of the restrictive tariffs they have been imposing in goods coming into the country from the United States. This means lower prices for US products on the shelves (of all kinds, not just food), so your money will buy more if you're shopping in Panama.
One Example - Cars: Panama does not produce any automobiles, yet every car imported into Panama from another country where they are manufactured is hit with a stiff tariff when they arrive here. Why? The answer is simple - the government of Panama has installed an import tax system designed to raise money for the government coffers. Most of the importation taxes applied by the government of Panama are not there to protect a domestic producer, but rather to put more money into the hands of the government's general fund to build schools and roads, pay salaries, or what have you. So, under this Free Trade Agreement, the taxes placed on US manufactured automobiles will come down or be eliminated completely (don't know which it is in reality.) This is a very good thing for the United States, because now Fords and Chevys and Jeeps will cost less - without the tariff - compared to Skodas and Fiats and Hyundai.
Panama Makes It Up On Sales Taxes: Ever wonder why Panama recently jacked the sales tax from 5% to 7%? Answer - to make up for some of the lost revenue in anticipation of the eventual implementation of the Free Trade Agreement with the United States. This is a better deal for US producers, because products from other countries that don't enjoy a Free Trade Agreement with Panama are hit twice - when the product is imported and also at the checkout with the sales tax. Meanwhile, US products are only subject to the sales tax, so comparatively they are "cheaper". And of course many of the US line items covered under the Free Trade Agreement are food products, which are not subjected to the sales tax anyway.
Another Example - Corn: Have you ever eaten locally grown corn in Panama? You know, it's that crap they like to toss into the sancocho (chicken soup). This corn is of the same quality of what is used to fatten up cows and pigs in the United States - feed corn. Now, have you ever eaten fresh sweet summer corn in the United States? It's heaven - boiled, coated in butter, add salt, and enjoy. Now the United States will be able to import corn either tariff free or at reduced tariffs to the Panamanian marketplace. The bad news falls to that guy who is currently growing that crap feed corn - he probably won't be selling very much of that anymore once the US products hit the market. And that's the way it should be, because what he is producing is crap. It tastes like crap, it's too expensive, and the only reason he's still in business at all is because his little niche has been protected through the tariff system. People want corn for their sancocho but the only thing that's available on the market at a lower price is the local crap feed corn - so they use it anyway. The consumers would much rather have the higher quality US corn but it's not available, because it can't compete due to the tariffs. Now with the elimination of those tariffs the protection that had been afforded to that Panamanian (crap) corn farmer is now gone. But don't worry - he's not going to sit in the middle of his now empty field, crying, and starve to death. He will switch to some other product and grow that. For example Panama exports honeydew melons to Panama, thousands of containers full of them every year. So the former corn farmer is now a melon farmer, and he's probably making more money anyway. And, once again the real winners are the consumers in the Rey supermarket who can buy fresh sweet corn imported from the United States with no tariffs at a great price. And of course the US producers are now happier because they have a new market they can sell to.
The Brazilian TV Lesson: Many years ago when televisions first hit the market people living in Brazil started buying up television sets made in Japan by the thousands. Millions upon millions of dollars were flowing from Brazil to Japan on this trade. At the time Brazil was ruled by a military dictatorship (junta), and one day they decided to do something about it. They simply ordered Brazilian businessmen to start producing locally made televisions. They placed ever higher and increasing taxes and tariffs on Japanese televisions, in order to protect and support the locally made Brazilian televisions. I mean the tariffs got ridiculous - like thousands of dollars per television set - clearly designed to make it impossible for any normal Brazilian to buy one at that price, in order to force them into buying the locally made Brazilian sets. However - there was a problem. The Brazilian made televisions were of such poor quality that no one wanted them, at any price. The people were willing to pay four or five times what the Japanese television was really worth (price inflated due to the taxes) because it was a much better product. The Japanese television sets worked, and even at the artificially inflated prices (due to taxes) it was "worth it" to them. Eventually the Brazilian dictators learned their lesson. They gave up, lowered or removed the import tariffs on Japanese televisions, and shut down the Brazilian television factories where the crappy sets were being made. All of this took like ten years or more to unfold. There are dozens or hundreds or thousands of real life examples of similar situations that have developed around the world from the relatively recent history of international trade. Using taxes or tariffs to protect a local industry works sometimes, especially when you're trying to get something new started. However for the most part human beings (and companies) tend to specialize. And when they specialize they do things better than anyone else - due to their accumulated business wisdom, their passion for what they do, etc. If I just decided this morning to start building cellular phones, for example, how long do you think it would take before I could compete with Blackberry? Should the nation where I live suddenly apply ridiculous tariffs against Blackberry phones for the next 20 years until I can get my shit together? Of course not.
"Jobs Going Overseas" and Free Trade: Businessmen will seek and find comparative and competitive advantages for their businesses, no matter where they might be. They have to, they are forced to, because that's what their competitors are doing. The steel industry in the United States crashed thanks to the unions. It's quite simple really - it became too expensive in terms of manpower and labor to produce a ton of steel in the United States, so the businesses went to other places around the world where labor is cheaper. The labor unions are always "knee jerk" against Free Trade Agreements, using the argument that US jobs will be exported, however people who are unemployed should start by demonstrating in front of their labor union. Many times labor unions will "strike" and "fight" for higher wages, which sounds like a good thing, until the plant shuts down and the jobs go away. Communism and socialism didn't work in Russia, and it's not going to work in the United States either. Ironically China is now starting to kick some economic ass because they finally woke up (after the fall of the Berlin wall) and realized they can have their cake and eat it too. Now they loan money to the United States, they make products sold in the Walmarts of the United States, and guess what? All of those Chinese and Indian consumers are going to want our higher quality products. They become the consumers in a case of role reversal.
The Consumers Win In The End: At the end of the day the consumers win when nations lower import tariffs and embrace free trade. Normally when you see a high quality consumer item offered for sale at a relatively low or reasonable price its a direct result of free trade policies. Those union guys who scream and yell against Free Trade Agreements spend all of the money they earn at their union jobs - wait for it - shopping at Walmart. Find me one rabid union supporter (anti free trade guy) who only buys items with a "Made In The USA" label. In reality, there aren't any. Those people don't exist, so therefore they are hypocrites. Their message is "protect my job" but I also want my cheap designer towels at "Blue Light Special" prices, made in China or Malaysia. And how did Walmart put K-Mart out of business? By doing the exact same thing - only harder and cheaper. Anyway, I hope this answers your question. Free trade policies make products available to local consumers at much lower prices, even if there is no local manufacturing base to "protect" with tariffs.
Copyright 2011 by Don Winner for Panama-Guide.com. Go ahead and use whatever you like as long as you credit the source. Salud.