VZCZCXYZ0003
RR RUEHWEB

DE RUEHZP #0054/01 0192240
ZNR UUUUU ZZH
R 191623Z JAN 10
FM AMEMBASSY PANAMA
TO RUEHC/SECSTATE WASHDC 0309
INFO RUCPCIM/CIM NTDB WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHZP/AMEMBASSY PANAMA

UNCLAS PANAMA 000054 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON USTR OPIC KTDB PM
SUBJECT: Panama: 2010 Investment Climate Statement 
 
This document is unclassified. 
 
 
 
 
 
Panama: 2010 Investment Climate Statement 
 
 
 
 
 
Openness to Foreign Investment 
 
 
 
The Government of Panama (GOP) promoted economic growth over the 
last decade through open market policies and by encouraging trade. 
The GOP maintains a liberal regime for foreign investment and 
investment in financial instruments while with cooperation from the 
Panamanian business community, actively encourages foreign direct 
investment (FDI ).  A new President and a new alliance in control 
of the National Assembly have maintained this liberal regime. 
 
 
 
Laws in general make no distinction between domestic and foreign 
companies. In 1998, the GOP enacted the Investment Stability Law, 
which, among other things, guarantees foreign investors, who invest 
at least two million dollars in Panama, equal treatment under the 
law to that of their domestic competition. Under Law 41 of 2007, 
Panama has already encouraged multinational companies to open 
regional headquarters in Panama by offering various tax incentives 
and the Ministry of Commerce contains a specific office to assist. 
While Panamanian courts generally uphold the sanctity of contracts, 
there have been frequent allegations of corruption within the 
judicial system and within the executive branch. 
 
 
 
The United States and Panama successfully signed a bilateral free 
trade agreement on June 28th, 2007. The Panamanian National 
Assembly ratified the TPA on July 11, 2007, and the pact currently 
awaits Presidential submission to the U.S. Congress for 
ratification. 
 
 
 
This free trade agreement (also known as a Trade Promotion 
Agreement, or TPA)  with Panama would be a natural extension of an 
already largely open trade and investment relationship. Panama is 
unique in Latin America in that it is predominantly a 
services-based economy. Services represent about 80 percent of 
Panama's gross domestic product. 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 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. 
 
 
 
The Panamanian Vice Ministry of Foreign Trade within the Ministry 
of Commerce and Industry is the principal entity responsible for 
promoting foreign investment. It provides investors with 
information, expedites specific projects, leads investment-seeking 
missions abroad, and supports foreign investment missions to 
Panama. However, depending on the character of the planned 
investment, several different governmental entities may have a 
passive or active interest in the investment in terms of setting 
its parameters of operation, particularly within relevant 
regulations, land use, employment, special investment incentives, 
business licensing, etc. There is no formal investment screening by 
the GOP, although the government does monitor large foreign 
investments. 
 
 
 
The GOP does impose some limitations on foreign ownership, such as 
in the retail and media sectors where ownership must be Panamanian. 
Foreign retailers, however, have been able to work within the 
confines of Panamanian law primarily through franchise 
arrangements. Currently approximately 55 professions are reserved 
for Panamanian nationals only. In particular, medical 
practitioners, lawyers, accountants, and custom 
 
brokers, are currently reserved for Panamanian citizens. The GOP 
also requires 
 
foreigners in various sectors to obtain explicit permission to 
work, but the Embassy has 
 
not received reports of such restrictions hindering U.S. firms 
operating in Panama. Once 
 
ratified and implemented, the TPA will accord substantial market 
access to Panama's 
 
retail sector and across its entire services regimes, subject to 
certain exceptions. 
 
There is no de jure discrimination against U.S. or other foreign 
investors in most sectors. 
 
Panama, however, imposes visa requirements to limit the immigration 
of citizens from 
 
approximately 80 countries. Citizens of the United States may 
purchase a visa for $30 dollars at a relevant port of entry.  A 
domestic investment protection law between Panama was enacted in 
1991and remains in force; however, it has not yet been invoked or 
used in contravention of U.S. investment. 
 
