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U.S. Department of State
Panama Country Commercial Guide
Office of the Coordinator for Business Affairs
1996
COUNTRY COMMERCIAL GUIDE: PANAMA
Table of Contents
I. EXECUTIVE SUMMARY
- Commercial Overview
- Business Trends and Opportunities
- Trade and Investment Climate
II. ECONOMICS TRENDS AND OUTLOOK
- Major Trends and Outlook
- Principal Growth Sectors
- Government Role in the Economy
- Balance of Payments Situation
- Infrastructure Situation
III. POLITICAL ENVIRONMENT
- Nature of Political Environment with the United States
- Major Political Issues Affecting Business Climate
- Brief Synopsis of Political System, Schedule for
Elections, and Orientation of Major Political Parties
IV. MARKETING U.S. PRODUCTS AND SERVICES
- Distribution and Sales Channels
- Use of Agents and Distributors; Finding a Partner
- Franchising
- Direct Marketing
- Joint Venture/Licensing
- Steps to Establishing an Office
- Selling Factors/Techniques
- Advertising and Trade Promotion
- Pricing Product
- Sales Service/Customer Support
- Selling to the Government
- Protecting Your Product from IPR Infringement
- Need for a Local Attorney
V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT
- Best Prospects for Non-Agricultural Goods and Services
- Best Prospects for Agricultural Products
- Significant Investment Opportunities
VI. TRADE REGULATIONS AND STANDARDS
- Trade Barriers, Including Tariffs, Non-Tariff Barriers
and Import Taxes
- Customs Valuation
- Import Licenses
- Export Controls
- Import/Export Documentation
- Temporary Entry
- Labeling, Marking Requirements
- Prohibited Imports
- Standards (E.G. ISO 9000 Usage)
- Free Trade Zones/Warehouses
- Special Import Provisions
- Membership in Free Trade Arrangements
VII. Investment Climate
- Openness to Foreign Investment
- Conversion and Transfer Policies
- Expropriation and Compensation
- Dispute Settlement
- Political Violence (As it may affect Investment)
- Performance Requirements/Incentives
- Right to Private Ownership and Establishment
- Protection of Property Rights
- Regulatory System: Laws and Procedures
- Bilateral Investment Agreements
- Opic and Other Investment Insurance Programs
- Labor
- Foreign Trade Zones/Free Ports
- Capital Outflow Policy
- Major Foreign Investors
VIII. TRADE AND PROJECT FINANCING
- Brief Description of Banking System
- Foreign Exchange Controls Affecting Trading
- General Financing Availability
- How to Finance Exports/Methods of Payment
- Types of Available Export Financing and Insurance
- Project Financing Available, Including Lending from
Multilateral Institutions and Types of Projects
Supported
- List of Banks with Correspondent U.S. Banking
Arrangements
IX. BUSINESS TRAVEL
- Business Customs
- Travel Advisory and Visas
- Holidays
- Business Infrastructure
X. APPENDICES
- Appendix A: Country Data Population Population Growth
Rate (Percent)
Religion(s) Government System
Language(s)
Work Week
- Appendix B: Domestic Economy
GDP
GDP Growth Rate 1996 Estimate (Percent)
GDP Per Capita
Government Spending as a Percent of GDP
Inflation
Unemployment (Percent)
Foreign Exchange Reserves
Average Exchange Rate for USD 1.00
Debt Service Ratio
U.S. Economic Military/Economic Assistance
- Appendix C: Trade
Total Country Exports
Total Country Imports
U.S. Exports
U.S. Imports
- Appendix D: Investments Statistics
- Appendix E: U.S. and Country Contacts
U.S. Embassy Trade Related Contacts
AMCHAM and/or Bilateral Business Councils
Country Market Research Firms
Country Commercial Banks
- Appendix F: Market Research
- Appendix G: Trade Event Schedule
This Country Commercial Guide (CCG) Presents a comprehensive
look at Panama's commercial environment through economic,
political and market analyses.
The CCGs were established by recommendation of the Trade
Promotion Coordinating Committee (TPCC), a multi-agency task
force, to consolidate various reporting documents prepared
for the U.S. business community. Country Commercial Guides
are prepared annually at U.S. Embassies through the combined
efforts of several U.S. government agencies.
I. EXECUTIVE SUMMARY
COMMERCIAL OVERVIEW
Panama has always been a country of traders. In the 1600s,
the Atlantic city of Portobelo was Spain's major port and a
marketplace for gold, silver, and other goods being
transported from the Americas. The Transisthmian Railroad,
built by American investors in the 1850s, established Panama
as the principal location to transport goods between the
Atlantic and the Pacific Oceans. The inauguration of the
Panama Canal in 1914 ensured Panama's position as a major
trading nation for the twentieth century. Since 1948, when
the first free zone of the Americas was opened in the
Atlantic city of Colon, Panamanian businesses have continued
supplying larger markets north and south with just about
everything from toys and fragrances to advanced electronics
and major appliances.
Given Panama's central geographic location in the Western
Hemisphere, its government and business community actively
promote this country's long-standing reputation as an
international trading, banking, and services center, and as
a site for Foreign Direct Investment (FDI). Panamanian
business people and officials can point to Panama's dollar-
based economy as offering low inflation and zero foreign
exchange risk.
Due to the evolution and composition of Panama's economy,
the extent and nature of local competition is very limited
in most of the non-service sectors. Although the United
States is Panama's most important trade partner and U.S.
products have a high degree of acceptance in Panama,
competition from third countries is particularly strong in
certain sectors such as: telecommunications equipment,
automobiles, heavy construction equipment, consumer
electronics, computers, apparel, gifts and novelty products.
Panama's merchandise imports grew in 1994 by 10 percent
over 1993 to a total of US$ 2,404 million, up somewhat
from the growth rate of 7.6 percent registered in 1993. The
value of Panama's total merchandise exports in 1994 climbed
5 percent over 1993 to a total of US$ 533 million.
Increased export earnings from meat, fishmeal, shrimp and
sugar accounted for 58 percent of the increased exports.
Banana exports fell by US$ 6.3 million (4.5 percent) to US$
199.5 million. Bananas accounted for 35 percent of total
merchandise exports.
Panama's economy is based primarily on a well-developed
services sector that accounts for 70 percent of GDP.
Services include the Panama Canal, offshore and domestic
banking, the Colon Free Zone, insurance, government, and the
transisthmian oil pipeline. Manufacturing, mining,
utilities, and construction together account for 19 percent
of GDP. Manufacturing is principally geared to production
of items such as processed foods, clothing, chemical
products, and construction materials for the domestic
market. Agriculture, forestry and fisheries make up the
remaining 11 percent of GDP.
BUSINESS TRENDS AND OPPORTUNITIES
Business practices and attitudes in Panama are similar to
those in the U.S. American television and radio programs,
and U.S. magazines are all available and popular in Panama.
Panamanians frequently travel to the U.S. for vacation,
study, and business. Their buying patterns and tastes are
similar to ours.
U.S. products and services are well accepted and remain
competitive in the local market. Panama has the highest per
capita GDP in Central America. The majority of income is
skewed to a relatively small, consumer goods-oriented,
economically powerful class. Their upper-middle and upper-
class families have high levels of disposable income. They
are interested in purchasing high quality, trend-setting
goods; price is less of a factor in purchasing an item for
this class than for the middle-to-lower income classes.
The availability of the U.S. dollar as legal currency and
somewhat lower import duties have helped U.S. products
remain price competitive in recent years. Other foreign
imports, however, are slicing a greater market share of the
pie because of their increasingly higher quality at
competitive prices. Growth prospects for U.S. goods and
services for the next three years correlate directly with
continued growth of the Panamanian economy, which recently
has shown signs of weakening.
The Panamanian economy has potential for substantial growth
in the areas of: electric power generation, health care
services, mining exploration and operations, port
construction and operation, land development, road
construction and rehabilitation, telecommunications and
tourism.
TRADE AND INVESTMENT CLIMATE
Panama has no restrictions on the outflow of capital or
outward direct investment. The Government of Panama (GOP),
has demonstrated its commitment to trade liberalization
since taking office in 1994. President Ernesto Perez
Balladares has pressed for trade liberalization in the
National Assembly and has advanced negotiations for Panama
to join the General Agreement on Tariffs and Trade
(GATT/WTO). The current government's economic reform
program, begun by the previous administration in 1990 after
agreement with the International Financial Institutions, has
faced legal obstacles. Attempts to eliminate import permits
and reference prices were challenged in the Supreme Court.
Efforts currently underway to reform Panama's antiquated,
pro-union Labor Code have provoked controversy. The Perez
Balladares government has pressed forward with reforms but
continues to face formidable opposition from some
industrial, agricultural, and labor organizations. The GOP
has supported its GATT/WTO negotiations by submitting draft
legislation to lower tariffs, remove non-tariff barriers to
imports, reduce producer subsidies, prohibit anti-
competitive and monopoly practices, and strengthen
intellectual property protection. The passage in June,
1995, of the "Universalization of Tax Incentive Bill" was an
important step forward in Panama's progress towards GATT/WTO
membership.
Government regulation and occasional intervention in the
Panamanian economy have tended to reduce transparency,
hinder competition and hamper the efficient allocation of
investment. The government's economic liberalization
program has been designed to reduce these distortions and
increase competition and competitiveness, but has fallen
short in some areas.
Modification of Panama's Labor Code, one of the most pro-
organized labor regimes in the world, is currently (as of
July 1995) the subject of a vigorous dialogue between labor
representatives and the Perez Balladares government , which
is pressing for a more business-friendly labor code. The
combination of relatively high costs for both utilities and
labor makes unit production costs higher than average for
the region. Also, investors complain of burdensome and
excessive registration and licensing requirements, although
the Government of Panama is trying, via the "one-stop
shopping" concept, to make its regulations more investor-
friendly for those producing for export.
Country Commercial Guides are available on the National
Trade Data Bank on CD-Rom or through the Internet. Please
contact STAT-USA at 1-800-STAT-USA for more information. To
locate Country Commercial Guides via the internet, please
use the following world wide web address: WWW.STAT-USA.GOV.
CCGs can also be ordered in hard copy or on diskette from
the National Technical Information Service (NTIS) at 1-800-
553-NTIS (6847).
II. ECONOMIC TRENDS AND OUTLOOK
MAJOR TRENDS AND OUTLOOK
The Perez Balladares government is attempting to implement
key economic policy reforms to liberalize the trade regime,
privatize state-owned enterprises, and foster job-creation
through labor code reforms. Despite this, the rate of
economic growth is declining, due in part to hemispheric-
wide impact of the Mexican peso crisis.
During 1994, Panama's rate of growth followed a downward
trend from the high rates of 1990-92. The Panamanian
Comptroller-General's office estimates Panama's 1994 Gross
Domestic Product (GDP) grew 4.7 percent in real terms, to an
estimated nominal level of US$ 6.96 billion. This is down
from growth of 5.4 percent in 1993, 8.6 percent in 1992, and
9.6 percent in 1991 when the economy was rebounding from the
Noriega crisis. The construction sector (6.5 percent
growth), the Colon Free Zone (CFZ) (10.6 percent growth),
and financial services (6 percent growth) continued to fuel
the economy. In the first half of 1995, the rate of growth
has continued decelerating, with construction starts off
significantly and CFZ re-exports showing no growth for the
first 4 months of the year. Real GDP growth of 2.3 percent
is projected for 1995 and 2.4 percent in 1996. These growth
rates, while substantially less than GDP growth in 1990-
1994, are in line with Panama's trend-growth rate of 2.5 to
3.0 percent in real terms. Panama needs a real growth rate
of 5.0 to address the country's chronic unemployment problem
adequately.
Private construction and capital goods spending will
continue to be keys to growth in the near-term. Decisive
policy reforms to change the balance of incentives in the
economy and lay the foundation for sustainable long term
growth through 1996 and beyond are expected to continue to
be the central theme of the Perez Balladares administration.
Many of the needed reforms could take shape in the context
of Panama's accession to the GATT/WTO, which has been the
subject of active negotiations with the U.S. and other GATT
members since April 1994. The Government of Panama hopes it
will be able to become a full GATT/WTO member as early as
the end of 1995. One major piece of legislation designed to
remove barriers to Panama's GATT/WTO accession, as well as
reorder the balance of incentives in the economy was passed
by the Legislative Assembly in June 1995. The bill,
awkwardly titled the "Universalization of Fiscal Incentives
to Production," removes some of the market fixing mechanisms
that Panama's protected, monopolistic industry used to
exclude foreign competition. The bill also reforms the tax
subsidy and incentives regimes, granting any producer,
regardless of size, the same tax breaks on imports of inputs
and capital goods. It creates tax breaks for investments in
high technology fields and for investment in infrastructure
improvements and training of the workforce.
In addition to the GoP's need to reform its economy, two
other huge challenges face the Perez Balladares
administration during its five year term: utilizing
efficiently the 70,000 acres of land and roughly 4800
buildings which will be reverting to Panama from the U.S.
military during the 1995-1999 period; and laying the
groundwork to assume full control of the Panama Canal in the
twenty-first century.
PRINCIPAL GROWTH SECTORS
Panama's economy is based primarily on a well-developed
services sector that accounts for 70 percent of GDP.
Services include the Panama Canal, banking, insurance,
government, the Colon Free Zone, and the transisthmian oil
pipeline. Manufacturing, mining, utilities, and
construction together account for 19.5 percent of GDP.
