RESTRICTED  WORLD  TRADE  
ORGANIZATION  WT/TPR/S/186 
13 August 2007  
 
(07-3355) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
PANAMA 
 
  
 
This report, prepared for the first Tr ade Policy Review of Panama, has been 
drawn up by the WTO Secretariat on its own responsibility.  The Secretariat has, 
as required by the Agreement establishing the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), sought clarification fro m Panama on its trade policies and 
practices. 
 
Any technical questions arising from this report may be addressed to 
Mr Angelo Silvy tel.:  (022) 739 52 49, Mr Alberto Bueno tel.:  (022) 739 63 92 
and Mr Raymundo Valdés tel.:  (022) 739 53 46. 
 
Document WT/TPR/G/186 contains the policy statement submitted by Panama. 
 
Note: This report is subject to restricted circ ulation and press embargo until the end of the first 
 session of the meeting of the Trade Policy Review Body on Panama. Panama WT/TPR/S/186 
 Page iii 
 
 
CONTENTS 
 
  Page 
SUMMARY OBSERVATIONS vii 
(1) E CONOMIC ENVIRONMENT  vii 
(2) T RADE AND INVESTMENT POLICY FRAMEWORK  vii 
(3) M ARKET ACCESS FOR GOODS  viii 
(4) E XPORT MEASURES  viii 
(5) O THER MEASURES AFFECTING TRADE  ix 
(6) S ECTORAL POLICIES  ix 
I. ECONOMIC ENVIRONMENT 1 
(1) O VERVIEW  1 
(2) M ACROECONOMIC TRENDS  1 
(i) Economic structure and trends 1 (ii) Fiscal policy 4 
(iii) Monetary policy 6 
(iv) Balance of payments 8 
(3) T
RADE AND INVESTMENT FLOWS  9 
(i) Trend of merchandise trade 9 
(ii) Trade in services 10 (iii) Foreign investment 11 
(4) P
ROSPECTS  12 
II. TRADE AND INVESTMENT REGIME 13 
(1) O VERVIEW  13 
(2) T RADE POLICY AND INVESTMENT FRAMEWORK  13 
(i) General institutional and legal framework 13 (ii) Objectives, formulation and application of trade policy 15 
(3) F
OREIGN INVESTMENT REGIME  16 
(4) I NTERNATIONAL RELATIONS  18 
(i) World Trade Organization 18 
(ii) Preferential tr ade agreements 19 
III. TRADE POLICIES, BY MEASURE 23 
(1) O VERVIEW  23 
(2) M EASURES DIRECTLY AFFECTING IMPORTS  24 
(i) Procedures, documentation and registration 24 
(ii) Customs valuation 27 
(iii) Rules of origin 29 
(iv) Tariffs  30  
  (v) Other charges affecting imports 35 
  (vi) Import prohibitions, restrictions and licences 39 
  (vii) Special trade measures 40 
  (viii) Standards and technical regulations 43 
  (ix) Sanitary and phytosanitary measures 45 WT/TPR/S/186 Trade Policy Review 
Page iv 
 
 
  Page  
 
(3) M EASURES AFFECTING EXPORTS  50 
(i) Procedures, documentation and registration 50 
(ii) Export duties and taxes 51 (iii) Export prohibitions and rest rictions and licensing regimes 51 
(iv) Tariff and tax concessions and other export incentives 52 
(v) Export finance, insurance and promotion 56 
(4) O
THER MEASURES AFFECTING PRODUCTION AND TRADE  57 
(i) Company formation and taxation 57 
(ii) Price controls 59 
(iii) Competition policy 59 
(iv) Incentives 62 (v) Government procurement 66 
(vi) State trading and state trading enterprises 70 
(vii) Intellectual property rights 71 
IV. TRADE POLICY BY SECTOR 77 
(1) O
VERVIEW  77 
(2) A GRICULTURE AND FISHING  78 
(i) Features 78 
(ii) Agriculture 79 
(iii) Fishing 83 
(3) M ANUFACTURING  84 
(4) E LECTRICITY  84 
(5) S ERVICES  87 
(i) Main features 87 
(ii) Telecommunications 87 
(iii) Financial services 91 (iv) Air transport and airports 97 
(v) Maritime transport, including the Panama Canal 98 
(vi) Professional services 103 
(vii) Retail trade 105 
 REFERENCES 107 
 