 
 
 
 
The U.S. Embassy in Panama has received numerous property dispute 
complaints. The complaints include lost property, broken contracts, 
additional payments, accusations of fraud and corruption, and 
occasionally threats of violence. There are two root causes for a 
large proportion of the complaints - title issues and weak 
judiciary. The majority of land in Panama and almost all land 
outside of Panama City is not titled. The lack of clear title leads 
to competing claims to property and frequently to lawsuits. The 
judicial system's capacity to resolve contractual and property 
disputes is weak and open to corruption, as illustrated by the 
World Economic Forum ranking Panama 103 out of 133 in judicial 
independence. Americans should exercise more due diligence in 
purchasing real estate than in the United States.  Engaging a 
reputable attorney and licensed real estate broker is strongly 
recommended.  Law 80 of 2009, which regulates coastal property and 
islands, was recently passed.  Precise implementation rules and 
regulations may be published in 2010. 
 
 
 
Panama's privatization framework law does not distinguish between 
foreign and domestic investor participation in prospective 
privatizations. The law calls for prescreening of potential 
investors or bidders in certain cases to establish technical 
viability, but nationality and Panamanian participation are not 
criteria.  The Government of Panama privatized many entities 
starting in the mid-1990s, but there has not been a privatization 
in several years.  There have been reports of the water authority, 
convention center, and some functions of the public health system 
being privatized, but the current government has not indicated a 
desire to proceed with these or any other privatizations. 
 
 
 
Levels of Foreign Direct Investment (FDI) were over 10% of GDP in 
years 2006-2008.  The data for 2009 are not yet tabulated; however, 
based upon first quarter data and anecdotal evidence, the world 
economic and banking crises probably will lower the 2009 level of 
FDI.  FDI levels have been driven by investments in the Colon Free 
Zone, banking, and development/construction. 
 
 
 
The Panama Canal Authority started a seven year, $5.25 billion 
expansion project of the Panama Canal in September 2007.  The 
project contains a third set of locks, a deepening of Lake Gatun, 
and newly dredged channels.  All major contracts have been awarded, 
but there will be opportunities to supply goods and services to the 
contract winners.  The Panama Canal Authority also annually 
procures approximately $250 million in goods and services.  Foreign 
companies are able to bid on such contracts on the same terms and 
conditions as Panamanian companies. 
 
The Government of Panama has ambitious infrastructure investment 
plans that could run up to $12 billion in the next five years.  As 
part of this effort, the Government of Panama started the process 
to construct a $1 billion subway line.  The final requirements for 
the project will be publicized in early 2010 and line is planned to 
be completed before the May 2014 elections. 
 
 
 
In 2006, the GOP announced a $705million project led by London & 
Regional to develop a commercial/residential complex on 
 
a former air base. Dell, HP, Caterpillar, and twenty other 
multi-national corporations are located or in the process of 
locating in the complex. 
 
 
 
Progress in the academic and research community (City of 
 
Knowledge) continues and prominent NGOs, International 
Organizations, Universities, 
 
and private firms are located there. Pursuant to Law 6 of 1999, the 
GOP offers a variety 
 
of incentives to entities operating within the City of Knowledge. 
 
 
 
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, except the Panama Canal Authority and the Social 
Security System, which 
 
have their own Internet based procurement systems. National 
Security based contracts 
 
can be exempted from the system. 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 required 
procedures have not been followed. 
 
 
 
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. 
 
When it enters into force, the TPA will require Panama's procuring 
entities to use fair and transparent procurement procedures, 
including advance notice of purchases and timely and effective bid 
review procedures, for procurement covered by the TPA.  U.S. 
suppliers will be permitted to bid on procurement above certain 
thresholds of most Panamanian government entities, including key 
ministries and state-owned enterprises, on the same basis as 
 
Panamanian suppliers.  In particular, U.S. suppliers will be 
permitted to bid on procurement by the Panama Canal Authority, 
including contracts and subcontract for the $5.25 billion Panama 
Canal expansion project.  The TPA would strengthen rule of law and 
fight corruption by requiring Panama to ensure under its domestic 
law that bribery in matters affecting trade and investment, 
including in government procurement, is treated as a criminal 
offense or is subject to comparable penalties. Disputesrelating to 
Panama Canal Authority procurement will continue to be addressed 
through the authority's existing procedures.  Currently, importing 
entities are required to hold a commercial or industrial license to 
operate in Panama, which  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. 
 
 
 
Conversion and Transfer Policies 
 
 
 
Panama has no legal restrictions on the transfer abroad of funds 
associated with or 
 
capital employed in an investment. There are no restrictions on 
capital outflows or 
 
convertibility. Panama uses the U.S. dollar as legal tender. 
Currency conversion 
 
therefore is not an issue. 
 
