Identifier
Created
Classification
Origin
06PANAMA2303
2006-12-01 14:20:00
UNCLASSIFIED
Embassy Panama
Cable title:  

PANAMA: 2007 NATIONAL TRADE ESTIMATE

Tags:  ECON EFIN ETRD 
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VZCZCXYZ0030
RR RUEHWEB

DE RUEHZP #2303/01 3351420
ZNR UUUUU ZZH
R 011420Z DEC 06
FM AMEMBASSY PANAMA
TO RUEHC/SECSTATE WASHDC 9428
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHGV/USMISSION GENEVA 0272
UNCLAS PANAMA 002303 

SIPDIS

SIPDIS

FOR STATE WHA/CEN TELLO
FOR STATE EB/TPP/BTA
FOR USTR/GBLUE
FOR USTR/ECHEGARAY

E.O. 12958: N/A
TAGS: ECON EFIN ETRD
SUBJECT: PANAMA: 2007 NATIONAL TRADE ESTIMATE

REF: STATE 136315

-------------
TRADE SUMMARY
------------

UNCLAS PANAMA 002303

SIPDIS

SIPDIS

FOR STATE WHA/CEN TELLO
FOR STATE EB/TPP/BTA
FOR USTR/GBLUE
FOR USTR/ECHEGARAY

E.O. 12958: N/A
TAGS: ECON EFIN ETRD
SUBJECT: PANAMA: 2007 NATIONAL TRADE ESTIMATE

REF: STATE 136315

--------------
TRADE SUMMARY
--------------


1. The U.S. trade surplus with Panama was $1.84 billion in
2005, an increase of $334 million from $1.5 billion in 2004.
This represented the U.S.'s seventh largest trade surplus
world-wide. U.S. goods exports in 2005 were $2.17 billion,
up 18.2 percent from the previous year. Corresponding U.S.
imports from Panama were $327 million, up 3.5 percent from

2004.


2. During the first six months of 2006, the U.S trade surplus
with Panama was $1.09 billion, a 12.7 percent increase from
the similar period in 2005. During the first six months of
2006, U.S. goods exports were $1.29 billion, a 15.4 percent
increase from the same period in 2005. U.S. imports during
the first six months of 2006 also increased 33.0% percent to
$200 million.


3. The chief U.S. exports to Panama are mineral fuel products
which accounted for 25.8 percent of all U.S. exports to
Panama during 2005 and 33.5 percent during the first six
months of 2006. Panama's chief exports to the U.S. are
shrimps and other fish products which accounted for 32
percent of all imports from Panama in 2005 and 22.01 percent
during the first six months of 2006. The U.S. accounted for
26.7 percent of the value of Panama's total imports during
the first six months of 2006. Panama is currently the 45th
largest export market for U.S. goods.


4. According the U.S. Department of Commerce's Bureau of
Economic Analysis (BEA),the stock of U.S. foreign direct
investment (FDI) in Panama in 2005 was $5.16 billion, down
from $5.63 billion in 2004. U.S. FDI in Panama is
concentrated largely in the financial, energy, and maritime
sectors. According to the BEA, FDI from Central and South
America in the U.S. during 2005 was greatest from Panama,
with $11.4 billion in U.S. investments.

--------------
FREE TRADE NEGOTIATIONS
--------------


5. In April 2004, the United States and Panama began
negotiating a free trade agreement (FTA). Negotiations
proceeded through nine rounds, the most recent of which
concluded in January 2006. As of late 2006, U.S. and
Panamanian negotiators continued to discuss possible ways
forward to successfully conclude an FTA. A bilateral FTA

with Panama would be a natural extension of an already
largely open trade and investment relationship. Panama is
unique in Latin America, but like the United States, in that
it is predominantly a services-based economy, as services
represent about 80% of Panama's GDP. Following passage of
the U.S. FTA with Central America and the Dominican Republic
(CAFTA-DR),a bilateral FTA with Panama could further boost
momentum for lowering trade and investment barriers
throughout the region. However, approximately 90 percent of
Panama's goods exports to the U. S. enter duty free under
unilateral benefits programs like the Caribbean Basin
Initiative (CBI) and the Generalized System of Preferences
(GSP) or under 0 percent MFN tariffs.

