VZCZCXYZ0015
RR RUEHWEB

DE RUEHZP #1711/01 3021600
ZNR UUUUU ZZH
R 291600Z OCT 07
FM AMEMBASSY PANAMA
TO SECSTATE WASHDC 1330

UNCLAS PANAMA 001711

SIPDIS

SIPDIS

FOR STATE WHA/CEN ‐ TELLO
FOR STATE EB/TPP/BTA
FOR USTR OFFICE OF POLICY COORDINATION ‐ GBLUE

E.O. 12958: N/A
TAGS: ECON EFIN ETRD
SUBJECT: PANAMA: 2008 NATIONAL TRADE ESTIMATE REPORT

REF: STATE 119763

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TRADE SUMMARY
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¶1. (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 is currently the 45th largest export
market for U.S. goods and 102nd import supplier.

¶2. (U) The stock of U.S. foreign direct investment 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.

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TRADE PROMOTION AGREEMENT
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¶3. (U) On June 28, 2007, the United States and Panama signed
a trade promotion agreement (TPA). The Panamanian National
Assembly ratified the TPA on July 11, 2007 and is awaiting
U.S. Congressional action. A bilateral TPA 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. Services represent about 80 percent
of Panama,s gross domestic product. Along with
implementation of the Dominican Republic ) Central America
) United States Free Trade Agreement (CAFTA‐DR),
implementation of a bilateral TPA with Panama could further
boost momentum for lowering trade and investment barriers
throughout the region. The agreement will provide new
economic opportunities for U.S. exporters, particularly for
agricultural products, passenger vehicles and certain
machinery which currently face high tariff rates. The TPA
would facilitate exports in support of the $5.25 Panama Canal
expansion project, as well afford greater access to the
services market. The TPA would enhance trade remedies,
increase transparency in government procurements, strengthen
intellectual property rights protection, and provide for
commitments to adhere to and enforce certain protections for
workers and the environment.

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IMPORT POLICIES
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Tariffs
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¶4. (U) 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.

¶5. (U) 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.

¶6. (U) Apparel products made in Panama would be duty‐free
under the bilateral TPA if they use U.S. or Panamanian fabric
and yarn, thereby supporting U.S. fabric and yarn exports and
jobs. Strong customs cooperation commitments between the
United States and Panama would allow for verification of
claims of origin or preferential treatment, and denial of
preferential treatment or entry if claims cannot be verified.

¶7. (U) For some of Panama,s most sensitive products, TRQs
would permit immediate duty‐free access for specified
quantities, which quantities will increase during the tariff
phaseout period, while the "over‐quota" tariffs are phased
out. Panama,s tariffs on agricultural goods range from 10
percent to more than 250 percent. In addition, Panama charges
a 10 percent tax on sparkling wine and a 15 percent tax on
still wines. The maximum tariff on industrial imports is 15
percent.

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Non‐Tariff Measures
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¶8. (U) In addition to tariffs, all imports into Panama are
subject to a 5 percent transfer (or ITBM) tax levied on the
cost, import duty, insurance, and freight value, and other
handling charges. Pharmaceuticals, foods, school supplies,
export and re‐exports activities, and all products related to
transactions occurring in any free zone are exempt from the
transfer tax. Currently, importing entities are required to
hold a commercial or industrial license to operate in Panama,
which license can be obtained through Panama,s online
business registration service (www.panamaemprende.gob.pa).
Importing entities are not required to have a separate import
license, with the exception of certain controlled products
such as weapons, medicine, pharmaceutical products and
certain chemicals. For many years, the licensing process for
agricultural imports to Panama has historically been
arbitrary and non‐transparent. In 2006, the Panamanian
government created a new "Food Safety Authority" to bring
greater transparency and science‐based decision‐making for
agricultural imports. This Authority has thus far operated
effectively, for example, in opening the way for imports of
U.S. beef.

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STANDARDS, TESTING, LABELING AND CERTIFICATION
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¶9. (U) In the past, Panama has required that its health and
agriculture officials certify individual U.S. plants and/or
shipments as a precondition for the importation of beef,
poultry, pork, dairy, and other agricultural products. In
addition, Panama has restricted imports of U.S. meat and
poultry and of other U.S. agricultural products through
non‐science‐based sanitary and phytosanitary (SPS)
requirements. Certain agricultural products (e.g., processed
food products) also faced lengthy and costly product
registration requirements.