 
 
There is no independent monetary policy in Panama, as Panama uses 
the 
 
U.S. dollar for its currency and does not have a Central Bank. 
Inflation, has historically been relatively low and predictable, 
except during the global rise in inflation during 2008. 
 
 
 
Expropriation and Compensation 
 
 
 
The Embassy is unaware of any current case of direct expropriation 
of property by the Panamanian government. 
 
 
 
Two American investors have informed the Embassy that they are 
considering filing a lawsuit under the Bilateral Investment Treaty 
claiming that Law 80 of 2009 on the titling of coastal land and 
islands constitutes an indirect expropriation of their land because 
it substantially diminished the value of their property. 
 
 
 
Panamanian law recognizes the concept of eminent domain. 
 
 
 
Dispute Settlement 
 
 
 
Panama has a court and judicial system built around a civil code, 
rather than the Anglo-American system of reliance upon case law and 
judicial precedent. Fundamental procedural rights in civil cases 
are broadly similar to those available in U.S. civil courts, 
although some notice and discovery rights, particularly in 
administrative matters, may be less extensive than in the U.S. 
Judicial pleadings are not always a matter of public record, nor 
are the processes always transparent. 
 
 
 
The business community lacks confidence in the Panamanian judicial 
system as anobjective, independent arbiter in legal or commercial 
disputes, especially when the case involves powerful local figures 
with political influence. Over the last few years, the majority of 
investment disputes involving U.S. investors has been related to 
landpurchasing and/or titling issues. Such disputes have been 
 
difficult to resolve due to the lack of adequate titling, 
inconsistent regulations, lack of trained officials outside of 
 
Panama City, and a slow and cumbersome judiciary. Some of these 
disputes have 
 
resulted from U.S. investors being unfamiliar with the Panamanian 
titling system. The 
 
court system is slow and prone to massive case backlogs and 
corruption. 
 
 
 
Panama's commercial law is comprehensive and well-established. Its 
bankruptcy law is 
 
antiquated and remains under review to be adapted to modern 
business practices. 
 
 
 
The GOP accepts binding international arbitration of disputes with 
foreign investors. 
 
Panama became a member of the International Center for the 
Settlement of Investment 
 
Disputes (ICSID) in 1996. The United States and Panama signed an 
amendment to the 
 
Bilateral Investment Treaty to incorporate Panama's membership into 
ICSID on June 1, 
 
¶2000. This amendment took effect in May 2001. Panama also became a 
member of the 
 
World Bank's Multilateral Investment Guarantee Agency (MIGA) in 
¶1997. 
 
Once ratified and implemented, the TPA will solidify the legal 
framework for U.S. 
 
investors operating in Panama. All forms of investment will be 
protected under the 
 
agreement, including enterprises, debt, concessions and similar 
contracts, and 
 
intellectual property. With very few exceptions, U.S. investors 
will be treated as well as 
 
Panamanian investors (or investors of any other country) in the 
establishment, 
 
acquisition, and operation of investments in Panama. The TPA draws 
from U.S. legal 
 
principles and practices to provide U.S. investors in Panama 
substantive and procedural 
 
protections that foreign investors currently enjoy under the U.S. 
legal system. The 
 
TPA's investor protections are backed by a transparent, binding 
international arbitration 
 
mechanism, under which investors may, at their own initiative, 
bring claims against a 
 
government for an alleged breach of the TPA's investment chapter. 
Submissions to 
 
investor-state arbitral tribunals would be made public, and 
hearings would generally be 
 
open to the public. Tribunals would also be authorized to accept 
amicus submissions 
 
from non-disputing parties. 
 
 
 
Performance Requirements and Incentives 
 
There are no legal performance requirements such as minimum export 
percentages, 
 
significant local requirements of local equity interest, or 
mandatory technology transfer. 
 
There are no established general requirements that foreign 
investors invest in local 
 
companies, purchase goods or services from local vendors or invest 
in R&D or other 
 
facilities. There are special tax and other incentives for 
manufacturers to locate in an 
 
export-processing zone (EPZ), which include call centers. 
 