--------------
IMPORT POLICIES
--------------

--------------
Tariffs
--------------


6. Following its accession to the World Trade Organization
(WTO) in 1997, Panama opened its markets considerably and its
tariffs ranked among the lowest in Latin America, averaging
just 8 percent. However, in September 1999, Panama raised
selected agricultural tariffs, some of which reached the
maximum amount allowed under Panama's WTO commitments.
Panama maintains a list of 16 sensitive agricultural imports
which tariffs ranging from 10 percent to 273 percent. For
example, Panama retains tariffs of 273 percent for chicken,
63-159 percent for dairy products, 83 percent for tomatoes
and over-quota potatoes, 74 percent for pork, 55 percent for
rice, 20 percent on sparkling wine and other fermented
beverages, and 40 percent on still wines. In addition,
Panama charges a 10 percent tax on sparkling wine and 15
percent on still wines. Panama also increased the tariff on
frozen french fries from 15 percent to 20 percent. The
maximum tariff on industrial imports is 15 percent.

--------------
Non-Tariff Measures
--------------


7. In addition to tariffs, all imports into Panama are
subject to a 5 percent transfer (or ITBM) tax levied on the
CIF value, and other handling charges. Pharmaceuticals,
foods, and school supplies are exempt from the transfer tax.
Currently, Panama does not require import licenses on
manufactured goods in the country, provided the importing
entity holds a commercial or industrial license to operate in
Panama.

-------------- --
STANDARDS, TESTING, LABELING, AND CERTIFICATION
-------------- --


8. As a WTO member, Panama implemented the WTO's Agreement on
Technical Barriers to Trade (TBT) that includes the Code of
Good Practice for the Preparation, Adoption and Application
of Standards. The Government of Panama (GOP) passed Law 23
of July 15, 1997, which established new dispositions on
product standards, labeling and certification policy, and
redefined the functions of the Directorate General of
Standards and Industrial Technology (DGNTI) and the
Panamanian Commission for Industrial and Technical Standards
(COPANIT). Basically, DGNTI was given the main role in
establishing standards and technical regulations, while
COPANIT was given an advisory role to DGNTI. The National
Council for Accreditation (CNA) was charged with all national
accreditations.


9. According to WTO guidelines, Panama informs WTO of any
standards or technical regulations activities. U.S. companies
can participate in the standards development process by
contacting DGNTI and submitting specific requests or
suggestions. There are no limitations to participation by
foreign countries.


10. Products for which Panama has not set
standards/regulations can enter the Panamanian market
provided that they comply with standards and technical
regulations from the U.S Europe or any industrial country.


11. Panama has an open economy and there are no significant
market access problems related to standards and technical
regulations. However, certain market access problems have
occurred in the past with several agricultural products,
mostly related to sanitary and phytosanitary (SPS) issues.
Of particular concern had been the lack of procedural
transparency by relevant Panamanian authorities in deciding
whether to issue phytosanitary permits. However, the GOP's
new Minister of Agriculture appointed in early 2006 and the
creation of a new &Food Safety Authority8 have helped to
bring about improved transparency in the SPS permitting
process. To date, the Embassy has not received any new
complaints from local importers alleging abuse of SPS permits
to block imports of U.S. agricultural products.


12. Panama requires that Panamanian health and agriculture
officials certify individual U.S. processing plants as a
precondition for the import of poultry, pork, dairy, and beef
products. U.S. exporters have assisted Panamanian officials
in inspecting U.S. plants, and there have been no instances
of a failed inspection by a U.S. plant. However, inspections
are often delayed due to budgetary constraints and the lack
of personnel in the responsible Panamanian ministries. As
such, it is the United States, priority to obtain Panamanian
recognition of the U.S. meat inspection system in place of
the current plant-by-plant approach.


