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Business & Economy Briefs

WTO review questions subsidies, warns of canal expansion risks

by Eric Jackson

For the first time since Panama joined the World Trade Organization (WTO), the institution's secretariat has reviewed this country's economy, trade policies and compliance with the rules to which it agreed. The review, whose supporting documents can be found on the WTO's website, concluded that "Panama maintains an essentially liberal trade and investment regime, characterized by relatively low tariffs and few non-tariff barriers, which is in consonance with the vital role that trade plays in Panama’s economy."

It was not, however, a completely positive review from the WTO's free trading perspective.

"Panama's fiscal position," the review concluded, "has improved as a result of fiscal reforms and increased canal revenue, but it requires further consolidation, especially in view of the heavy financial commitments that the expansion of the canal would bring about. The public debt to GDP ratio has declined but remains relatively high."

Various tax incentives and other subsidies were questioned. The review noted that:

Panama maintains numerous incentive schemes, in addition to export subsidies, that target micro and small businesses, research and development projects, as well as specific sectors such as agriculture, forestry, mining, and tourism. By and large, such schemes seek to assist the production of goods by granting tariff or other tax concessions. There are no estimates of the net benefits to the economy of these incentives. A reassessment of the nature and number of such schemes with a view to their possible rationalization could contribute to greater transparency and efficiency in their use; it might also permit the redeployment of fiscal resources towards areas such as education and infrastructure.

The WTO also commented on low agricultural and industrial productivity, in contrast with a much more competitive services sector.

There were, however, some criticisms of and warnings about the services sector, including the most important service enterprise of them all, the Panama Canal.

Panama's exclusion of foreigners from practicing most of the learned professions and the relative international isolation of Panamanian universities were noted. So were insurance regulations that ban foreign insurance companies from underwriting risks that happen entirely in Panama.

About the canal expansion, the WTO concluded that:

Although it is hoped to obtain considerable benefits from the canal's enlargement, there are also some risks because of the possibility that the costs and time-limits for implementing the project may not be respected. The ACP identified some of these risks and their possible causes: for example, in the case of delays, which are considered to be the principal risk, it is indicated that these could be caused by problems relating to the contractors or the labor force, as well as logistical problems. The ACP also recruited the services of an international consultant to identify the risks and make recommendations on how to avoid or manage them. In this connection, the company AON Enterprise Management identified as the major risk the organizational structure of the ACP, which might lead to inefficiency in enlarging the canal.

To read the entire World Trade Organization report on Panama and its economy, including the Panamanian government's presentation to the body, go to http://www.wto.int/english/tratop_e/tpr_e/tp287_e.htm

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Business & Economy Briefs