Panama’s ship may be coming in

A frequent critic of NAFTA and other trade pacts when he was on the campaign trail, President Obama is now throwing his support behind a trade deal with Panama, courting a potential backlash among his labor supporters.

The administration is expected to make its case before a Senate Finance Committee hearing today in Washington, where his team is likely to face sharp questioning about Obama’s change of heart on a deal the president now apparently views as a strategic imperative.

The Panama trade deal, which Obama is pushing for approval of by July 1, is one of three bilateral accords negotiated by the Bush administration that later stalled in Congress. The others are deals with Colombia and South Korea, both of which Obama wants passed this year as well.

The Panama pact bogged down over U.S. lawmakers’ concerns about that country’s poor enforcement of labor rights and its reputation as a haven for offshore tax evasion. Last week a White House negotiating team visited the Central American nation and successfully extracted concessions from the Panamanians on those issues, according to people familiar with the talks.

Panama’s trade deal was behind that of Colombia on the Bush agenda. Obama has moved it to the forefront because the administration sees it as having the best chance at passage, creating momentum for the two others, according to the people familiar with the White House legislative strategy, who were not authorized to speak publicly.

Obama’s views on trade have evolved quickly since his inauguration, said Michael Shifter of the Inter-American Dialogue in Washington. At last month’s Summit of the Americas, the president promised to shun protectionism. He also saw that Latin American countries were forging trade ties with China, Russia and other nations seeking to gain influence in the hemisphere, Shifter said.

Obama’s turnabout also reflects his goals of rewarding strategic allies and confronting economic necessity, said Eric Farnsworth, a former Clinton administration official now with the Council of the Americas think tank in Washington.

With its canal, growing transportation infrastructure and booming U.S. tourism and trade, Panama has taken on an important profile, said one person familiar with the Obama administration’s thinking. Panama is also a staunch ally in the U.S. war on drugs, U.S. counter-narcotics officials say.

“If we alienate this country, it does matter,” said the person. “For them, the free-trade agreement is a sign of friendship.”

But the president has offended some of his strongest election backers, including the AFL-CIO and human rights groups that oppose such trade agreements on general principles. The president risks “alienating core supporters in a way that could cripple the broader agenda,” said Farnsworth, adding that “the fight in Washington has only just begun.”

On Wednesday, Sen. Carl Levin (D-Mich.) and Rep. Lloyd Doggett (D-Texas) sent a letter to Obama urging him to postpone the deal until Panama cooperates in combating international tax evasion.

“In this time of economic distress, we can no longer afford to ignore the billions of dollars of tax revenue lost to the U.S. Treasury due to the bank secrecy practices of Panama and other tax havens,” Doggett and Levin wrote.

Still, Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington, said chances were good for a trade deal with Panama.

“It’s an easy sell. Congressional Democrats who dislike free trade can stomach Panama because of its benign image. It doesn’t export much clothing and [it] is spending a lot of money on canal expansion.”

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Kraul is a special correspondent.