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Un Pronóstico Incierto para la Confección en Panamá
Bobbin / February 1996

By Larry Luxner

With just four years to go before U.S. troops leave their country forever, Panama's 2.4 million citizens no longer talk about expelling the yanquis but wonder how they can be persuaded to stay a little bit longer.

They're also debating what to do with an estimated 100,000 acres of the former U.S. Canal Zone that will revert to Panama between now and Dec. 31, 1999, the day the canal itself is supposed to be given back to Panama.

Some politicians here advocate turning much of that area into a center for apparel and electronics assembly, pointing out that Panama derives only 9% of its gross national product from manufacturing, and that the country's apparel sector is by far the smallest of any of Central America's six Spanish-speaking republics. One reason manufacturing is so small is Panama's relatively high wages and its generous labor code, which legislators -- under pressure from the business community -- are now in the process of revising.

Panama is already home to the Colón Free Zone, the largest of its kind in the Western Hemisphere, where more than 1,600 companies have facilities for the importing, storing, assembling and re-exporting of goods. Founded in 1952, the free zone consists of streets and avenues laid out in a net grid and surrounded by a high wall. Within its boundaries, Arab, Jewish, Hindu, Chinese and European businessmen display a variety of expensive merchandise from all over the world.

During the first 10 months of 1994, overall trade at the zone reached $8.848 billion, an 11.5% jump over the same period in 1993. Imports totaled $4.2 billion, up 11.9%, while re-exports of designer clothing, electronics, liquor and other luxury goods from the Far East to Central and South America came to $4.7 billion, up 11.7%.

That's a record high, though many here worry that with the advent of a proposed Free Trade Area of the Americas by 2005, the zone's attractiveness as a duty-free mecca will be diminished. Meanwhile, the U.S. Embassy estimates that the 8,000 troops now in Panama -- down from 10,000 a few years ago -- pump $350 million into the local economy each year.

"These troops spend $20 million a year just on liquor and cigarettes," said Bob Baker, a local businessmen who sells luxury items to U.S. military personnel and their families. "When you consider the trickle-down effect, over 30,000 civilians will be out of jobs when they leave."

That number is impossible to verify, but it's no secret that Panamanians are clearly worried. A recent poll commissioned by a leading newspaper, La Prensa, showed that over 80% of those questioned would like the Americans to stay on well into the 21st century.

With the return of the Panama Canal looming only four years away, Panamanian President Ernesto Pérez Balladares is hoping these so-called "reverted areas" will pump badly needed cash into his country's coffers.

Part of the former Canal Zone has already been given back to Panama, although the bulk of the estimated 4,850 buildings and military bases won't revert back until the latter half of the 1990s. Late last year, the Washington consulting firm National-Intercarib Associates was selected to carry out a $4.5 million feasibility study on developing the reverted areas.

Meanwhile, the governments of Panama and Taiwan are studying the creation of a joint-venture industrial park in just-returned Fort Davis, in which Panamanians would provide 100 hectares of land and the Taiwanese the capital. Tax and financial incentives are already offered to foreign and local investors to encourage them to invest in manufacturing, export-oriented ventures and tourist facilities. These benefits are usually provided through a contract negotiated between the company concerned and the Ministry of Commerce and Industry. All entities receiving these benefits must pay a special 3% tax on the total taxes and fiscal charges exempted.

To qualify for the incentives, a firm must produce finished products from the processing or assembly of raw materials and semi-processed goods. Benefits may last for 15 years for companies producing for export or local consumption, and up to 20 years for companies willing to set up factories in specific areas.

Yet Fred Denton, executive director of the American Chamber of Commerce and Industry of Panama, questions whether apparel will ever become an important part of Panama's export sector.

"I doubt if they'll do much in apparel manufacturing, because labor is too expensive and not as productive," he said. "We had a Taiwanese company, Green Bay, here with 1,500 people, and they left last year because they couldn't stay in business anymore. They gradually distributed their operations to the Dominican Republic and Honduras, and some business even went back to the States."

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