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Panama hopes EPZs mimic maquiladoras' export success
Journal of Commerce / October 16, 1998

By Larry Luxner

WASHINGTON -- When people talk about free zones in Panama, they usually mean the Colon Free Zone -- a heavily guarded, merchandise-packed "city within a city" that last year imported and re-exported $10.6 billion worth of electronics, clothing, liquor and other luxury goods.

But now, Panamanian officials are trying to promote a different kind of zone: Export Processing Zones, or EPZs. These sprawling industrial parks -- housed in former U.S. military buildings now being turned over to the Panamanian government -- hope to copy the success of Mexico's so-called maquiladoras.

Speaking Wednesday to 100 potential investors at a conference in Washington, Nicolas Ardito-Barletta, administrator of Panama's Interoceanic Regional Authority, outlinted his government's plans to boost the relative importance of manufacturing in Panama's service-oriented economy.

"The Dominican Republic, Costa Rica, Honduras and Jamaica have been quite successful over the last 15 years with EPZs. We are starting to do that, too," said Mr. Ardito-Barletta. "As the Panama Canal areas revert to Panamanian control, we have the chance to transform this country and its economy. But we cannot do it without the strong support of the international business and financial communities who, I believe, will immediately recognize the remarkable possibilities involved."

At present, only one EPZ is actually in operation. The Davis Export Processing Zone -- established in May 1996 at the former U.S. Davis military base near the Atlantic entrance to the Panama Canal -- is a joint venture between the Panamanian government and the Overseas International Development Corp., a quasi-public enterprise 45% owned by the Taiwanese government. Toyotachi Motor, Yih Hsin Plastic and other Taiwanese companies operate at the EPZ, where their female workers -- earning the minimum $1.25 an hour -- produce glassware, blue jeans, umbrellas, auto parts and cigarette lighters for the Latin American market.

Right now, the zone has 600 workers, but the arrival of five new Taiwanese companies should generate an additional 900 jobs. Likewise, cumulative investment in the EPZ will rise from the current $25 million to $40 million.

Interestingly, Great Wall -- a company based in China -- plans to build its EPZ within walking distance of Taiwan's industrial park.

"Great Wall is committed to invest up to $100 million," says Mr. Ardito-Barletta. "We are ready to sign the deal. All the negotiations are finished."

Mr. Ardito-Barletta, who says Great Wall will employ up to 5,000 workers in the production of trucking equipment and light industrial products for the Latin market, says that although Beijing has complained about Panama's two-China policy, his government doesn't have see anything wrong with it.

"Panama has diplomatic relations with Taiwan, and that remains," he said. "We also have business and commercial relations with mainland China, and that remains too. They both understand the situation."

While Mr. Ardito-Barletta concedes that manufacturing investment "has been a little slower than investment in maritime or commercial activities," things will pick up as soon as negotiations for three other EPZs are concluded.

At the former Albrook military base, a Panamanian-American joint venture will produce noise-control equipment; also in the works is an international call center. In Cardenas, next to Fort Clayton, another EPZ is planned by the Korean Merchandising Center. An initial $10 million is being invested in infrastructure at the 25-hectare site, which hopes to have 2,500 employees. Another U.S. group plans to build an EPZ at Coco Solo.

"Labor costs are high, but productivity is better than other Central American countries. We'll compete on location, productivity and services. The best example of this are the employees of the Manzanillo International Terminal," said Mr. Ardito-Barletta. "We offer the opportunity of doing business along the canal, bringing together the synergies between the ports, the Colon Free Zone trading companies, the banking centers and the EPZs."

Alvaro Aguilar, a Panama City attorney attending the conference, said EPZs could also offer data-processing and database maintenance services under a draft law now being prepared by Panama's Ministry of Foreign Affairs.

"It's not just apparel and sweatshops. Under this law, they'll get all the same incentives and benefits as if they were doing apparel," he said, noting that "now with Y2K problems, they're hiring tons of programmers from India. Our idea is that Panama can do that, too."

Panama is already home to the Colon Free Zone, the largest merchandise distribution center of its kind in Latin America, and the second-largest in the world after Hong Kong. The free zone, founded 50 years ago, imported $5.3 billion and re-exported $6.2 billion worth of goods in 1997. The 1,070-acre entity, known in Spanish as "an island of wealth surrounded by a sea of poverty," is home to 1,600 businesses and attracts 300,000 visitors a year.

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