WORLD TRADE
ORGANIZATIONG/SCM/N/99/PAN
3 July 2003
(03-3567)
Committee on Subsidies and Countervailing Measures Original:  Spanish
SUBSIDIES
Updating Notification Pursuant to Paragraph 1(d) of the
Procedures for Extensions Under Article 27.4 for
Certain Developing Country Members
PANAMA
The following communication, dated 30 June 2003, has been received from the Permanent
Mission of Panama.
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SUBSIDIES
The Republic of Panama is submitting the following notification pursuant to paragraph 1(d)
and paragraphs 3 and 4 of the Procedures (G/SCM/39) for extensions under Article 27.4 for certain
developing country members, the Decisions of 22 November on Export Processing Zones
(G/SCM/85) and the Official Industry Register  (G/SCM/84) and the Decision of 13 December 2002
relating to the Tax Credit Certificate (G/SCM/100).
Introduction
In accordance with its rights and obligations under the procedures for extending programmes
that comprise subsidies characterized as prohibited under Article 3.1 of the Agreement on Subsidies
and Countervailing Measures (SCM) of the World Trade Organization (WTO), the Republic ofPanama is submitting for the Committee's cons ideration the following communication for the
purposes of its review of programmes with extensions of the transition period.
Panama confirms that its programmes subject to extension comply with the requirements of
standstill, favourability and transparency under the procedures for extensions (G/SCM/39) in thatnone of these programmes has been modified so as to make it more favourable than it was at
1 September 2001.
It also confirms that the CAT programme, with  extension pursuant to Article 27.4 of the SCM
Agreement of the transition period under Article 27.2 (b) of the same Agreement, has not been
modified so as to make it more favourable, including in respect of its scope, coverage and intensity of
benefits, during the period of extension.
Various elements for assessing the operation of these programmes can be found in the new
and full notification submitted to the Committee by Panama (G/SCM/N/95/PAN) and in this
communication.G/SCM/N/99/PAN
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I. TAX CREDIT CERTIFICATES (CAT)
The beneficiaries of the CAT are enterprises that generate approximately 5,000 permanent
jobs, have invested approximately $32 million duri ng the last three years (mainly in purchasing
equipment and in infrastructure improvements) and are increasing production by on average 5.3 per
cent per year, with an export coefficient of 75.2 per cent of total sales.
Since being granted an extension of the transition period for the CAT, the Republic of
Panama has taken a number of steps to define options for making these incentives compatible with the
multilateral provisions on export subsidies.  In this connection, it has been principally engaged in
identifying systems of incentives for domestic production and the development of the export range
that fulfil two basic purposes:  (1) constitute a genuine and effective tool for promoting the efficient
expansion of the country's productive and hence export capacity and (2) fit within the agreedparameters of the multilateral provisions binding upon Panama.
These initiatives began in August 2001 when the Deputy Minister of Foreign Trade of the
Ministry of Trade and Industry, with the support of the Inter-American Development Bank (IDB) and
the Pre-investment Fund of the Ministry of the Economy and Finance of the Republic of Panamacommissioned, through a firm of consultants, a study on the "Reformulation of the Incentives for
Production for Export".
Following the completion of the necessary bidding procedures, the implementation of the
project began toward the end of 2002, once the contract had been endorsed by the Auditor General ofthe Republic.  The purpose of this study is to identify the structural difficulties faced by the
beneficiaries of the programme in both the production and export phases.  Moreover, special attention
is being paid to the role of the incentives in solvin g the problems identified.  The third aspect is the
assessment of alternatives that would make the ince ntive more compatible with Panama's multilateral
commitments relating to export subsidies.
The development of this study and the results it produces will constitute a valuable tool for
seeking feasible alternatives that take into account the aspirations of the beneficiaries of the
programme in the private sector and the commitments undertaken by Panama, given the complexity of
the reform process.
At the same time, the CAT programme has remained in force and at the end of 2002 a total of
$23.8 million, representing the total value of the resolutions issued, had been granted.  The products
that have benefited include: marine products, cleaning products, medicines, cosmetics, apparel etc.
The number of enterprises benefiting under the programme amounted to 138 in 2001 and 126 in 2002.
It was necessary to enact legislation to continue the programme, which was accomplished
with the publication of Law No. 62 of 26 December 2002, the text of which was attached to Panama's
new and full notification (G/SCM/N/95/PAN).
II. OFFICIAL INDUSTRY REGISTER
This programme has been an essential tool for achieving the country's growth and economic
development objectives.  It is contributing to overall development by generating jobs and foreign
exchange and to the country's integration into the global economy through the promotion of exports of
goods and services.  The domestic industry benefiting from this programme generates 40,000 jobs and
approximately 9 per cent of GDP.
Currently, in order to adapt this programme to the terms and conditions of the Committee's
Decision of 22 November 2002 on "Official I ndustry Register", document G/SCM/84, theG/SCM/N/99/PAN
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Panamanian authorities are assessing various alternative programmes for encouraging and developing
manufacturing industry.
These alternatives are oriented, in particular, toward encouraging the growth and sustainable
development of Panamanian manufacturing industry through the implementation of benefits aimed atpromoting investment and improving the competitiveness of domestic production with emphasis on
the need for compatibility with the inte rnational commitments on export subsidies.
The Government of Panama is taking the necessa ry measures to limit, in time, the benefits
listed in section III.8 of the notification in accordance with SCM Decision of 22 November on the
"Official Industry Register".  The Ministry of Trade and Industry has issued Resolution No. 32 of
31 December 2002
1 with a view to fulfilling these commitments.
III. EXPORT PROCESSING ZONES (EPZ)
Export Processing Zones are free and free-enterprise zones sited in a specifically defined area
reserved for enterprises engaged in producing goods and services for export.  These zones serve to
promote both investment and production.
Following the granting of an extension of the transition period applicable to this programme
(G/SCM/85), the Republic of Panama is developi ng a preliminary draft Law amending certain
Articles of Law No. 25 of 1992 (Law on Processing  Zones) with a view to making the programme
compatible with the multilateral requirements applicable to export subsidies.
According to the figures of the Auditor General of the Republic, the enterprises established in
EPZ exported a total of $52.1 million in 2001.  Further details may be found in Panama's new and full
notification submitted to the Committee in accordance with the Decision adopted at its special
meeting on 31 May 2001.
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1 Official Gazette No. 24.798 of 12 May 2003.  The text of Resolution No. 32 is attached to the new
and full notification (G/SCM/N/95/PAN).