Identifier
Created
Classification
Origin
07PANAMA1766
2007-11-15 15:44:00
UNCLASSIFIED
Embassy Panama
Cable title:  

PANAMA: INPUT FOR 2007 CBERA OPERATION REPORT -

Tags:  AMGT ECON ETRD XK XL 
pdf how-to read a cable
VZCZCXYZ0001
RR RUEHWEB

DE RUEHZP #1766/01 3191544
ZNR UUUUU ZZH
R 151544Z NOV 07
FM AMEMBASSY PANAMA
TO SECSTATE WASHDC 1401
UNCLAS PANAMA 001766 

SIPDIS

SIPDIS

FOR STATE WHA/CEN - TELLO
FOR USTR - SHIGEMTOMI

E.O. 12958: N/A
TAGS: AMGT ECON ETRD XK XL
SUBJECT: PANAMA: INPUT FOR 2007 CBERA OPERATION REPORT -
PART 2 OF 2

REF: STATE 143212

UNCLAS PANAMA 001766

SIPDIS

SIPDIS

FOR STATE WHA/CEN - TELLO
FOR USTR - SHIGEMTOMI

E.O. 12958: N/A
TAGS: AMGT ECON ETRD XK XL
SUBJECT: PANAMA: INPUT FOR 2007 CBERA OPERATION REPORT -
PART 2 OF 2

REF: STATE 143212


1. (U) SUMMARY. Below is Part 2 of 2 of Post's report on
Panama's current performance with respect to the Caribbean
Basin Economic Recovery Act (CBERA),as amended by the
Caribbean Basin Trade Partnerhsip Act (CBTPA). Part 1
responds to the questions set forth in reftel paragraph 6.
Part 2 responds to the questions set forth in reftel
paragraph 7. Panama appears to be in substantial compliance
with respect to CBERA and CBPTPA eligibility criteria. END
SUMMARY.

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RESPONSES TO REFTEL PARA. 7
--------------

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Nationalization/Expropriation
--------------


2. (U) Since the publication of the 2005 CBERA Report, Post
is unaware of any nationalization or expropriation of any
property held in the name of U.S. citizens.

--------------
Arbitral Awards
--------------


3. (U) Since the publication of the 2005 Report, Post is
unaware of any arbitral awards favoring U.S. citizens which
the GOP has actively failed to recognize.

--------------
Preferential Treatment to Non-U.S. Products
--------------


4. (U) Post is unaware of any preferential treatment afforded
by the GOP to any developed country, other than the U.S.,
which has had, or is likely to have, an adverse effect on
U.S. commerce.

--------------
Broadcast of Copyrighted Material
--------------


5. (U) Post is unaware of any broadcast by GOP-held entities
of copyrighted material belonging to U.S. copyright holders
without such holders' express consent.

--------------
Extradition of U.S. Citizens
--------------


6. (U) The GOP and USG are signatories to an extradition
treaty, dated May 25, 1904 (entered into force May 8, 1905),
which provides for the extradition from Panama to the U.S. of
U.S. citizens convicted of crimes.

--------------
General Economic Conditions
--------------


7. (U) Panama is experiencing a period of extended economic
growth. GDP growth during the second quarter of 2007 was
9.6% year over year, following 9.4% GDP growth during the
first quarter of 2007. GDP growth during 2006 was 8.1%, its

fastest growth in 14 years and up from 6.9% GDP growth in

2005. The main drivers of growth have been capital
investment, port activity, tourism, construction, and goods
and services exports. Panama's approximately $16 billion
economy is 76.3% services (principally canal revenues,
tourism, re-exports from the Colon Free Zone, port activity
and banking); 16.5% is manufacturing and 7.2% is agriculture.


8. (U) Unemployment in Panama as of August 2007 had fallen to
7.3 percent, down from 8.7 percent in August 2006. Despite
more than 15 years of continued economic growth, the poverty
rate still hovers around 37 percent. Underemployment as of
August 2006 was 22.1 percent (most recent available GOP
figures). Employers consistently report a lack of skilled
labor, in particular a lack of English-speaking workers.


9. (U) Traditionally, Panama has experienced slightly lower
inflation rates than those in the U.S. However, rising
commodity and oil prices caused inflation to rise over the
past year, reaching 5.2 percent in September 2007. Inflation
during this period was lead by an 8.5 percent increase in
food prices. The 51-item "basic basket" of basic food items
and cooking gas rose 11.2 percent between August 2006 and
August 2007.



10. (U) Panama's public sector debt is high compared to
countries of similar credit rating. As of July 31, 2007, the
public debt was 57.2 percent of GDP versus 61.1 percent as of
December 31, 2006. Panama has posted a small budget surplus
in 2006, its first in ten years. During the first half of
2007, the GOP posted a non-financial public sector surplus of
0.2 percent of GDP.


11. (U) The U.S. goods trade surplus with Panama was $2.3
billion in 2006, an increase of $493 million from $1.8
billion in 2005. U.S. goods exports in 2006 were $2.7
billion, up 25.2 percent from the previous year.
Corresponding U.S. imports from Panama were $378 million, up
15.7 percent. Panama's largest exports to the U.S. are fish
and shrimp, none of which received CBI benefits.


12. (U) Foreign direct investment (FDI) rose approximately 20
percent during the first half of 2007, reaching $598 million.
Approximately 60% of FDI was concentrated in the Colon Free
Zone ($180.8 million) and the banking sector ($137.8 million)
The stock of U.S. FDI in Panama in 2006 was $5.73 billion
(latest data available),down slightly from $5.78 billion in

2004. U.S. FDI in Panama is concentrated largely in the
non-bank holding companies, finance, insurance and wholesale
trade sectors.


