Panama: an overview
October 11, 2013
With a total area of roughly 75,000 km2 and a population estimated at 3.5 million, Panama is a country small in size and population, but increasingly large in economic influence. Its recent steady growth began with the nation’s taking control of the Panama Canal, formerly under US administration. Currently, due to an impressive expansion in investment in both public and private infrastructure, driven by the Panama Canal Expansion Project ($5.6 billion), the first line of a subway system ($3.2 billion), and Panama City’s wastewater treatment plant ($516 million), amongst others, the Panamanian economy continues to grow at an average annual rate of 8.5%, a real GDP rate of 10.7% in 2012, and a per capita GDP that, according to the IMF, has more than doubled over the past decade.
Panama is well known for its strategic geographical position in the centre of the Americas, resulting in investments in the air and maritime transport, distribution, transshipment and related logistical sectors. Finance, energy and construction services are also key components of Panama’s economic development and since achieving investment grade for its sovereign debt in 2010, according to Fitch’s (BBB), Moody´s (Baa2) and Standard & Poor’s (BBB) respective ratings, a large number of international firms are now looking to Panama as a target country for investment.
From a service-based economy (more than 75% of GDP from the service sector), over the next three years the mining industry (gold and cooper) may surpass traditional economic drivers such as the financial sector and the import-export activities in the Colon Free Zone.
Another discreet, but expanding sector of the Panamanian economy is the tourism industry, which is attracting significant investment both from local and foreign companies.
Relevant legal developments
Trade Law: 2012-2013 has been an eventful time in the area of trade law. Individual trade agreements with Peru, the United States, and Canada entered into force on May 1 2012, October 31 2012 and April 1 2013, respectively. Also, the Central America – European Union Association Agreement (ADA) is anticipated to enter into force in late 2013. Said agreements entail significant import duties reductions, “WTO– plus” obligations to liberalise trade in services and in both the US and the Canadian agreement, the investment provisions enhance protection for US and Canadian investors in Panama.
Furthermore, liberalisation is occurring in traditionally protected sectors. According to the Panama – US Trade Promotion Agreement (TPA), US investors may now, under limited circumstances, invest in the retail sales sector, an area traditionally reserved only for Panamanian citizens. Additionally, the TPA provides for duty-free treatment for services, parts and equipment used in vessel repairs, regardless of its origin, eliminating a long-standing US restriction. Also, the US and the Canadian trade agreements create the opportunity for foreign insurance brokerage services in the Panamanian market (both cross-border services, as well as though the establishment of investments).
Additionally, as a condition precedent to entering into ADA negotiations with Europe, Panama was required to join the Central America Economic Integration Subsystem (SIECA). Panama finalized SIECA accession negotiations in early 2012, including the obligation to join the Central American external tariff within a certain period of time.
IP Law: In order to implement TPA provisions regarding IP commitments, Panama signed on to three important international Treaties and passed new legislation regarding industrial property as well as protection for copyrighted material. As of September 7 2012 Panama is formally a member of the Patent Cooperation Treaty, the Trademark Law Treaty and the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure. Also, the new IP legislation introduced important updates to Panama’s IPR administrative procedures and significantly reduced formalities for the filing of trademarks, in addition to establishing key changes to enforcement efforts to protect copyrighted material.
Furthermore, as a consequence to the implementation of the ADA, Panama will recognize and protect more than 100 geographical indications (GI) from European countries, including GI related to wine, beer, spirits, cheese, oils and fats, and meat products.
IT Law: By 2008 Panama had already passed legislation accepting electronic signatures, as well as regulating electronic documents. However it was not until 2012 and 2013 that legislation was passed permitting a public entity to function as a national registry for this service and to certify competent PKI authority, resulting in a 75% increase in the “Paperless Panama” project. Said legislation allows the Public Registry to regulate this service on a national level, as the responsible body to carry out the development, implementation and surveillance of the electronic signature service.
Energy Sector: Panama has also diversified its incentive structures for the generation of renewable energy. Traditionally focused on thermal power generation using fossil fuels and hydroelectric power generation, in 2012-2013 the country introduced legislation establishing incentives for the construction and exploitation of natural gas power plants, as well as, solar power plants. The purpose of these laws was not only to promote an energy matrix of sustainable power production and reduced carbon emissions, but also to secure the supply of energy from diverse sources.