Manufacturing is principally geared to production of items
such as processed foods, clothing, chemical products, and
construction materials for the domestic market.
Agriculture, forestry and fisheries account for the
remaining 10.5 percent of GDP. Principal primary products
include bananas, shrimp, sugar, coffee, meat, dairy
products, tropical fruits, rice, corn, and beans. The
sectors of the Panamanian economy with the greatest
potential for substantial growth are mining, tourism and
maritime services.
The Primary Sector
Agriculture, livestock, forestry, fisheries and mining grew
3.9 percent in 1994. Agricultural production declined 1.1
percent; value added in banana production increased 6.0
percent. A fall in Honduran banana production favored
Panamanian bananas. Despite this increase, prospects for
growth remain bleak as import restriction enacted by the
European Union have diminished exports to that traditional
Panamanian market and flooded other markets with cheap
produce. Bananas remain Panama's primary agricultural
product and merchandise export, accounting for 45 percent of
agricultural value-added. Exports of non-traditional
products, especially melons, have increased substantially in
percentage terms, and continue to show significant potential
for growth. Production is, however, on a small scale and
suffers from lack of significant capital investment.
Panama's mining sector has the potential for substantial
growth, too. Panama has large copper reserves and boasts
two of the largest undeveloped copper deposits in the world.
Other minerals with commercial potential are gold, silver,
and manganese. During 1995 an abandoned gold mine in the
Veraguas province was returned to service using new leaching
technology. Mining investments in Panama are aided by a
favorable mining law, drafted in 1988, which encourages
participation by foreign investors.
Manufacturing and Construction
Geared largely for domestic consumption, manufacturing
activity is concentrated in the production of food products,
beverages, construction materials, clothing, consumer
products, and intermediate goods. Panama's manufacturing
industry, which has been protected by decades of high
tariffs and fiscal incentives, is not competitive in the
international marketplace. Production of food products and
beverages accounted for 70 percent of 1994 value added in
manufacturing. Overall manufacturing output increased by
4.5 percent in 1994, paced by continuing demand for
construction materials. Construction activity grew 6.5
percent in 1994, down from 32 percent in 1993 and 56 percent
growth in 1992. The rate of growth of new construction
permits issued in the Panama City area in the first quarter
of 1995 was substantially down from 1994, but continues to
show some growth. Continuing demand for construction
materials will stimulate manufacturing output, especially of
cement, steel rebar, concrete block, and related products.
Banking and Finance
Panama's international banking center consists of 108 banks,
of which 62 are general license banks, 30 are international
license (offshore) banks, and 16 are representative offices.
Two of the general license banks -- the National Bank of
Panama and the National Savings Bank -- are government-
owned. U.S. banks with a presence in Panama include
Citibank, Chase Manhattan, and First National Bank of
Boston. Total banking center deposits increased by US$ 4.8
billion (22.4 percent) to US$ 26 billion in December 1994
from December 1993; external deposits increased by US$
3.5 billion, internal deposits by US$ 1.2 billion. Total
assets expanded by US$ 6.7 billion (25.8 percent) to US$
32.8 billion; external loans increased by US$ 2.4 billion
(24 percent) and domestic lending expanded by US$ 616
million (10 percent). Lending to the private sector
increased by US$ 697 million. The largest increases in
private sector lending went to finance commerce (US$ 308
million), consumer spending (US$ 108 million) and housing
(US$ 151 million). Total assets of Panama's offshore banks
increased by US$ 1.57 billion (33 percent) as both deposits
and loan portfolios increased. In the first three months of
1995, total assets of the banking center increased by an
additional US$ 208 million.
Panama Canal
Panama Canal business rose in calendar year 1994 compared to
1993. Oceangoing transits increased 2.6 percent to 12,671
or 34.7 vessels daily, and Panama Canal net tonnage, on
which tolls are assessed, jumped 7.9 percent. Toll revenue
rose 3.1 percent to US$ 425. During the first five months
of 1995, oceangoing transits increased 11 percent and toll
revenue was up by 12.1 percent relative to the same period
of 1994, reflecting economic recovery in Japan and Europe
and strong demand for U.S. grain in Asia. The outlook for
1995 is for continued strong growth with more moderate
growth (1-3 percent) in both tonnage and toll revenue
projected for 1996. Work on expanding the canal's capacity
by widening the Gaillard cut to two lanes continues.
Oil Pipeline
Panama's transisthmian oil pipeline (PTP-Petroterminales de
Panama, S.A.) is a joint U.S. - Panama venture. Forty
percent is owned by the Government of Panama while 60% is
owned by two U.S. companies (Chicago Bridge and Northville
Terminals). Pipeline revenues declined 8.7 percent in 1994
after declining 46 percent in 1993; its contribution to real
GDP fell to 0.7 percent in 1994 from 3.0 percent in 1990.
Declining revenues from declining usage of the pipeline
reflect a decrease in Alaskan oil production, an increase in
consumption of Alaskan oil in California and some
competition from U.S. pipelines. The outlook for 1995 and
beyond is for further decline as the U.S. Congress recently
rescinded the ban on the export of Alaskan crude, allowing
exports to Japan and the far east. At present PTP is
operating at only 10 percent of capacity. PTP is devising a
survival strategy based on diversification into other
activities. In June 1995, PTP signed a contract with the
Government of Panama allowing it to expand the pipeline's
terminal ports at Chiriqui Grande on the Caribbean and
Puerto Armuelles on the Pacific into general cargo ports.
PTP has had some success in obtaining spot contracts to pump
Ecuadoran crude across the isthmus for export to the U.S.
Gulf coast. PTP also uses its installed generating capacity
to sell electricity to IRHE, the Panamanian electricity
utility.
Colon Free Trade Zone
Established in 1948, at the Atlantic entrance to the Panama
Canal, the Colon Free Zone (CFZ) is the largest of its kind
in Latin America and rivals Hong Kong in overall activity.
Laundering of cocaine profits, drug trafficking and piracy
of intellectual property are major problems in the CFZ.
Total imports to the CFZ reached US$ 5.0 billion in 1994, an
increase of 11.5 percent over 1993; total re-exports
climbed 11.8 percent to US$ 5.7 billion, up from US$
5.11 billion in 1993. CFZ trade continued to grow during
the first three months of 1995, though political wrangling
over a tax increase brought a downturn in re-exports during
April. Despite this one month downturn, CFZ trade will
likely continue to show solid growth during 1995 as it has
already made many of the adjustments necessary to deal with
market liberalization in Latin America. U.S. exports to the
Colon Free Zone totaled approximately US$ 370 million in
1994. CFZ data for the first four months of 1995 show
imports of US$ 1.65 billion and re-exports of US$ 1.83
billion, an increase of 15.9 percent over imports during the
same period of 1994 and no increase in exports over the same
period of 1994. Net CFZ contributions to the Panamanian
economy (re-exports less imports) increased to US$ 686.5
million in 1994 from US$ 611 million in 1993 (net CFZ
shipments reflect movements in exchange rates and
inventories as well as market conditions). The CFZ's
contribution to real GDP increased to 9.2 percent in 1994
from 8.6 percent in 1993. It's contribution to GDP is
expected to remain stable in 1995.
Commerce and Tourism
Commerce and tourism, which include restaurants, hotels, and
wholesale and retail activities, grew 3.4 percent in 1994.
Increases in personal consumption were reflected in brisk
sales by retail businesses, which were up 5.2 percent.
Income from tourist expenditures rose 6.8 percent to US$ 240
million, although the number of tourists dropped slightly to
325,000. The tourism industry in Panama has substantial
growth potential; however, a lack of investment in
infrastructure and poor marketing have hampered its
development. In 1994, the National Assembly passed a law
granting incentives (primarily tax exemptions and long
leaseholds) to new investment in tourism.
GOVERNMENT ROLE IN THE ECONOMY
From 1968 until 1989, Panama was governed by a military
regime which implemented a statist plan of economic
development. The government nationalized various private
enterprises, including among others, utilities companies,
sugar mills and cement companies. Price controls on many
goods existed, and are still applied to several staple
products considered part of a basic "market basket." The
level of state involvement, however, was generally less
pervasive than that in many countries that pursued a
statist, import substitution model of economic development.
In 1990, under the Endara government, Panama embarked on a
policy reform program to liberalize trade and modernize
government operations. Political opposition from entrenched
special interest groups, however, diluted the substance of
reforms. In 1992, the government re-negotiated its debt
with the International Financial Institutions and bilateral
creditors. In 1994 a deal was struck to reschedule US$ 400
million in senior bonds and floating rate notes.
The Perez Balladares government took office in September,
1994, with an even more ambitious program of reforms,
including GATT/WTO accession, renegotiation of Panama's US$
3.5 billion foreign commercial bank debt and labor code
reform. The government pushed a bill through the
Legislative Assembly in late 1994 which is the first step
towards partial privatization of the state-owned
telecommunications company, INTEL. Other legislation
partially revoked the government-owned electricity utility's
monopoly on electricity generation for commercial resale.
Legislation to modify the balance of incentives in the
economy through reform of the tax code and the trade regime
was passed in June 1995. The government's ruling Democratic
Revolutionary Party (PRD), true to its roots in the Torrijos
era, however, retains a slightly statist orientation. Add
to that a slowing economy and it is unlikely that dramatic
progress towards privatization of INTEL or of the state-
owned electric utility (IRHE) or water company (IDAAN) will
occur in the next eighteen months.
The use of the U.S. dollar as Panama's currency means that
fiscal policy is the government's principal macroeconomic
policy instrument. Because Panama does not issue its own
currency, government spending and investment are strictly
bound by tax and non-tax revenues (including Panama Canal
receipts) and the government's ability to borrow. The
government's ability to use fiscal policy as a tool has been
further constrained by declining resources. Lending from
the International Financial Institutions (IFIs) has been
slow, as Panama tries to meet the loan programs' policy
reform conditionality.
The general state budget (including various public
enterprises) for 1995 totals US$ 4.44 billion (63.8 percent
of projected 1995 GDP), US$ 1.86 billion of which is
allocated to the central government, and US$ 2.57 billion to
various decentralized agencies (i.e. the port authority,
INTEL, IRHE, IDAAN, and the national mortgage bank). The
central government projects current (tax and non-tax)
revenues of US$ 1.5 billion in 1995, up 5.9 percent from
actual 1994 current revenues of just over US$ 1.4 billion.
Capital revenues are projected at US$ 361.1 million for
1995, including US$ 287.3 million in income from credit.
Although the Government of Panama received US$ 50 million in
bilateral credits from the Government of Japan in June 1995,
Panama must meet conditionality to obtain disbursement of
the remaining US$ 235 million in credits from the
International Financial Institutions.
Given the prospect of continued decline in oil pipeline
earnings and the U.S. military withdrawal from now until
1999, Panama is under pressure to implement structural
adjustment measures that will both strengthen exports of
non-factor services based on its comparative advantage --
such as international transportation (ports) and related
services (ship supplies and tourism) -- and encourage
efficient substitution of high value-added industrial and/or
commercial activity to replace foreign exchange earnings
from the departing U.S. military. The government has
implemented such measures slowly thus far, however, and
exports of goods and non-factor services exports are
expected to grow less than 5 percent in 1994.
BALANCE OF PAYMENTS
Panama's goods and non-factor services export earnings have
traditionally been among the largest in the world relative
to GDP (35-40 percent). This is because the country
profited from its geographical location and dollar-based
economy to develop a strong services sector. Net non-factor
services surpluses have traditionally financed large
merchandise trade deficits. In 1994, a net non-factor
services surplus of about US$ 1.17 billion partially offset
a US$ 1.67 billion merchandise trade deficit.
Services: After the crisis years of 1988-1989, growth of
non-factor services exports was strong. In 1994, growth of
non-factor services exports slowed a bit, increasing only by
US$ 80.5 million (3.4 percent) to US$ 2.42 billion: Canal
toll earnings increased 3.1 percent, net Colon Free Zone
shipments rose 10 percent; U.S. Department of Defense (DOD)
expenditures in Panama (for the purchases of local goods and
services) remained unchanged at US$ 143 million; and,
earnings from tourism grew 6.8 percent to US$ 243 million.
By contrast, oil pipeline earnings declined 8.7 percent and
net external interest earnings by the banking sector
declined slightly to US$ 179.8 million.
Merchandise: Panama's merchandise imports grew in 1994 by
11.3 percent over 1993 to a total of US$ 2,202 million, up
from a yearly growth rate of 7.6 percent registered in 1993.
The value of Panama's total merchandise exports in 1994
climbed 4.9 percent over 1993 to a total of US$ 531.9
million. Increased export earnings from bananas, fishmeal,
shrimp and sugar accounted for most of the increase.
Bananas accounted for 38.7 percent of total merchandise
exports.
Debt: Panama is current on interest and principal payments
due to the International Monetary Fund (IMF), World Bank,
Inter-American Development Bank, and International Fund for
Agricultural Development. It cleared US$ 645.8 million in
arrears with these institutions during February/March 1992.
Panama also remains current on interest and principal
payments to U.S. Government creditor agencies and is current
in its obligations to its foreign bondholders, after a May
1994 bond-swap agreement. In May 1995, Panama announced a
Brady-style Agreement-in-Principle to reschedule the roughly
US$ 3.5 billion it owes to foreign commercial creditors.