13. In December 2003, following detection of the first case
of bovine spongiform encephalopathy (BSE),or &Mad Cow8
disease in the U.S., the Panamanian Agriculture Ministry
banned importation of U.S. beef. The ban remained in place
for until March 2005, despite U.S. assurances that
BSE-infected beef never entered the human food supply.
Shortly after the U.S. discovered a second BSE case, the
Agriculture Ministry reinstated the ban in May 2005.
Following questionable reporting requirements imposed on the
U.S. Department of Agriculture and problematic delays, the
Agriculture Ministry lifted the ban in October 2005. Before
the ban, Panama imported an estimated 12,000 pounds (5,400
kilograms) of U.S. beef yearly.


14. Panama's import licensing process for agricultural
products has often been arbitrary and non-transparent,
constituting a major impediment for U.S. exporters. For
example, Panamanian importers of U.S. processed potatoes had
difficulties obtaining import permits in 2003 and 2004. In
one instance, arguing that U.S. processed potatoes compete
directly with domestic fresh potatoes, the Panamanian
government refused to issue import permits for frozen french
fries, disrupting the extensive quick service restaurant
industry within the country.


15. While importers of non-agricultural products must
register them with the Ministry of Commerce and Industry
before distribution or sale in Panama, procedures for
registration are usually straightforward and evenly applied.
There is no comprehensive labeling or testing requirement for
imports, except for food and pharmaceutical products. U.S.
industry is seeking a commitment from the Panamanian
government to provide explicit recognition of Bourbon and
Tennessee Whiskey as a trademark.


16. When the United States launched FTA negotiations in 2004,
it simultaneously initiated a working group on SPS barriers
to agricultural trade to meet in parallel with the
negotiations and to work on resolution of SPS issues even
after the negotiations conclude.


17. In early 2006, the Panamanian Government created a new
&Panamanian Food Safety Authority8 mandated to assume
control over the inspection of all food imports into Panama
as of November 15, 2006. This new authority is expected to
improve transparency and predictability by adhering to
science-based decision-making. The new authority will charge
importers a tariff for placing security stamps on &at risk8
food products entering or transiting Panama.

--------------
GOVERNMENT PROCUREMENT
--------------


18. Panamanian Law 22 of 2006 regulates government
procurement and other related issues. The law replaces Law 56
and is intended to streamline and modernize Panama's
contracting system. Law 22 establishes, among other things,
an internet-based procurement system
(www.panamacompra.gob.pa) which requires publication of all
government purchases thereby allowing for greater
flexibility, speed and transparency in government purchases.
The new law also creates a new administrative court to handle
all public contracting disputes. The rulings of this
administrative court are subject to review by the Panamanian
Supreme Court. The regulatory framework for Law 22 is being
developed by the Panamanian Executive Branch. The Panamanian
Government has generally handled bids in a transparent
manner, although occasionally U.S. companies have complained
of mishandling of certain procedures.


19. While Panama committed to become a party to the WTO
Government Procurement Agreement (GPA) at the time of its WTO
accession, its efforts to accede to the GPA have stalled.
Although the Panama Canal Authority (PCA) has generally
followed transparent and fair bidding processes, the United
States was disappointed by the Government of Panama's
exclusion of the PCA from its accession offer. The U.S.
government is currently addressing the issue of the PCA
within the context of bilateral FTA negotiations to help
ensure a strong government procurement package that would
give U.S. businesses fair opportunities to bid on the $5.25
billion Panama Canal expansion project.

--------------
IMPORT AND EXPORT SUBSIDIES
--------------


20. Panamanian law allows any company to import raw materials
or semi-processed goods at a duty of three percent for
domestic consumption or processing (pending certification
that there is no national production),or duty free for
export production, except for sensitive agricultural
products, such as rice, dairy, pork, and tomato products.
Companies not already receiving benefits under the Special
Incentives Law of 1986 are allowed a tax deduction of up to
10 percent of their profits from export operations through

2007.