APPENDIX – TABLES 111 Panama WT/TPR/S/186 
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TABLES 
Page 
I. E CONOMIC ENVIRONMENT  
I.1 Basic economic indicators, 2000-2003 2 
I.2 GDP growth, measured by expenditure, 2000-2003 3 
I.3 Financial  accounts of the non-financial pubilc sector (NFPS), fiscal years 
2000-2006 5 
I.4 Main monetary indicators, 2000-2006 7 
I.5 Balance of pyaments, 2000-2006 8 
I.6 Trade in services, 2000-2006 11 I.7 Flows of foreign direct investment by sector, 2000-2006 11 
III. T
RADE POLICIES , BY MEASURE  
III.1 Structure of the MFN import tariff, 2007 31 
III.2 Summary of MFN tariff, 2007 32 
III.3 Goods and services exempt from ITBMS 36 
III.4 Selective Consumption Tax (ISC) 37 III.5 Consumption Tax on Fuels and Petroleum Derivatives 38 
III.6 Goods whose importation is prohibited or restricted 39 
III.7 Technical regulations, by sector, February 2007 44 
III.8 Sanitary and phytosanitary measurse, by product affected and by type of 
measure, 1995-07 47 
III.9 Tax incentives granted under the Of ficial National Industry Register 63 
III.10 Amount of Tax Incentives Granted under the Official National Industry 
Register, 2000-2005 64 
III.11 Procedures for public sector purchases, 2007 68 
III.12 Overview of the protection of intelletural progperty rights, 2007 72 
IV. T
RADE POLICY BY SECTOR  
IV.1 Agricultural products subject to tariff quotas, 2004-2006 81 
 WT/TPR/S/186 Trade Policy Review 
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APPENDIX TABLES 
 
 
Page 
I. ECONOMIC ENVIRONMENT 
 AI.1 Merchandise exports by product, 2000-2005 113 
AI.2 Merchandise imports by product, 2000-2005 114 
AI.3 Merchandise exports by trading partner, 2000-2005 116 
AI.4 Merchandise imports by trading partner, 2000-2005 117 
 II. TRADE AND INVEMENT REGIME 
 
AII.1 Summary of most recent notifications to the WTO, April 2007 118  
IV. TRADE POLICY BY SECTOR 
 AIV.1 Trade and applied MFN tariff by ISIC classification 120 
AIV.2 Summary of specific commitments under the GATS, 2007 121 
 