The deal is expected to close by March 1996. Panama
budgeted US$ 644.9 million to service internal and external
debt in its 1994 budget.
Panama's current account has accrued small positive balances
in each of the last three years. In 1994, income from
official transfers (credit from the International Financial
Institutions and bilateral creditors) offset a deficit of
US$ 73 million in merchandise, services and investment
income, resulting in a net positive position of US$ 55.7
million.
INFRASTRUCTURE SITUATION
In comparison to many lesser developed countries, Panama has
a quite well-developed infrastructure. Goods and services
are able to move with relative ease, electrical power
generation is sufficient to meet current demand and port
facilities, while aging and somewhat inefficient, are able
to cope with current usage. However, Panama is in need of
significant public sector investment in new roads, sewer and
water treatment systems and more education and health
facilities. It has been estimated that the cost of cleaning
up the Bay of Panama alone will exceed one billion dollars.
Presently, semi-treated sewage flows directly into the bay
at one of its most picturesque points, damaging prospects
for tourism development. The basic services of Panama City
and Colon and the country's major highways (the Pan-American
and the Trans-Isthmian) as well as its biggest bridge
(across the Panama Canal) were built either directly by the
U.S. or with substantial financial assistance from it. The
Perez Balladares administration's emphasis on private
development appears to be bearing some fruit in the areas of
port construction and highway development.
III. POLITICAL ENVIRONMENT
NATURE OF POLITICAL ENVIRONMENT WITH THE UNITED STATES
The U.S.-Panamanian relationship dates to 1903, when a
bilateral treaty gave the U.S. the right to build and
unilaterally control the transisthmian canal that was
completed in 1914. That relationship was altered by mutual
agreement in the 1977 Panama Canal Treaties, signed by
President Jimmy Carter and General Omar Torrijos, which
stipulate that Canal administration will pass to Panamanian
control and that all U.S. troops will withdraw from Panama
by December 31, 1999. The current U.S.-Panamanian
relationship is cooperative and businesslike as both
partners work to prepare for the U.S. withdrawal and the
Panamanian takeover of the Canal and U.S. base properties.
Managing the Treaty implementation process is one of the
prime challenges of the administration of President Perez
Balladares.
President Perez Balladares is a U.S.-trained businessman.
Foreign Minister Gabriel Lewis Galindo is a former Canal
Treaties negotiator who spent years in exile in the U.S.
during the Noriega era. Both understand the U.S. political
system, speak fluent English, and have easy access to the
highest levels of the U.S. government.
Immediately upon taking office in September 1994, the
Balladares government agreed to a U.S. request to allow the
temporary lodging of up to ten thousand Cuban migrants (then
overcrowding U.S. facilities at Guantanamo Bay in Cuba) on
U.S. defense sites in Panama. Over 8,500 Cuban boat people
were given safehaven in Panama between September 1994 and
March 1995. At OAS President Gaviria's request, Perez
Balladares agreed to offer asylum to Haitian military
leaders in October 1994 in order to help pave the way for
the return of Haiti's democratic government.
MAJOR POLITICAL ISSUES AFFECTING BUSINESS CLIMATE
During the years leading up to the transfer of the Canal and
the bases, the government of Panama faces two interrelated
problems: attracting foreign investment, and managing the
vast properties that Panama will receive as the U.S.
withdraws.
In 1993 the Endara government established the semi-
autonomous Inter-Oceanic Regional Authority (ARI) to manage
the reversion process. Perez Balladares, who had criticized
the ARI for ineffectiveness and inefficiency, pushed through
legislation in early 1995 that provided for presidential
oversight of the Board's more important personnel and policy
decisions. He approved the board's selection of former
Panamanian President Nicolas Ardito Barletta as day-to-day
administrator of the ARI. Barletta took office in June
1995. Expressing dismay over the government's lack of
preparations for reversion and concern for the security and
maintenance of the properties the U.S. was preparing to
transfer to Panama, Barletta asked for some delays in
reversions to give the government more time to decide how
best to protect and to promote the properties. ARI has
hired Nathan Associates to prepare a "Master Plan" for use
of the properties.
BRIEF SYNOPOSIS OF POLITICAL SYSTEM, SCHEDULE FOR ELECTIONS,
AND ORIENTATION OF MAJOR POLITICAL PARTIES
An independent nation since 1903, Panama is a representative
democracy with three branches of government: executive and
legislative branches elected by direct secret vote for
5-year terms, and an independent, executive-appointed
judiciary. The U.S. military intervention of December 1989
brought the legitimately-elected government to power and
ousted narco-dictator General Manuel Noriega's military
regime. This move ushered in a period of democracy-building
and national recovery that culminated in May 1994 with the
first free and fair national elections in almost three
decades. Panama abolished its military by constitutional
amendment in late 1994. Its democratic institutions are
continuing to develop to meet the social and economic needs
of Panama's 2.5 million ethnically diverse citizens.
Ernesto "Toro" Perez Balladares was sworn in as president on
September 1, 1994. Stressing "national concilliation" after
the election, President Perez Balladares gave about a third
of his cabinet posts to figures from outside the ruling
Democratic Revolutionary Party (PRD).
The president has broad powers under Panama's constitution,
but must work with a 72-member unicameral legislative
assembly in which his party, the PRD, and its political
allies have a bare majority. Although the assembly lacks
strong budgetary authority, it does play a crucial role in
shaping political, economic, and social initiatives; Perez
Balladares is wooing shifting constellations of the dozen-
plus parties represented in the assembly to build consensus
for important legislative projects.
"Toro's" PRD, the political arm of former dictators Generals
Omar Torrijos and Manuel Noriega, has a chequered history.
On the one hand, the party in the 1970s championed the cause
of the poor in a rigid and static society, empowering an
otherwise disadvantaged lower class. On the other hand, the
party's misuses of its governmental privileges during the
1970s and 1980s, coupled with its disregard of human rights
and its penchant for official corruption, have generated
widespread concerns about its commitment to democracy and
good governance. Perez Balladares promised during the
elections that the PRD had reformed following Operation Just
Cause and would adhere to democratic and fair business
practices.
During the first year of the Perez Balladares
administration, the opposition parties in the assembly have
been subdued and quiescent. Demoralized by defeat in the
election, and politically fragmented, the opposition has not
managed to organize a united front against Perez Balladares'
more disciplined and united PRD. The opposition will
probably not become a more important political force until
roused by the 1999 national election campaign.
IV. MARKETING U.S. PRODUCTS AND SERVICES
DISTRIBUTION AND SALES CHANNELS
Business practices in Panama are very similar to those in
the U.S. i.e., business tends to be direct and
straightforward. On average, Panama City accounts for 65% of
total national sales of consumer goods, the remaining 35% is
distributed among the principal cities of David, Santiago,
Chitre and Colon.
Generally, the marketing channel structure in Panama is
simple. Direct importers act as wholesalers and in some
cases also as retailers. This situation is common in the
case of apparel, automotive parts and hardware products. In
the case of consumer goods and food and medicines, the
retail operation is separate from the wholesale operation.
In the industrial goods sector, sales are normally handled
by local exclusive agents or distributors. In other cases,
local firms order directly from U.S. brokers or the
manufacturer.
Some of Panama's major importers are also regional
distributors located in the Colon Free Zone (CFZ).
Generally, CFZ importers/distributors have affiliated stores
in Panama City for retail sale to the local market.
USE OF AGENTS/DISTRIBUTORS; FINDING A PARTNER
According to Panama's constitution, nationals and foreigners
are equal under the law. Both Panamanian and foreign
companies must fulfill the same basic requirements to
organize and operate most types of business activities in
Panama. However, there are restrictions on foreigners
operating retail trade activities and practicing certain
professions.
Agents and distributors in Panama are regulated only by the
private agreements made between the parties involved. In
cases of contract termination or disputes, the private
contract clauses prevail over any other document or
practice.
Individuals may engage in business activities in their own
names or through legal entities. The most commonly adopted
form of legal entity is the corporation (sociedad anonima).
Other types of legal entities commonly used in Panama are:
general partnerships, simple limited partnerships, joint
stock partnerships and limited liability companies.
FRANCHISING
Panama is receptive to U.S. style franchising. The market
for both specific and general franchising opportunities is
attractive, since Panama maintains no control on royalty
payments or transfers. Under the Panamanian Constitution,
however, retail outlets, can only be owned by Panamanian
citizens. Recreation, entertainment services, automotive,
as well as hotel and motel franchising operators will find a
fertile market as the local market demands better facilities
and services. The U.S. Embassy recommends consulting a
local attorney for details on how to set up a franchise in
Panama.
DIRECT MARKETING
Key factors for market success in Panama are: high quality,
customer service, brand-name recognition and attractive
packaging. Panama is a country of 2.5 million. U.S.
products targeting along the middle to upper-middle income
markets compete well, since these Panamanians have a
penchant for high quality U.S. products.
Those with high disposable income follow sophisticated U.S.
and European consumption patterns. Most high-end U.S. and
foreign brand names are represented in Panama. An
aggressive marketing strategy improves the level of success
in meeting the needs of a trend-conscious market.
JOINT VENTURES/ LICENSING
Joint ventures are not common in Panama. Joint ventures are
formed for a specific period of time, such as for a specific
construction or technology transfer contract/concession,
rather than a long-term business venture. The profits from
joint ventures are to be distributed annually to each joint
venture partner, and are taxed in the same manner as any
other income.
Panamanian law does not regulate the registration of license
agreements. Nevertheless, common practice is to accept
license agreements over registered trademarks. The
agreements must be attached to the registered trademark and
filed with the Industrial Property Department in the
Ministry of Commerce and Industry. The agreements become
part of the file on said trademark.
Panama offers a unique condition for licensing, distribution
arrangements and joint ventures as well as routine buy/sell
operations. The CFZ offers the U.S. exporter looking for a
share of the region's market a convenient one-stop
distribution center covering the entire region. The
problems of money laundering, intellectual property piracy
and drug trafficking in the CFZ, however, are such that U.S.
companies must be wary.
STEPS TO ESTABLISHING AN OFFICE
Panama has one of the most modern and flexible corporate
laws in Latin America. The following are some of the
advantages offered to Panamanian "Bearer Share"
Corporations:
1. Two or more persons of any nationality, even though not
domiciled in Panama, may organize a corporation for any
lawful purpose. The articles of incorporation may be
executed anywhere, even outside of Panama, and in any
language.
2. There are no requirements regarding the amount paid in
capital.
3. Ownership of a Panamanian corporation may reside in a
single individual or corporation and no part of the capital
needs to be held by a Panamanian.
4. There are no nationality or residence requirements for
shareholders.
5. Neither the directors nor the officers are required to
be shareholders.
6. The Board of Directors must be composed of at least
three directors, but one person may hold more than one
position.
7. Meetings of shareholders or directors may be held
outside of Panama. Proxies may be used by
shareholders/directors.
In order to form a corporation in Panama, the client must
furnish the following information:
1. The name of the corporation. It may be in any language,
but it must terminate in a word or abbreviation indicating
that it is a corporation.
2. The objectives and purpose of the corporation.
3. The amount of the authorized capital. Usually the
authorized capital will consist of US$ 10,000 divided into
100 shares of US$ 100 each.
4. The types of shares, may be nominative or bearer share.
5. Duration of the corporation, usually perpetual.
6. The full names and addresses of three or more directors
and/or officers.
7. The domicile of the corporation.
The time period usually involved in setting up a corporation
is from one to two months. Attorney fees range from US$
600 to US$ 1,500.
In order to engage in commercial or industrial activities,
all corporations, partnerships or individuals must obtain
proper authorization from the Ministry of Commerce and
Industry. There are three basic types of licenses involved:
A) Commercial License Class A is required for wholesale
operations, commercial and mortgage banks, financial
companies, international financial brokers, insurance and
reinsurance companies, international transportation
companies, mutual funds, public utilities, and high-
technology service companies.
B) Commercial License Class B is required for retail
businesses; including representation agencies, service
companies, bars, restaurants, drugstores, real estate
agents, gas stations, local transportation, distributors and
others. This license is only granted to Panamanians or
corporations owned solely by Panamanians.
C) An Industrial License is required for extractive and
manufacturing industries, as well as construction companies.
(Refer to Appendix E for the contact at the Ministry of
Commerce and Industry).
Exemptions for business license requirements are granted to
persons or legal entities engaged exclusively in
agriculture, cattle, bee, or poultry raising, or in the
manufacturing and sale of handicrafts, provided that the
work is not performed by hired workers. Licenses must be
kept at all times in a visible and accessible place. The
cost for obtaining a license ranges from US$ 250 to US$ 750.
Also, an annual tax is levied based on the net worth of the
company, as stated in the income tax return.
SELLING FACTORS/TECHNIQUES
Panama has the highest per capita income in Central America.
The majority of income is skewed to a small, consumer goods
oriented economic class. These upper-middle and upper-class
families have high levels of disposable income. They are
interested in purchasing high quality, trend-setting goods;
price plays less of a factor in purchasing an item for this
class than for the middle to lower income classes. The
majority of Panamanians remain interested in quality but
price plays a more important role in the purchase decision.
The use of the U.S. dollar as legal currency and consumer
preference for high quality products at a good price are two
reasons for high acceptance of U.S. products in Panama.
