Overview of Panama’s Free Trade Agreements

Find out about Panama’s free trade agreements (FTAs), and how they support the country’s development and promote benefits for foreign investment. 

According to the US Embassy in Panama, the country has “historically served as the crossroads of trade for the Americas.” Thanks to the Panama Canal and the benefits offered by all the free trade zones within the country, it has become a strategic hub to do business. In 2017, Panama exported US$3.06 billion and imported US$24.8 billion, resulting in a trade balance of US$21.7 billion, making it the 66th largest importer in the world. 

What is a free trade agreement in Panama? 

According to the National Customs Authority or ‘Autoridad Nacional de Aduanas’, a free trade agreement is a regional or bilateral consensus that helps to promote the exchange of goods and services between the country members. Likewise, FTAs aim to eliminate or reduce trade tariffs between the signing parties. They are often supervised by the World Trade Organization (WTO).

Panama is a member of SICA

Container ship moving exports from Panama, thanks to Panama's free trade agreements
SICA works to integrate Central American markets.

SICA, also known as ‘Sistema de Integración Centroamericana’ is a regional institution located in Central America, founded by Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama in 1991. The main purpose of this institution is to promote the integration of Central America, fostering security, freedom, democracy, and social development within the region.

SICA is continuously working on the development of initiatives to integrate all these six countries. Thanks to SICA, the group’s trading laws were unified by the CAUCA or ‘Codígo Aduanero Uniforme Centroamericano’. It guarantees a better understanding of Central America’s trading processes, promoting business development and foreign investment.

Panama’s free trade agreement with Canada

The free trade deal between Panama and Canada offers significant development opportunities for both countries. Before this agreement went into effect, Canada didn’t have preferential trade tariffs to export products to Panama, meaning that doing business in Panama for Canadian companies was expensive in comparison with other countries of the region.

After the approval of this deal, tariffs have been reduced progressively, encouraging business expansion between both countries. In 2017, Canada exported goods to Panama valued at US$151 million. Currently, Canada is one of the countries with more free trade agreements with Latin American countries.

Exported products from Canada to Panama include:

  • Manufacturing equipment
  • Agricultural products
  • Different kind of metals. 

Panama-Mexico free trade deal

On 3 April 2014, Mexico and Panama signed their free trade agreement with the following objectives: 

Container ship moving exports trough the Panama Canal, thanks to Panama's free trade agreements
Large Mexican companies in Panama benefit from the country’s trade agreements.
  • Strengthen the integration of the regional economy
  • Improve the commercial relationship between both countries
  • Promote Panama as a Logistics center
  • Establish tariff preferences and eliminate non-tariff barriers for the merchandise trade
  • Create a safer market for the production of goods and services
  • Protection to investments and investors
  • Guarantee the protection of intellectual property.

Likewise, large Mexican companies located in Panama such as, Cementos de México, Banco Azteca, Proyectos y Construcciones, COCA-COLA/FEMSA, Claro, Cinépolis and Grupo Bimbo are already benefiting from this free trade agreement.

 Mexico exports from Panama multiple products, including:

  • Minerals fuels, oils and distillation products (US$353.75 million)
  • Vehicles other than railway and tramways (US$136.84 million)
  • Electronic equipment (US$127.27 million)
  • Pharmaceutical products (US$125.79 million).

Trade Promotion Agreement with the United States 

The free trade agreement between Panama and the United States strives for the removal of financial barriers. It also sets objectives to work towards greater trade facilitation, telecommunications, e-commerce, intellectual property rights, and labor protections.

The main products exported Panama from the United States in 2018 were:

  • Machinery (US$641 million)
  • Aircraft (US$401 million)
  • Electric Machinery (US$357 million)
  • Mineral fuels (US$2.6 billion)
  • Vehicles (US$304 million)
  • Corn (US$83 million)
  • Soybean meal (US$81 million)
  • Dairy products (US$47 million).

Also, the main products imported from Panama were:

  • Fish and seafood (US$90 million)
  • Precious metal and stone (US$34 million)
  • Sugars (US$29 million)
  • Machinery (US$14 million)
  • Non-roasted coffee (US$5 million).

Panama’s Free trade agreements with Latin America

Two men shaking hands as part of a free trade agreement between Panama and Latin America
Panama’s free trade deal with Chile established a healthy business environment for trade goods and services.

Panama has reached free trade agreements with multiple countries in Latin America, including Costa Rica, El Salvador, Nicaragua, Guatemala, Honduras, Peru, and Chile. 

The free trade deal with Chile established a healthy business environment for trade goods and services. Likewise, the deal also covers issues such as labor protection, sustainability, and intellectual protection rights. In 2017 Chile import US$66.7 million from Panama and export roughly US$228 million. 

Free trade agreement between SICA and European Union

Panama’s free trade agreement with the European Union took effect in 2013. Besides. The European Union is one of the most important markets for Panamanian goods.

This agreement also favors regional trade through shared regulations on: 

  • The exchange of goods and services 
  • Investment
  • Intellectual property 
  • Government purchases 
  • Trade facilitation 
  • Dispute resolution. 

According to the National Statistics and Census Institute (INEC), during 2018, Panama’s exports to the European Union represented 28.7% of the total value of the country’s exports. Furthermore, bananas represented 55% of the total value exported from Panama, followed by shrimp, fish, oils, watermelons, palm oil, pineapples, and rum. 

On the other hand, imports to Panama from the European Union represented 10.1% of the total value of imported goods in 2018, including medicines, rail, and self-propelled streetcars, vehicles with piston engines only, and machine parts.

Take advantage of Panama’s free trade agreements with a trusted trade law partner

According to the World Bank, Panama ranks as the second-fastest growing economy in the Caribbean and Latin America, with a forecasted growth of 3.7% in 2020. 

Take advantage of Panama’s free trade agreements and special legislations that Panama has to offer. Before expanding your business into the region, make sure you partner with a local expert that can advise you on the best options to invest in Panama and incorporate your company

At Biz Latin Hub, we offer a complete range of business services to facilitate your market entry as well as comprehensive back-office service support you need. Contact our team of expert lawyers and accountants to get your business expansion in Panama. 

Learn more about our team and expert authors.

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