In 1999, tariffs were reduced on most agricultural and industrial goods to a rate averaging 12%. The maximum tariff is 15%. However, the new government elected in September of 1999 raised the tariffs on agricultural products to the maximum allowable under WTO rules. There is also a 5% value-added tax (VAT) on imports.
Panama has a free port in the Colón Free Trade Zone, the world's second largest free trade zone, where foreign goods enter without going through customs. Goods may be stored, assembled, processed, or repackaged for sale or shipment to another country free of duty. Panama is a part of the Caribbean Basin Initiative and has bilateral preferential trade agreements with Costa Rica, El Salvador, Honduras, Guatemala, Nicaragua, and the Dominican Republic. The country also has special arrangements with Mexico, Colombia, and Chile.