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The Bush administration on Tuesday reached a free trade agreement with Panama, easing the way for US companies to take part in the $5.3bn expansion of the Panama Canal, the strategically-important shipping corridor.

The deal underlines the determination of the White House to push ahead with its trade agenda despite resistance in Congress, where the newly-elected Democratic majority is pressing for tougher labour standards.

The agreement follows two years of tense negotiations, but must still win support for the deal in Congress. Susan Schwab, the US trade representative, said: “We have reached this agreement with the understanding that it is subject to additional discussions on labour.”

“Before submitting the agreement to Congress, we will work with both sides of the aisle to ensure strong bipartisan support for the agreement,” she added.

The agreement followed a late-night breakthrough on access for US agricultural goods such as beef and sugar, according to a US trade official.

Panama’s agriculture minister resigned earlier this year to protest proposed concessions on US meat exports.

The agreement is largely aimed at improving the terms of trade for US producers and was delayed in 1999. The terms will allow the Canal to double its capacity, enabling more and bigger ships to cross between the Atlantic and Pacific oceans and boosting revenues for Panama’s government.

A US trade official said the agreement would also “spur reforms of Panama’s domestic legal and business environment that are important to encourage investment”.

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