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 
------------ 
 
¶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