13. (U) Panama is engaged in various large scale
infrastructure projects, including the $5.25 billion
expansion of the Panama Canal, the Panama City-Colon highway,
and the $190 million Panama Coastal Thruway.

-------------- --------------
Equitable and Reasonable Access for U.S. Goods and Services
-------------- --------------


14. (U) Panama and the U.S. signed a Trade Promotion
Agreement (TPA) on June 28, 2007. The Panamanian National
Assembly ratified the TPA on July 11, 2007 and is awaiting
U.S. Congressional action. Under the TPA, 88 percent of U.S.
exports of consumer and industrial goods to Panama would
become duty-free immediately, with remaining tariffs
phased-out over ten years. The agreement would include
"zero-for-zero" immediate duty-free access for key U.S.
sectors and products including agricultural and construction
equipment, information technology products, medical and
scientific equipment, animal genetics, and oilseeds. Other
key U.S. export sectors such as motor vehicles and parts,
paper and wood products, and chemicals also would obtain
significant access to Panama's market as duties are
phased-out. The TPA provides for immediate duty-free
treatment for more than half of current U.S. agricultural
exports to Panama, including high-quality beef, certain pork
and poultry products, cotton, wheat, soybeans and soybean
meal, most fresh fruits and tree nuts, distilled spirits and
wine, and a wide assortment of processed products. The TPA
also provides for expanded market access opportunities
through tariff-rate quotas (TRQs) for agricultural products
such as pork, chicken leg quarters, dairy products, corn,
rice, refined corn oil, dried beans, frozen French fries and
tomato products. Tariffs on most remaining U.S. agricultural
products would be phased out within 15 years.


15. (U) On December 20, 2006, the U.S. and Panama signed a
far-reaching bilateral agreement on SPS measures and
technical standards. See discussion in paragraph 3 above.


16. (U) The U.S. is Panama's largest trading partner. During
2006, the U.S. accounted for 22 percent of all imports into
Panama. Currently, 70 percent of Panamanian 8-digit tariff
rate lines on U.S. exports have base tariff rates greater
than zero, 50 percent of U.S. exports to Panama have base
tariff rates greater than 5 percent, and 34.5 percent of U.S.
exports have base tariff rates in excess of 34.5 percent.
These tariff rates apply to all imports and are not directed
solely at U.S. exports to Panama.

--------------
Export Subsidies
--------------


17. (U) Panamanian Law 3 of 1986 allows any company to import
raw materials or semi-processed goods at a duty of 3 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, corn and tomato
products. Under Law 3 of 1986, companies are allowed a tax
deduction of up to 100 percent of their profits from export
operations through 2010.



18. (U) In the context of its WTO accession, Panama revised

its export subsidy policies in 1997-98. See discussion in
paragraph 5 of Part 1 of this cable.


19. (U) Panama has eight export processing zones (EPZs).
The law governing the EPZs grants tax exemptions to companies
that fulfill a minimum local value added requirement.


20. (U) Under Panama's Official National Industry Registry
(ROIN),companies that export all of their production are
exempt from import duties, income tax and other domestic
taxes. The ROIN was scheduled to be phased out in late 2005,
but the deadline for its elimination has been extended
through 2007.


21. (U) 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.

--------------
Trade Polices- Revitalization of CBI Region
--------------


22. (U) The GOP seeks to promote economic growth through
increased liberalized trade with countries in the CBI region.
The GOP has signed free trade agreements with El Salvador
(2003),and has partial bilateral trade agreements with the
Dominican Republic (2003) and each Central American country
other than Belize. In 2007, Panama signed free trade
agreements with Costa Rica and Honduras. Panama is
negotiating free trade agreements with Nicaragua, Guatemala,
and CARICOM.

--------------
Panama's Self-Help Measures
--------------


23. (U) Upon assuming office in September 2004, the Torrijos
Administration established its development and economic
strategy known as the "Goals and Objectives for the
Government of the New Homeland 2004-2009." The strategy
called for increased opportunities for marginlized sectors of
society through economic liberalization, public sector
restructuring and increased social investment. As part of
this strategy, the GOP has enacted reforms to the country's
social security system aimed as bolstering its financial
stability. Also, the GOP has sought to increase and
diversify Panama's exports through target government
spending, trade pacts and encouraging increased FDI flows. A
crucial element of the strategy has been the $5.25 billion
Panama Canal expansion project aimed at doubling the capacity
of the canal. Panama is also engaged in large scale
infrastructure projects aimed at easing the country's
overburdened transportation infrastructure. The GOP has
moved to increase efficiency and transparency in government
procurement and facility of opening new businesses by
establishing on-line government procurement systems
(www.comprapanama.gob.pa) and a one-stop on-line procedure to
establish new businesses (www.emprendepanama.gob.pa). To
address the lack of skilled labor, the GOP has initiated an
$88 million worker training program.


24. (U) Part of the above-referenced strategy was a "zero
corruption" platform. To date, despite constant allegations
of corruption, the GOP has yet to prosecute any corruption
cases resulting in the convictions of high-ranking government
officials (past or present) or prominent private sector
individuals.

--------------
Cooperation with USG on CBERA
--------------


25. (U) The GOP cooperates with the USG in the
administration and implementation of CBERA-related trade.
CBERA-related matters are handled by the GOP's Ministry of
Industry and Commerce (MICI). Through its "Only Window"
program, MICI offers a one-stop office to assist Panamanian
exporters on CBERA-related issues and procedures.
EATON