21. Due to its WTO obligations, Panama revised its export
subsidy policies in 1997-98. The government originally had
stated its intention to phase out its Tax Credit Certificate
(CAT),which was given to firms producing certain
non-traditional exports, by the end of 2001. However, during
the WTO Ministerial Conference in November 2001, the
Government of Panama asked for and received an extension for
the use of CATs. The WTO extended this waiver until December
2006, allowing exporters to receive CATs equal to 15 percent
of the export's national value added. Legislation enacted in
2004 aimed at eliminating the CAT and replacing it with
another form of subsidiary has been repealed. The CAT
program has been extended until June 2007 allowing exporters
to receive CATs equal to 10 percent of the export's value
added. The certificates are transferable and may be used to
pay tax obligations to the government, or they can be sold in
secondary markets at a discount. The government has,
however, become stricter in defining national value added, in
an attempt to reduce the amount of credit claimed by
exporters.


22. In addition, a number of export industries, such as
shrimp farming and tourism, are exempt from paying certain
types of taxes and import duties. The Government of Panama
established this policy to attract foreign investment,
especially in economically depressed regions, such as the
city of Colon. Companies that profit from these exemptions
are not eligible to receive CATs for their exports.

--------------
Other Export-Related Items
--------------


23. The Tourism Law of 1994 (Law 8) allows a deduction from
taxable income of 50 percent of any amount invested by
Panamanian citizens in tourism development. There is
currently draft legislation aimed at eliminating this benefit
but it is uncertain whether such legislation will be enacted.


24. Law 25 of 1996 provides for the development of export
processing zones (EPA's) as part of an effort to broaden the
Panamanian manufacturing sector while promoting investment,
particularly in former U.S. military bases. Companies
operating in these zones may import inputs duty-free if
products assembled in the zones are to be exported. The
government also provides other tax incentives to EPZ
companies. There are 13 EPZ in Panama, two of which are
inactive. The Panamanian Government is seeking to conform
the regulations governing EPZ with those of the WTO.

--------------
INTELLECTUAL PROPERTY RIGHTS PROTECTION
--------------


25. Intellectual property policy and practice in Panama is
the responsibility of an &Inter-institutional8 Committee.
This committee consists of representatives from six
government agencies and operates under the leadership of the
Ministry of Commerce & Industry. It coordinates enforcement
actions and develops strategies to improve compliance with
the law. The creation of a specialized prosecutor for
intellectual property-related cases has strengthened the
protection and enforcement of intellectual property rights
(IPR) in Panama. However, given Panama's role as a
transshipment point, industry is concerned Panama will become
susceptible to trading in pirated and counterfeit goods.

--------------
Copyrights
--------------


26. Though Panama's 1994 copyright law modernized copyright
protection and its 2004 update incorporated a special
Copyright Office with anti-piracy enforcement powers, piracy
remains a significant problem.


27. The government of Panama is a signatory to the WIPO
Copyright Treaty and the WIPO Performances and Phonographs
Treaty, but the Copyright Office has been slow to draft and
implement further improvements to the Copyright Law.
Nevertheless, the office has proposed to enhance border
measures and establish new punishable offenses, such as for
Internet-based copyright violations.


28. Though industry welcomes both the effective police and
legal action, which have significantly reduced the rate of
DVD piracy, internet piracy is quickly emerging in Panama.
Both hard goods sales and films in theatrical release are
often downloaded, reproduced on optical discs, and then
distributed by street vendors. Despite ongoing
investigations to detect laboratory facilities, the legal
framework guiding internet use in the country remains
incomplete. The United States is working with Panama through
the current FTA negotiations to establish a legal regime to
combat piracy of audiovisual products over the Internet,
including notice and takes down provisions and clearly
defined ISP liabilities as well as temporary copy protection,
protection of technological protection measures, and
protection against Electronic Rights Management Information
removal/alteration.

--------------
Patents
--------------


29. Panama's 1996 Industrial Property Law provides a term of
20 years of patent protection from the date of filing.
However, pharmaceutical patents are granted for only 15 years
and can be renewed for an additional ten years, if the patent
owner licenses a national company (minimum of 30 percent
Panamanian ownership) to exploit the patent. The Industrial
Property Law provides specific protection for trade secrets.

