WORLD TRADE  
ORGANIZATION  WT/REG196/M/1 
24 October 2008 
 (08-5170) 
Committee on Regional Trade Agreements 
Fiftieth Session  
 
 
 
CONSIDERATION OF THE BILATERAL PROTOCOL BETWEEN EL SALVADOR AND 
PANAMA TO THE FREE TRADE AGREEMENT BETWEEN CENTRAL AMERICA AND 
PANAMA, GOODS AND SERVICES 
 
Note on the Meeting of 18-19 September 2008  
 
Chairman:  Mr. D. Brauns (Germany) 
 
 
1. The meeting was convened in document WTO/ AIR/3202 and Corrigendum 2, dated 5 June 
and 9 July 2008, respectively. 
2. Under Agenda Item B.V of its 50th Session, the Committee on Regional Trade Agreements 
(CRTA or the Committee) took up consideration of the Bilateral Protocol between El Salvador and 
Panama to the Free Trade Agreement (FTA) between Central America and Panama, (hereinafter 
referred to as 'the Agreement'), goods and services. 
3. The Chairman  said that the Agreement had entered into force on 11 April 2003 and had been 
notified by the Parties to the WTO on 24 February 2005 under Article XXIV:7(a) of the GATT 1994 
and the Understanding on the Interpretation of  Article XXIV of GATT 1994 as an Agreement 
establishing a free-trade area (document WT/REG 196/N/1) and under GATS Article V:7(a) as an 
Agreement providing for the liberalization of trade in services within the meaning of Article V of the 
GATS (document S/C/N/325).  The text of the Ag reement had been circulated to Members as 
document WT/REG196/1 dated 4 May 2005, was also av ailable, together with its Annexes, on the 
Parties' official websites.  The Factual Presentation on the goods and services aspects (document 
WT/REG196/3, dated 9 May 2008) had been prepared by the Secretariat on its own responsibility in full consultation with the Parties, in accordance w ith paragraph 7(b) of the Transparency Mechanism 
for Regional Trade Agreements (document WT/L/671) .  In addition, written questions and replies on 
the Agreement had been recently distributed in document WT/REG196/4, date d 10 September 2008.  
He proposed to organize the consideration of the Ag reement by asking first the Parties and then other 
Members to give any general comments.  The Co mmittee would then turn to the specifics of the 
Agreement using the Factual Presentation, doc ument WT/REG196/3, to guide the debate. 
4. The representative of Panama
, on behalf of the Parties, thanked the Secretariat for preparing 
the factual presentation and Members for their interest .  This was also an opportunity to acknowledge 
the extensive efforts made by the Parties to coordina te the joint work that had enabled them to present 
the Agreement. 
5. In the Parties' view, in a short period of time , the Agreement had made it possible to increase 
and diversify exports and attract new investment in to the two countries, thereby expanding free trade 
through even more extensive integration of the two economies, within the framework of the GATT 
and the GATS.  The Agreement was a source of great satisfaction to the Partie s and permitted them to 
envision future trade relations between themselves with considerable optimism. WT/REG196/M/1 
Page 2 
 
