Panama Nears Trade Deal with Mexico: Next Stop, Pacific Alliance

President of Panama Ricardo Martinelli is meeting today with his Mexican counterpart, Enrique Peña Nieto, to engage in negotiations for a bilateral free trade agreement (FTA). Mexico’s Foreign Affairs Secretariat informed the public that both presidents have several topics on the agenda, but they will discuss “with a special emphasis … the negotiations that will lead to an eventual signing of a free trade agreement.”

This decision will “push Panama as a key partner in Mexico’s integration with Central America,” the release said, “and will generate a trade corridor of 165 million people.”

This will be the first time that both presidents have met with this particular bilateral FTA in mind since Peña Nieto’s visit to Panama in October. This decisive meeting between the two heads of state takes place after the fifth round of negotiations ended in Panama City last Saturday. Market access, public procurement procedures, temporary visas for people traveling for business, technical trade barriers, intellectual property, and investment were some of the topics up for discussion.

Panama and Mexico are then scheduled to sign the final FTA in the first week of April, during the World Economic Forum on Latin America, which will be held in Panama.

Who Wins?

Panama has the slight edge in terms of economic outlook, with the world’s 40th most competitive economy, and the second one in Latin America and the Caribbean, according to the 2014 Global Competitiveness Index from the World Economic Forum. By comparison, Mexico ranks 55th, and fourth in the region. The Economic Commission for Latin America and the Caribbean also forecasts Panama as the nation with a higher economic growth in 2014, at 7 percent per annum versus Mexico’s 3.5 percent.

Another reason for Martinelli’s visit is to meet with several Mexican businessmen “to promote opportunities for trade and investment,” according to Mexico’s Foreign Affairs Secretariat. Mexican investment in Panama surpasses US$2 billion, which makes Mexico the fourth largest investor from Latin America and the Caribbean in the country. Panama on the other hand, is the second largest investor in Mexico from Latin America and the Caribbean, and the first one from Central America.

In the last decade, trade between both countries has increased 214 percent, going from $339 million to $1.064 million. In this period, Panama has become Mexico’s fourth largest business partner in the region.

The Pacific Alliance Beckons

However, Panama has a special gain from this trade agreement. According to Panamanian Minister for Commerce and Industry Ricardo Quijano, “with this FTA, Panama paves its way to enter the Pacific Alliance, integrated by Mexico, Peru, Chile, and Colombia.”

Having a FTA with each member country is a prerequisite before entering the trade alliance. Out of the four countries, Mexico is the only country still to sign a bilateral FTA with Panama.

However, this would not be the first time that Mexico and Panama have negotiated an FTA. In 1999 and 2003, both countries attempted to reach an agreement, but failed due to differences regarding tax matters.

Mexican Deputy Secretary for Latin America and the Caribbean Vanessa Rubio Márquez explains the reasons why this FTA would be positive for both countries. According to Rubio, aside from strengthening cooperation bonds, the FTA opens a new window of opportunity for economic growth.

“Both countries are used to the benefits from the transit of merchandise, people, and ideas. Both are now compelled to use their competitive advantages to promote greater trade and reciprocal investment, which will serve to push forward prosperity in the Mesoamerican region,” Rubio asserted.

Lorenzo Ysasi, head of the Mexican Business Council for Foreign Commerce, emphasized the importance of integrating Panama into Latin America. He also warned of complex and controversial points in the agenda that have to be addressed, such as the triangulation with Chinese merchandise that arrives through Panama’s market.

However, Luz María de la Mora, director of LMM Consulting and former head of the International Business Negotiations Unit in Mexico’s Secretariat of Economy, disagrees and believes “this won’t deter further negotiations.” Mexico has already been through 20 rounds of FTA negotiations with Singapore, she explains, through the Trans-Pacific Partnership.

The president of the Association of Bilateral Chambers of Commerce in Latin America, Alberto Salamanca Prado, assured that even though the goal of the FTA is the integration of the region, ultimately the Pacific Alliance will become a commercial bloc for Latin America to exchange goods in a competitive level with Asian economies.

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