Official support for investment and business activity is especially 
strong for the Colon 
 
Free Zone (CFZ), the banking sector, the tourism sector, and EPZs. 
Companies in the 
 
CFZ pay  basic user fees and a 5% dividend tax  (or 2% of net 
profits if there are no dividends.   Banks and individuals in 
Panama pay no tax on interest or 
 
other income earned outside Panama. No taxes are withheld on 
savings or fixed time 
 
deposits in Panama. Individual depositors do not pay taxes on time 
deposits. EPZs 
 
offer tax-free status, special immigration privileges, and license 
and customs exemptions 
 
to manufacturers who locate there. Investment incentives offered by 
the GOP are 
 
available equally to Panamanian and foreign investors. The 
incentives do not 
 
discriminate or distinguish between Panamanians and foreign 
investors. 
 
 
 
Right to Private Ownership and Establishment 
 
 
 
With the current exception of retail trade, the media, and several 
professions, foreign 
 
and domestic entities have the right to establish, own, and dispose 
of business interests 
 
in virtually all forms of remunerative enterprise. Foreigners need 
not be legally resident 
 
or physically present in Panama to establish corporations or to 
obtain local operating 
 
licenses for a foreign corporation. Business visas (and even 
citizenship) are readily 
 
obtainable for significant investors. Banking, financial services, 
and the legal profession 
 
are receptive toward attracting foreign business. 
 
 
 
Once ratified and implemented, the U.S.-Panama TPA Panama would 
accord 
 
substantial market access across its entire services regimes, 
subject to very few 
 
exceptions, using a "negative list" approach. Under the TPA, Panama 
agreed to 
 
dismantle significant services and investment barriers, such as 
lifting restrictions on 
 
investment in retail trade , 
 
and providing new access in professional services that previously 
had been reserved 
 
exclusively for Panamanian nationals. This would allow U.S. firms 
to take full advantage 
 
of the benefits of the TPA across all sectors, including, but not 
limited to express 
 
delivery, logistics, energy, audiovisual, computer, construction, 
wholesaling, health, 
 
education, and environmental services. U.S. financial service 
suppliers have full rights to 
 
establish subsidiaries or branches for banks and insurance 
companies. Portfolio 
 
managers in the U.S. would be able to provide portfolio management 
services to both 
 
mutual funds and pension funds in Panama. Even under the TPA, 
investment by 
 
financial services firms would still be restricted. 
 
 
 
Protection of Property Rights 
 
 
 
Intellectual property policy and practice in Panama is the 
responsibility of an Inter-institutional Committee for Intellectual 
Property (CIPI), which includes representatives from five 
government agencies - Colon Free Zone, Intellectual Property 
Registry, Ministry of Education (for copyrights), Customs, and the 
attorney general - under the leadership of the Ministry of Commerce 
and Industry. CIPI coordinates enforcement actions and develops 
strategies to improve compliance with the law.  The creation in 
2002 of a specialized prosecutor for intellectual property-related 
cases has strengthened the protection and enforcement of IPR in 
Panama.  However, given Panama's role as a transshipment point, 
U.S. industry remains concerned that Panama will become susceptible 
to trading in pirated and counterfeit goods. 
 
 
 
Mortgages, liens, and other security interests are recognized and 
registered in the public 
 
registry. Much of the information contained in the public registry 
is available on-line. 
 
The public property registry has been expanded and modernized. 
Unique features of 
 
Panamanian law and practice in specific areas (including but not 
limited to banking, 
 
accounting requirements, formation and functioning of corporations, 
and taxation) make 
 
retention of local legal counsel highly advisable. 
 
 
 
The U.S. Embassy in Panama has received numerous property dispute 
complaints. The complaints include lost property, broken contracts, 
additional payments, accusations of fraud and corruption, and 
occasionally threats of violence. There are two root causes for a 
large proportion of the complaints - title issues and weak 
judiciary. The majority of land in Panama and almost all land 
outside of Panama City is not titled. The lack of clear title leads 
to competing claims to property and frequently to lawsuits. The 
judicial system's capacity to resolve contractual and property 
disputes is weak and open to corruption. Americans should exercise 
more due diligence in purchasing real estate than in the United 
States. Engaging a reputable attorney and licensed real estate 
broker is strongly recommended.  Law 80 of 2009, which regulates 
coastal property and islands, was recently passed.  Precise 
implementation rules and regulations may be published in 2010. 
 
 
 
The legal framework for the protection of intellectual property 
rights (IPR) in Panama has improved significantly over the past 
 
decade. The government passed an Anti-Monopoly Law in 1996 
mandating the creation of commercial courts to hear anti-trust, 
patent, trademark, and copyright cases exclusively. Two district 
courts and one superior tribunal began to operate in June 1997 and 
have been adjudicating intellectual property disputes. In January 
2003, the GOP designated an IPR-specific prosecutor with national 
authority, which has consolidated and simplified prosecution of 
those cases. 
 