¶10. (U) On December 20, 2006, the U.S. and Panama signed a
far‐reaching bilateral agreement on SPS measures and
technical standards. Panama has implemented this agreement
through a series of resolutions and decrees. Under this
agreement, Panama has recognized the equivalence of the U.S.
meat and poultry inspection systems and of the U.S.
regulatory system for processed food products (including
diary products) thereby eliminating plant‐by‐plant and
shipment‐by‐shipment inspection requirements. In addition,
Panama has provided access for all U.S. beef and beef
products (including pet food), and all U.S. poultry and
poultry products, consistent with international standards.
Panama has lifted all import certification and licensing
requirements, except those agreed with the United States
(specifically, sanitary certificate requirements) and
formalized its recognition of the U.S. beef grading system
and cuts nomenclature. Additionally, Panamanian authorities
will notify U.S. authorities within 24 hours of any detention
of a U.S. shipment due to suspected SPS concerns. Finally,
Panama has eliminated its time‐consuming and costly product
registration procedures, and agreed to an automatic,
cost‐free and quick registration process for the small group
of agricultural products not exempted.

¶11. (U) Both the U.S. and Panama are subject to the WTO
Technical Trade Barriers obligations. Panama,s application
of its technical regulations and conformity assessment
procedures for nonagricultural goods conform with WTO
guidelines. Panama maintains a transparent standards
development process which permits the participation of
foreign countries and individuals in standards development
activities. Labeling and testing requirements are primarily
limited to food products. Products that comply with U.S.
labeling and marketing requirements are generally accepted
for sale in Panama.

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GOVERNMENT PROCUREMENT
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¶12. (U) Panamanian Law 22 of 2006 regulates government
procurement and other related issues. Law 22 was intended to
streamline and modernize Panama,s contracting system. It
establishes, among other things, an Internet‐based
procurement system (www.panamacompra.gob.pa) and requires
publication of all proposed government purchases. The
Panamacompra program requires publication of all government
purchases on the Internet; evaluation of proposals and
monitoring of the procurement process; consultation of public
bids, including technical specifications and tender
documents; classification of purchases by different
government institutions and gathering and analysis of data.
The law also created an administrative court to handle all
public contracting disputes. The rulings of this
administrative court are subject to review by the Panamanian
Supreme Court. The Panamanian government has generally
handled bids in a transparent manner, although occasionally
U.S. companies have complained that certain procedures have
not been followed.

¶13. (U) While Panama committed to become a party to the World
Trade Organization (WTO) Government Procurement Agreement
(GPA) at the time of its WTO accession, it remains an
observer and not a signatory. Its efforts to accede to the
GPA have stalled. Under the TPA, Panama would guarantee a
fair and transparent process for procurement covered by the
TPA. The TPA provides that U.S. suppliers will be permitted
to bid on procurement by a wide range of Panamanian
government entities, including the Panama Canal Authority,
over a certain threshold amounts on the same basis as
Panamanian suppliers. The TPA would strengthen rule of law
and fight corruption by criminalizing bribery in government
procurements and establishing at least one impartial
administrative or judicial authority to receive and review
supplier challenges. Disputes relating to Panama Canal
Authority procurement will continue to be addressed through
the authority,s existing procedures.

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EXPORT SUBSIDIES
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¶14. (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.

¶15. (U) In the context of its WTO accession, 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 subsidy has been repealed. The CAT program
has been extended until September 30, 2009 allowing exporters
to receive CATs equal to 5 percent of the export,s value
added, or 15 per cent through 2007, 10 percent through 2008
and 5 per cent through September 30, 2009. 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.

¶16. (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.

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Other Export‐Related Items
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¶17. (U) 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. Law 8 was
modified in December 2006, to provide this deduction only for
tourism related investments in excess of $3 million.

¶18. (U) Law 25 of 1996 provides for the development of export
processing zones (EPZs) 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.

¶19. (U) The government also provides other tax incentives to
EPZ companies. There are fifteen EPZs in Panama, two of which
are inactive. The Panamanian government is seeking to conform
the regulations governing EPZs to those of the WTO Agreement
on Subsidies and Countervailing Measures.