 Panama WT/TPR/S/186 
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SUMMARY OBSERVATIONS 
1. Trade in goods and services plays a 
vital role in Panama's economy, representing 143 per cent of GDP (including re-exports).  In 
consonance with this, Panama maintains an 
essentially liberal trade and investment regime, with applied MFN tariffs averaging 8.5 per cent and very few non-tariff trade barriers in place.  Its service-oriented economy 
acts as an international hub for activities such 
as maritime transport, distribution services, and banking.  In contrast, the production of a number of agricultural and manufactured goods receives assistance through border protection and fiscal incentives, some 
contingent upon exportation. 
2. Simplifying the trade regime, 
particularly the tariff structure, and rationalizing other assistance programmes would enhance transparency, reduce 
transaction costs, help consolidate the fiscal 
position, and create a more uniform incentive structure.  Building on Panama's comparative advantage as a supplier of international services, notably transportation through the Canal, these and other reforms would help 
sustain the robust economic growth achieved 
in recent years. 
(1) E
CONOMIC ENVIRONMENT  
3. Panama's GDP grew at an annual 
average rate of around 4.9 per cent during 
2000-06, and is expected to rise around 8 per 
cent in 2007.  Growth has been particularly strong since 2004, resulting largely from an increase in investment and service exports.  GDP per capita was just over US$5,200 in 
2006.  Services constitute by far the most 
important sector of the Panamanian economy, accounting for some 80 per cent of GDP and 70 per cent of employment. 
4. Panama's fiscal position has improved 
as a result of fiscal reforms and increased 
Canal revenue, but it  requires further 
consolidation, especially in view of the heavy financial commitments that the expansion of the Canal would bring about.  The public debt to GDP ratio has declined but remains 
relatively high (61 per cent).  Panama has had no monetary policy instruments available since it adopted the US dollar as its legal tender in 
1904.  Inflation has been historically low 
although some upward pressure has been observed of late. 
5. The current account of the balance of 
payments has been traditionally in deficit but 
this shortfall has decreased since 2004, to 
some 2.2 per cent of GDP in 2006.  Trade in goods and in services account for, respectively, 110 per cent and 33 per cent of GDP.  The current account deficit largely reflects a shortfall in the trade in goods 
balance.  On the other hand, the services 
balance is in surplus and has been expanding, mostly as a result of higher Canal revenues. 
6. Panama's main trading partner is the 
United States, which accounts for almost one 
third of Panamanian merchandise trade 
(excluding re-export operations, which represent approximately 70 per cent of Panama's total merchandise trade).  Panama's main merchandise exports are food products, while just over two thirds of imports are 
manufactured goods.  Main service exports are 
transport services (including Canal operations), tourism, and financial services.  Panama is a net recipient of foreign direct investment, which represented an average of 
around 7 per cent of the GDP over 2000-2006. 
7. The Panama Canal plays a vital role in 
the economy.  Its expansion, expected to commence in 2007 and be concluded by 2014, is likely to sustain economic growth in the 
short to medium term.  The estimated cost of 
the project is some US$5.2 billion, or some 30 per cent of Panama's GDP. 
(2) T
RADE AND INVESTMENT POLICY 
FRAMEWORK  
8. Panama acceded to the WTO in 1997.  
It is a party to the Information Technology 
Agreement, but not to any other WTO plurilateral agreements.  Panama has made numerous notifications to the WTO although WT/TPR/S/186 Trade Policy Review 
Page viii 
 