IPR 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 including organizing training and public awareness 
seminars, among other 
 
activities. The creation of a specialized prosecutor for 
intellectual property-related cases 
 
has strengthened the protection and enforcement of 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. 
 
 
 
The 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. 
 
 
 
Panama is a member of the World Intellectual Property Organization 
(WIPO), the 
 
Geneva Phonograms Convention, the Brussels Satellite Convention, 
the Universal 
 
Copyright Convention, the Bern Convention for the Protection of 
Literary and Artistic 
 
Works, the Paris Convention for the Protection of Industrial 
Property, and the 
 
International Convention for the Protection of Plant Varieties. In 
addition, Panama was 
 
one of the first countries to ratify the WIPO Copyright Treaty and 
the WIPO 
 
Performances and Phonograms Treaty, although the GOP has yet to 
introduce 
 
implementing legislation to put these treaties fully into force in 
Panama and to establish 
 
new offenses, such as those needed for internet-based copyright 
violations and to 
 
enhance border measures. 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. 
 
 
 
Copyrights 
 
 
 
The National Assembly in 1994 passed a comprehensive copyright bill 
(Law 15), based 
 
on a World Intellectual Property Organization model.  Law 15 
provides copyright 
 
protection based on the life of the author plus 50 years.  If there 
are co-authors, the 
 
protection is until the death of the last author plus 50 years. 
Collective works, software 
 
and audiovisual works are also covered for 50 years since the date 
of publication or after 
 
the work is finished (with no publication). The law modernizes 
copyright protection in 
 
Panama, provides for payment of royalties, facilitates the 
prosecution of copyright 
 
violators, protects computer software, and makes copyright 
infringement a felony. 
 
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 problem. Films in theatrical release are 
often downloaded to 
 
DVDs and videos, reproduced on optical discs, and then distributed 
by street vendors. 
 
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 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. 
 
 
 
Patents 
 
 
 
Panama is a member of the Paris Convention for the Protection of 
Industrial Property. 
 
Panama's Industrial Property Law (Law 35 of 1996) provides a term 
of 20 years of 
 
patent protection from the date of filing. Law 35 provides specific 
protection for trade 
 
secrets. 
 
 
 
Under the TPA, Panama must adjust the patent term for products 
(other than pharmaceutical products) to compensate for unreasonable 
delays that occur while granting a patent.  For pharmaceutical 
products, Panama may, but is not required to, adjust the patent 
term if there is an unreasonable delay in granting a patent or 
providing marketing approval for a product. 
 
 
 
Trademarks 
 
 
 
Panama's legal system provides for a trademark protection regime, 
which includes a simplified process of trademark registration, and 
the ability to renew a trademark for 10-year periods.  However, 
U.S. companies report judicial irregularities and corruption once 
the cases reach the courts.  Panama ranks 103 out of 133 by the 
World Economic Forum in judicial independence.  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. 
 
The Trademark Registration Office's website allows applicants to 
track the status of their 
 
Trademark and Patent applications and the creation of a Customer 
Service Center. The 
 
Trademark Registration Office claims to be the most advanced in the 
region, with 90% 
 
automation. This office reports that it has reduced trademark 
registration processing 
 
time in half, down from one year to six months. This office also 
reports that it has 
 
conducted classes on the importance of IPR protection at the 
Technical University of 
 
Panama and recently sponsored a National Inventor's Competition 
that brought 
 
inventors together with prospective investors and customers. 
 
Under the TPA, Panama must protect trademarks and geographical 
indications, including by refusing protection or recognition of a 
geographical indication that is likely to be confusingly similar to 
a preexisting trademark.  Panama must also have a system of 
registration that provides efficient and transparent procedures 
governing applications to protect trademarks and geographical 
indications. 
 
Transparency of Regulatory System 
 
 
 
U.S. businesses  are concerned about the responsiveness and 
transparency of 
 
most regulating agencies.  In the last half of 2009, several U.S. 
companies believed regulatory agencies were seeking additional 
fees/taxes that were not contained in original 
contracts/concessions or were seeking to impose new taxes 
retroactively. 
 
For one American company, Standard and Poor's lowered the corporate 
credit and senior unsecured debt ratings, and also lowered the 
rating on $300 million senior notes to 'BB+' from 'BBB-'.  S&P 
stated the downgrade was due to Panamanian government changes in 
the regulatory framework. 
 