--------------
Trademarks
--------------


30. Law 35 provides trademark protection, simplifies the
process of registering trademarks and allows for renewal of a
trademark for ten-year periods. The law's most important
feature is the granting of ex-officio authority to government
agencies to conduct investigations and to seize materials
suspected of being counterfeited. Decrees 123 of November
1996 and 79 of August 1997 specify the procedures to be
followed by Customs and Colon Free Zone (CFZ) officials in
conducting investigations and confiscating merchandise. In
1997, the Customs Directorate created a special office for
IPR enforcement, followed by a similar office created by the
CFZ in 1998. The Trademark Registration Office has undertaken
significant modernization with a searchable computerized
database of registered trademarks that is open to the public
as well as on-line registration.

--------------
SERVICES BARRIERS
--------------


31. In general, Panama maintains an open regulatory
environment for services. For some professions, such as
insurance brokers, customs brokerage, freight forwarding,
architects, engineers, medical doctors, lawyers, and
psychologists, Panama requires that individuals hold a
Panamanian technical license.

--------------
INVESTMENT BARRIERS
--------------


32. Panama maintains an open investment regime and is
receptive to foreign investment. Over the years the country
has bolstered its reputation as an international trading,
banking, maritime, and services center.


33. However, under the constitution, retail activity is
reserved to Panamanians - an issue that the U.S. government
seeks to address within the context of FTA negotiations. On
a variety of investment issues, the Panamanian government
was, until recently, often unresponsive to concerns raised by
U.S. investors. For example, a few firms that are closely
regulated by, or hold concessions from the Government of
Panama, in the past encountered a lack of cooperation from
certain officials and abrupt changes related to terms of
various concessions or contracts.


34. The U.S.-Panama Bilateral Investment Treaty (BIT) entered
into force in 1991 (with additional amendments in 2001).
With some exceptions, the BIT ensures that U.S. investors
receive fair, equitable and non-discriminatory treatment and
that both Parties abide by international law standards such
as for expropriation and compensation and free transfers.
Conclusion of a bilateral FTA would suspend the availability
of both investor-state and state-state dispute settlement
under the BIT and replace it with investor-state and
state-state dispute settlement under the FTA, except with
regard to a dispute arising from an investment agreement and
for existing investors for a ten-year period.


35. A 1998 investment law aimed to enhance new investment in
Panama by guaranteeing that investors having a minimum
investment of $2 million will have no restrictions on capital
and dividend repatriation, foreign exchange use, and disposal
of production inside a limited number of sectors in the
economy. For a period of ten years, investors will not
suffer any deterioration of the conditions prevailing at the
time the investment was made.


36. On July 12, 2006, Panama enacted Law 27 which allows the
Government of Panama to create enterprises to conduct oil and
gas exploration, distribution, production, storing,
industrialization, commercialization, importation,
exportation and refining activities. Although the government
has not yet created such an entity, American companies have
expressed concern that Law 27 is ambiguous and may result in
greater government intervention and restrictions on the
energy sector.

--------------
ELECTRONIC COMMERCE
--------------


37. In mid-2001, Panama became the first country in Central
America to adopt a law specific to electronic commerce. The
law was a collaborative effort between the public and private
sectors, resulting from several months of detailed
discussions and broad consultations. Panama's electronic
commerce law has several important features: it gives legal
force to any transaction or contract completed
electronically; it creates the National Directorate of
Electronic Commerce to oversee the enforcement of the law;
and it defines certification organizations and establishes a
voluntary registration regime. In addition, in August 2004
partial regulations to the 2001 law were issued to facilitate
the registration of certification organizations. The law is
expected to have a favorable impact on many sectors of
Panama's services dominated economy, particularly the
maritime sector.

--------------
OTHER BARRIERS
--------------

--------------
Corruption
--------------


38. The judicial system can pose a problem for investors due
to poorly trained personnel, huge case backlogs and a lack of
independence from political influence. Amid persistent
allegations of corruption in the government, particularly in
the judiciary, the Torrijos administration campaigned in 2004
on a promise to &eradicate corruption.8 Although the
government continues to assert its commitment to combating
corruption as part of its overall agenda of institutional
reform, it has been slow to deliver concrete results.
EATON