 
  6. The Agreement (the Bilateral Protocol) had b een signed within the legal framework of the 
Free Trade Agreement between Panama and five  Central American countries (Costa Rica, 
El Salvador, Guatemala, Honduras and Nicaragua).  It was applied on a bilateral basis, unless 
otherwise stipulated, between Panama and each Ce ntral American country.  The tariff elimination 
programme, specific rules of origin and the Anne xes concerning cross-border trade in services had 
been negotiated, and were also applied, on a bila teral basis.  As regards the FTA between Central 
America and Panama, it was important to note th at Central America was Panama's second largest 
trading partner, and therefore of great importance fo r Panamanian trade.  The Panamanian market was 
the 10th largest destination of Salvadoran exports.  The Agreement was designed to expand and 
enhance bilateral trade relations by establishing the basis for open trade.  El Salvador was the first 
Central American country to sign the Bilateral Pr otocol to the FTA between Central America and 
Panama and the first country to implement the Agreem ent.  The entry into force of the Agreement in 
April 2003 clearly marked the beginning of a ne w chapter in trade relations between the two 
countries.  After four years of implementation, it was a good time to pause and reflect on the results achieved to date.  The factual presentation exercise was highly relevant to that purpose.  A detailed 
evaluation of the results achieved over this peri od of implementation showed the immediate and 
tangible benefit of legal certainty that the Agreem ent had given to trade relations between the two 
countries by establishing clear rules and affording long-term predictability for investors.  There had 
been quantifiable results that showed an increase  in trade flows and investment.  The Agreement 
contained provisions covering not only the traditiona l areas relating to trade in goods, but also those 
concerning trade in services, investment, compe tition policy and government procurement.  It had 
benefited both countries by, inter alia , eliminating trade barriers, facilitating cross-border movement 
of goods and services, increasing investment opportunities, and creating effective procedures for implementation and administ ration of the Agreement. 
7. He then highlighted a few aspects of the Agreem ent that the Parties viewed as particularly 
important and that in their view, showed its consis tency with Article XXIV of the GATT.  On trade in 
goods, the Parties had undertaken to eliminate expo rt and import restrictions, except for those in 
keeping with Article XI of the GATT 1994.  The Agreement had also led to the establishment of a free trade area for natural and manufactured products or iginating in the territories of the Parties and to 
the elimination of trade barriers.  The scope of the Agreement was gradually expanding to encompass 
sensitive products through progressive tax reduction, and exporters had gained improved access to the 
other Party's markets for their products, thus genera ting export opportunities.  Before the entry into 
force of the Agreement, trade between the two coun tries had amounted to US$43.3 million in 2002, of 
which 82.3% was from El Salvador to Panama and 17.7% from Panama to El Salvador.  While trade 
in goods between the Parties following the implem entation of the FTA, from 2003 to 2006, had been 
marked by a growing share of imports from El Salva dor, in keeping with the trend that had preceded 
the Agreement's entry into force, greater stab ility in the movement of Panamanian goods to 
El Salvador had been recorded during that same  period.  In 2006, Panama's exports to Central 
America had accounted for 12% of global exports (US$123.5 million), i.e., 1% more than exports 
recorded in 2005 (US$106.3 million).  El Salvador ranked fifth in that year as a destination for 
Panama's exports to the region, with an averag e export value of US$9.2 million over the previous 
five years (2002-2006).  In 2006, the c.i.f. va lue of goods imported from El Salvador reached 
US$63.2 million, turning El Salvador into Panama's  third largest supplier in the Central American 
region during the past ten years.  Current bilatera l trade in Panama's case was dominated by industrial 
products, followed by agricultural, agro-industrial a nd fisheries products;  in the case of El Salvador, 
the industrial products were followe d by agro-industrial products and a smaller share of products from 
the fisheries and agriculture sectors.  Panama's major exports to El Salvador were bovine meat, 
medicines, aluminium profiles, and school exerci se books.  Panama's imports from El Salvador 
included non-alcoholic beverages ot her than fruit juices, detergents and cleaning products, lubricating 
oils, medicines, paperboard to be assembled as beve rage containers, hollow profiles of aluminium, not 
alloyed, toilet paper, paints, electric accumulato rs, aluminium tubes and pipes, reviews and other 
periodical publications, re-hydration salts or gluco se, and roundabouts, swings, shooting galleries and  WT/REG196/M/1 
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  other fairground amusements, and travelling theatr es.  Exports from El Salvador to Panama had 
shown 96% growth from US$46 million in 2003 to US$90 million in 2007.  Among the most dynamic 
exports were fruit-based beverages, medicines, tuna , electric accumulators, disposable plastic articles, 
and paper and paperboard articles.   The Agreement had also helped foster a more marked export 
culture in El Salvador, with more than 15 0 Salvadoran businesses currently exporting over 
400 products to the Panamanian market. 
8. As far as rules were concerned, both countries had reaffirmed their rights and obligations 
under the WTO Agreements.  With regard to origin, specific rules had been negotiated on the basis of 
a change in tariff classification, leaving the regional value content method as an additional alternative.  
As regards technical barriers to trade, the Ag reement represented an advance over the relevant 
WTO Agreement.  In the sanitary and phytosanitary sphere, the Parties had undertaken to accept, to 
the fullest extent possible, thei r respective sanitary and phytosanitary measures as equivalent.  The 
Agreement contained the provisions needed to ensure that application of standards in this regard did 
not adversely affect trade, as they needed to be gr ounded in scientific princi ples, be maintained only 
where there were sufficient grounds, and be based on risk assessment.  The Agreement further 
allowed for the possibility, during the transition peri od, of applying bilateral safeguard measures with 
the obligation to provide compensation, and left  the possibility of applying multilateral safeguards 
open, provided that the imports in volved represented a substantial shar e and contributed significantly 
to serious injury or threat thereof.   
9. The representative of El Salvador , on behalf of the Parties, took the floor to present aspects 
relating to trade in services and investment, as well  as other horizontal provisions.  The Parties viewed 
the services trade aspects as particularly important , since, they showed the consistency of the 
Agreement with Article V of the GATS.  The Par ties had provided for services liberalization on the 
basis of the principles of national and most-favoured nation (MFN) treatment and the right to provide 
services without establishing local presence.  The Agreement had been negotiated under a 
negative-list approach, thus ensuring a high level of  transparency since the restrictions applied by 
Panama and El Salvador were set forth in the a nnexes of reservations.  Pa nama had open banking and 
insurance sectors.  As a result of  the Agreement, El Salvador likewise afforded Panamanian banks 
preferential and reciprocal treatment, and it had increased opportunities for Pa namanian enterprises to 
buy shares in Salvadoran  insurance companies. 
10. As regards investment, the Agreement stipulated  a national treatment modality that ensured a 
high level of certainty and transparency and r ecognized each country's obligation to apply fair 
measures with regard to the management, operation, use, returns on or disposal of investments made 
in the territories of the contracting Parties.  It also established a form of MFN treatment by giving 
reciprocal guarantees of treatment no less favourable than that accorded to any other country, thus 
ensuring non-discrimination with respect to investme nts by third countries.  Equitable treatment was 
afforded to investors on the basis of the principle that they might not be subject to arbitrary or 
discriminatory measures liable to prevent the oper ation, management, use, expansion, sale or 
liquidation of investments.  The last key elemen t was the establishment of expeditious mechanisms 
for settling disputes and processing claims in regard to  investments.  This provided a high level of 
legal certainty.  He emphasized that the Agreement had made the two countries attractive in terms of 
foreign direct investment for investors from either Party.  Since the Agreement had come into effect, 
Panamanian investment in El Salvador had so ared to unprecedented levels, from US$100 million in 
2003 to US$1,054 million in 2007.  The financia l, tourism and communications sectors and industry 
in general were among the main targets of Panama's  investments in El Salvador.  El Salvador was 
becoming one of Panama's major investment partne rs in the region.  Salvadoran investment was 
centred on the banking and construc tion sectors, and on the distributio n and sale of automobiles and 
accessories.  In the banking sector, El Salvador had se t up two major operations in the last five years, 
collectively accounting for sums running into the millions of dollars.  In the construction sector, 
significant operations had included the financing and building of a 166-store shopping mall known as WT/REG196/M/1 
Page 4 
 