 
 
The frequency of unexpected or retroactive changes in the 
regulatory framework that have been reported to the Embassy 
increased in the second half of 2009.  The Eurasia Group reports 
that "sectors that have a direct impact on consumers or are high on 
the list of voters' priorities may also be a target." 
 
 
 
In the banking and finance sector, private entities generally give 
good marks to 
 
the Panamanian entities that regulate them, such as the 
Superintendent of Banks. 
 
 
 
On July 12, 2006, Panama enacted Law 27 which allows the GOP to 
create enterprises 
 
to conduct oil and gas exploration, distribution, production, 
storing, industrialization, 
 
commercialization, importation, exportation and refining 
activities. This gave rise to 
 
concerns that Law 27 is ambiguous and may result in greater 
government intervention 
 
and restrictions on the energy sector. 
 
 
 
In late 2008 and early 2009 the GOP started to change the rules 
governing the import and sale of refined petroleum products.  Fuel 
importers frequently did not consider the process to be fair and 
transparent. 
 
 
 
Efficient Capital Markets and Portfolio Investment 
 
 
 
Panama's 1998 Banking Law with amendments from the 2008 Banking Law 
regulates the country's financial sector.  The law, which 
concentrates regulatory authority in the hands of a powerful and 
well-financed Superintendent (http://www.superbancos.gob.pa), 
transformed the previously inadequate regime into one that 
approaches international standards. 
 
 
 
Traditional bank lending from the well-developed banking sector is 
relatively efficient andis the most common source of financing for 
both domestic and foreign investors, offering the private sector a 
variety of credit instruments. The free flow of capital is actively 
supported by the GOP and is viewed as essential to Panama's large 
banking sector. 
 
 
 
Panamanian and foreign investors are treated equally vis-????-vis 
government policy and 
 
law with respect to access to credit. Panamanian interest rates 
closely follow 
 
international rates (i.e., the London Interbank Offered Rate - 
LIBOR), plus a country-risk 
 
premium. However, the global financial crisis has affected rates 
and curtailed the 
 
availability of funds from correspondent banks abroad. 
 
 
 
Panama passed a securities law that established a National 
Securities 
 
Commission to regulate brokers, fund managers, and all matters 
related to the securities 
 
Industry in 1999. The Commission began to function in early 2000. 
Some private companies, including multinational corporations, have 
issued bonds in the local securities market. Companies rarely issue 
stock on the local market and, when they do, they often try to 
issue shares with no voting rights. As a result, these stocks are 
less attractive than 
 
those with voting rights. Moreover, investor demand is generally 
limited because of the 
 
small pool of persons, companies, and investors with the resources 
to invest. 
 
Interest from time deposits and certain bonds are tax-exempt. There 
is a 10% 
 
withholding tax on dividends, although capital gains from the sale 
of equities listed on 
 
the Panamanian exchange is tax exempt. While wealthy Panamanians 
may hold 
 
overlapping interests in various businesses, Post is unaware of any 
established practice 
 
of having cross-shareholding or stable shareholder arrangements, 
designed to restrict 
 
foreign investment through mergers and acquisitions. 
 
 
 
There are no restrictions on, nor practical measures to prevent, 
hostile foreign investor takeovers, nor are there regulatory 
provisions authorizing limitations on foreign participation or 
control or other practices to restrict foreign participation. There 
are no government or private sector rules to prevent foreign 
participation in industry standards setting consortia. 
 
 
 
Financing for consumers is also relatively open, as mortgages, 
credit cards and personal 
 
loans, even to those earning modest incomes, are widely available 
on terms similar to 
 
those in the U.S. 
 
 
 
Political Violence 
 
 
 
Panama's Constitution provides for the right of peaceful assembly, 
and the Government 
 
generally respects this right.  No authorization is needed for 
outdoor assembly, although 
 
prior notification for administrative purposes is required. 
 
 
 
Unions, student groups, employee associations and unaffiliated 
groups frequently attempt to impede traffic and commerce in order 
to force the government or business to agree to demands. 
 
Corruption 
 
 
 
 The Transparency International Corruption Index ranks Panama 84th 
out of 180 countries world in 2009.  There is evidence of 
corruption in all levels of the judicial system. Weak 
administration and accountability among the branches of government 
and in rural areas facilitated corruption. 
 
