On the Ground in Panama
Top US commercial officer scopes out FTA/FTZ opportunities for US companies
Datamyne blog anchor Bill Armbruster conducted an extensive e-mail interview with Daniel T. Crocker, senior commercial officer with the US Embassy in Panama, earlier this month. Besides the newly implemented FTA, topics included the opportunities afforded by the Colon Free Trade Zone, the expansion of the Panama Canal, and Panama’s role as a logistics center.
Bill Armbruster: The Top Export Prospects in Panama section on your web site provides an excellent detailed analysis of the export opportunities in 11 key sectors. But which sectors offer the best new opportunities for US companies as a result of tariff eliminations or reductions under the FTA?
Daniel Crocker: Since Panama’s average industrial tariff is about 7% and imports for some of the highest priority projects, e.g. Canal expansion, mining, and tourism already qualify for exemption, we don’t believe that US companies will see a dramatic shift in opportunities in most sectors.
US market share of imports is already over 30%, but factors such as shipping costs, economic growth, foreign exchange rates, and cost of labor as a percentage of cost of goods sold may all play a more significant role. US companies will certainly enjoy better margins – they may be able to cut their prices in order to make the sale – and Panamanian companies may be more inclined to seek out suppliers from the US. So those should help to continue the US’s strong showing in exports to Panama.
US agriculture and processed foods are prominent in Panama, and it is in this sector that we might see more dramatic export growth as tariffs continue to go down in accordance with the FTA.
Armbruster: Does Panama have FTAs with the EU or other countries?
Crocker: Panama has full FTAs in force with (including date of entry into force): El Salvador (2003), Taiwan (2004), Singapore (2006), Chile (2008), Costa Rica (2009), Honduras (2009), Guatemala (2009), Nicaragua (2010), and Peru (2012). Panama has partial FTAs with Mexico (1985), Dominican Republic (1987), and Cuba (2009).
It has completed negotiations on two more agreements: Canada (signed in 2010 and passed by the Panamanian National Assembly in 2010) and the European Union (signed in 2010). I believe the Canada- Panama FTA may be close to final approval.
Armbruster: Have you been getting many specific inquiries this year from US companies about export opportunities resulting from the FTA? And are companies then going ahead and actively exploring the market?
Crocker: Absolutely, yes.
We have seen a definite upswing in requests for information and assistance. Our office has experienced a 100% increase in the amount of services we offer US exporters. Panama’s proximity to the US and the ease of doing business make it a great market for US companies that have already exported to one or two other countries, e.g. Mexico or Canada.
“Panama is a regional play for some exporters.”
Armbruster: Are companies holding back because they are not aware of the opportunities in Panama or because they feel it’s not worth bothering with Panama since it’s such a small country?
Crocker: We do counsel some companies to prioritize on other markets, either because they are bigger (Mexico and Canada are often overlooked as good, diverse FTA markets) or because what the companies are offering would not sell well in Panama.
One example would be Tier 1 and 2 suppliers to the automotive sector: since there is no automotive manufacturing in Panama, these companies would be better advised to look at other markets, e.g. Brazil, if they’ve already exported to Mexico and Canada.
On the other hand, Panama is a regional play for some US exporters. For instance, companies making finished consumer goods such as pillows or hand tools could sell to a single merchant in Panama’s Colon Free Trade Zone and by extension find their products distributed throughout Latin America. (For more information on this opportunity see here.)
And there are other regional/global plays. For instance, aviation continues to grow rapidly here, both in the areas of commercial and air freight. There is a mining project that requires about $7 billion in investment and will be one of the world’s largest copper mines upon completion. So the key is to look at sectors that go beyond Panama’s small population of 3.5 million.
Armbruster: Can US construction equipment companies expect significant new business over the next two years as work continues on the Canal expansion?
Crocker: Much of the major contracting for the Canal expansion has been let, although the project continues to use significant amounts of consumables.
However, there is an additional $13 billion worth of projects that have been announced by the Government of Panama and will take years to complete. Even when a prime contractor is announced – for instance, Brazil’s Odebrecht recently won a $600 m + bid to expand the international airport here – that prime contractor will then need to procure a great number of solutions through subcontractors. And in the example I just mentioned, we work closely with Odebrecht and US companies with specialized airport solutions to win business.
