Because of the Panama Canal, the country's economy is heavily reliant on international trade. The entry of Panama into the WTO opened new trade opportunities. Panama now has the lowest tariff rates in Latin America. Despite these expansions, the United States remains the nation's main trade partner. In 1998, the United States provided 40 percent of the nation's imports and exports. Other major export partners are Sweden, Costa Rica, Spain, the Benelux nations (Belgium, the Netherlands, and Luxembourg) and Honduras. Besides the United States, Panama's main import partners are Japan and other nations in Central America.
As a result of entry into the WTO, the government lowered tariffs on imported goods to a maximum of 15 percent. The average tariff on goods is now 12 percent which is the lowest in the region. The higher tariff rates are maintained on agricultural products in an effort to protect the nation's farmers from foreign competition. However, negotiations continue under WTO auspices to lower the agricultural tariffs. Panama and the United States are engaged in a longstanding dispute with the EU over banana imports. The EU places high tariffs on imported bananas and the United States has led an effort to force the EU to lower these trade impediments.
Improvements and renovations in the Canal Zone and the CFTZ have expanded capacity. The nation's container handling capacity has been expanded from 250,000 containers per year in 1997 to 1 million per year in 2000. An American firm, Kansas City Southern, is building a
|Trade (expressed in billions of US$): Panama|
|SOURCE: International Monetary Fund. International Financial Statistics Yearbook 1999.|
railway across the isthmus that will further expand trade by allowing shipment of goods between the coasts.
In addition to the WTO, Panama has a variety of agreements that regulate its trade. Panama also has a variety of agreements with individual countries; among the most significant are those with the United States, the United Kingdom, France, Germany, Switzerland, and Taiwan. It also has preferential trade agreements with most of the nations of Latin America. In 2000, it signed an accord with Mexico to ultimately allow complete freedom of trade. Panama has also sought to negotiate agreements with nations to establish country-specific free trade zones. The first of these was signed in 2000 and grants Taiwan an area of the former military base at Fort Davis. It has also entered into negotiations to join the Andean Pact and the Central American Market.
In 1998, direct foreign investment in Panama totaled $3.76 billion and was responsible for 13.2 percent of the nation's GDP. The United States was the largest investor with 40 percent of all investments ($1.5 billion). The United Kingdom ranked second with 23 percent of investments ($880 million), Mexico was third with 19 percent ($700 million), and Taiwan fourth with 8 percent ($300 million). Transportation and maritime services accounted for 33 percent of investment ($1.29 billion), services 31 percent ($1.15 billion), manufacturing 11 percent ($400 million), and real estate 11 percent ($400 million).