 
 
The general perception is that anti-corruption laws are not applied 
rigorously and that the 
 
government enforcement bodies and courts have lacked effectiveness 
in pursuing and prosecuting those accused of corruption, 
particularly in high-profile cases. 
 
Panamanian law provides 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 and personal considerations. 
 
 
 
The GOP has not acted to dismantle Panama's dictatorship-era libel 
and contempt laws, 
 
which often are used to punish whistleblowers, while those accused 
of acts of corruption 
 
are seldom prosecuted and almost never jailed. Panama's government 
lacks strong 
 
systemic checks and balances that incentivize accountability. The 
lack of a strong 
 
professionalized career civil service work force in Panama's public 
sector also hinders systemic change. 
 
 
 
Complaints by American investors about allegedly corrupt judicial 
and governmental decisions prejudicial to their interests remain 
common and problematic. Nevertheless, other than cases involving 
drug trafficking , GOP officials, judges, and legislators are 
seldom investigated, much less convicted on corruption charges 
 
 
 
While corruption is present in many areas, Panama's Supreme Court 
has been a 
 
particular concern. In March 2005, four Court magistrates hurled 
accusations of 
 
corruption against each other, provoking wide-spread public demands 
for the dismissal 
 
of all nine justices. In response, President Torrijos created a 
State Justice Commission 
 
to recommend improvements to the administration of justice, mainly 
in the areas of 
 
transparency, efficiency, and public accessibility. The Commission 
released its report in 
 
October 2005, but thus far no long term substantial changes have 
been made. In 
 
November 2005, the National Assembly's Judicial Affairs Committee 
dismissed a 
 
complaint filed by NGO Citizens' Alliance for Justice against eight 
 
of the nine 
 
magistrates for questionable rulings. Coincidentally, a day later 
the U.S. government 
 
revoked the visa of Supreme Court magistrate Winston Spadafora 
under section 212(f) 
 
of the Immigration and Nationality Act (regarding public 
corruption). 
 
 
 
 
 
To increase transparency and reduce corruption, the government 
transferred certain 
 
functions to computer-based processes over the past several years 
ago. The government's internet-based procurement system 
(PanamaCompra) requires publication of all proposed government 
purchases on the internet, the evaluation of proposals and 
monitoring of the procurement process, and advance public notice of 
intended procurement, including technical specifications and tender 
documents. An administrative court handles all public contracting 
disputes. The rulings of this administrative court are subject to 
review by the Panamanian Supreme Court. 
 
 
 
Additionally, commercial or industrial licenses may be obtained 
through Panama's online 
 
business registration service, PanamaEmprende. This innovation, in 
which a 
 
prospective business owner may register his or her business in 15 
minutes, has reduced 
 
dramatically the number of opportunities for corruption from the 
former process which 
 
took 60 days and involved numerous interactions with local 
officials. 
 
Bilateral Investment Agreements 
 
 
 
Panama has bilateral investment agreements with the United States, 
the United 
 
Kingdom, France, Switzerland, Germany, Taiwan, Canada, Argentina, 
Spain, Chile, 
 
Uruguay, the Czech Republic, Netherlands, Cuba, Mexico, Dominican 
Republic, Korea 
 
and Ukraine. Commerce Ministry officials have said that there have 
been some 
 
exploratory talks toward investment agreements with other 
countries, but they 
 
acknowledge that these discussions have a lower priority than 
ongoing free trade 
 
negotiations. The U.S.-Panama Bilateral Investment Treaty (BIT) 
entered into force in 
 
1991 (with additional amendments in 2001 to reflect Panama's 
joining the International 
 
Center for the Settlement of Investment Disputes (ICSID)). 
 
 
 
If the TPA is implemented, it would supersede the BIT. 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 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 TPA. The 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. 
 
 
 
OPIC and Other Investment Insurance Programs 
 
 
 
The United States and Panama signed a comprehensive Overseas 
Private Investment 
 
Corporation (OPIC) agreement in April 2000.  OPIC offers both 
financing and insurance 
 
coverage against expropriation, war, revolution, insurrection, and 
inconvertibility for 
 
eligible U.S. investors in Panama.  OPIC can insure up to US $200 
million per project for 
 
U.S. investors, contractors, exporters, and financial institutions. 
Financing is available for overseas investments that are wholly 
owned by U.S. companies or that are joint 
 
ventures in which the U.S. firm is a participant. Panama is a 
member of the Multilateral 
 
Investment Guarantee Agency (MIGA). 
 