Overall, U.S. products compete well in the market and are
considered of good quality. However, in many instances, in
order to maintain their market share, U.S. products must
compete against often lower priced products especially from
the Far East. For example, as in the U.S. itself, Japanese
and Korean electronics dominate that market because of
aggressive market entry techniques and good quality at
competitive prices.
ADVERTISING AND TRADE PROMOTION
Television and newspaper advertising are the promotion tools
of choice for the majority of distributors of U.S. products.
Panama has a very competitive advertising market, with
standard prices and very good production quality.
Additionally, trade show and exhibitions have proven to be
effective tools for trade promotion. Special sale prices
are usually advertised in newspapers during weekends.
Most foreign manufacturers of consumer products also keep a
high profile presence in the country through large
billboards, sponsored sports events and T.V. advertising.
Radio advertising is mainly utilized outside of Metropolitan
Panama City.
Major Newspapers:
El Panama America
Advertising Chief - Margaret de Ucar
P.O. Box B-4
Panama 9A, Republic of Panama
Tel: (507) 230-1666
Fax: (507) 230-1033
Daily Circulation: is 22,000
Format: standard
Advertising prices: US$ 7.00 per columnar inch, each page
has 126 columnar inches.
La Estrella de Panama
Advertising Manager - Angie de Ochy
P.O. Box Q
Panama 4, Republic of Panama
Tel: (507) 227-0555
Fax: (507) 227-0723
Daily Circulation: 21,200
Format: standard
Advertising prices: US$ 8.00 per columnar inch, each page
has 126 columnar inches.
La Prensa
Advertising Manager - Adela Mendoza
P.O. Box 6-4586, El Dorado
Panama, Republic of Panama
Tel: (507) 221-7222
Fax: (507) 221-7328
Daily Circulation: 38,000
Format: standard
Advertising prices: US$ 11.00 per columnar inch, each page
has 126 columnar inches.
Major advertising agencies are associated with international
advertising firms. (Refer to Appendix E for contact
information on advertising agencies).
PRICING PRODUCT
The price structure for import goods in Panama depends on
the level of competition for a product. The costs of
transportation and import duties vary from item to item. In
general, prices for consumer products and food are higher
than world average because of protectionism and
cartelization of the local market. For the sake of
illustration, however, the sample below offers average costs
added to the product as it reaches the consumer. The
percentages average 20% for import duties and 20% each for
wholesale and retail markups.
Average Pricing Schedule
$ Price
CIF Panama $100.00
Import Duty 20.00
Total Landed Cost $120.00
Wholesale Price 150.00
Retail Price $187.50
Note: A 5% value added tax over CIF value is assessed at the
time of customs liquidation. Since this tax is placed on
all goods, domestic and imported, and is passed through to
the consumer, it is not included in this calculation.
SALES SERVICE/CUSTOMER SUPPORT
Competition among distributors is reflected in the training,
counseling and support they can provide to their customers.
U.S. companies should focus on providing U.S.-level training
and technical assistance to their distributors and making
sure they have the resources to provide after-sales support,
including spare parts, service equipment, etc.
SELLING TO THE GOVERNMENT
Panama does not have a Central Procurement Office such as
the U.S. General Services Administration (GSA). All
purchases of goods and services of any significant value are
by law advertised as a public bid. Any company wishing to
participate in public bids (amounting to US$ 1 million and
above, in the case of infrastructure projects and US$
500,000 and above, in goods and services) must be registered
with the Ministry of Treasury. This Ministry, by law, keeps
a register of prequalified companies that are potential
suppliers to the Government. Lack of transparency,
excessive delays and bureaucracy in the bid selection
process have caused problems for U.S. and other bidders in
important government bids in the past. It is important that
your firm register. (Refer to Appendix E for contact
information on the Ministry of Treasury - Registry of
Prequalified firms).
PROTECTING YOUR PRODUCT FROM IPR INFRINGEMENT
Panama is a member of the World Intellectual Property
Organization (WIPO), the Geneva Phonograms Convention, the
Brussels Satellite Convention, and the Universal Copyright
Convention. Although Panama is not a member of the Bern
Convention for the Protection of Literary and Artistic
Works, the Government of Panama has submitted to its
National Assembly legislation for Panama to accede to the
Paris Convention for the Protection of Industrial Property.
(Refer to Section VII: Protection of Property Rights, for
more information).
NEED FOR A LOCAL ATTORNEY
The law requires that every corporation organized pursuant
to the laws of Panama have a resident agent within Panama,
who must be an attorney. The annual fee for this service is
about US$ 200. It is estimated that over 400,000
corporations are registered in Panama.
Legal fees for professional services in connection with the
organization of a corporation normally range from US$ 600 to
US$ 1,500.
Registering a national trademark, patent or a sanitary
registration application requires a power of attorney. A
copy of the list of attorneys can be obtained in the
National Trade Data Bank (NTDB) with the domestic and
foreign offices of the U.S. Department of Commerce or from
the U.S. Consulate in Panama City. (Refer to Appedix E for
Washington-Based USG Contacts).
V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT
BEST PROSPECT FOR NON-AGRICULTURAL GOODS AND SERVICES
Rank of Sector: 1
Name of Sector: Electrical Power Systems
ITA Industry Code: ELP
1994 1995 1996
(US$ millions, unless otherwise noted)
Total Market Size 70.0 80.0 92.0
Total Local Production 0.0 0.0 0.0
Total Exports 0.0 0.0 0.0
Total Imports 70.0 80.0 92.0
Imports from the U.S. 17.5 19.2 26.8
Exchange Rate 1 U.S. Dollar = 1 Balboa (Fixed Rate)
(The above statistics are unofficial estimates.)
Comments: In early 1995, the Government of Panama passed
legislation allowing the private sector to generate
electricity for commercial purposes. Private firms will be
allowed to generate electricity for commercial resale to
IRHE, the state electrical utility, or to third parties.
This situation opens opportunities for U.S. electric power
system exporters. Panama has a relatively high electricity
rate (62 percent), compared with the rest of Central America
(average of 51.4 percent). Panama's production costs are
also the highest in the region (11.12 cents per kwh) as
compared with the average in the region of 9.19 cents.
Panama has an installed base of 892 MW, of which 550.5 MW is
hydro electric and 341.7 MW is thermo electric. Although
Panama is not currently facing electrical energy shortages,
the demand is growing at an estimated rate of 40 MW per year
and IRHE is not in the position to make the required
investment to meet it. IRHE recently announced a bid to
purchase energy from a 100 MW plant to be constructed and
operated by the private sector. Additionally, IRHE is
negotiating with the International Development Bank (IDB)
the construction of a 120 MW hydro electric plant (Esti
project). Main companies competing in the local market come
from the USA, Japan, Italy, England and Germany.
Rank of Sector: 2
Name of Sector: Computers and Peripherals
ITA Industry Code: CPT
1994 1995 1996
(US$ millions, unless otherwise noted)
Total Market Size 35.0 40.0 46.0
Total Local Production 0.0 0.0 0.0
Total Exports 0.0 0.0 0.0
Total Imports 35.0 40.0 46.0
Imports from the U.S. 21.0 24.0 28.0
Exchange Rate 1 U.S. Dollar = 1 Balboa (Fixed Rate)
(The above statistics are unofficial estimates.)
Comments: A number of factors support the positive outlook
for the computers and peripherals sector in Panama: (1),
even though the economy has slowed in 1995 the demand for
office automation remains high among the principal growth
sectors of the economy; (2), import duties for computers
(average of 7 percent over C.I.F. value) are relatively low;
(3), there remains an easy access to computer suppliers
locally and abroad, particularly in Miami; (4), there exists
a growing computer culture, as a result of the high number
of Panamanian graduates from U.S. schools, and the local
availability of computer magazines, journals and other
literature from the U.S. Computer products from the U.S.
enjoy a high receptivity and are perceived as incorporating
state-of-the-art technology. The U.S. keeps a strong
position in this market with a market share above 60
percent. Prices for U.S. computers are competitive against
competing products from Japan, Korea and Taiwan. Sub-
sectors with highest growth potential are: personal
computers, mid-range computers and non-impact printers.
Most promising end-users are banks, commercial
establishments, universities and government organizations.
Rank of Sector: 3
Name of Sector: Medical Equipment
ITA Industry Code: MED
1994 1995 1996
(US$ millions, unless otherwise noted)
Total Market Size 18.0 20.7 23.2
Total Local Production 0.0 0.0 0.0
Total Exports 0.0 0.0 0.0
Total Imports 18.0 20.7 23.2
Imports from the U.S. 13.5 15.5 17.6
Exchange Rate 1 U.S. Dollar = 1 Balboa (Fixed Rate)
(The above statistics are unofficial estimates.)
Comments: The medical equipment market will grow at an
estimated average rate of 12 percent during the next 2-3
years. This growth is supported by the current
government's commitment to upgrade the quality of services
offered by the public health system. In 1995, the
government's Social Security System began building 8 new
clinics and hospitals valued at US$ 27 million. The
Ministry of Health is building a 300-bed, US$ 25 million new
hospital in metropolitan Panama City. The Interamerican
Development Bank (IDB) is financing a US$ 52.8 million
health care reform program. In addition, the private sector
is making substantial investments in new clinics and
hospitals both in Panama City and elsewhere in the country.
U.S. medical equipment products have a high receptivity
score and are represented by the best qualified distributors
in the country. A great number of Panamanian doctors have
been trained in the U.S. and have exposure to U.S. medical
equipment and technology. There are no restrictions to
importing medical equipment in Panama. Import duties are
in the range of 15 - 27.5 percent over C.I.F. value. Main
competitors come from Italy, France and Germany. Most
promising sub-sectors are: disposable products, imaging
equipment and diagnostic equipment.
Rank of Sector: 4
Name of Sector: Computer Software
ITA Industry Code: CSF
1994 1995 1996
(US$ millions, unless otherwise noted)
Total Market Size 12.0 14.5 19.0
Total Local Production 1.5 1.8 3.0
Total Exports 0.0 0.0 0.0
Total Imports 10.5 12.7 16.0
Imports from the U.S. 9.8 11.9 15.8
Exchange Rate 1 U.S. Dollar = 1 Balboa (Fixed Rate)
(The above statistics are unofficial estimates.)
Comments: The market outlook for computer software improved
significantly with the passage in early 1995 of a copyright
bill that covers computer software products. Software
piracy by individuals and corporations has been the biggest
problem faced by the computer software industry. The new
bill provides the legal framework for fighting piracy
practices at all levels, although as of July 1995, the new
law had not been implemented. Many corporations have
suspended the practice of copying software, and computer
hardware distributors are refraining from giving away free
software to their clients. Best opportunities are for
software productivity tools, i.e. data base software,
oriented to the mid range/mainframe environment. This type
of software has traditionally represented over 80 percent of
the market. Another important market here is for personal
computers. Office automation software, including word
processing, spreadsheet, graphics and data base and
telecommunication applications will be in high demand for
the PC-oriented market. Another emerging market is the
multimedia market, including games, educational and other CD
Rom-based applications. U.S. software publishers are well-
known in Panama. Some software companies from Chile,
Venezuela and Costa Rica have targeted Panama for the
introduction of some spanish-language products, mainly
business applications, e.g., payroll, accounts
payable/receivable, etc. There are no restrictions for
importing/marketing foreign software into Panama.
Rank of Sector: 5
Name of Sector: Automotive Parts and Service Equipment
ITA Industry Code: APS
1994 1995 1996
(US$ millions, unless otherwise noted)
Total Market Size 43.0 47.0 52.0
Total Local Production 0.0 0.0 0.0
Total Exports 0.0 0.0 0.0
Total Imports 43.0 47.0 52.0
Imports from the U.S. 13.0 14.2 16.1
Exchange Rate 1 U.S. Dollar = 1 Balboa (Fixed Rate)
(The above statistics are unofficial estimates.)
Comments: The market for new automobiles has boomed since
1990. This situation creates a derived demand for
automotive parts and service equipment. The car population
in Panama is estimated at 260,000 units. Approximately
8,000 new cars will be sold in 1995. U.S. cars sales have
shown a constant growth during recent years, as Japanese
products become less competitive because of the Japanese yen
appreciation against the U.S. dollar. As the market for new
cars appears to be reaching saturation levels, market
prospects for automotive parts and service equipment will
increase proportionally to the decline in new car sales.
Car owners will be paying more attention to maintaining and
servicing their cars. U.S. participation in the automotive
parts and service equipment is relatively low (a market
share of 30-35 percent). Main competitors are Japan, Korea
and Taiwan. However, the U.S. market position will improve
as the demand for U.S. cars increases. Demand will remain
strong for those U.S.-made car parts and accessories which
fit Japanese models. Import duties for automotive parts
range between 10-15 percent over C.I.F. value. There are no
import restrictions for importing and marketing these
products. Sub-sectors offering best market opportunities
are: servicing equipment, tubes and tires, and engine parts.
Rank of Sector: 6
Name of Sector: Management Consulting Services
ITA Industry Code: MCS
1994 1995 1996
(US$ millions, unless otherwise noted)
Total Market Size 13.0 15.5 18.2
Total Local Production 3.0 3.5 4.2
Total Exports 0.0 0.0 0.0
Total Imports 10.0 12.0 14.0
Imports from the U.S. 8.0 9.7 11.6
Exchange Rate 1 U.S. Dollar = 1 Balboa (Fixed Rate)
(The above statistics are unofficial estimates.)