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INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION
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¶20. (U) Intellectual property policy and practice in
Panama is the responsibility of an "Inter‐institutional"
Committee. This committee consists of representatives from
six government agencies and operates under the leadership of
the Ministry of Commerce and 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.

¶21. (U) The bilateral TPA provides for improved standards for
the protection and enforcement of a broad range of
intellectual property rights, which are consistent with U.S.
standards of protection and enforcement and with emerging
international standards. Such improvements include
state‐of‐the‐art protections for digital products such as
U.S. software, music, text and videos; stronger protection
for U.S. patents, trademarks and test data, including an
electronic system for the registration and maintenance of
trademarks; and further deterrence of piracy and
counterfeiting.

¶22. (U) Under the TPA, Panama would be obligated to ratify or
accede to the Patent Cooperation Treaty, the Convention
Relating to the Distribution of Programme‐Carrying Signals
Transmitted by Satellite, and the Budapest Treaty on the
International Recognition of the Deposit of Microorganisms
for the Purposes of Patent Procedure by the date the TPA
enters into force. Panama would also be obligated to ratify
or accede to the International Convention for the Protection
of New Varieties of Plants by 2010 and the Trademark Law
Treaty by 2011.

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Copyrights
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¶23. (U) The government of Panama is a party to the WIPO
Copyright Treaty and the WIPO Performances and Phonographs
Treaty, and is a member of the Berne Convention for the
Protection of Literary and Artistic Works. The Copyright
Office, however, has not yet promulgated the underlying
regulations to the Treaties.

¶24. (U) Though Panama,s 1994 copyright law modernized
copyright protection and amendments to the law in 2004
provided for a special Copyright Office with anti‐piracy
enforcement powers, piracy remains a significant problem. For
example, although U.S. industry welcomes the effective police
and legal action which have significantly reduced the rate of
DVD piracy, Internet piracy is quickly emerging in Panama.
Films in theatrical release are often downloaded to DVDs and
videos, reproduced on optical discs, and then distributed by
street vendors.

¶25. (U) The TPA would require implementation of the WIPO
Treaties in a manner consistent with the U.S. digital
Millennium Copyright Act. The TPA would also extend
copyright protection from life of the author plus 50 years to
life of the author plus 70 years; would require both
governments to mandate the use of legal software in
government agencies; and would include provisions to protect
against the theft of encrypted satellite signals and the
manufacturing or sale of tools to steal such signals.

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Patents
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¶26. (U) Panama is a member of the Paris Convention for the
Protection of Industrial Property. 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.

¶27. (U) The TPA would address the issues of patent extension
for unreasonable approval delay, data exclusivity of material
submitted to regulators, and the prevention of patent linkage.

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Trademarks
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¶28. (U) Law 35 provides trademark protection, simplifies the
process of registering trademarks and allows for renewal of a
trademark for ten‐year periods. An important feature of the
law 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 online registration.

¶29. (U) The TPA would broaden the scope of trademarks to be
protected, enhance existing protection for geographical
indication, and provide for increased automation of trademark
services.

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SERVICES BARRIERS
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¶30. (U) 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. Under Law 41of 2007,
multinational companies seeking to open backoffice
operations in Panama are exempt from Panamanian income and
value added taxes on services provided to entities domiciled
outside of Panama that do not generate taxable income within
Panama.

¶31. (U) Under the bilateral TPA, Panama would accord
substantial market access across its entire services regime,
including financial services. Panama agreed to eliminate
certain measures that restrict investment in retail trade to
Panamanian nationals (specifically allowing U.S. companies to
engage in the retail sale of such company,s goods and
services; full access to investments in the retail sector
would be permitted after 2010 if the investment is at least
$3 million), to provide improved access in sectors like
express delivery, and to grant new access in certain
professional services that previously had been reserved
exclusively to Panamanian nationals. Panama also agreed that
portfolio managers in the United States would be able to
provide portfolio management services to both mutual funds
and pension funds in Panama. The TPA would also permit U.S.
insurance to provide certain types of insurance service in
Panama and to open branches or subsidiaries in Panama.

¶32. (U) Even under the TPA, investment by financial services
firms would still be restricted. Similarly, while to the TPA
would accord U.S. telecommunications companies greater access
to the Panamanian market (with the exception of mobile
services) and provide for greater transparency and
enforcement by the regulating agency, telecommunications
investments are hampered by the reluctance of Cable &
Wireless Panama (one of the two cellular telecommunications
companies operating in Panama and principal wire‐line
carrier) to negotiate and/or implement interconnection
agreements with new entrants.