 
 
Labor 
 
 
 
The most common concern among American businesses in Panama is the 
labor code, specifically the cost and time of laying off or firing 
an employee.  According the World Bank's Doing Business 2010 
Report, Panama's "Employing Workers" rank was 177 out of 183 based 
on difficulties in hiring and firing workers. 
 
 
 
Panama's non-agriculture labor force is approximately 1.2 million 
with 6.6% unemployment. Approximately 43% are employed in the 
informal sector, with a lower rate of informal employment in Panama 
capital area (37%) compared to indigenous areas (80%).  Panamanian 
labor law, in requiring the Labor Ministry's permission to dismiss 
employees for "economic reasons," may act as a legal barrier to a 
 
firm wishing to reduce its workforce or repatriate its capital. If 
a firm is insolvent, the law also gives workers 
 
priority over all other non-secured creditors. 
 
 
 
The monthly minimum wage varies between the region of Panama and 
the industry; the range is between $220.48 and $416.00. 
 
 
 
Despite spending approximately 13% of the central government budget 
and 5% of GDP on education, approximately half of the students fail 
their university entrance exam. The lack of skilled labor is of 
serious concern to both Panamanian and foreign investors. The 
problem with the lack of skilled Panamanian labor is compounded by 
the Panamanian law that mandates 90% of an employer's staff must be 
Panamanian. 
 
 
 
 
 
While the GOP has periodically revised its labor code, including a 
modest revision in 
 
1995, it remains highly restrictive. Several sectors, including the 
Panama Canal 
 
Authority, the Colon Free Zone, and export processing zones/call 
centers are covered by 
 
their own labor regimes. Employers outside of these areas such as 
tourism have 
 
called for greater flexibility, easier termination of workers, and 
the elimination of many 
 
constraints on productivity-based pay. Employers frequently cite 
the lack of skilled labor 
 
as a constraint to growth. 
 
 
 
Foreign-Trade Zones/Free Ports 
 
 
 
Law 25 of 1996 provides for the development of "export processing 
zones" (EPZ's) as 
 
part of an effort to broaden the Panamanian manufacturing sector 
while promoting 
 
investment in former U.S. military bases transferred to Panama. 
The law also includes 
 
specific labor and immigration provisions that are more favorable 
than the current 
 
 
 
Panamanian labor code.  The government also provides numerous tax 
incentives to 
 
companies that operate in EPZs. Companies, whether Panamanian or 
foreign, operating 
 
in these zones may import inputs duty- free if products assembled 
in the zones are to be 
 
exported. Of the seventeen registered EPZs, most remain small and 
underdeveloped with 
 
only a few tenants. They face difficulties combating Panama's high 
relative wages, low 
 
industrial base, and weak infrastructure, particularly outside the 
Panama-Colon Corridor. 
 
 
 
Law 25 of 2006 also provides for the development of call centers. 
Fifty-fourcompanies are licensed to operate call centers and the 
employ 8,829 workers. 
 
Law 41 of 2004 provides for the development of "Panama Pacific 
Special Economic Area" in the former Howard Air Base to encourage 
investment, specifically regarding logistics, in the area. Dell, 
HP, Proctor & Gamble, Singapore Technologies Aerospace, 
Caterpillar, and others are located there.  London & Regional, the 
overall developer, will invest a minimum of $705 million for the 
development. 
 
 
 
Index/Rankings 
 
 
Transparency International Corruption Index  (2009) 3.4,  ranked 
84th  in the world 
Heritage Economic Freedom (2009) 64.7, ranked 55th in the world 
World Bank Doing Business  (2010) ranked 77th in the world 
 
 
 
 
Foreign Direct Investment Statistics 
 
 
 
Foreign Direct Investment (FDI) in Panama 
 
1998-2009 
 
(In nominal US$ millions) 
 
 
 
 
 
1998 1,219 
 
1999 517 
 
2000 624 
 
2001 467 
 
2002 98 
 
2003 818 
 
2004 1,019 
 
2005 962 
 
2006 2,498 
 
2007 1,907 
 
2008  2,402 
 
2009 (1) (2) 387 
 
Source: GOP Comptroller General's Office 
 
(1) Preliminary figures. 
 
(2) January 1, 2009 through March 31, 2009. 
 
 
 
Web Resources 
 
Contraloria General de la Republica http://www.contraloria.gob.pa/ 
GILMOUR