Armbruster: When is the Canal expansion expected to be completed?
Crocker: The Government of Panama is still shooting for a completion date of 2014. However, some Panama Canal Authority officials have noted that there may be delays, although they typically add that the delay would be no more than six months and the contractor will incur significant penalties for missing the deadline. That said, our focus – and one that is in everyone’s interests – is on the quality of the work done, rather than project deadline. We share the Panama Canal Authority’s desire to see this expansion last 100 years.
“There is tremendous potential for a US company to simplify its supply chain here.”
Armbruster: Will the Canal expansion, once completed, enhance the value of the FTA? Obviously, the expansion is designed to facilitate the movement of goods through the Canal, but a lot of shipping and logistics companies are setting up logistics centers in Panama. I believe those centers will primarily serve as distribution points for other markets in Latin America and the Caribbean, but I wonder to what extent they might benefit US exporters, not just to Panama, but to other countries in the region.
Crocker: We completely agree. Panama has benefited enormously from the fact that this country has become so efficient as a distribution hub. Perhaps nowhere else in Latin America are consumer retail prices so competitive as a result. But the big market is in the region, not in Panama. And with the Colon Free Zone already the world’s second largest behind Hong Kong, co-located with the Atlantic mouth of the Panama Canal and three transshipment port operators, you already have critical mass for the entire region to attract even more investment and consolidation of distribution. There are already world class third-party logistics merchants handling a broad range of goods, from Payless Shoes to sensitive and high value Pfizer pharmaceuticals.
When you start looking at Latin America as a region, it is here that you see an enormous opportunity for US exporters given the number of FTAs we have in place.The others are with NAFTA partner Mexico, Chile, Colombia, and the partners in the Central America FTA – Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua. The Dominican Republic is also part of that agreement.
Imagine being able to stage US-made pillows or pharmaceuticals in the Colon Free Zone, with Latin America’s largest air hub and the highest volume of container vessels in Latin America being packed and shipped daily. And that activity is all bonded, non-dutiable, and done in US dollars (which Panama uses as its currency). There is tremendous potential for a US company to simplify its supply chain here, and to the extent that the products are made in the US, the country-of-origin documentation allows Colon Free Zone merchants to underscore the fact that if a Chilean department store owner buys several pallets worth of US-made pillows, he shouldn’t have to pay duties on them just because they’ve been staged in Panama.
The expansion of the Canal will allow bigger container vessels to come through, of course – and the bigger they are, the greater the attraction we believe of transshipment activity. That feeds in turn into the attractiveness and growth of distribution through the Colon Free Zone. But at first order, the importance of the Canal expansion to Panama FTA opportunities are not so obvious. Panama is best seen as a gateway.
One final note: We like helping US companies do business down here and would be glad to talk with them. Our website provides not only a good overview of commercial opportunities but our contact information.
Daniel T. Crocker is Senior Commercial Officer in the US Embassy in Panama. Panama is Mr. Crocker’s fourth diplomatic assignment. He previously served as Commercial Consul in Monterrey, Mexico; earlier postings were to Brazil and the Dominican Republic. He has also worked in engineering and management roles in the private sector with Schlumberger, Brenco, HomeWarehouse.com, and Webvan. Daniel Crocker may be reached at [email protected]or 011-507-317-5388.
Bill Armbruster, the anchor for the Datamyne Blog has covered shipping and trade for 30 years as a reporter and editor with The Journal of Commerce and Shipping Digest. “I’ll be blogging on headline news and current issues in oceangoing commerce, trying to shed some light on the backstories and, wherever I can, supply some sound advice for shippers.” Write Bill care of [email protected].
The opinions expressed in this article are those of its author and do not purport to reflect the opinions or views or Descartes Datamyne. In addition, this article is for general information purposes only and it’s not intended to provide legal advice or opinions of any kind and my not be used for professional or commercial purposes. No one should act, or refrain from acting, based solely on this article without first seeking appropriate legal or other professional advice.
Date posted: December 14, 2012