Comments: Three factors provide favorable conditions for
the development of the management consulting services market
in Panama. First, under the 1977 Panama Canal Treaties,
there are vast amounts of land and other infrastructure
resources reverting to Panama which are currently occupied
by U.S. military facilities or are former Canal Zone
property. Panama will need to implement a number of
projects to make an efficient use of these resources. The
World bank, the UNDP and the Inter-American Development Bank
have expressed interest in financing specific projects in
these areas. Second, the Government of Panama is committed
to increasing the quality and efficiency of public utility
services, including telecommunications, water resources,
energy generation, etc. Much help will be needed to
modernize/privatize the government organizations providing
these services. Finally, as Panama accedes to the World
Trade Organization, Panamanian companies will have to
participate in a more competitive environment. This
situation will create the need for consulting services aimed
at increasing their competitiveness and efficiency levels.
The above factors will generate market opportunities for
U.S. consulting companies in the following areas: land
development, environment, marketing, tourism development,
privatization, energy generation, etc.
Rank of Sector: 7
Name of Sector: Telecommunications Equipment
ITA Industry Code: TEL
1994 1995 1996
(US$ millions, unless otherwise noted)
Total Market Size 37.0 44.4 58.0
Total Local Production 0.0 0.0 0.0
Total Exports 0.0 0.0 0.0
Total Imports 7.0 44.4 58.0
Imports from the U.S. 6.2 8.0 14.5
Exchange Rate 1 U.S. Dollar = 1 Balboa (Fixed Rate)
(The above statistics are unofficial estimates.)
Comments: The telecommunications sector in Panama is
undergoing a radical change. The government national
telecommunications company (INTEL) was converted into a
corporation and 49 of its shares is scheduled to be offered
to a private company, which will administer and operate
INTEL S.A. The other 49 percent will be retained in the
hands of the Government of Panama (GOP). The remaining 2
percent will be placed in trust for INTEL's employees. The
question of effective majority control remains unresolved.
Furthermore, the GOP is committed to offering the cellular
telecommunications systems in two bands, A and B. Band A
will be wholly operated by the private sector under a
government concession, and B will be operated under a joint
venture arrangement between INTEL and a private company.
All of these changes will open the doors to modernization
and eventual competition in this sector. This situation
will represent increased market opportunities for U.S.
exporters. There are approximately 323,000 telephone lines
in the country and a line penetration rate of 10.9 per 100
inhabitants. INTEL is in the process of upgrading its
transmission lines to fiber optics. There is also an
ongoing process to fully digitalize and increase the
switching network. The private sector demand for PABX
systems, radio trunk systems and paging systems has been
constantly growing, as well as satellite-based IBS/teleport
telecommunications facilities. Main competitors in the
market place are from Japan, Sweden France and Canada.
Rank of Sector: 8
Name of Sector: Hotel and Restaurant Equipment
ITA Industry Code: HTL
1994 1995 1996
(US$ millions, unless otherwise noted)
Total Market Size 8.0 9.9 11.3
Total Local Production 0.0 0.0 0.0
Total Exports 0.0 0.0 0.0
Total Imports 8.0 9.9 11.3
Imports from the U.S. 4.0 4.8 6.0
Exchange Rate 1 U.S. Dollar = 1 Balboa (Fixed Rate)
(The above statistics are unofficial estimates.)
Comments: The market outlook for hotel and restaurant
equipment in Panama has improved as a result of a tourism
incentive law, passed in 1994. It allows for a number of
fiscal and other incentives to those companies investing in
tourism-oriented facilities such as hotels, restaurants,
tourist resorts, etc. The GOP is interested in attracting
new foreign and domestic investment. There are currently 3
major hotels under construction in Panama and 4 more are
planned in other parts of the country. The Panamanian
Tourism Institute (IPAT) is considering a number of
applications for new projects that will benefit from the new
law. Additionally, the current land reversions of primarily
U.S. military facilities to Panamanian hands, should
generate further tourism projects for Panama. The hotel
and restaurant equipment market is very competitive. The
U.S. maintains a strong leadership position. Main
competitors in the kitchen equipment market are from France,
Italy, Spain and Brazil. In other product lines, such as
refrigeration and air conditioning equipment, competitors
come from Japan and Korea. Best prospects in this sector
are: kitchen equipment, decoration equipment, e.g.,
draperies, furniture, air conditioning equipment, and
elevators. No import restrictions exist for these products
and import duties are in the range of 10-25 percent over
C.I.F value.
Rank of Sector: 9
Name of Sector: Franchising
ITA Industry Code: FRA
1994 1995 1996
(US$ millions, unless otherwise noted)
Total Market Size (1) 70.0 77.0 85.0
Total Local Production 5.0 6.0 7.0
Total Exports 0.0 0.0 0.0
Total Imports (2) 65.0 71.0 78.0
Imports from the U.S. (3) 65.0 70.0 75.0
Exchange Rate 1 U.S. Dollar = 1 Balboa (Fixed Rate)
(1) total sales generated by franchises
(2) sales by local franchises
(3) sales by U.S. franchises
(The above statistics are unofficial estimates.)
Comments: Panama has a number of special conditions which
favor further development of the franchise market. The
U.S. dollar is legal tender in Panama. Therefore, there are
no exchange restrictions and royalties and fees can be
freely remitted. There is a high U.S. cultural affinity in
Panama, as a result of the U.S. construction and operation
of the Panama Canal, and the presence of U.S. military
bases. Panama has one of the highest per capita income in
the region, and a well-established, well-trained and well-
educated middle class. These factors create an excellent
environment for the development of the franchise market.
Except for the Constitutional ban on foreign ownership of
retail outlets, there are no major restrictions to the
establishment of franchises in Panama. The franchiser-
franchisee relationship is entirely regulated by their
private contract, with no government intervention. U.S.
franchises enjoy a high receptivity and have a clear
leadership in the market, especially in the fast food and
car rental areas. There are a few Colombian, Canadian and
Central American franchises that are exploring the
Panamanian fast food market, especially in the pizza, yogurt
and fried chicken sub-sectors. Best prospects for new
franchises are: Hotels and campgrounds; sports & recreation;
retail: shoes & clothing; food: ice cream & yogurt;
restaurant and quick service; and photo framing & art.
Rank of Sector: 10
Name of Sector: Financial Services
ITA Industry Code: FNS
1994 1995 1996
(US$ millions, unless otherwise noted)
Total Market Size (1) 32,800 39,000 46,000
Total Local Production (2) 7,000 8,000 10,000
Total Exports 0 0 0
Total Imports (3) 25,000 31,000 36,000
Imports from the U.S. (4) 1,300 1,500 2,000
Exchange Rate 1 U.S. Dollar = 1 Balboa (Fixed Rate)
(1) total assets of the bank system
(2) total assets of local banks
(3) total assets of foreign banks
(4) total assets of U.S. banks.
(The above statistics are unofficial estimates.)
Comments: Panama is an international banking center. There
are 109 banks operating in Panama. Of these banks, 61 have
general licenses, i.e. provide a full range of banking
services. A total of 29 banks have international license,
i.e. deal only with overseas operations. The remaining 19
banks have only representational offices. The majority of
banks are foreign; about 10 banks are Panamanian. In 1994,
the banking system granted credits amounting to US$ 6.5
billion in the Republic of Panama. There is a deficit of
250,000 housing units in the country and the Government is
committed to reducing this deficit. This sector will
represent excellent financing opportunities for local and
foreign banks. Investment banking is another promising area
as large local companies are increasingly looking at non-
traditional financing sources such as corporate bond issues.
Banks usually act as issuing agents. The Panamanian stock
market, founded in 1990, is another area of growth within
the financial services market. In 1991 stock market
transactions were US$ 30.6 million; in 1994 the figure rose
to US$ 290.2 million, of which 85% were debt instruments.
There is an ongoing project, financed by the Inter-American
Development Bank, to unify all the stock exchanges in
Central America. This may enhance market opportunities in
this area. Panama is considered a haven for financial
operations; government intervention is minimal.
BEST PROSPECTS FOR AGRICULTURAL PRODUCTS
Name of Sector: Agricultural Consumer Oriented Products
PS/D: HVP
1994 1995 1996
(US$ millions, unless otherwise noted)
Total Market Size 161.7 170.3 179.2
Total Local Production 1/ 329.7 347.1 365.4
Total Exports 285.0 300.0 315.9
Total Imports 117.0 123.2 129.7
Total Imports from U.S. 51.9 54.6 57.5
Exchange Rate 1 U.S. Dollar = 1 Balboa (Fixed Rate)
1/ Includes production for exports.
Comments: U.S. exports of agricultural consumer-oriented
products reached a record US$ 51.9 million in 1994. Major
products exported include: processed fruit and vegetables
(US$ 9.2 million), wine and beer (US$ 8.4 million), snack
foods (US$ 6.3 million), fresh fruits (US$ 4.3 million),
breakfast cereals (US$ 3.2 million) and fruit and vegetable
juices (US$ 3.8 million). Main competitors are: Guatemala,
Costa Rica, Chile, Denmark, Ecuador.
Best prospect sub-sectors (est. 1996 market size): Breakfast
cereals (US$ 10.0 million). Fresh fruits (US$ 9.5 million).
Canned sardines (US$ 7.0 million).
Name of Sector: Bulk Agricultural Products
PS/D: G&F
1994 1995 1996
(US$ millions, unless otherwise noted)
Total Market Size 120.0 130.8 142.6
Total Local Production 71.0 77.4 84.4
Total Exports 1/ 2.0 2.2 2.4
Total Imports 51.0 55.6 60.6
Total Imports from U.S. 34.7 37.8 41.2
Exchange Rate 1 U.S. Dollar = 1 Balboa (Fixed Rate)
1/ Includes domestic tobacco exports which reached US$ 1.3
million in 1994.
Comments: U.S. exports of bulk agricultural products totaled
US$ 34.7 million in 1994. Major bulk commodities were:
wheat (US$ 18.0 million) and yellow corn (US$ 13.8 million).
Main competitors come from: Germany, Belgium, Denmark,
France.
Best prospect sub-sectors (est. 1996 market size): Wheat
(US$ 20.0 million). Yellow corn (US$ 15.6 million). Malt
(US$ 5.5 million).
Name of Sector: Intermediate Agricultural Products
PS/D: O&P
1994 1995 1996
(US$ millions, unless otherwise noted)
Total Market Size 105.0 110.3 115.7
Total Local Production 1/ 80.5 84.6 88.7
Total Exports 28.5 29.9 31.4
Total Imports 53.0 55.6 58.4
Total Imports from U.S. 39.0 41.0 43.0
Exchange Rate 1 U.S. Dollar = 1 Balboa (Fixed Rate)
1/ Total includes domestic sugar exports which reached US$
17.1 million in 1994.
Comments: U.S. exports of intermediate agricultural
products reached a record high of US$ 39.0 million in 1994.
Major products exported were: soybean meal (US$ 14.7
million, record high), corn gluten (US$ 3.8 million) and
corn oil (US$ 1.5 million). Main competitor is Argentina.
Best prospects sub-sector (est. 1996 market size): Soybean
meal (US$ 15.5 million). Soybean oil (US$ 15.0 million).
Corn gluten (US$ 4.2 million).
SOURCES
Non-Agricultural Goods and Services
- Computer and Peripherals: AT&T, Grupo Informatica
- Automotive Parts and Services: Grupo Ford
- Medical Equipment: La Casa del Medico
- Telecommunication Equipment: INTEL, S.A.
- Financial Services: Asociacion Bancaria de Panama
- Franchising: Franquicias Panameņas
- Consulting Services: USAID, Consultores Financieros
- Electric Power Systems: IRHE
- Hotel & Restaurant Equipment: Diversiones Panama
- Computer Software: ADR Software
Agricultural Products
- Ministry of Agricultural Development
SIGNIFICANT INVESTMENT OPPORTUNITIES
The following areas offer excellent investment opportunities
for U.S. companies.
Electric Power Generation
In February, 1995, the GOP passed legislation that allows
IRHE, the government electric utility to purchase energy
from private suppliers. IRHE recently announced plans to
purchase electric energy from a 100 M.W. plant to be
constructed and operated by a private company. Companies
investing in a power plant can also sell energy to other
Panamanian companies. The Inter-American Development Bank
(IDB), is studying the possibility of financing a 120 M.W.
hydroelectric plant to be constructed and operated by IRHE
in the province of Chiriqui, although some observers believe
the project will not be cost effective. Panama's demand for
electricity grows by 40 Megawatts per year. Since IRHE does
not have the investment capability to meet it, a growing
participation of the private sector, particularly foreign
investors, is necessary. (For more information refer to
Appendix E for the contact at IRHE.)
Health Care Services
The Inter-American Development Bank (IDB) is co-financing a
US $52.8 million program aimed at: improving the operating
efficiency of health care institutions; improving the health
of the general population; and, advancing the reform of the
service sector.
The program includes the construction of 16 health care
centers. A number of studies will also be conducted, and
substantial amounts of medical equipment will be acquired.
(For more information refer to Appendix E for the contact at
the Ministry of Health and the Panama office of the Inter-
American Development Bank.)