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INVESTMENT BARRIERS
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¶33. (U) Panama maintains an open investment regime and is
receptive to foreign investment. There are no regulations
prohibiting the acquisition of Panamanian companies by
foreign nationals. Over the years the country has bolstered
its reputation as an international trading, banking, maritime
and services center.

¶34. (U) The Panamanian government was, until recently, often
unresponsive to concerns raised by U.S. investors. For
example, in highly regulated sectors, or in sectors where the
government grants a concession, companies have encountered a
lack of cooperation from government officials and been
subjected to changes to the terms of their concession
contracts. One such example related to pricing changes and a
cancellation of contracts without consideration for existing
law.

¶35. (U) 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. Under the bilateral TPA, the BIT would be
suspended after a period of 10 years. Investors will continue
to have important investment rights and protections under the
investment provisions of the bilateral TPA.

¶36. (U) The bilateral TPA would establish a more secure and
predictable legal framework for U.S. investors operating in
Panama. Under the bilateral TPA, all forms of investment
would be protected, including enterprises, debt, concessions,
contract and intellectual property. U.S. investors would
enjoy, in almost all circumstances, the right to establish,
acquire and operate investments in Panama on an equal footing
with local investors. Among the rights afforded to U.S.
investors are due process protections and the right to
receive a fair market value for property in the event of an
expropriation. Investor rights would be protected under the
bilateral TPA by an effective, impartial procedure for
dispute settlement that is fully transparent and open to the
public. Submissions to dispute panels and, dispute panel
hearings would be open to the public, and interested parties
would have the opportunity to submit their views.

¶37. (U) 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, U.S. companies have
expressed concern that Law 27 is ambiguous and may result in
greater government intervention and restrictions in the
energy sector.

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ELECTRONIC COMMERCE
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¶38. (U) In mid‐2001, Panama became the first country in
Central America to adopt a law specific to electronic
commerce. A collaboration between the private and public
sector, 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; it defines certification organizations; and
establishes a voluntary registration regime. In addition, in
August 2004 partial regulations regarding the 2001 law were
issued to facilitate the registration of certification
organizations, particularly in the maritime sector.

¶39. (U) Under the bilateral TPA, Panama would provide
non‐discriminatory treatment of digital products transmitted
electronically; not impose customs duties, fees or other
charges on digital products transmitted electronically; and
cooperate in numerous policy areas related to electronic
commerce. Additionally, the agreement would require
procedures for resolving disputes about trademarks used in
Internet domain names. The TPA would also recognize the
applicability of WTO rule to e‐commerce and establish a
procedure to resolve domain name disputes.

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OTHER BARRIERS
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‐‐‐‐‐‐‐‐‐‐
Corruption
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¶40. (U) 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."
The government continues to assert its commitment to
combating corruption as part of its overall agenda of
institutional reform. For example, it has instituted a
number of new online systems aimed at bringing greater
transparency and efficiency to government licitations,
contracting, and business start‐up procedures. The long‐term
sustainability and efficacy of these systems remains to be
seen. Moreover, the government has been slow to deliver
concrete results in enforcing anti‐corruption laws. To
date, the Torrijos administration has yet to prosecute any
high‐level governmental corruption cases. In addition,
various Panamanian laws tend to inhibit the prosecution of
corruption cases. For example, existing law allows
legislators and judges to sue journalists for libel and
slander, whether or not what they publish is the truth.
Other laws provide that only the National Assembly may
initiate corruption investigations against Supreme Court
judges and that only the Supreme Court could initiate
investigations against members of the National Assembly,
thereby encouraging, in effect, a "non aggression pact"
between these two branches of government. Supreme Court
judges are typically nominated to their 10‐year terms on the
basis of political consideration as opposed to recommendation
from civil society. Post has received a number of credible
allegations of judicial corruption that has appeared to
affect U.S. investors adversely.

¶41. (U) The anti‐corruption provisions in the bilateral TPA
would require Panama to ensure that bribery in trade‐related
matters is treated as a criminal offense, or is subject to
comparable penalties, under its law.
EATON