We have reviewed the principal sections of the US International Trade Commission analysis of the impacts of the proposed Trade Promotion Agreement.  We looked at the sections that deal with Financial Services, Investment, Professional Services and to a lesser extent, Intellectual Property Rights.  Our focus was to get a feel for the potential impact to our client base and target market – exPats in the hospitality and real estate related businesses.

Our thanks to Don Winner and The Panama-guide.com for providing the link to the original document.  While the US approval of the TPA is currently in question because of a Panamanian political controversy that we don’t understand, the real impact is not going to be on extranjeros living and trying to work in Panamá.  The real impact is for the people of Panamá who may want to purchase US-made goods.

Nearly everything Panamanian that goes north (some $337 million in 2006) enters the US without any import duties.  Nearly everything that comes south (over $2.5 Billion in 2006 – over half in mineral fuels, machinery and equipment) is taxed with a variety of import duties ranging from insignificant to significant. Automobiles, for example are taxed at a range from 3 to 20 percent, but pickup trucks and other special use vehicles are subject to a flat tax of 10%.

• According to the Contraloría General de la República de Panamá, the estimated population in 2006 was 3.284 million, of which 1.292 million are 19 years or under and 252,000 are over the age of 60 – both groups making up a combined 47.1 % of the population with little or no economic buying power.  
• The employment statistics for 2006, the latest numbers available, indicates that a total of 1.295 million Panamanians are ‘employed’ including 315,000 part time workers.  Of those employed, the government employs 190,145; private enterprise 532,800 (of which 56,000 are part time and 62,400 considered ‘invisible under-employed’ workers); another 375,000 are working for themselves (nearly half part-time); 27,000 are working in family businesses; and just under 40,000 are listed as owners of their own business.

Note:  For comparative purposes remember that the USA economy is larger than the next four combined (Japan, Germany, China, UK).  The CIA World Fact books for 2007 ranks Panamá GDP 87^th in the world at $16.2 billion.  For the curious, you might want to check out the Strange Maps site for a comparison of your home state’s world-market equivalent economy and you’ll probably be surprised.

Yes, some American exporters could gain a small niche in a small market.  The Panama market is currently the 102^nd import source to the USA.   The USA on the other hand is the largest Panamanian market, although the Trade Commission only relates the US trade with Panama in world-wide terms, and Panama is the 45^th largest market for US exporters.

Of interest to US-citizen extranjeros is the potential to reduce the import taxes on some of the food items we like.  Pensionados or those in tax-favored businesses, like tourism, can already import cars and machinery and equipment import-duty free, but you still have the ubiquitous ITBMS of 5% which you have to pay.

Chapter 3 of the Report deals with the impact of market access for services, essentially financial services, excluding insurance.  Again, the expected value to the US market (the focus of the Commission) is to point out the small potential market.   The Commission concludes that new cross-border exports of financial services or new US investment in the Panamanian financial services market would be limited.  So don’t expect to find easy consumer loans or mortgages on your property.

However, the professional services provisions of the TPA would likely increase market access and national treatment for foreign born professional services providers (like doctors, lawyers, accountants, and engineers) who currently are prohibited from practicing their professions.  Some opportunities currently exist for CPAs if the state licensing board of the professional offers reciprocity to Panamanian professionals.  Most Panamanians don’t meet the educational or testing requirements of the US licensee and therefore can’t qualify for a reciprocal certification.  The solution for US professionals is to associate with local licensed practitioners.   The report suggests that ‘over time’ mutual recognition agreements could be reached such as currently exist for engineers. There is a provision pending for foreign accountants to apply for a special permit to perform non-attest (audit) functions with a range of restrictions – only partially opening the door to extranjeros.

Of particular interest to us in accounting and financial reporting was the comparison of the numbers of CPAs.  In the USA there are over 335,000 CPAs.  In Panama there are fewer than 700 CPAs among 5,000 accountants and only 100 accounting firms. 

In Chapter 5, the Report reviews impact of the TPA on intellectual property rights.  They state that the standards in the TPA, if fully implemented and enforced, may reduce IPR infringement in Panama.  This could benefit the US motion picture, sound recording, business software, entertainment software, and book publishing industries.  US industries that might benefit from patent and confidential data protections include pharmaceuticals and agricultural chemicals.

But we doubt that the local economy will stop duplicating CDs and selling them on street corners for a fraction of the ‘original’ cost.  It may make it easier for companies like Microsoft, to continue their occasional visits to the internet café’s that proliferate in the capital city and demand that they either pay for the license or remove the software from their many pcs.

However, if the US software industry truly believed that their copyrights would be honored, Panamá might be able to divert some of the business currently moving to Costa Rica.  But it would have to be coupled with a substantial increase in the perceived value of the university education that is offered here in Panamá.  Ask any Costa Rican about the impact of having Intel build its Central American operations there and they’ll proudly tell you about their average salary increases and the spill-over effect on other professional wages. 

Nowhere in the TPA are educational institutions even mentioned.  So that very important export – the best and brightest Panamanian youth -- will probably continue to seek their advanced educations in the USA or Europe.

The bottom line?  In our opinion, there is not much impact on extranjeros living and trying to work in Panamá.  There should be a huge potential impact on anyone living here who may want to buy expensive US-made goods or services and who doesn’t already enjoy some tax-advantaged exemption.