Mining Exploration and Operation
Panama has vast amounts of minerals resources, located in
the central provinces of the country. There is significant
potential for gold, silver, copper, zinc, lead and,
molybdenum exploitation. No government restrictions exist
for foreign companies to participate in mining explorations
and operations, except for the requirement that 90% of all
employees be Panamanians. A few mining companies from
Canada have made sizable investments in the mining sector.
The two largest are Adrian Resources Corp., and Greenstone
Resources, Inc. These two companies have invested over US$
100 million in mining explorations during the last three
years. Several mining sites have easy access by road. For
information on mining investment opportunities, contact the
Ministerio de Comercio e Industrias, Direccion de Recursos
Minerales. (For more information refer to Appendix E for
the contacts at the Ministry of Commerce and Industry,
Minerals Division and the Mining Chamber of Panama.)
Port Construction/Operation/Privatization
The GOP is interested in increasing the efficiency of its
port system. In achieving this purpose, the National Port
Authority (APN), is promoting the construction of new ports
and privatizing some operations of the country's major
ports. A new container port, the Manzanillo International
Terminal, began operations last year, on the Atlantic side,
under a joint venture arrangement between Stevedoring
Services of America of Seattle, WA, and Motores
Internacionales, a Panamanian distributor of Russian-made
cars and trucks. Half of this project financing comes form
the World Bank's International Finance Corporation. The
Taiwanese company, Evergreen, is negotiating with the GOP
the construction of a second container port on the Atlantic
side. Petroterminal de Panama, a joint venture between the
GOP and Northville Industries of New York, NY., is planning
to construct a new port facility in Chiriqui Grande on the
Atlantic side. APN announced recently that many port
operations will be privatized in the Atlantic Port of
Cristobal, Panama's most important port, and in the Pacific
port of Balboa. (For more information refer to Appendix E
for the contact at the National Port Authority.)
Reverted Areas
As a result of the Panama Canal Treaties of 1977, the
United States is in the process of transferring to Panama
70,000 acres of lands, more than 4,000 buildings, numerous
bridges, and other infrastructures located in the former
Canal Zone and the U.S. military bases. The reversion
process concludes in the year 2000. Panama is committed to
incorporating these resources to enhance the country's
economic and social development. A number of projects will
have to be developed in these areas in the very near future.
The Inter-American Development Bank is co-financing a US
$9.2 million study that will define the plans for the
efficient use these resources. The GOP chartered the
Interoceanic Regional Authority (ARI), to administer the
reverted resources and to create a development strategy.
Projects to be considered include manufacturing, assembly,
tourism, warehousing, education, scientific research, energy
generation, etc. (For more information refer to Appendix E
for the contact at the Interoceanic Regional Authority.)
Road Construction and Rehabilitation
In 1994, the Government of Panama, in conjunction with the
Inter-American Development Bank and the World Bank, began a
US $420 million, five-year, road construction and
rehabilitation program, to be completed in 1997. The
program includes road construction in rural areas,
rehabilitation of major existing roads, bridge construction
and maintenance, urban road maintenance and over pass
construction.
Additionally, the GOP is seeking to expand the road network
in metropolitan Panama City via administrative concessions.
Under this scheme, private companies would make the
necessary investment to construct and operate a road. They
would be permitted to recuperate the investment through a
toll system. A US $300 million (Corredor Norte and highway
Panama-Colon) road project has been awarded to the Mexican
company PYCSA. Another US $150 million project (Corredor
Sur) is in process of being awarded.
(For more information refer to Appendix E for the contact at
the Ministry of Public Works.)
Telecommunications
Panama is restructuring its telecommunications sector in
order to make it more efficient and competitive.
Significant investment opportunities will open as the
modernization process is developed.
The government telecommunications company (INTEL) has been
converted into a corporation and 49 percent of its shares
will be sold to the private sector. Another 49 percent will
be retained by the GOP. The remaining 2 percent will be
kept in a trust fund for INTEL employees. The company
acquiring the 49 percent of INTEL will also become the
operator of INTEL S.A. How it would operate while owning
less than 50% of the stock remains to be worked out.
INTEL S.A. will operate a cellular telecommunications system
in band B, in association with a private company. A
parallel cellular service will be offered to a private
sector company in band A. INTEL is currently engaged in
expanding its switching network. The digitalization of the
system and the implementation of fiber optics are two
important ongoing projects. (For more information refer to
Appendix E for the contact at INTEL S.A.)
NOTE: The Government of the United States acknowledges the
contribution that outward foreign direct investment makes to
the U.S. economy. U.S. foreign direct investment is
increasingly viewed as a complement or even a necessary
component of trade. For example, roughly 60 percent of U.S.
exports are sold by American firms that have operations
abroad. Recognizing the benefits that U.S. outward
investments brings to the U.S. economy, the government of
the United States undertakes initiatives such as Overseas
Private Investment Corporation (OPIC) programs, Investment
Treaty Negotiations and Business Facilitation Programs, that
support U.S. Investors.
VI. TRADE REGULATIONS AND STANDARDS
TRADE BARRIERS (TARIFFS, NON-TARIFF BARRIERS AND IMPORT
TAXES)
Traditional policies on trade and economic incentives
directed agricultural and manufacturing production toward
import-substitution until the end of the 1980's. Today,
Panama's nominal tariff duties remain the highest in the
region. Panama averages 40% in tariff rates, whereas, its
Central American neighbors average 20%.
The country has made some progress in lowering its duties
and restrictions. From 1991 to 1994 the Government of
Panama enacted a trade liberalization program, with the
following objectives:
- To reduce the ceiling on import tariffs to 40 percent for
industrial products and to 50 percent for agro-industrial
products.
- To eliminate all specific import tariff rates.
- To eliminate quantitative import restrictions for
agricultural products and replace them with tariff
protection.
The Government met the majority of these objectives.
However, there are still some products subject to tariffs
outside these limits such as processed tomato products, beer
and cigarettes. Other products, such as textiles and shoes,
continue to have specific import duties. Various other
agricultural products remain subject to quantitative
restrictions e.g., dairy products and certain grains.
Panama is currently negotiating its accession to the World
Trade Organization (WTO). Tariff duties are expected to
decline and most of the non-tariff barriers will be
eliminated.
CUSTOMS VALUATION
Panama assesses most import duties on an ad valorem basis,
except for a number of products that are still using a dual
ad valorem and specific system. the Government is,
however, still in the process of eliminating this dual
system. The ad valorem system uses the declared C.I.F.
value as the basis for import duty calculations and utilizes
historical price information as a reference. This method
has been criticized by major private business organizations
in the country.
In addition to the import duty, all imports into Panama are
subject to a 5 percent transfer or value added tax (ITBM)
levied on the C.I.F. value, plus import duty and other
handling charges. Pharmaceutical, food products and school
supplies are exempt from ITBM tax.
Panama has recently changed its international trade
classification system from the Customs Cooperation Council
Nomenclature (CCCN) and Brussels Tariff Nomenclature (BTN)
to the Harmonized System (HS). Also, entry into the WTO
will improve the present situation to provide a customs
valuation system that conforms to international standards.
IMPORT LICENSES
No import licenses are required in Panama to engage in
import activities. Any company holding a commercial license
can freely import goods into Panama. A commercial or
industrial license is issued to individuals or companies
engaged in commercial or industrial activities.
EXPORT CONTROLS
The Fiscal Code regulates all matters concerning the
country's exports. The Code establishes that all national
products may be exported, except:
- drugs, with the exception of those having pharmaceutical
or scientific purposes.
- staple products determined by the Government on a
temporary basis due to scarcity in the country; and,
- those products the GOP determines not for export for
reasons of convenience or in the economic interest of the
country.
Exports subject to the payment of export taxes require an
Export Authorization, which is issued by the National
Customs Directorate, Ministry of the Treasury. (See
Appendix E for contact information.) Exports subject to
taxes are: bananas, metals, raw sugar, natural resources and
foreign currencies. Exports of textiles are also subject to
an export authorization.
IMPORT\EXPORT DOCUMENTATION
Import Documentation
The processing of customs documents in Panama for the
purpose of importing raw materials or finished goods is
fast, efficient and reliable. Merchandise imported into
Panama must be cleared through customs by a customs broker
licensed by the Government of Panama. Exceptions are made
for goods which are imported duty free, consigned to
national and municipal governments, imported by foreign
diplomats, for sales to the authorities of the Canal Area,
sold to vessels transiting the Canal, or intended for
reexportation.
Basic import documentation required by the Panamanian
Customs office is:
- Import Declaration (Prepared and signed by a Customs
Broker),
- Commercial Invoice (To be presented in English or Spanish
in quadruplicate),
- Airway Bill,
- Bill of Lading (To be presented in triplicate),
- Commercial License Number,
- Tax Clearance Certificate (Stating that the importer does
not owe any taxes to the Government),
- Phytosanitary Certificate (In case of meat and meat
products, to be obtained from the U.S. Department of
Agriculture), and,
- Certificate of Free Sale (if required)
Any food product or other items used for human
consumption (including for use on human skin or clothes may
be subject to the Certificate of Free Sale (CFS)
documentation requirement. The main purpose of the CFS is
to prevent the dumping of inferior goods, especially for
human consumption, to the Panamanian market. The CFS must
verify that a product is sold freely and used widely in the
U.S. Potential exporters of items subject to the CFS
documentation requirement may wish to either contact:
(1) their trade association which may provide the service
issuing the documentation, or,
(2) the Food and Drug Administration, Division of Programs
and Enforcement Policy, 200 C Street, SW, Washington, DC
20204.
If for any reason the bill of lading or any other required
document cannot be presented within 24 hours after the
shipment has arrived, clearance of the goods will be
permitted by posting a bond equal to the amount of import
duties. The bond is cancelled if the prescribed documents
are presented in due form within a period of 90 days. The
bond may be extended, extendable in justified cases, an
additional 90 days.
Export Documentation
A licensed customs broker is also required to handle the
export paperwork related to merchandise exports. The Panama
Trade Development Institute (IPCE), a government
organization, was created in 1984 to promote exports and
investment. IPCE facilitates the processing of export
documentation through a "One Stop" (ventanilla unica) office
which can reduce the export process to a few hours from a
process that can take days or weeks. (Refer to Appendix E
for contact information on IPCE).
Export documentation required by Panamanian Customs
authorities is:
- Commercial Invoice,
- Export Declaration (Prepared and signed by a Customs
Broker),
- Certificate of Origin (Issued by the Chamber of Commerce,
Industry and Agriculture of Panama or the Panama Trade
Development Institute),
- Bill of Lading,
- Airway Bill,
- Veterinary, Sanitary or Phytosanitary Certificate (when
applicable).
TEMPORARY ENTRY
The Panamanian Fiscal Code establishes a temporary entry
regime, up to one year, for all types of merchandise. There
are two options. First, the goods can enter the country
under a guarantee payment equivalent to the total value of
the import duty. This payment will be reimbursed at the
time the goods leave the country. Second, an insurance
company issues a bond guarantee covering the import duty
value if the goods fail to exit the country in a pre-
determined period of time.
Special temporary provisions apply in the case of trade
shows and exhibitions taking place at the Atlapa Convention
Center, Panama's exhibition and convention center. Goods
can enter the Atlapa Convention Center with no warranty
payment or bond required.
Samples with commercial value are subject to temporary entry
requirements. Samples with no commercial value are admitted
duty free. If samples arrive in large containers, they will
be dutiable even though they may be marked as free sample.
LABELING, MARKING REQUIREMENTS
Panama has no special regulations for labeling and marking.
Labels are required to have basic information regarding the
name and address of the manufacturer, expiration date, list
of ingredients, lot number, and the product form, e.g.
powder, liquid, etc.
Labels in English are accepted, except medicines, household
products and special foods which require special
instructions. In these cases instructions regarding dosage,
usage, warnings, etc., must be in Spanish.
All goods arriving in Panama intended to be reexported
immediately must be marked "PANAMA IN TRANSIT" on each box
or outside container.
In general, products which comply with U.S. labeling and
marking requirements, will also meet local requirements and
are suitable for sale in Panama.
PROHIBITED IMPORTS
The following products cannot be imported into Panama:
- Counterfeit coins or printed material that imitates
monetary currencies,
- Equipment or instruments for manufacturing coins,
- Liquors, wines, beers or medicines with labels that
describe false or deceiving contents, or of any kind of
harmful preparation,
- Certain firearms or war materials,
- Foreign lotteries or raffle tickets,
- Opium in the form of gum or for smoking,
- Obscene brochures, books, newspapers, magazines, or
postcards containing negative portrayals of the country's
culture, civilization or dignity, and,
- Plants, seeds, or animals when determined by the Ministry
of Agriculture.
STANDARDS (E.G. ISO 9000 Usage)
While the Government of Panama has not designated a domestic
registering authority for participation in the International
Standards Organization ISO-9000 program, there is no legal
limitation in Panama on participation in ISO-9000 by firms
doing business here. Panama is a member of the Pan American
Standards Commission (COPAN), headquartered in Venezuela.
FREE TRADE ZONES/WAREHOUSES
The Colon Free Zone
The Colon Free Zone (CFZ), the largest in the Western
Hemisphere and second to Hong Kong's, is located in the City
of Colon, five kilometers from the Port of Cristobal on the
Atlantic side of Panama and 90 kilometers from Panama City.
Goods (except firearms or petroleum products) may be
imported, stored, modified, repacked and re-exported without
being subject to any customs regulations.
