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