 
some are still pending.  It has been involved in 
the dispute settlement mechanism in three cases as a complainant and in one, involving consultations only, as a respondent. 
9. Panama has participated actively in 
the Doha Development Agenda (DDA), presenting proposals individually and together with other Members.  It advocates offering greater flexibilities to non-original developing 
Members.  It considers trade liberalization an 
important policy tool to  achieve development, 
but favours a flexible approach to liberalization.  Panama would have much to gain from a successful conclusion of the DDA in view of the diversified nature of its trade 
and its deep integration in the global economy. 
10. Panama grants at least MFN treatment 
to all its trading partners.  As at mid 2007, Panama had three free-trade agreements (FTAs) in force, with Chinese Taipei, 
El Salvador, and Singapore.  It participates in 
more limited preferential agreements with six other partners.  Panama has also finalized the negotiation of new FTAs with Chile, Honduras, and the United States, and is negotiating FTAs with Costa Rica, Guatemala, 
and Nicaragua.  The entry into force of the 
agreement with the United States is likely to have a particularly important institutional and economic impact on Panama. 
11. Panama maintains an open investment 
regime although the State still has a significant 
presence in activities such as transportation, electricity, and telecommunications.  Foreign participation is formally restricted in retail trade, broadcasting, and air transport.  Panama 
has bilateral investment treaties with 
16 countries. 
(3) M
ARKET ACCESS FOR GOODS  
12. Panama has taken measures to 
simplify and modernize customs procedures, as well as to improve customs control.  The 
tariff is Panama's main trade instrument.  All 
tariffs are ad valorem .  The average applied 
MFN tariff is 8.5 per cent;  the average tariff of 14.2 per cent for agricultural products (WTO definition) is considerably higher than 
for other products (5.6 per cent).  The tariff structure is complex, with 37 tiers (including duty free).  Panama has bound all tariff lines, 
thus providing greater predictability to its 
trade regime;  however, this is reduced somewhat by the gap of some 15 percentage points between average applied and bound tariffs.  There are at least three tariff lines for 
which the applied tariff is higher than the 
bound rate. 
13. Panama grants preferential access to 
imports originating from nine trading partners, 
provided they comply with the appropriate rules of origin.  
14. In addition to tariffs, imports are 
subject to a customs service fee levied at a specific rate.  Domestic and imported goods and services are subject to a valued-added tax (ITBMS) and a selective consumption tax 
(ISC).  Imports receive national treatment in 
the application of domestic taxes except in the case of certain national liquors, which are taxed at a lower ISC rate than imported products. 
15. Panama has made limited use of 
contingency measures.  It has carried out one 
anti-dumping investigation, but this did not result in the imposition of duties.  In addition, it notified one safeguard investigation, which resulted in the imposition of a provisional 
measure in the form of a tariff surcharge on 
certain plastic products;  as at May 2007, a final decision on the application of a safeguard measure had not yet been made. 
16. Panama has notified 49 measures 
under the WTO Agreement on the Application 
of Sanitary and Phytosanitary Measures, of which slightly more than half concern live animals, meat or sub- products.  Panama has 
also notified 34 technical regulations, the majority related to food products. 
(4) E
XPORT MEASURES  
17. Panama prohibits the exportation but 
not the domestic consumption of unprocessed Panama WT/TPR/S/186 
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logs of certain tree species from natural 
forests.  It imposes a 1 per cent export tax on certain processed wood products.  The exportation of certain ma rine products and of 
non-ferrous scrap requires a permit. 
18. Panama has notified the WTO that it 
grants export subsidies through three programmes:  Export Processing Zones (ZPE), the Tax Credit Certificate (CAT), and the 
Official National Industry Registry (ROIN).  
The ZPE regime grants tax exemptions to companies that fulfil a minimum local-value-added requirement;  no date has been set for its elimination.  The CAT offers tax credits to exporting companies that produce non-
traditional products;  although the CAT has 
been formally abolished,  benefits will continue 
to be paid until 2010.  The ROIN exempts companies that export all their production from import duties, income tax, and other 
domestic taxes;  the ROIN was to be phased 
out in late 2005 but its termination was postponed following the SCM Committee's decision to extend the deadline for the elimination of subsidies notified under Article 27.4 of the SCM Agreement. 
19. The Colon Free Zone (ZLC) grants 
similar benefits to those provided under the ZPE regime.  Although the ZLC aims to encourage both commercial and industrial activities, in practice only service and re-
export operations take place in it.  The ZLC 
functions as a global logistical and distribution centre, and accounts for just over three quarters of Panama's total merchandise exports. 
(5) O
THER MEASURES AFFECTING 
TRADE  
20. Panama maintains numerous incentive 
schemes, in addition to export subsidies, that target micro and small businesses, research and development projects, as well as specific 
sectors such as agriculture, forestry, mining, 
and tourism.  By and large, such schemes seek to assist the production of goods by granting tariff or other tax concessions.  There are no estimates of the net benefits to the economy of these incentives.  A reassessment of the nature 
and number of such schemes with a view to their possible rationalization could contribute to greater transparency and efficiency in their 
use;  it might also permit the redeployment of 
fiscal resources towards areas such as education and infrastructure. 
21. The administrative cost to establish 
new enterprises in Panama has been 
traditionally low.  Panama has also set up a 
relatively well developed competition policy framework although the level of competition in some activities seems limited, including in certain agricultural markets protected by high tariffs.  It does not apply price controls on 
goods.  Panama has notified the WTO that it 
does not maintain state-trading enterprises.  In the 1990s, Panama carried out an ambitious privatization programme;  in recent years, privatization has slowed considerably along 
with the reduction of state participation in 
production activities. 
22. Panama is not a member of the WTO 
Government Procurement Agreement but it is an observer and is negotiating accession.  New government procurement regulations were 
introduced in 2006 which, among other things, 
guarantee national treatment to foreign bidders.  Procurement for the Canal is under a separate regime. 
23. As part of its accession process to the 
WTO, Panama modified its legislation to 
protect intellectual property rights, seeking to bring it into line with the TRIPS Agreement.  However, no specific regulations have been adopted yet on layout designs for integrated 
circuits. 
(6) S
ECTORAL POLICIES  
24. The sectoral structure of the 
Panamanian economy shows a clear dichotomy between the highly competitive services sector and the relatively low 
productivity in agriculture and manufacturing.  
As a result, international services such as the Canal, the ZLC, international banks, maritime transport, and tourism are strong competitors WT/TPR/S/186 Trade Policy Review 
Page x 
 