Generally, most merchandise is transshipped from Panama
to other parts of the Western Hemisphere and Europe.
Imports into the CFZ come mainly from the Far East. The
largest individual supplier of the CFZ in 1994 was Hong
Kong, followed by Japan, the United States, Taiwan and South
Korea. These five countries supply 67.5 percent of all
imports through the CFZ. In descending order of exports
from the CFZ, Colombia is the largest purchaser of
merchandise, comprising nearly one quarter of all CFZ
exports. Other principal buyers are Ecuador, Panama
(domestic market), Venezuela, Aruba, the United States,
Costa Rica and Chile. These countries buy 60% of all
exports from the CFZ.
The CFZ is administered as an autonomous institution of the
Panamanian Government. It has been in operation since 1953.
Today it is completely developed, and covers 300 hectares,
including 45 hectares designated as an industrial zone.
The CFZ offers free movement of goods and complete exemption
from taxation on imports and re-exports. There are no taxes
on the export of capital or the payment of dividends. In
addition, there are reduced income tax rates on earnings
from re-export sales. Furthermore, firms located in the CFZ
are exempt from import duties as well as from guarantees,
licensing, and other requirements and limitations on
imports. Due to its geographic location, the CFZ is a major
factor in facilitating the supply of goods from large
industrialized countries to the consumer markets in Latin
America. Unfortunately, the CFZ is also used by the
Colombian drug cartels for money laundering and drug
trafficking. Other suspicious CFZ transactions include
trade in pirated intellectual property and stolen vehicles.
The CFZ is operated and managed by its Board of Directors,
an Executive Committee and the General Manager of the
institution. Corporations or individuals of any nationality
may establish operations in the CFZ without requirements of
a commercial license or a minimum investment of capital.
Firms interested in operating in the CFZ must file an
application and provide a copy of its articles of
incorporation and bank references.
There are four basic ways of doing business in the CFZ:
1. Leasing lots on which the firm builds a warehouse or
other facilities as designed by the firm. The land lease
arrangements are granted for a 20-year period;
2. Purchasing an existing facility from the Zone
Administration;
3. Reaching an agreement with a company already established
in the CFZ as the operator's representative. The cost of
this service is set by mutual agreement between the parties
concerned. Representation agreements shall be subject to
the approval of the Zone Administration; or,
4. Leasing a public warehouse operated by the Zone
Administration. The firm receives its goods and stores them
like any other company there. There are no fixed costs and
the payment of services is based according to the weight or
volume of the goods stored.
Companies operating in the CFZ are engaged in four types of
sales operations:
1. Foreign Trade Operation, involving the re-exportation of
goods from CFZ warehouses;
2. Internal Trade Operation, consisting of sales to clients
located within Panama's customs territory;
3. Direct Sales, those made to foreign clients in which
goods are shipped from the manufacturing sources without
physically arriving in the CFZ territory; or,
4. Transfer Operation, in which sales are made to other CFZ
firms.
Companies operating from the CFZ enjoy numerous trade
advantages along with special tax incentives such as tax
credits, depending on the number of Panamanian employees,
and special income tax rates on foreign trade operations.
Companies in the free zone pay a maximum corporate income
tax rate of 15.0 percent on income derived from export
sales. Dividends paid on profits from foreign trade
operations and from direct sales are not subject to the
dividend tax. Merchandise arriving at, stored in, or
leaving the CFZ destined for a foreign country is exempt
from taxes, charges or any type of fee. Also, CFZ companies
are not subject to any type of federal or municipal tax.
Contact the CFZ Administration and the Users Association for
more information. (Refer to Section II of this report for
key statistical information on the CFZ and to Appendix E for
contact information).
Export Processing Zones
On November 30, 1992, Panama passed a Law No. 25 allowing
for the establishment and development of Export Processing
Zones (EPZ) within the country.
EPZs are well-defined areas for the establishment of
industrial, commercial and service facilities which operate
in a free trade system. All its production is export-
oriented and a range of incentives has been created to
attract companies into the EPZ.
Companies allowed to establish operations in EPZ are those
engaged in: manufacturing, assembly (maquila), high
technology, and specialized and general services, e.g.
computer data entry, reinsurance.
The EPZ law defines two different parties associated with
the zone. The first is as developer of the EPZ. The second
is as the tenant company located in the EPZ.
The GOP offers the developer the following tax incentives:
Tax exemption during the life of the contract (the
maximum is 20 years), from taxes, duties and other charges
related to the importation of machinery, equipment,
accessories and material used in the construction of the
facilities. Exempt from property and income taxes, and
taxes on capital or assets for the first ten years of
operation. From the 11th year until the end of the
contract, the developer is exempt from income tax on net
earnings reinvested in the development and expansion of the
EPZ, provided that the amount reinvested exceeds 20 percent
of the net taxable income for the fiscal year the
reinvestment is made. Lastly, the developer may carry over
losses from the year the loss takes place.
The tenant companies exporting from an EPZ are offered the
following benefits:
Exempt from taxes, duties and other charges related to
the importation of machinery, equipment, raw materials,
semi-processed goods and other materials such as packaging,
fuel and lubricants used in the manufacturing process.
Exemption from income tax on profits arising from exports,
and exemption from export sales taxes, as well as from taxes
on capital and assets of the export industry.
The EPZ law also includes specific labor and migratory
provisions for employees of EPZ firms which are more
favorable than the current Panamanian Labor Code.
Presently, there are four EPZs approved by the GOP. Each is
in various stages of development. Contact the Panama Trade
Development Institute (IPCE) for information on EPZs.
(Refer to Appendix E for contact information on IPCE).
Petroleum Export Zones
The Government of Panama enacted Decree No. 29 (Executive
Decree) dated July 14, 1992, allowing the creation of
Petroleum Export Zones (PEZ) in specially-designated areas
in Panama.
Decree No. 29 allows any foreign or national company to
establish operations in a PEZ to produce, refine and export
petroleum products. It also permits direct sales to foreign
vessels transiting the Panama Canal, and to foreign
airlines. Companies operating out of these PEZs are exempt
of any municipal or federal taxes and are not subject to
government regulations affecting the local market.
The Government of Panama has authorized the following four
PEZ: Petroterminal de Panama (PTP, the transisthmian
pipeline), Refineria Panama (TEXACO), Autoridad Portuaria
Nacional (APN, the Port Authority), and Aeropuerto
Internacional de Tocumen. Contact the Ministry of Commerce
and Industry, Direccion Nacional de Hidrocarburos for more
information. (Refer to Appendix E for contact information
on the Ministry of Commerce and Industry).
SPECIAL IMPORT PROVISIONS
Special import permits are required for all types of
firearms and ammunitions. Import permits can be obtained
from the Ministry of Government and Justice. Also, certain
agricultural and agroindustrial products are subject to
import authorization by the Ministry of Agricultural
Development (MIDA). Examples are: wheat, flour, animal
fats, vegetable and animal oils, soybean protein, and frozen
corn. (Refer to Appendix E for contact information on the
Ministry of Agricultural Development).
MEMBERSHIP IN FREE TRADE ARRANGEMENTS
Panama is not a party to any agreements providing completely
free trade, but does have bilateral preferential trade
agreements with Costa Rica, El Salvador, Honduras,
Guatemala, and Nicaragua; these accords are quota-based and
deal with a limited number of specific products. A more
inclusive preferential agreement has been signed with
Colombia. There is also a limited preferential agreement
with Mexico. Negotiations are under way to sign a
preferential agreement with Ecuador.
Panama is a beneficiary of the Caribbean Basin Economic
Recovery Act, better known as the Caribbean Basin Initiative
(CBI), which provides for one-way free trade access for
specific Panamanian exports to the U.S. Recently the U.S.
government has been contemplating new legislation (e.g. the
Crane-Gibbons bill) that would enhance the CBI program. In
return for NAFTA-like treatment for textiles and other
miscellaneous items to the Caribbean Basin nations, the ITP
would require from the Caribbean Basin Countries, on a
bilateral basis, to make commitments mainly in the following
areas: bilateral investment treaties, intellectual property
rights, workers rights, and the environment. The interim
Trade Program bill, the NAFTA Parity Resolution is still in
committee in the House of Representatives and the Senate as
of June, 1995.
VII. INVESTMENT CLIMATE
OPENNESS TO FOREIGN INVESTMENT
On the one hand, taking its cue from Panama's central
geographic location and its limited manufacturing and
agricultural sectors, the Government of Panama and the
business community actively promote this country's long-
standing reputation as an international trading, banking,
and services center, and as a site for foreign direct
investment (FDI). Panamanian business persons and officials
can point to Panama's dollar-based economy as offering low
inflation and zero foreign exchange risk. The Panamanian
Trade Development Institute (IPCE) provides investors with
information, expedites specific projects, leads investment-
seeking missions abroad, and supports foreign investment
missions in Panama.
On the other hand, as the new Minister for Planning and
Economic Policy has noted, no major foreign investment has
been made in Panama for at least 10 years. The Perez
Balladares government which took office September 1, 1994,
has embarked upon a vigorous campaign to improve Panama's
international image (e.g., on money laundering) and its
infrastructures to attract FDI. A major test for the new
government regarding its intention to improve Panama's
attraction of FDI, will be how it employs the former
military areas being reverted under the Canal treaties.
Major properties will revert to Panamanian control in
September 1995 and September 1996. The largest U.S. bases
are scheduled to revert to Panama between 1997 and 1999.
Government inattention to basic public infrastructure and
public services, combined with slow progress on economic
reforms that would establish clearer "rules of the game,"
undermine the generally welcoming stance toward foreign
investment. Cumbersome legal procedures sometimes delay
resolution of contract and other business disputes. Setting
up shell corporations, however, is not cumbersome.
Colon Free Zone: Official support for investment and
business activity is especially strong in the Colon Free
Zone (CFZ). There are special tax incentives to encourage
investment in the CFZ and the international banking center.
Companies in the free zone pay a maximum corporate income
tax rate of 15.0 percent on income derived from export
sales; income from purely offshore operations is not
taxable; there are no taxes on the repatriation of profits
or the payment of dividends. Banks in Panama pay no tax on
interest or other income earned outside Panama and withhold
no tax on savings or fixed time deposits in Panama. Several
locations designated export processing zones (EPZ's) offer
tax-free status and special immigration privileges, and
license and customs exemptions to manufacturers who locate
there. (Refer to Section VI for more detailed information
on CFZ).
Privatization: Panama has a program to privatize a number of
state-owned enterprises. To date there has been
privatization of the state cement company and a state owned
fruit company. Partial privatization of the state telephone
company is currently underway.
Possible medium term privatizations may also occur in refuse
collection services and some water utility operations. The
government is also open to private investment in cellular
telephone and other high-tech telecom services. Treatment
of potential foreign investors in this process has been non-
discriminatory, at least on the surface.
Panama offers all investors (domestic and foreign) tax and
other financial advantages if they invest in manufacturing
ventures, export-oriented ventures, or tourism, or if they
locate in certain regions of Panama. These advantages
include tax-exemption of export income, exemption from
import duties and accelerated depreciation. Many of these
subsidies and special incentives are scheduled for
elimination or modification by virtue of the GATT/WTO
negotiations. Investors require substantial legal and
accounting advice to take advantage of these incentives.
(Refer to Right to Private Ownership and Establishment in
Section VII for more information).
POLITICAL VIOLENCE
Political violence in Panama, prevalent during the later
Noriega years, decreased sharply after Operation Just Cause
in 1989 and is now rare. The 1994 national election, which
international and domestic observers agree was the cleanest
and fairest in three decades, was a model of the democratic
political process. Peaceful elections were followed by a
calm and coordinated transition as the Endara administration
stepped aside to let its political rival take over the reins
of the government. To date, the Perez Balladares government
has chosen not to use its "gag law" authority to dampen the
full and free expression of political ideas. Street crime,
which has remained high since Operation Just Cause owing to
poverty and weak institutions, is on the rise again. With
the exception of restrained use of force against indigenous
rights activists in April 1995, the police force monitored
but did not interfere with anti-government demonstrations
and strikes during the spring of 1995. Organized crime
score settling and narcotics-related violence are disturbing
elements of the rising crime trend. The overloaded and
cumbersome criminal justice system has been unable to met
out justice in the face of Panama's rising volume of crime.
In June 1994 a grenade was used to bomb the car of a
prominent Jewish businessman. No arrests have been made in
this first-ever event in Panama. In July 1994 a Panamanian
domestic commuter aircraft traveling between Colon and
Panama City exploded, killing 21 people, including three
American citizens. The attack remains under investigation
by Panamanian and U.S. authorities. The attack, which
killed several well-known members of Panama's Jewish
community, may have been the work of terrorists. The
alleged perpetrator, who was apparently carrying a bomb
(knowingly or unknowingly) was on the plane when it
exploded; no arrests have been made. The two incidents
prompted the government to tighten airport security and to
promise increased police vigilance against terrorists and
their alleged support networks.
CONVERSION AND TRANSFER POLICIES
Panama has no legal restrictions on transfer abroad of funds
associated with, profits deriving from, or capital employed
in an investment. Panama uses the U.S. dollar as legal
tender. Currency conversion therefore is not an issue. The
Government of Panama has repeatedly emphasized its intention
to retain the U.S. dollar as the national currency
(denominated as the balboa); the U.S. Government has
consistently supported Panama's use of the dollar. There
is, therefore, no independent monetary policy in Panama.