 
  the Multiplaza Pacific, and a hotel opened in 2004, with an investment of US$100 million.  A 
transaction involving around US$10 million recently ha d taken place in the automotive sector, which 
would consolidate the Salvadoran enterprise's presen ce at the Central American level and distribute in 
the Panamanian market Mazda, Ch rysler, Jeep, Ssang Yong and Wuling. 
11. The Agreement's horizontal provisions include d the dispute settlement mechanism, which 
provided for a direct settlement, conciliation and arbitra tion procedure.  In this connection, the Parties 
had undertaken to endeavour at all times to agree on the interpretation and application of the 
Agreement and to make every attempt through cooper ation and consultations to arrive at a mutually 
satisfactory resolution of any issue liable to affect its operation.  The Agreement also provided for the 
possibility of bringing a case before the WTO disp ute settlement mechanism, where the matter at 
issue was the subject of a multilateral commitment.  As an alternative, the countries concerned might 
select any other forum they deemed appropriate.  Fu rthermore, the Agreement laid down general rules 
of transparency that ensured the prompt publi cation and availability of all laws, regulations, 
procedures and administrative decisions of general application concerning any matter covered by its 
provisions.  Lastly, the Agreement contained provi sions on intellectual property, competition policy 
and government procurement, and established a frame work of general rules and disciplines to ensure 
market access, non-discrimination and transparency .  The Parties indicated that the responses to 
questions concerning the Factual Presentation on th e Agreement had been circulated by the WTO 
Secretariat as document WT/REG196/4 and they remain ed at the Committee's disposal for any further 
query that might arise in connection with the Agreement. 
12. The representative of the United States  thanked the Secretariat and the Parties for the 
information provided and for the Parties' extensive presentation.  Her delegation registered concerns 
about the significant number of non-liberalized tari ff lines between the Parties.  She hoped the Parties 
could work with other parties to the Agreement be tween the countries of Central America and Panama 
to extend tariff elimination and ensure it was in line with Article XXIV's s ubstantially all the trade 
requirement. 
13. The Chairman  noted that the consideration of the goods and services aspects of the Bilateral 
Protocol between El Salvador an d Panama to the Free Trade Agreement between Central America and 
Panama had allowed the Committee to clarify a number of questions and oral discussion of the 
Agreement could be concluded in accordance with pa ragraph 11 of the Transparency Mechanism.  If 
any delegations wished to ask follow-up questions they were invited to forward submissions in 
writing to the Secretariat by 25 September 2008 and Parti es were asked to submit replies in writing by 
no later than 9 October 2008.  In accordance with paragraph 13 of the Transparency Mechanism all 
written submissions, as well as minutes of this mee ting would be circulated promptly, in all WTO 
official languages, and would be ma de available on the WTO website. 
14. The Committee took note  of the comments made. 
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