 
in world markets and play a crucial role in the 
economy.  In contrast, the production of goods has often depended on trade protection measures and incentive schemes. 
25. The agriculture, forestry and fishing 
sector contributes just under 7 per cent of Panama's GDP, but it is responsible for 20 per cent of total employment and generates approximately 43 per cent of merchandise 
exports (excluding re-exports).  Certain 
agricultural products, such as sugar, as well as milk and beef and their products receive particularly high tariff protection.  Panama administers tariff quotas for all the products in its list of tariff quota commitments;  fill rates 
have been close to 100 per cent for most 
products.  Panama has notified the WTO of the granting of domestic support and export subsidies to agricultural products.  Official credit is provided to agriculture and 
agroindustry. 
26. The manufacturing sector is small and 
concentrated in few activities, mainly related to the processing of agricultural products.  Panama liberalized and partially privatized the electricity sector in 1998-99 but the State 
continues to hold a de facto monopoly in 
transmission and owns substantial assets in generation and distribution. 
27. Panama's GATS commitments are 
substantial, although they fall short of the 
degree of access afforded in practice to foreign 
service suppliers.  Panama undertook specific commitments in 11 of the 12 GATS sectors, with respect to both market access and national treatment.  Panama submitted in 
April 2003 an initial offer in the context of the 
DDA but as at mid 2007 had yet to present a revised offer.  Expanding the level of commitments would add predictability to Panama's investment regime. 
28. The telecommunications sector was 
privatized in 1997 and opened up to 
competition in 2003.  Regulatory changes to foster competition have continued, although access to and use of the incumbent's fixed local network remain somewhat problematic.  There are no restrictions to foreign private 
investment but Panama undertook specific GATS commitment only for value-added services and did not accept the Reference 
Paper on Telecommunications. 
29. Panama has a large financial sector, 
including 37 international banks providing services exclusively to foreign-based customers.  There are no restrictions to foreign 
participation in banking but, in the insurance 
sector, risks that occur in Panama may only be insured by companies established in Panama.  Panama undertook GATS commitments in most of the categories specified in the services sector classification, reflecting its fairly liberal 
regulatory framework in financial services. 
30. In domestic air transport services, 
foreigners may not legally own more than 40 per cent of a firm's shares.  However, there are no restrictions to foreign participation in 
international routes.  As the law requires, 
airports providing public services are owned and managed by the State. 
31. There are no nationality restrictions 
for the provision of domestic maritime transport services.  The main ports, owned by 
the State, are operated by private companies.  
Panama has the largest ship registry in the world due, inter alia , to its advantageous tax 
conditions and liberal registration regime.  
32. The administration of the Canal 
reverted to Panama in 1999, and the Canal has 
become a main pillar of Panama's economy.  The expansion of the Canal, expected to be financed by toll revenues, should consolidate Panama's position as a global entrepot and a 
key link in international trade.  However, 
careful project management will be required to prevent cost overruns or constructions delays, which would impose a heavy burden on Panama's economy.  
33. Foreign professionals have limited 
access to the Panamanian market, the provision 
of most regulated professional services is restricted to Panamanians citizens.  Panama's universities have signed mutual recognition Panama WT/TPR/S/186 
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agreements with universities in ten countries.  
Panama undertook limited specific commitments in professional services under the GATS.