Inflation, bound by the dollar, is relatively low and
predictable, thus enhancing foreign investments.
EXPROPRIATION AND COMPENSATION
Panama has no current cases of expropriation of property for
public or any other use. There are no policy shifts or
other indications suggesting that expropriation in the near
future is likely. Although the Government of Panama did
decide in 1993 not to sell publicly owned land (in Bocas del
Toro Province) to U.S. investors, there are no large
enterprises at special risk of expropriation. Beyond the
OPIC insurance prohibition discussed below (Section on OPIC
Investment Insurance), the Government of Panama does not in
general discriminate against U.S. or other foreign
investors. There is a constitutional prohibition against
foreign land ownership within ten kilometers of a national
border or on an island. Neither Panamanian citizens nor
foreigners may own beaches or the shores of rivers or lakes.
Builders and investors generally rent the land for 20-30
years, via the Ministry of Finance. The new tourism
incentives law expands this period for up to 40 years.
DISPUTE SETTLEMENT
Disputes with foreign investors are rare. Where they have
occurred, they have involved special circumstances not
likely to be repeated. Most notable business complaints
have involved individuals who have not fully pursued
remedies available to them via the court system.
Panama has a court and judicial system, like many Latin
American countries, built around a civil code, rather than
the Anglo-American system of reliance upon case law and
judicial precedent. Fundamental procedural rights in civil
cases are broadly similar to those available in U.S. civil
courts, although some notice and discovery rights,
particularly in administrative matters, may be less
extensive than in the U.S.; judicial pleadings are not
always a matter of public record. Business, corporate, and
banking laws are relatively modern and sophisticated and in
general are enforced so as to create a favorable business
climate, although there is no modern bankruptcy law.
Mortgages, liens, and other security interests are
recognized. There is a public property registry, now
undergoing expansion and modernization. The judiciary is
independent, in law and practice, of the executive branch of
government. Unique features of Panamanian law and practice
in specific areas (including but not limited to banking,
accounting requirements, formation and functioning of
corporations, and taxation) make retention of local legal
counsel advisable in many cases.
In its bilateral investment treaty with the United States,
Panama recognizes the "additional facility" of the
International Center for the Settlement of Investment
Disputes (ICSID) as a potential means of resolving disputes
with foreign investors, outside of Panamanian courts.
PERFORMANCE REQUIREMENTS/INCENTIVES
There are no performance requirements such as minimum export
percentages or significant local procurement rules. There
are special tax and other incentives for manufacturers to
locate in an Export Processing Zone (EPZ), the only active
one of which currently is at Isla Margarita, outside Colon
(notional but inactive EPZ's exist at Ojo de Agua and
Telepuerto). (Refer to Section VI - Export Processing Zones
for detailed information.) Tax incentives are available to
manufacturers, wherever located in Panama, who produce
wholly or partially for export, in proportion to the
percentage of product exported. There may, as a matter of
administrative practice, be an official preference for local
procurement of certain types of business insurance.
Several tourism incentives laws provide, among other
measures, tax exemptions for vehicles and other designated
goods imported for use in, or to construct infrastructure
for, the tourist sector. Tax incentives are still available
to small businesses (less than 10 employees) and to certain
types of agricultural production and investment, especially
where production is for export.
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
With the exception of retail trade and certain professions,
foreign and domestic entities have the right to establish,
own, and dispose of business interests in virtually all
forms of remunerative enterprise. Foreigners need not be
legally resident or physically present in Panama to
establish corporations or to obtain local operating licenses
for a foreign corporation. Business visas (and even
Panamanian passports) are readily obtainable for significant
investors. Banking, legal and financial services and the
legal regime are strongly oriented toward attracting foreign
business and banking activity.
Panama's privatization framework law does not distinguish
between foreign and domestic investor participation in
prospective privatizations. The law calls for pre-screening
of potential investors or bidders in certain cases to
establish technical viability, but nationality and
Panamanian participation are not criteria. Foreigners have
participated actively in all privatization to date.
Privatization (in whole or in part) of state-owned entities
such as the National Power and Light Company (IRHE), and the
National Water Company (IDAAN) will require separate laws;
in February 1995 the Legislative Assembly passed separate
pieces of legislation allowing the partial privatization of
the national telephone company (INTEL) (with private
ownership limited to 49 percent) and revoking the monopoly
of electricity generation held by the state electricity
utility (IRHE). Privatization of these high-visibility,
politically sensitive enterprises has been debated
vigorously. There are likely to be limits on foreign
investor participation if indeed the remaining core
utilities are ever privatized. (Refer to the Privatization
portion in this Section for more information).
PROTECTION OF PROPERTY RIGHTS
Intellectual Property Rights
Panama is a member of the World Intellectual Property
Organization (WIPO), the Geneva Phonograms Convention,
the Brussels Satellite Convention, and the Universal
Copyright Convention. Although Panama is not a member of
the Bern Convention for the protection of Literary and
Artistic Works or the Paris Convention for the Protection of
Industrial Property, the Government of Panama has submitted
to its Legislative Assembly a bill for Panama to accede to
the Paris Convention; accession to the Bern and Paris
Conventions will be necessary if Panama is to join GATT/WTO.
In general, protection for intellectual property rights in
Panama has in the past been less than adequate in several
areas. Panama's adherence to other major international
conventions on intellectual property rights would offer more
protection to foreign rights-holders than is available under
current Panamanian law. The U.S.-Panama Bilateral
Investment Treaty, negotiated in 1983 but not put into
effect until 1992, does not contain an intellectual property
annex. In the past, representatives of some U.S. industrial
sectors have alleged Panama provides inadequate copyright
and trademark protection.
The National Assembly in August 1994 passed a bill to help
modernize copyright protection. Implementing regulations
for the new copyright law, which took effect January 1,
1995, are still pending. The Government of Panama is
expected to introduce a draft bill to the National Assembly
in September 1995 to strengthen industrial property
protection (patents, trademarks, and trade secrets). The
Government of Panama has stated its intention to improve
customs controls and enforcement of existing law in the
Colon Free Zone, where copyright and trademark infringing
activity have been heaviest. Some U.S. intellectual
property owners have experienced significant delays when
they have sought infringement remedies in the Panamanian
judicial system.
Patents
The current Panamanian draft law on industrial property is
modeled after Mexico's new, world-class industrial property
law. The Panamanian draft law would provide 20 years of
patent protection in place of the current period of 5 to 15
years for foreigners and 5 to 20 years for Panamanians. The
bill would grant patent protection from the date of filing.
Pharmaceutical patents would be granted for only 15 years,
but could be renewed for an additional ten years, if the
patent owner licensed a national company (minimum of 30
percent Panamanian ownership) to exploit the patent. Other
important aspects of the current draft law are undergoing
review by the government of Panama in light of GATT (chapter
on Trade-Related Aspects of Intellectual Property, or TRIPS)
standards. The bill also provides for protection of
trademarks, simplifying the process of registering
trademarks and making them renewable for ten-year periods.
Although complaints of inadequate intellectual property laws
and enforcement have not focused on them, trade secrets
currently have little formal protection. The draft
industrial property law, however, would provide specific
protection for trade secrets.
Copyrights
The National Assembly in 1994 passed a comprehensive
copyright bill, based on a World Intellectual Property
Organization model. The law modernizes copyright protection
in Panama, provides for payment of royalties, facilitates
the prosecution of copyright violators, protects computer
software, and makes copyright infringement a felony. There
is widespread support for the improvement of copyright
protection in Panama, although some powerful domestic
interests opposed the new law. Even with the new law,
however, key implementation issues remain before copyright
owners will be assured of a modern, completely investment-
friendly copyright regime. Necessary elements of such a
regime would include effective enforcement by government
authorities of the new statute, as well as the ability of
Panama's judicial system to provide speedy and effective
remedies for private civil litigants under the law.
Panama's current copyright registration and patent and
trademark registration capabilities need to be upgraded in
any case.
REGULATORY SYSTEM
Transparency
Government regulation and occasional intervention in the
Panamanian economy have tended to reduce transparency,
hinder competition and the efficient allocation of
investment. The government's economic liberalization
program is designed to reduce these distortions and increase
competition and competitiveness.
Pending final conclusion of an agreement for Panama's
GATT/WTO accession, Government-administered price controls
remain on a number of agricultural products, such as feed
grains and poultry, and on a mix of designated food items
and other staples (the basic shopping basket, or "canasta
basica"). High nominal tariff protection, and high
effective protection (non-tariff barriers) keep some product
prices artificially high for now and discourage the
development of efficient export-oriented firms. Incident to
Panama's pending application to join GATT, Panama's tariff
structure is being adjusted, and non-tariff barriers are
being tariffized.
Factors Affecting Investment
Overregulation of hiring and firing practices reduces labor
mobility and flexibility. Public enterprises provide high-
cost public services, with no more than partial
privatization likely in the near future. The National Labor
Code ranks with the most pro-labor in the world. The
combination of relatively high costs for both utilities and
labor makes unit costs higher than average for the region.
Although the Panamanian constitution forbids certain kinds
of monopolistic behavior, Panama has no modern competition
or anti-trust laws, policy, or regulatory authority now in
place. As a result of the GATT/WTO negotiations now
underway, the Government of Panama has prepared draft
legislation to establish a competition policy and
enforcement authority, along with a consumer protection
regime. Passage is contingent on the outcome and timing of
Panama's GATT/WTO negotiations. Oligopolistic distortions
in many domestic markets are for now unchecked, and
contribute to continuing support for food price controls.
Consumers have few rights under current law, although the
Ministry of Commerce and Industry has the authority to
enforce the very limited consumer protection laws which do
exist. An accommodating bankruptcy law to facilitate the
restructuring of firms, such as Chapter 11 in the U.S., does
not exist in Panama.
Panama's banking sector is regulated by the National Banking
Commission (CBN), which coordinates government policy with
bank executives represented by the National Banking
Association (ABP). The continued success and vigorous
growth of the banking sector is directly attributable to the
very business and depositor-oriented laws, passed in the
1970's, which govern this sector. In April 1993, a law was
passed creating tax incentives for the creation of voluntary
pension funds (IRA's) by individuals or corporations.
The tax system promotes savings and investment by giving a
wide variety of incentives and maintaining rates which are
comparable to those in the U.S. The maximum personal income
tax rate is 30 percent and the maximum corporate rate is 34
percent of domestically produced earnings. Other formal
legal, regulatory, and accounting systems are relatively
transparent, but their enforcement is diminished somewhat by
certain non-transparent aspects of legal practice and the
judicial process. Although tax collection methods have been
strengthened in 1994 and 1995, the overall regulatory and
supervisory framework is weak.
CAPITAL MARKETS AND PORTFOLIO INVESTMENT
Stock market financing is limited due to the small size
of the national stock exchange, and the limited liquidity
which is therefore available. Bank and non-bank financing
is available on market terms to private domestic and foreign
investors. Panamanian interest rates closely follow
international rates (i.e., the London Interbank Offered Rate
- LIBOR), plus a country-risk premium.
Traditional bank lending from the well-developed banking
sector is relatively efficient and is the most common source
of financing. Some private companies -- including foreign
multinational corporations -- have issued bonds on the
fledgling local securities market. Companies rarely issue
stock on the local market. When they do, investor demand is
limited because there is a 10 percent withholding tax on
dividends, although company earnings on the exchange are tax
exempt (Fixed bank deposits and certain bonds are tax-
exempt.). A bill currently pending before the National
Assembly would allow the creation of and trading by mutual
funds on the Panama Stock Exchange.
The private sector does have access to a variety of credit
instruments. International accounting norms apply. Cross-
shareholding or stable shareholder arrangements, designed to
restrict foreign investment through mergers and
acquisitions, do not exist. There are no restrictions on or
customary measures to prevent hostile foreign investor
takeovers, nor are there regulatory provisions authorizing
limitations on foreign participation or control, or other
practices to restrict foreign participation. The
constitutional prohibition on foreign ownership of retail
enterprises is discussed above. There are no government or
private sector rules to prevent foreign participation in
industry standards-setting consortia, such as ISO-9000.
BILATERAL INVESTMENT AGREEMENTS
Panama has bilateral investment agreements with the United
States, the United Kingdom, France, Switzerland, Germany and
Taiwan. Panama is not a party to any agreements providing
for completely free trade, but does have bilateral
preferential trade agreements with Costa Rica, El Salvador,
Honduras, Guatemala, and Nicaragua; these accords are quota-
based and deal with a limited number of specific products.
A more inclusive preferential agreement was recently
concluded with Colombia.
OPIC INVESTMENT INSURANCE PROGRAM
OPIC is supporting several U.S. investments in Panama. In
general, modest expansion of OPIC programs is possible.
Panama has not yet eliminated its requirement that
Panamanian Government approval be obtained for any OPIC-
insured investment in Panama. President Endara vetoed a
bill which would have eliminated this investment barrier in
June 1994. Panama thus retains a major bureaucratic burden
on investment here, complicating what remains a largely
favorable national investment climate. Panama has
approached the World Bank to join its Multilateral
Investment Guarantee Agency (MIGA), which provides
investment guarantees similar to OPIC, but has been unable
to join to date due to budgetary limitations; a government
proposal to fund MIGA membersh